HC Deb 17 November 1977 vol 939 cc776-904

Order for Second Reading read.

3.57 p.m.

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

I beg to move, That the Bill be now read a Second time.

The important factor that we have seen over the past few months has been the huge increase in confidence in the United Kingdom. On looking at the events of the past few months we can see the astonishing and unparalleled change that has taken place in the financial outlook for our country.

In October last year we had a MLR of 15 per cent., but today it stands at 5 per cent., the lowest, I remind the House, since 1972. We have a falling rate of inflation. It is 13 per cent. for this quarter, and it is continuing to fall. The price of materials and fuels today is lower than in January of this year and, as we all know, we have official reserves of the unparalleled sum of 20 billion dollars. The balance of payments—we normally associate a Labour Government with putting right the balance of payments—is expected this year to be a surplus of more than £250 million, as opposed to the deficit of £1,405 million last year.

At the Lord Mayor's banquet on Monday the Prime Minister referred to the transformation that had taken place and drew attention to the two extreme views that were held last year and until fairly recently. He contrasted the excessive gloom of last year gloom clearly in excess of the situation as it then was, with the almost dangerous position a month or two back when, as he put it, the joybells were ringing rather too loudly. There is a need for a balance in the assessment of our position as we come to this further aspect of the change of our financial fortunes, as illustrated by this Finance Bill.

Of course, we know that we have brought about some fundamental improvements in our financial position. The task now is to translate those improvements to the more general economic sphere by means of the control of pay increases so that, as the water level of inflation falls, the dam of pay rises is preserved, at least in some respects, through the responsibility of those who are implementing these matters. It is important to ensure that, as time passes and people see the level of inflation falls, pay increases take account of the changes in price levels that we have seen and will continue to see.

Mr. Dennis Skinner (Bolsover)

Did I hear my right hon. Friend correctly? Did he say that the pay policy must be preserved "in some respects"? If he did, can I assume that what he and the Treasury have in mind is that there will be some relaxation in some direction for some people? Notwithstanding those who have already managed to break the 10 per cent. dam to which he referred, will there be something for some other people? Perhaps he could name a few—such as, say, firemen?

Mr. Sheldon

The levels of inflation are related very closely to the levels of pay increases. If the level of earnings increases over the next few months can be maintained at no more than 10 per cent. we can have a level of inflation that will not only fall but continue to fall. That is the important element of our future policy. As the level of inflation falls, so it allows for the increase in employment opportunities which lies at the very heart of what we shall have to consider in our economic policy as one of the major aspects of our future changes in that direction.

As regards industrial improvements, we know that they will have the advantage of reducing costs, which I mentioned earlier, and we hope that the forecasts for investment will be borne out and will lead to the industrial improvement which will eventually show in the levels of employment and of industrial activity.

But part of the transformation that we have seen in our financial situation has taken place against the background of a weakness in world economic activity. The important aspect of this is that in 1973 the large increase in oil prices showed all of us—regrettably—the instability of the world economic order, when we had operated so very largely on the assumption that when they acted together Governments were always able to dominate and control events.

That price rise set off a chain reaction which showed that those happy assumptions which we had made over so many years had an insecure basis. Now we can see the limitations of that optimism. We see, further, the need to encourage those countries which are able to expand, because of their advantages in matters of inflation and exports, to make use of their financial and economic advantages and undertake responsibility such as was undertaken by the United States in not dissimilar circumstances in the late forties and early fifties.

But as for the recovery of world trade in manufactured goods, the world position is not strong at all. In 1975 there was a reduction in world trade in manufactures of 4 per cent. That was attributable to the oil price rise. In 1976 world trade increased by 9½ per cent. In the first half of this year we have seen the level of world trade increasing at an annual rate of only 4 per cent.—half the expected trend to which we were looking forward.

We see not only the halting of the increase in world trade but its diminution. This has led to the call by a number of countries for those with industrial and economic advantages to play their part in improving the prospects for world trade expansion. I believe that it is right that we should play our own modest part—it is bound to be modest—in providing some encouragement to world trade expansion. The Government's policy is to accept that we can provide for some expansion of manufacturing industry of a kind that we can maintain. This is the essential part of our programme for expansion.

Investment in machinery and plant requires the confidence of those investing that the goods produced can be sold. Other factors, such as the level of interest rates and the availability of funds, of course play their part. But fundamentally investment will not take place unless those concerned are convinced that the goods manufactured will not be surplus goods but will be sold.

The strategy of which this Bill forms a part is that of a steady and sustained recovery in production, improvement of living standards and increase in employment opportunity. Within that total strategy, which continues, there is scope for these measures, costing about £1 billion in the current year. Under the provisions of the Bill, this sum will be spent on raising tax allowances, the advantage of which is that the effect will be early. There will be money in people's pockets. If this action had not been taken, a further 900,000 people would have become liable to tax.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

If this is an expansionary measure, why has the Chancellor taken up only £1 billion of the extra £2 billion available to him through the overestimation of income tax, because the borrowing requirement is forecast to be £2 billion less than expected in April? Surely it is a contractionary measure.

Mr. Sheldon

The hon. Gentleman will know that we shall have a Budget next spring. He may have some of his answers then. But for the present we have seen the opportunity for a modest level of expansion. Following this, we shall naturally be keeping a close look on developments to see how industry has reacted to these changes.

Mr. Ridley

The right hon. Gentleman said that this was an expansionary action designed to create greater industrial activity. He now says that I must wait until April to find out whether we get it then. Surely he should recant on his earlier statement and admit that this is a contractionary action.

Mr. Sheldon

In the past the hon. Gentleman frequently objected to what he called "fine-tuning". To tune as finely as that would hardly commend him to many of his hon. Friends on the Conservative Front Bench. These broad moves are the right kind of moves to take, and they are within what we feel sure we can afford. The position allows us to move further. The hon. Gentleman will see the solution in the Budget next year.

The decision to adjust the 1977–78 tax liabilities, announced in the autumn package, came on top of a year of exceptionally disrupted work patterns for the Inland Revenue. It has brought to a head certain feelings of frustration among the staff. We have had meetings and discussions with the Inland Revenue Staff Federation to find ways of easing the problem. Following these, there were a number of well-attended consultative meetings within the federation. I am pleased to see that, despite the deep feelings of those concerned, the Inland Revenue is now able to go ahead with the recoding.

Where coding adjustments are not involved, our hope is that the great majority will receive their refunds on, or close to, the date in the timetable originally proposed, with repayments beginning after 23rd November. Most of the remainder will have their adjustments before Christmas. Most of the weekly-paid coded cases will be dealt with before Christmas, but there may be a minority of those paid monthly who cannot be given their repayments before then. Taking into account the problems posed for all concerned, it is encouraging that a group of civil servants, sufficiently aggrieved to attend their union meetings in large numbers and at short notice, felt that, on balance, they were able to live with the situation.

We hope that most of the repayments will be made within the timetable that has been put to the House. The repayments will be about £20 for a single person and £35 for a married couple. After that there will be a 65p a week reduction for a single person and £1.05p for a married couple.

All the changes will, of course, maintain the real value of personal allowances and create a gap between them and the main social security benefits. I hope that it will be possible to go further in 1978–79 if the economic position allows. I think that it will be necessary to go further if the harmful effects of the poverty trap are to be reduced for so many people at the threshold level.

There are, of course, two causes of the poverty trap. First, there is the overlap between taxation and benefits. As taxation thresholds have risen in the past by less than the retail price index and as benefits have increased more than the retail price index, overlap has occurred. However, we hope that this instalment is an indication of the way in which we intend to move.

Mr. Nigel Lawson (Blaby)


Mr. Sheldon

Perhaps I may just give the second cause of the poverty trap. The high initial tax rate of 34 per cent. together with the benefits rules means that net incomes tend to fall off as the gross incomes of the lower paid rise.

Mr. Lawson

Will the Financial Secretary confirm that what he is saying to the House is not just that he expects to be able to go further in the next Budget in raising allowances in monetary terms but that he expects to go further in raising them in real terms?

Mr. Sheldon

Certainly that is our hope. However, we shall obviously have to wait upon events. Nobody has viewed with pleasure the reduction in real terms of personal allowances. The reduction has not only produced an excessive taxation of those who ought not to have been brought into tax but has created problems for the administration of the revenue.

Mr. Peter Bottomley (Woolwich, West)

May I ask how it is possible to talk about reducing the poverty trap, which, in the main, affects people with children, without also talking about raising the value of child benefit and child tax allowance?

Mr. Sheldon

That is obviously part of the whole story, but not the part that is being discussed here. We are talking about tax allowances, but that does not mean the ending of the poverty trap. A number of measures are required to do that. However, we are reducing the extent of the poverty trap in the two ways that I suggested.

We are correcting some of the anomalies. The tax paid by the average man, as it reduces in real terms, will lessen the effect of the poverty trap. It is certainly our hope that we shall continue on that course.

Mr. Patrick Jenkin (Wanstead and Woodford)

Is not my hon. Friend the Member for Woolwich, West (Mr. Bottomley) absolutely right? The figures that have repeatedly been published by Ministers show that the effect of the poverty trap is at its worst, and the overlap of benefit and taxation is at its worst, for families with children, yet this Bill does nothing to help such families. Therefore, the Minister is entirely missing the point when he says that that has nothing to do with the poverty trap.

Mr. Sheldon

The right hon. Gentleman will know that we are not discussing child benefits and the way in which they can be used. [Interruption.] The right hon. Gentleman wants to talk about child benefits in the Finance Bill and the way in which they will be changed. I must ask him to conceal his impatience more effectively and wait until those occasions when the increases in child benefits are announced.

Mr. Peter Bottomley


Mr. Sheldon

I have given way considerably. I hope that the hon. Gentleman will forgive me if I do not give way to him.

I wish to say something about the tax paid and the benefits for the average man. I do not believe that the position is generally understood, because of the various muddled exchanges that we have recently seen. If one takes into account income tax, the national insurance contribution. with family allowances and child benefits and the changes that have taken place between these two and applies them to the married man on average earnings with two children under 11, one sees that in real terms, in 1977–78 prices, the position in 1973–74 was that he paid £902 whereas in 1977–78 he is paying £904. This is what has been happening unbeknown, it would seem, to very many hon. Members.

Mr. Ridley

Those are highly misleading and bogus statistics. Is the Financial Secretary not aware that average earnings are 9 per cent. lower in real terms? Therefore, he is admitting that the average man is paying exactly the same amount of tax on very much lower earnings, which means that taxation is much more onerous.

Mr. Sheldon

I accept that fully, and I have never sought to conceal the decline, but some of the very misleading statements that have been made ought to be corrected, and I was attempting to do that.

Mrs. Barbara Castle (Blackburn)

Is my right hon. Friend aware that I believe he is perfectly correct in taking child benefit into account in these calculations, because child benefit is an amalgam of child lax allowances forgone and cash allowances being brought into play? But, that being so, how can he say, as he did earlier, that child benefit has nothing to do with the fiscal policy of this Bill?

Mr. Sheldon

My right hon. Friend perhaps did not understand what I was seeking to explain, and perhaps I did not make it entirely clear. But, of course, it has to do with the total received and paid by any citizen with children.

Mrs. Castle

This is fiscal policy.

Mr. Sheldon

That is absolutely right, but the level of child benefits, because of the conventions under which we operate, is treated as public expenditure, and this will be available for debate.

When the hon. Member for Blaby (Mr. Lawson) was a Whip, he spoke vociferously—I see that his transfer to a different position has not altered that—but I should explain to him that, whereas in the past child tax allowances were clearly part of fiscal policy, because it deals largely with tax allowances, in moving over to child benefits there is a problem because child benefits are seen within the context of public expenditure as a whole.

I confess that this is not wholly satisfactory, and there are many unsatisfactory aspects, but that is the present position, and to move in the direction that my right hon. Friend the Member for Blackburn (Mrs. Castle) and many others might wish would bring about certain changes that we have not been ready and able to make at this stage— [Interruption.] I note the assurances of the right hon. Member for Wanstead and Woodford (Mr. Jenkin). He has given a number of assurances of a different kind concerning what he intends to do about transfer payments, and we have noted that with great interest, too. When his consultations are fully effected, we look forward to hearing how he intends to reduce all these public expenditures and bring about the happy state of affairs that he assures us will happen.

I turn now to pensioners and widows. One of our main tasks—and this has been evident in the sacrifices that have been made in so many areas to provide the money for pensioners and widows—has been to preserve their living standards. The increase in age allowances in the spring and summer legislation, as well as the increases in this Bill and the exemption from tax of the pension increase from November, means that earnings or income before any tax liability can be up to £455 for a single person and £701 for a married couple.

These changes that we are bringing about in raising the threshold mean that there will be a benefit to 2½ million pensioners who will be paying tax. For widows and women pensioners under 65 the single tax allowance of £945 is now £100 more, and more than the taxable standard pension. Under the original Budget proposals the personal allowance was just below the taxable pension level, although the tolerances ensured that no pensioners with pension as their only source of income were liable to taxation. There has thus been a fundamental improvement in their position.

I believe that it is desirable to adjust the balance between direct and indirect taxation, and this is only the first move in that direction. Under successive Governments there has been an increase in direct taxation.

Mr. Peter Tapsell (Horncastle)

Not successive Governments.

Mr. Sheldon

The hon. Gentleman may say that, but I shall be presenting figures in a moment, and if he wishes to challenge them, I shall be pleased to listen to him.

With direct taxation, if nothing is done people come into tax, and they come into tax frequently and at a higher rate. That is quite apart from increases in the rate of income tax by itself. This is the mechanism by which more people come into tax, and more come into tax at the higher rate. That is due to the progressive nature of the tax system.

Under indirect taxation, if one does nothing revenue falls, apart from value added tax. To maintain the level of indirect taxation in real terms, we have to get legislation through the House of Commons. That has proved difficult not only this year but in previous years, too. The failure to revalorise has brought about some fundamental changes in the shift from indirect to direct taxation. We know the problems that we had this year on hydrocardon oil, but let me say something about one or two of the other duties.

In order to bring the taxation on beer, for example, to the same level as it was in 1968, there would need to be an increase in the duty of 31.6 per cent. To bring spirits to the same level in real terms as in November 1968 there would have to be an increase of about 70 per cent. To bring the tobacco duty to the real level of November 1968 there would need to be an increase of 36.2 per cent. Thus, the failure to revalorise indirect taxation has on its own contributed to the move towards higher direct taxes and lower indirect taxes. That is purely the mechanism of inflation and the result of not taking steps to counter that movement.

Mr. Lawson

The Financial Secretary has made a strong argument for indexation, which some of us in the Opposition are always advocating and to which the right hon. Gentleman is opposed. But I cannot let him get away with charging that under successive Governments income tax has increased. Is not the right hon. Gentleman aware that under the previous Conservative Government the basic rate of income tax was reduced from the equivalent of 32 per cent. to 30 per cent., and that under the present Government the basic rate of income tax has gone up from 30 per cent. to 34 per cent.?

Mr. Sheldon

I note the hon. Gentleman trying to claim praise for what his Government did, but he will recall that the result of that move was to increase the public sector borrowing requirement and increase the money supply. That is how those things were paid for. The hon. Gentleman ought to know that the enormous printing of money caused most of the troubles that we inherited from them. They paid for that tax reduction very dearly indeed. I am surprised at the hon. Gentleman, who has shown himself consistent on this point, trying to claim credit for that move, which was one of the precursors of the printing of money that we saw under the previous Government.

Let me say something about the intention of the Inland Revenue, which is to achieve the twin aims of efficiency and, where possible, simplification. Efficiency is very largely a matter for the Inland Revenue itself. The computerisation that eventually we hope to see will lead to some improvements, and these are now under discussion.

Concerning simplification—

Mr. John MacGregor (Norfolk, South)


Mr. Sheldon

May I carry on with this matter for a moment? Simplification is much more the responsibility of the House of Commons. We all know that every hon. Member calls for greater simplification but at the same time his amendments invariably complicate the tax system. I plead guilty to that as, indeed, I am sure does every hon. Member who has ever sat in a Finance Bill Committee. Our task is to try to find some resolution of this problem between the natural concern that we have for justice, fairness and equity, and, at the same time, realising what we are doing to the tax system itself. When we look at the numbers of staff at the Inland Revenue, we see a mirror image of some of the activities that we have introduced at the time of Finance Bill Committee stages.

Mr. MacGregor

Buried away in a recent Public Accounts Committee report was an important statement by the Chairman of the Inland Revenue that all tax options would have to be sorted out before 1979 if computerisation was to go ahead. Can the right hon. Gentleman confirm that? If so, what opportunities will there be in the House of Commons to discuss exactly what options will be required so that we may have an opportunity to comment before decisions are taken?

Mr. Sheldon

There are a number of other matters that will need to be considered long before that. I am sure that the hon. Gentleman will have plenty of opportunity to make further comments, as these matters reflect the way in which the taxpayer will be affected. Naturally the House will be kept closely involved.

Perhaps I may say something about some of the simplifications, as they are seen by many people, or changes or improvements that have been suggested. I turn to the matter of self-assessment, because it has concerned me and it has been concerning the Inland Revenue itself.

Among the problems that I see in connection with the automatic penalties in the United States, the powers of enforcement of a kind that this House could only with great difficulty accept, and some that it would positively turn down, are the right of entry into premises, the summoning of taxpayers to the Internal Revenue offices—in the United States—the way in which those penalties are assessed, and their automatic nature.

These are great problems for any revenue service that tries to introduce a self-assessment system. The actual ability of the Internal Revenue Service in America to go into business firms at will and plug their programmes into computers in business firms to extract the information it required is a step beyond anything that we have previously imagined.

But I think it would be wrong to work on the assumption that self-assessment leads to greater simplification. The United States personal tax system can be extraordinarily complicated, with reliefs multiplying almost without number. The American authorities give reliefs for casualties, reliefs for thefts, and they have proposals to give reliefs for the purchasing of gardening implements and the sharing of cars to go to work. The difficulty of the system is that it allows such reliefs in a way that our system does not allow, and because they are allowed, automatically a number of such proposals creep into legislation.

I therefore beg the House to realise that that is not necessarily the way to greater simplification and that the cost that people pay in the United States and other countries with self-assessment is largely borne by the taxpayer. There is, therefore, an enormous hidden cost. It is reckoned that more than half of all taxpayers actually need to use accountants or tax return preparers to prepare their own assessments. That is an enormous cost, compared with the four-fifths of the people of this country who not only need no assistance but find their tax correct at the end of the year without any change.

When one considers the further complications which can arise when one finds oneself with these professional tax preparers, some of whom, being unscrupu- lous, are even prepared to purchase the tax repayment of their client at a discount because they reckon that they are more professionally equipped to get the higher repayment, one can see some of the problems to which this approach might lead us. We can see some of these problems, but the major advantage that it provides unquestionably is the flexibility to produce a system where the rates of tax can vary more widely, and the Inland Revenue is looking at various aspects of this. It is also looking at various aspects of efficiency, and I intend to keep the House informed of further developments in this area.

This Bill makes a modest advance in using the opportunities presented to us to bring about a reduction of the income tax burden. It is a small step, the importance of which is indicated perhaps more by the direction in which the Government are proceeding than by the actual reliefs provided. As such, I am sure that it will command the support of the House.

4.32 p.m.

Mr. Peter Rees (Dover and Deal)

The Financial Secretary opened by referring to the increase in confidence in the country. I think he may find that this increase in confidence is a fragile plant. I respectfully point out to him that it depends not only on an increase in demand but also on some kind of assurance on profitability. Nowadays, entrepreneurs make their profit calculations taking account of tax, including direct taxation.

I would, however, like to congratulate the Financial Secretary and his right hon. and hon. Friends on the revival of their confidence. I note the distinct difference between the morale they exhibited last autumn and the morale they exhibit now. May I tell him that if we showed enthusiasm on this side of the House for gardening relief under the United States tax system, it was only to mark the contrast with an Administration which has imposed VAT at 25 per cent. on lawn mowers in this country.

I think that possibly the House and the country will approach this, the Chancellor's thirteenth Budget and sixth Finance Bill, with a slightly different emotion. We will share with Mr. Anthony Christopher and the members of the Inland Revenue Staff Federation, particularly those of us who have been scarred by service on six separate Finance Bill Committees, a feeling of Budget fatigue. I can only assume that perhaps it is in deference to those sentiments that the Financial Secretary has introduced a particularly narrow Bill.

I should like to comment on the drawing of the Ways and Means Resolution in such a way as effectively to preclude any debate at the Committee stage. This is in marked contrast to the first faltering steps towards open government that the Treasury team has perhaps shown, following in the footsteps of my noble Friend Lord Barber. We are pleased to note the discussion papers circulating at the moment on capital gains tax and VAT. We can only conclude that the Treasury team is drawing on the experience of the noble Lord and, indeed, taking the moral made by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) in his very notable speech to the Addington Society on the preparation of fiscal legislation.

On this particular Finance Bill, I propose to concentrate on three main questions. Why are we having a Finance Bill now? Why these particular proposals? What do they tell us about the Government's fiscal and electoral strategy? If the House concentrates for a moment on why we are having these budgetary proposals now, it will see that one can describe an almost Hogarthian course which each Labour Chancellor follows.

Immediately after a General Election at which, regrettably, the Labour Party is returned to power, the rates of direct taxation go up. In 1964 the level went up from 7s 9d to 8s 3d in the pound. In 1974 it went up from 30 per cent. to 35 per cent. In the heady aftermath of the election, intoxicated by the cheers of the party faithful and perhaps inflamed by the howls of anguish which they anticipate, Labour Chancellors tend to introduce a battery of new taxes—capital gains tax in 1965 and capital transfer tax in 1975. It is as well to remind the country that the Prime Minister's formative ministerial experience was as a Chancellor of the Exchequer introducing capital gains tax in 1965.

After that comes the pause for breath or for indigestion. The Chancellor remarks on the waning of investment, the decline in living standards, the drift of talent abroad and the record number of insolvencies. With the approach of a General Election come the expressions of remorse. I remind the House of what Mr. Roy Jenkins, of happy memory, said in 1968: there is the alleged disincentive effect of high direct taxation … the mere fact that it is so widely believed is of itself significant, and means that further substantial increases in taxation on earned incomes could well have a stultifying effect upon the development of the economy".—[Official Report, 19th March 1968; Vol. 761, c. 276.] Or perhaps one prefers what was said by the present Chancellor of the Duchy of Lancaster, when he had just been appointed to the post which he now occupies: I regard the tax and surtax rates as very seriously excessive in this country. "—[Official Report, 20th June 1966; Vol. 730, c. 204.] Now we come to 1977, and the same expressions of regret and remorse are starting to form on the lips of right hon. Gentlemen opposite.

Mr. John Cronin (Loughborough)

This is an interesting point, but is it not possible to reduce taxation now because the economy is in a much better condition whereas it was necessary to increase taxation in 1974 to mop up some of the money supply so profligately expended by the Conservative Government at that time?

Mr. Rees

That argument might commend itself to the House if it were not for the fact that the Chancellor's first steps in 1974 were to cancel the cuts in public expenditure of £1½ billion which Lord Barber had announced at the end of 1973. If the Chancellor had curbed his profligate tendencies, it would not have been necessary, except out of political spite, to impose the increases in direct taxation which he imposed in his first Finance Bill in 1974.

Mr. Russell Kerr (Feltham and Heston)

Try a bit harder.

Mr. Rees

Since the hon. Gentleman encourages me to try a bit harder, let me take up the allegation made by the Financial Secretary that we misunderstand the weight of direct taxation in this country. I do not want to weary the House with figures, but let us look at the percentage of the gross national product taken by direct taxation in various countries with comparable economies. In 1970 in the United Kingdom it was 37 per cent.; now it is 33 per cent. In 1970 in Japan it was 17.6 per cent.; now it is 17 per cent. Does that satisfy the hon. Gentleman? Or let us take France, which is a little closer to home.

Mr. Ridley

Can the hon. Member for Feltham and Heston (Mr. Kerr) understand figures?

Mr. Rees

I pay the hon. Gentleman the tribute of assuming that at least he is numerate. I do not know whether he can be articulate except from a seated position. Let us press on for his benefit.

In France, in 1970—after it had had seven years of Labour Government—25 per cent. of France's gross national product was taken by direct taxation; now it is 24.6 per cent. Let me remind the hon. Gentleman that 33 per cent. of our gross national product is now taken by direct taxation. The hon. Gentleman's standards and mine may be a little different, but I feel that the country will recognise that there is a vast difference between this country and other countries in one major and significant respect—the weight of direct taxation taken by Labour Administrations.

To counteract this, as we aproach a General Election titbits are thrown out so that we may salivate like Pavlov's dogs—nothing substantial, of course, because there is always the promise of more to come. The Chancellor of the Exchequer has described this as a Budget of reward—reward for years of sacrifice, apparently, under a Labour Administration. We do not want to be rewarded. We would prefer to go without the sacrifice and to maintain the rates of direct taxation that we enjoyed under a Conservative Administration.

I move on to consider why the measure took this particular form. I welcome any relief in taxation, even from a Labour Chancellor of the Exchequer. But why are the reliefs concentrated on the personal allowances? I suppose that the first reason is administrative convenience. When the Financial Secretary tells the House that most people will get their relief before Christmas, he conveniently overlooks the 5 million mortgagors who will not be recoded until the early months of next year. Perhaps, if he catches your eye to wind up the debate, Mr. Deputy Speaker, the Economic Secretary will refer to that, because 5 million mortgagors are not an inconsiderable proportion of the taxpayers of this country.

Let us consider for a moment the increase in personal allowances that is proposed. To put it in perspective, to take the real value of personal allowances back to 1973–74, the last year of the Conservative Administration, would cost about £1,430 million. The real value of the single person's allowance in 1973–74 would now be £1,199, whereas the Financial Secretary is proposing £945. The real value of the married allowance then would be £1,562 now, whereas the Financial Secretary proposes £1,455.

I assume, as I imagine the House will assume, that the Financial Secretary has been moved to introduce these reliefs only in expectation of the total indexation next year which was introduced in this year's Finance Bill.

The Prime Minister, in an uncharacteristic breach of his Baldwinesque geniality, said: We shall destroy the Conservative Party with regard to this matter."—[Official Report, 3rd Nov. 1977; Vol. 938, c. 40.] Far be it from me to imagine that any words of mine could destroy a public figure who has survived a disastrous tenure of No. 11 Downing Street and a moderately unsuccessful tenure of the Home Office and the Foreign Office. If he has anything to teach the House, it is about the politics of personal survival. But it is clear that he did not understand the note put in front of him by his assiduous civil servants. I can only assume now that he is becoming insulated from the pressures of real life on his broad Sussex acres.

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

Would the hon. and learned Gentleman like to have them?

Mr. Rees

The Chief Secretary suggests that I should be responsible for the Prime Minister's broad Sussex acres. That is no concern of mine. If the Chief Secretary would like to explore that aspect of the Prime Minister's activities, I shall leave it to him and listen with relish.

What the Prime Minister did not understand at the time—I understand the pressures on him and he may not have read the note with particular care—and what his right hon. and hon. Friends have had to concede subsequently, is that even people on the average industrial wage are now paying a higher proportion of their reduced earnings in tax. The Chief Secretary has admitted it, the Financial Secretary has admitted it, and no doubt, if he seeks to return to this point, the Economic Secretary will admit it when he winds up. The Chancellor of the Exchequer himself said he had never disputed that there had been a cut in net take-home pay. That is the point which my hon. Friend the Member for Chingford (Mr. Tebbit) sought with some success to elicit and which the Financial Secretary cannot controvert.

Mrs. Castle

Is the hon. and learned Gentleman aware that, when the child benefit scheme comes fully into operation, wage earners will pay a higher proportion of their incomes in tax than they otherwise would have paid? Does he therefore oppose the introduction of child benefit, which is designed to reduce take-home pay but to increase the family income overall?

Mr. Rees

The right hon. Lady, who, we know, takes a keen interest in these matters, may have overlooked the fact that the Prime Minister's figures take account of child benefits in any event.

Mrs. Castle

Take-home pay is not the only measure.

Mr. Rees

The proof of the matter, as the right hon. Lady will no doubt know, is that someone on the average industrial wage will be paying a higher proportion of his income by way of direct taxation than he ever paid under a Conservative Administration. That is a simple political truth which the country understands, and it will not be fobbed off by glib explanations by the Prime Minister or, indeed, by the right hon. Lady.

The question to which I now wish to address myself is why there has been no proposal to cut the basic rate of tax. When I ventured to ask the Chancellor of the Exchequer that question in his most recent Budget Statement, he quoted a little ponderously from "The Right Approach". I should like to quote back at him the main features of our ap- proach. They are lower taxation on earnings, capital and savings to increase the rewards of skill and enterprise, and paving the way to more secure jobs, particularly for the young.

The reason why I am a little surprised that the Treasury Front Bench has not chosen to cut the basic rate is that as late as April this year—it is churlish, perhaps, to remind the Government of that now—it was proposing a cut in the basic rate from 35 per cent. to 33 per cent. The Chief Secretary, with his customary geniality and perseverance, defended that position with extreme care and pertinacity.

I should like to remind the House and the right hon. Gentleman of what he said on that occasion: I want to turn to the question of the erosion of differentials. I have said on numerous occasions that we recognise that the combination of the incomes policies of successive Governments, together with tax increases and inflation, has considerably eroded the differentials between the highest and the average paid, between the unskilled and the skilled, and between those in work and those out of it. I have never hidden the fact that I recognise that that is a problem with which we must deal. I am also bound to say that the reduction in real net income is not simply due to the level of direct taxation; it is due to the underlying reason that we have done so badly as a nation."—[Official Report, 3rd March 1977; Vol. 927, c. 666.] It could not have been put better by the Opposition.

We are entitled to ask the right hon. Gentleman why, in the face of that, he has flinched from going to that extra 1 per cent. this autumn. Two reasons come immediately to mind, and no doubt the Minister of State, Treasury will enlarge further on them when he winds up the debate. The first reason, I suspect, is that those on the Treasury Front Bench no longer want another searing wrangle with their hon. Friends below the Gangway.

We recall with a certain wry pleasure the encounters with the hon. Member for Coventry, South-West (Mrs. Wise) and the hon. Member for Birmingham, Perry Barr (Mr. Rooker). I am sorry that they are not here to contribute to our debate this afternoon, but perhaps the Minister of State, Treasury has been able to square them. Perhaps in the next Finance Bill we shall be promised a cut in the basic rate.

However, more than that, I suspect that it is because of the administrative complication. The Financial Secretary has paid a glowing tribute to the members of the Inland Revenue Staff Federation, but I wonder whether they would have been able to cope with a further reduction in the basic rate. Is the reason administrative, or is it political?

That leads me on to consider what clues the Financial Secretary and the Bill have to offer for the future. The Chancellor of the Exchequer said last Thursday that any future reliefs would be concentrated on personal allowances and the intermediate rate band. The Financial Secretary said today that it would be necessary at some stage to revalorise indirect taxation. I suggest to him that if he were to approach the whole system in that way he would be able to do considerably more in other spheres.

I remind the House that the intermediate rate band was abolished by Mr. Roy Jenkins in 1969, when the standard rate of income tax was 41.25 per cent. and the sharp progression from a zero tax bill to that became intolerable. The progression was, perhaps, concealed for some time because of a lower average industrial wage.

My noble Friend Lord Barber approached the problem from a different angle and cut the basic rate to 30 per cent. That, perhaps, is the more sensible way of smoothing out the progression. The Financial Secretary may find—I do not know whether he has had consultations with Mr. Anthony Christopher and the members of his federation—that the introduction of an intermediate rate band, far from creating budget fatigue, will introduce a mood of nervous collapse in the Inland Revenue. We shall find the Inland Revenue asking to raise its staff from 84,000 to 100,000—the equivalent of 20 infantry battalions. Therefore, we await with keen interest the proposals for introducing an intermediate rate band in the next Finance Bill.

The promises have been liberal. There are to be sops to small businesses, in both income tax and capital transfer tax. Small businesses appear now to have replaced middle management as the dar- lings of the Labour Party, but I think that small businesses will find, as middle management has discovered, that the promises are rarely implemented. We shall wait with interest. [Interruption.] The pressure of the hon. Member for Cornwall, North (Mr. Pardoe) may deflect the Government from their normal course, but, all the same, I rather doubt that he wields enough political muscle at present to ensure a measure of substantial relief. If relief comes, I have no doubt that we shall welcome it and seek to improve on it.

Then we have been promised some profit-sharing schemes. This is a belated conversion to this concept. I remind the House that two successive liberalising measures to give tax fiscal relief for share option schemes have been killed off by Labour Chancellors of the Exchequer. The Prime Minister, when he was in No. 11 Downing Street in 1966 or 1967, made it impossible to proceed thereafter with any reasonable share option scheme, and the present Chancellor did precisely the same as soon as the present Government came to power.

Perhaps there is a slight good omen in that the only entrepreneurial member of the Cabinet, the Chancellor of the Duchy of Lancaster, has been put in charge of this side of the Government's fiscal planning. But I note with regret that all the fine words that fell from him in 1967 and 1968 came, alas, to nothing, so I am not over-optimistic of anything worth while being introduced in the next Finance Bill.

The Financial Secretary ranged wide on the subject of simplification, and I notice an interesting divergence of opinion between him and the Foreign Secretary. Perhaps the Minister who is to wind up will tell us whether the Foreign Secretary has now assumed responsibility for this aspect of the Government's fiscal policies.

We listened with keen interest to what the Financial Secretary had to say on the problems of self-assessment. I say only this to him. Self-assessment must be preceded by a process of simplification and will not of itself lead to simplification. While I am on this point, I hope that the Treasury team will appreciate that the investigatory powers with which the Revenue has now been equipped as a result of the Finance Act last year are comparable with those operative in the United States and will deserve close supervision. I hope that we shall have a report to the House in due course on how those powers have been wielded in the past year.

Let me summarise what is introduced in this Bill. There is nothing for the 1.4 million higher rate taxpayers. There is nothing for the skilled worker. There is nothing for middle management. Even the higher rate bands have not been indexed. There is nothing for those in retirement living on what are laughably called investment incomes. The Government's electoral strategy is clear. Such reliefs as they are forced to give will be concentrated grudgingly on those on and below the average industrial wage, with a further erosion of differentials. But even those taxpayers will not forget, as the rest of the body of taxpayers will not forget, that their real living standards have dropped relentlessly over the past three years.

For all taxpayers, the verdict on the Chancellor's year of repentance must be too little, too thinly spread and too late. They will know why, because they have learnt the simple political truth—and no wise words from the Prime Minister will persuade them to the contrary—that a Labour Government's heart is not in the business of cutting direct taxation.

4.55 p.m.

Mr. John Sever (Birmingham, Lady-wood)

The people of Ladywood have traditionally demanded that their Member of Parliament should be particularly concerned about constituency matters, which, of course, is not unreasonable, and I thought it useful to take the opportunity today to join in a debate on money matters. It is essential, irrespective of who people are and where they live, that they should have sufficient funds to be able to get through the week. We have heard so far in the debate today about certain matters which have come to the attention of the House because of the measures introduced by the Chancellor a few days ago. If I may, I shall dwell on those matters a little later.

The Ladywood constituency includes most of the city centre of Birmingham, and during the recent by-election campaign the Labour Party asked the electors of Ladywood to keep the heart of Bir- mingham Labour. That was, for want of a better slogan, the one that I used in my campaign and, naturally, I was delighted that the electors in the constituency took my advice and conferred on me the privilege and the pleasure of representing their interests in this House.

There is a great tradition in Ladywood, as I have indicated, that the Member of Parliament who comes here to speak for Ladywood should have regard to the fact that the constituency contains a very large proportion of members of the public who earn below the national wage, who are not well off, and who find it very difficult to get along from one pay day to the next. Therefore, some of the matters that we are discussing today will have a direct effect on them. I know, from living in the constituency with my constituents, that they will want me to say something about that. As I have said, this may be a good opportunity to do so. There are a number of matters that concern everyone who is a taxpayer and everyone who is a retired person receiving a pension.

If I may, I should like to refer to one of my most distinguished predecessors, Mr. Victor Yates, who served the constituency with distinction for a long period and who was a Member who was very well respected by his colleagues in this House. I may add that Mr. Yates was always a Member of Parliament who found it necessary, because of his own political convictions and because of the knowledge that he had of the people for whom he spoke, to come here and speak about people who were less well off than some others. I hope, therefore, in some small measure to be able to follow, with some degree of enthusiasm, anyway, in his steps. It is important for people who are earning below the national wage and not making much progress through what is generally regarded as social life in Britain to have someone to speak for them.

It is disturbing to me that 32 years after Mr. Yates came to this House to make his maiden speech some of the matters about which I wish to talk this afternoon have not been corrected. He spoke with considerable eloquence, far more than I shall be able to muster, about deprivation in our large cities, particularly at that time in Ladywood, about housing and about living conditions.

I hope that, as we see measures coming from this Administration implementing their fiscal and financial policies, we shall have the ability to provide money to our large cities and to do something about the problems of the inner cities and especially housing.

In his maiden speech, Mr. Victor Yates spoke with considerable passion about correspondence that he had received from a constituent concerning a housing problem. It seems to me that that sort of thing is what we are about in this House. If we are not, I do not know why we are here. It is often easy to be able to make grand speeches or grand gestures about matters which may not be vital to the interests of the people who send us here or the interests of those who pay our salaries.

I want now to refer to housing in the inner cities, and I hope that I shall be allowed some degree of latitude. This is a matter to which we must pay some regard in discussing the distribution of State money. I refer to inner city housing because we in Ladywood do not have enough money to do the job that we are anxious to see fulfilled—and I am sure that that problem exists in all constituencies.

If we are to give all families in Britain the chances that they need, we must initially provide them with decent homes in which to bring up their families. There has been an enormous housing programme in the middle of Birmingham, largely instigated by such people as Victor Yates. We want to improve that programme and to institute one in which the faults have been corrected. We must find the money to do that and to speed progress.

I welcomed the statement a few days ago by the Chancellor of the Exchequer and, subsequently, by the Secretary of State for the Environment. There was in that some degree of recognition that the inner cities, having received a considerable amount of support during the last few years, need more funds to be made available to them. The Government seemed to be moving in that direction, and I am sure that my constituents will welcome the Government's moves.

There are particular housing problems in my constituency concerning those who live in high-rise developments that were built because there were not sufficient funds available to build the houses that were desperately wanted and that it was hoped would be provided. That is history. There is not a great deal we can do about what exists, but there is much that we can do about what we provide in future.

There are various people living in high-rise flats who would want me to speak on their behalf today. There are young married couples with families who find that there is no joy in life in trying to contain a young family 20 storeys up in the sky in a filing cabinet. People cannot cope with that easily and they are turning in greater numbers to medicines to help them with the distress and conflict of such a life.

Another group is the elderly who have, as they say "Done the whole bit". They tell me, "We have done it. We have lived here in multi storey blocks since they were constructed and first put into the large cities." Such people have seen their families grow up to leave home and take their own chances in the world, but the elderly are left behind and they say, justifiably, with reason and fairness "Is it not now about time we had our chance and that you took us out of this sort of accommodation and gave us the sort of housing that we have long sought and desperately need in our old-age?" I should welcome such measures as may be forthcoming from the Government that would make money available to do that.

Those who live in inner urban areas—and my constituents are certainly representative of such people—live in close proximity to industry, commerce and trade. They do not have the social facilities that many of us seek for ourselves. Therefore, in discussing housing policy and the way in which the nation's money should be spent, we should pay regard to the preservation of the environment—which is a vital matter to those who live in city centres. My constituents have already asked me to do whatever I can to encourage the Government to provide money for the protection of the environment and society.

If money is to be made available for such things, naturally I and those of my hon. Friends who agree with me will jump up in the House to support such measures and encourage the Government. Some of my hon. Friends have said that the economy is improving, and I hope that it does such measures will be brought forward and money made available. If that does not happen, the troubles that so many people talk about today—vandalism and crime in the big cities, for instance—will not abate but worsen and cause further difficulties. If we wish to contain the problem, a substantial amount of Government money will be needed.

We must recommit ourselves—and I hope that Members opposite as well as my hon. Friends will do so—to measures that will protect those members of our society who are least able to look after themselves. That will, in part, be helped by the measure that we are discussing today. The elderly are pleased that the Government are able to consider such measures as the re-introduction of the pensioners' Christmas bonus, and I welcome that belated decision. It will encourage people to believe that the nation's fortunes are improving. I believe that that point is particularly in the minds of Ministers in view of the comments that were made from the Government Front Bench a short while ago. The country believes that the situation is improving somewhat and that the measures that I have advocated are likely to be forthcoming in the not too distant future.

In the political sense, I can well appreciate that hon. Members opposite may wish to argue that these measures may be put forward to win votes. That is a debate in itself. However, that is not an opinion to which I subscribe. In that respect it is helpful to my argument that I was returned at a by-election that took place before the measure that we are discussing today was made known.

There is another group of people in my constitutency on whose behalf I want to use my time in my maiden speech. That is the substantial immigrant population. There is an extremely large immigrant community in Ladywood representing all parts of the world. We have a large number of Asians, West Indians and immigrants from Europe. Such people have come to our big cities primarily to make their way in the world and to do an honest day's work for an honest day's pay. Those who are doing so are being encouraged to continue in that way.

I am reluctant to be critical, but a number of immigrants are concerned about the attitude of the British who were here first. They are concerned that the host community should welcome them and do whatever it can to ensure that society is friendly and operates in a fair and non-discriminatory way. Community leaders, particularly the more articulate, approach many hon. Members to ensure that whatever protection may be afforded to them will be forthcoming.

Immigrants in my constituency were particularly alarmed by the scenes during my by-election campaign. Those who came into the constituency to foment racial hatred—although there was a big disturbance on one day—fortunately went away without having disrupted the harmonious and well-balanced community that existed before their arrival. They got their answer in the derisory vote that they received in the election.

Nevertheless, we are doing all we can in my constituency—as I am sure is happening in other constituencies—to promote everyone's interests. There are too many gaps in society that should be filled by representatives of ethnic minorities. Too much talent, expertise, and natural good will are being wasted among the immigrant community. We should do whatever we can to take that good will and expertise into our community and promote it wherever possible.

We are all looking for the advancement of the British economy, and to secure that we need to encourage small business men, trade, industry, and skilled labour. Much of what is needed, particularly skilled labour, is to be found among our immigrant friends, and they are only too willing to play their full part.

On another financial matter I want to say that in the big cities a situation is developing where crime and the lack of certain protection to certain individuals is causing some concern. In the big cities it is easy for people who want to come in and to foment racial hatred and other difficulties to point to the shortcomings in our society. It is easy for such people to argue that unemployment, urban deprivation and a lack of caring in society are reasons for the growth in crime and vandalism.

In the big cities these problems are reflected in crime ranging from petty vandalism to grand larceny, armed robbery and so on. It can be argued that the way to work towards combating these problems is to put the taxpayers' money into the provision of facilities for young people, facilities for the community and facilities for the development of those sorts of social projects for which my hon. Friends have always argued and which my predecessors have always demanded. If we put that sort of money into the city centres, we might find that, contrary to popular and inaccurate belief, we are able to encourage young people to take an interest in their society and to make a valuable contribution, particularly in the big towns.

In conclusion I want to refer to the former representative of Birmingham, Ladywood, Mr. Brian Walden. He was always able to bring a degree of good humour and expertise to his work. I also understand from colleagues in this House that he brought from Ladywood a freshness of approach and a degree of social conscience to the debates in which he took part. I hope to do that also.

It is a two-way road between us and the constituents whom we represent. I hope to be able to bring to this House the views and aspirations of the people of Ladywood in order that it might give them consideration in the great debates in which I hope to participate. In turn I hope to be able to take from this House the expertise that I shall require to look after my constituents' best interests. Brian Walden and his distinguished predecessors did that.

We in the heart of Birmingham like to think that we have sent to this House distinguished representatives who have been able to do that two-way job effectively. I hope that I shall be able to join their ranks and to play my part in debates and discussions in this House.

5.12 p.m.

Mr. John Pardoe (Cornwall, North)

It is a great pleasure to follow the hon. Member for Birmingham, Ladywood (Mr. Sever) and to be the first to congratulate him on a notable maiden speech. The hon. Gentleman will understand if I say that neither he nor any of us in this House can hope to achieve the reputation of his predecessor for sheer parliamentary oratory. That is not given to any of us and we do not look to the hon. Gentle- man necessarily to better his predecessor on that account. What the hon. Gentleman gave us was an indication that, rather than bring a eulogy of his constituency, which is in some ways the custom in this House, he would bring a tour of the very real social and economic problems.

I particularly welcomed his remarks about low income earners. I did not immediately think that there would be too many things in common between his constituency and mine in far off Cornwall. One is a very urban and the other a very rural seat. But we both represent constituents who are at the low end of the income scale. I welcome what the hon. Gentleman said on that account and I shall welcome his advocacy of the underprivileged communities of our society in future. I look forward to many contributions from him on this and other matters.

May I briefly refer to the speech—one could almost say the maiden speech—of the hon. and learned Member for Dover and Deal (Mr. Rees)? He seemed to be looking back with nostalgia to the golden age when Conservatives presided over our tax affairs as if all was glory and peace in the land. I would remind the hon. and learned Gentleman that if we are taking as the end of this new consensus on direct taxation only that we should get back to where the Conservatives left us in 1974, that would not be a satisfactory target. I therefore think that we must set out quite clearly exactly what our targets on income tax are. [Interruption.]

The hon. and learned Member for Dover and Deal extolled the Conservative record. He seemed to think that income tax was very much lower when the Conservatives left office in 1974 than I remember. Indeed, the standard rate of income tax under the Conservatives was still 30 per cent.

Mr. Robert Kilroy-Silk (Ormskirk)

Is that a normal reaction to the hon. Gentleman's speeches?

Mr. Pardoe

No, I do not always cause that kind of trouble. It might have been more appropriate if there had been a protest in the Strangers' Gallery on behalf of the Cornish language rather than on behalf of the Welsh language.

The hon. and learned Member for Dover and Deal seemed to be extolling the glories of Conservative taxation. I would remind him that in 1974 we did not get out of the 30 per cent. range for the standard rate of income tax. If we are to capitalise on the new consensus on income tax in this House—and it is at last emerging as a consensus—we must surely now aim for a reduction in the standard rate of income tax to something substantially below 30p in the pound.

A figure of 30p in the pound is clearly far too high for people going into the income tax bracket. It is far too high to be spread right across that band—the first band of £6,000 taxable income. I therefore say that we have to make a much more determined attack to switch from income tax, and all other taxes on income, to expenditure taxes than has so far been indicated by the speeches which we have heard from either Front Bench.

The hon. and learned Member for Dover and Deal also stated that to get back to the thresholds which we had under the Conservative Government would cost about £1½ billion. But, of course, if we were to revalorise the borrowing requirement 1973–74 we could afford to get back to those thresholds more easily. In fact, the borrowing requirement in 1973–74 of over £4,000 million was a substantially higher figure in real terms than the borrowing requirement in this financial year. Therefore, if we are to increase the borrowing requirement by £1½ billion and thereby reduce—

Mr. Nick Budgen (Wolverhampton, South-West)

Is the hon. Gentleman saying that he approved of the borrowing requirement in 1973?

Mr. Pardoe

That was not the argument that I was making. I am not saying that I approved of the borrowing requirement at any point in time. It depends on the situation of the economy. But where I would agree with the hon. Gentleman is that to increase the borrowing requirement from nil to £4,000 million between 1970 and 1973–74 was bound so to distort the economy as to create the most appalling tensions and stresses. That was the grotesque mismanagement of the economy by the hon. Gentleman's former colleagues. I know that the hon. Gentleman shares very little of their views but, after all, we have to judge a future Conservative Administration on the last one. [Interruption.] We should have to go far back to judge my party, but I would not mind being judged on what happened in 1911 or thereabouts.

Mr. Tapsell

Would not the hon. Gentleman agree that if the public expenditure cuts announced by the last Conservative Chancellor in December 1973 had not been reversed by the subsequent Labour Administration the whole of this argument would have even less validity than it appears to contain?

Mr. Pardoe

Just a minute. As I understand the argument of the hon. and learned Member for Dover and Deal, the Conservative Government had whipped up the level of public spending, and thereby the borrowing requirement, to a very high and quite unsustainable level. They then decided that it was too high and they announced in December 1973 cuts of £1.5 billion. But those cuts would not have taken effect until the financial year 1974–75. It is true that if those cuts had been made in 1974–75 the borrowing requirement would not have been £6 billion, but £4 billon. But even if it had been £6 billion it would have been a higher proportion of the gross national product than the borrowing requirement is today.

Mr. Peter Rees

I am grateful to the hon. Member for Cornwall, North (Mr. Pardoe) for considering my propositions, but he must get them correct. The public sector borrowing requirement for 1973–74 was projected at £4 billion in March. Cuts to take effect in the next financial year, by contrast with what had been proposed by the Labour Administration, of £500 million were proposed, followed by cuts in December of £1 billion. The result would have been a PSBR of £2.5 billion. I asked the hon. Member to contrast that with the PSBR under this Administration of £8 billion. Does he support the Government in that?

Mr. Pardoe

Of course I do not, but the fact is that the Government are not now running a PSBR of £8 billion. It will be quite a bit below that and it may be much nearer £7 billion. In the present circumstances of the economy that is too low, and with 1.5 million unemployed it is perfectly correct to have a high borrowing requirement. Yet the economy is running at well below the sort of levels it should be reaching, because the Government have got the borrowing requirement wrong.

I do not criticise the Government, however, for having their borrowing requirement at its present level. But if it were at the same percentage as in 1973–74 the economy would be working at a much higher level of capacity and unemployment would now be lower.

The hon. and learned Gentleman came into the Chamber while I was half way through my argument and he has not heard my entire speech. The Government would not be able to revalorise the thresholds to what they were when a Conservative Government were in office simply by returning the borrowing requirement to the same proportion of the GNP as it was under the Conservatives. If they are to revalorise thresholds they have to revalorise the borrowing requirement. The one cannot be done without the other.

The hon. and learned Gentleman seemed to be arguing that it would be legitimate for the Government to have made much greater concessions on income tax out of borrowing. Is he saying that that would be right? He does not appear to be sure. If he is not saying that it would have been right—and he may not be saying that—he has to find the money from some other source.

Let us take the Conservatives at their word and suppose that they mean business in reducing the standard rate to an unknown level. The hon. and learned Gentleman was saying today that the standard rate has to be reduced. I suppose that the reduction must be 2p or 3p if it is to provide any kind of incentive. My personal view is that it should be reduced to 25 per cent. in the next financial year.

The hon. and learned Gentleman is saying also that thresholds should be higher, that the top rates of tax must come down and that the bands must be adjusted. We know that that last matter will not cost a great deal of revenue, but it must cost something. My proposals on the higher rates for the next financial year would cost about £250 million. All this money has to be found and it must either come from increasing other taxes or by reducing public spending.

The Conservatives have consistently called for cuts in public spending. The hon. Member for Guildford (Mr. Howell) in a previous incarnation seemed to have reached the point of saying that the Government had made the cuts that the Conservatives were calling for. If they believe, however, that the Government have not made enough cuts—I believe they have made substantial cuts—what additional cuts would the Conservative Party make in order to finance the kind of reductions in income tax that it is calling for? They should tell us.

Mr. William Hamilton (Fife, Central)

Far from advocating reductions in public expenditure the Conservatives have gone out of their way to say that they will increase expenditure—for instance, on defence.

Mr. Pardoe

It is extraordinary that there is a conflict in Conservative Governments between spending Ministers and those who are responsible for trying to balance the budget. The hon. Member for Wanstead and Woodford (Mr. Jenkin) earlier urged the Government to increase public spending on families. That is most worth while and we should like that. Then there are arguments for substantially increased defence spending. The Conservative spokesman on education continually parades around the country saying, that the Government are neglecting children. He is promising all sorts of increases there. Every Shadow Minister is arguing in detail for specific increases, but in general the Conservatives are saying that they would not make any increases and that they would make reductions.

Mr. MacGregor

Will the hon. Member give way?

Mr. Pardoe

Not at the moment. The trouble with answering questions from Conservative Back Benchers is that they are free to say what they like, and they do. But we must be told from the Conservative Front Bench specifically where it would find the revenue to make these income tax cuts. I want to know what the public spending cuts would be, and I want to know tonight. We want to know what the Conservatives will forfeit in the Budget so that we may know what can be done about thresholds, the standard rate and the rest.

If the Conservatives refuse to tell us that, we have to assume that they agree with the Liberal Party that it is impossible to make those cuts and that the reductions in income tax have to be financed almost entirely out of increases in taxes on expenditure. If that happens, what taxes will the Conservatives increase? To increase VAT from 8 per cent. to 10 per cent., as the Tories have advocated, would bring in in 1978–79 a further £700 million. I know that that is not peanuts, but it is not enough to do much on the standard rate, on thresholds, or even at the upper end, although that would not be expensive. Conservatives have to come clean on this and spell out explicitly, as we have, which taxes they would be prepared to increase.

The only really efficient revenue raiser in the whole canon of expenditure taxes is the insurance contribution by employers. It is the social security tax in Europe. There it is levied at a much higher level than in Britain and it brings in a great deal of money. An increase of £3 on that would bring in £2,000 million in 1978–79, and with that kind of money substantial cuts in income tax are possible. Unless we can find that kind of money we shall be unable to make such cuts.

Mr. MacGregor

The hon. Member has talked about £2 billion. He made the sterile argument about a static situation and having to get an extra yield from some other tax or through cutting expenditure in the last Finance Bill debate only six months ago. But has he noticed the changed situation with this Finance Bill, which is that the forecasts of revenue yield were wrong and the figure of almost £2 billion that he is seeking has come from a new forecast on the PSBR, all of which has come from the income tax changes of six months?

Mr. Pardoe

The trouble with income forecasts is that they can be wrong both ways, and we must see how the revenue forecasts turn out. If the Conservatives are back in the old game of promising to finance cuts in income tax out of false forecasting at the Treasury or by that mythical factor called growth which we must hope we shall get but about which we make no promises, that is totally phoney. Let us be honest and say which taxes we will increase or which types of public expenditure we will reduce. If the Conservatives will do that, I shall believe them.

5.30 p.m.

Mrs. Barbara Castle (Blackburn)

I am very glad to have the opportunity of congratulating my hon. Friend the Member for Birmingham, Ladywood (Mr. Sever) on his maiden speech. He told me before he got up to speak that he was feeling nervous, but I do not think that any of us would ever have suspected it. He spoke with remarkable fluency. He spoke about his predecessor Vic Yates making his maiden speech nearly 30 years ago—that is exactly when I made my maiden speech. I assure my hon. Friend that I was absolutely petrified with terror and could not speak in the fluent way that he has spoken this afternoon. Above all, I think that we were all moved by my hon. Friend's patent sincerity.

What particularly pleased me was that my hon. Friend's maiden speech happened to be the perfect answer to the other maiden speech we have had this afternoon from the hon. and learned Member for Dover and Deal (Mr. Rees) speaking from the Opposition Front Bench. I think that my hon. Friend helped quite brilliantly, even if inadvertently, to illuminate the obscurantism of Conservative policy. We were treated by the hon. and learned Member for Dover and Deal to a peroration in which he condemned the Government for what he considered to be their sinister Budget strategy, namely, that they were going to concentrate the major part of their help on those below average national earnings. One would have thought that the hon. and learned Gentleman was talking about national scum.

The hon. and learned Gentleman is actually talking about the majority of male wage-earners, 60 per cent. of whom earn less than the average male national earnings. He was certainly talking about the majority of people in the constituency of my hon. Friend the Member for Lady-wood. I am grateful to my hon. Friend for having chosen this debate to remind us of those people and their needs, and of how imperative it is that they should have priority. In doing so he also illuminated the dangers of the sort of argument that we had from the hon. and learned Member for Dover and Deal, which we shall have increasingly from the Conservatives.

I warn Opposition Members that they will never cure inflation in this country if they spend their time harping on the exclusive importance of take-home pay. That is what the union negotiator does. Opposition Members should not talk as if the money taken in taxes never, in any way, came back into the wage-earners' own homes. To talk about take-home pay as being something that should be reduced in any circumstances, and at all times and at the same time to press for the sort of social reforms to which Opposition Members pay lip service is to make it impossible to finance those social reforms within a reasonable level of pay policy.

The child benefit scheme is a perfect example. Those who have taken part in this campaign had to convince the Government, the trade union movement and men in this House of the importance of child benefit. We have had to convince them that take-home pay should be reduced to finance a switch of money, in the form of a cash allowance into the mother's purse. If we merely want to increase take-home pay we shall have to abandon child benefit. I say advisedly that there are many hon. Members in the House—many male Members—who would secretly be glad to do just that.

Mr. Tapsell

I have considerable sympathy with the argument that the right hon. Lady is advancing, but would it not be right to say that this is precisely the battle which she fought with her own Government and lost?

Mrs. Castle

The hon. Gentleman is well out of date because that battle is now being won again. It is being won, not only against male chauvinist obscurantism, but against the fiscal obscurantism of the Conservatives, who always exaggerate the exclusive importance of take-home pay. How are we to help the constituents of my hon. Friend the Member for Ladywood with their housing problems, their pensions, their environment, their education, their child benefit, except through the taxation system, which reduces take-home pay?

The most important weapon we could use in the battle against inflation would be an educational drive among working people telling them their taxes do not just go into the pockets of the Government for the Government to have a bonanza. They go back to the working people in the form of the services that they have asked us to provide. If we dodge that educational campaign we lose the battle against inflation, just as we nearly lost the battle for child benefit.

The hon. Member for Horncastle (Mr. Tapsell) is quite right in saying that we nearly lost the battle on child benefit. But some of us rebelled and some of us dragged this House and the Government back from the brink. Now we have a situation in which the TUC, in its advice to the Government about what should be in the autumn Budget, asked for an additional £1 increase in child benefit—above the increase already promised for next April—raising the benefit then from £2.30 a week per child to £3.30 a week. It urged that that should be one of the Government's priorities.

Of course, that does not mean that we do not all welcome the increase in personal allowances that we are discussing this afternoon. Of course it was urgent to raise the tax threshold, and of course the trade union movement has been pressing for that. However, two issues arise on this matter we are discussing today.

The first is whether the Government have done enough in reflating the economy. I say decisively that they have not. Indeed, I found myself—to my shocked surprise—agreeing with the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) who said that this is not a reflationary Budget. It is still not bringing us to a level of tax relief or overall expenditure that will begin to expand the economy. The deflationary policies applauded so much by the Opposition have brought our economy almost to stagnation point. There was and still is more headroom, and I am convinced that the Government will have to be bolder and do more.

Secondly, in disposing of any money that my right hon. Friend the Chancellor of the Exchequer says that he now feels is available how do we divide it among our priorities? Once again, I draw the attention of the House to the fact that, by failing to listen to the TUC in time, the Government have presented us with a situation in which we have an increasing reduction, relatively, in family support.

Let us pay tribute to the trade union movement, because it knows that in pressing for increased cash for the mother instead of increased tax relief to the wage-earning father it is facing up to the problem of take-home pay. The trade union movement has honesty and guts and does not behave hypocritically in the manner of Opposition Members. It is prepared to do an educational job, and therefore—

Mr. Peter Bottomley

Is it not right that the right hon. Lady led Government Members into the Lobbies on the Child Benefit Bill against Conservative amendments which would have given an early date for implementation and, secondly, might have indexed the benefit, which would have solved the problem that she is talking about?

Mrs. Castle

I do not think that indexing will solve a problem of the size of the one I want to discuss this afternoon. Certainly in regard to the scheme —[Interruption.] I believe in indexing and I am coming to that, but that is not the first battle. The main battle is to secure a reasonably level of child benefit.

When I was in the Government the committed policy was to start the child benefit scheme in 1977. It could not be done in 1976. That was the policy in which I believed and which I secured intact, but, because of the delays and because of the fact that we have had to adopt the compromise formula for phasing in the scheme in three stages up to April 1979, as the House knows full well, we are phasing out child tax allowances and only gradually phasing in the increased child benefit. But as we are phasing out child tax allowances, the ordinary formula available in the normal way to the Chancellor of the Exchequer for increasing child tax allowances when he increases other personal allowances is not available to him at the present time.

That is why the Trades Union Congress asked this autumn for another £1 to be given next April in child benefit. I pay tribute to the TUC for that, because it has its difficulties under the pay policy, as we well know. It shows that the battle for the mind of the TUC has been won, and I am still keeping up the battle for the mind of my right hon. Friend the Financial Secretary to the Treasury, in whom I can see some flickers of reform emerging.

Let us look at the position that we are in this year owing to this compromise arrangement. There have been three bites at the increases in personal allowances. First, in April the Chancellor increased them by £1,800 million. Then in the summer, thanks to the successful fight of my hon. Friends during the Committee stage of the Finance Bill, the Chancellor accepted another increase of £490 million. Then again in this Finance Bill we are being asked to vote for another £940 million this year to increase the personal allowances of the single person and the married couple. That is £3,250 million a year going to married couples or single persons, but the only extra money voted this year for the children is £95 million.

What will happen next April? The Chancellor has already told us. He will index the personal allowances. The single man will get his 12 per cent. increase and so will the married couple, whether childless or not. That is another £1,200 million. For the children, who have waited all this time, there will be £330 million. I say advisedly to the Government and to the House—because we must all enter into this battle of take-home pay and stand up and be counted if we really mean what we say—that this disastrous treatment of the country's children cannot continue unchanged for another 18 months.

I know perfectly well that I shall be told this afternoon that it is now administratively too late to add a penny to the £2.30 a week of child benefit that is due to be paid next April, because the books are already printed. I accept that. I agree that there would be administrative chaos if we tried to stick another £1 or so on it now.

Actually, it ought to be more than another £1. Does anyone deny that if it had not been for the phasing in of the child benefit scheme, the Chancellor would have increased child tax allowances this year? When he has increased child tax allowances in recent years, of the total sum he was spending on allowances he has either spent 99 per cent. on the children or come down to as low as 24 per cent. Taking the lowest figure, 24 per cent. of the £3,250 million being spent in personal allowancees this year, on my calculation that means another £800 million ought to have gone on child benefit, because it could not have gone on child tax allowances.

That would have given another £1.30 on child benefit this year. We shall not even get that next April, and we shall not get it for another 18 months unless we all say that this position is desperately dangerous for the nation's families and must not go on. My right hon. Friends may not be able to add anything next April, but there will have to be a second uprating of child benefit next year.

In any case, it is only right—actually more sensible—that child benefit should be linked with other benefits and increased in November along with them. In future, when it is indexed, it ought to be part of the normal uprating. I know that it is too early yet to talk of indexing and that first we must get the figure up to a realistic level. The importance of these increases goes beyond any issue of indexing.

I give my right hon. Friends my support this afternoon conditionally, and I hope that in replying to the debate my right hon. Friend the Financial Secretary to the Treasury will say "Yes, I agree that this is a very serious situation, and in some way or another we pledge that we shall remedy it next year".

5.47 p.m.

Mr. Ian Stewart (Hitchin)

I find myself in the unusual position of agreeing on one particular point with the right hon. Member for Blackburn (Mrs. Castle) and with my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). The fact that they agree is perhaps more surprising than the fact that I agree with either or both of them.

A very important point has been raised in the introductory remarks of the Financial Secretary to the Treasury, which ranged a great deal wider than most of the issues we might have thought we were able to discuss on the Bill. He repeatedly suggested that the measures being brought in now were of an expansionary kind. He was asked by my hon. Friend in an inter- vention whether this was what he meant to say, and the right hon. Lady picked up this point. Even the hon. Member for Cornwall, North (Mr. Pardoe) wondered whether the degree of expansionary force in the economy at the moment was yet appropriate.

I did not mean to dwell on this point but it needs emphasising that the Financial Secretary really must explain the Government's posture. Is it the intention of the Government by these measures to produce an economic expansion greater or less than that which they were intending at the time of the spring Budget? As most hon. Members understand it, on the evidence available to us, it is now the intention that the public sector borrowing requirement for this year should be lower than it had then been intended to be, and yet the Financial Secretary said more than once in his opening remarks that the Government had brought these measures forward because it was necessary to start the process of expansion in the economy. It is very dangerous to say one thing and do the opposite.

I will give the Financial Secretary one example of how historically this can have such adverse effects. Last year, at the beginning of 1976, the Chancellor announced that there would be stringent cash limits on public expenditure. Indeed from the evidence available from the Government Departments, it is apparent, particularly with the benefit of hindsight, that such stringent control of expenditure was brought about at that time. However, the Chancellor went on saying for many months that the cuts were not really very serious, and that this was just a housekeeping measure to keep tabs on what was going on. By underplaying the extent of their intentions on cash limits the Government lost the advantage of the actual steps that they had taken. As a result, they were forced into the emergency measure in July and further emergency measures, at the behest of the IMF, towards the end of that year. That was because the Chancellor had said one thing and done the opposite.

There is real danger now of a different kind of confusion, but nevertheless damaging, if the Financial Secretary goes about saying that this is an expansionary budget when set against the intentions of the Chancellor as expressed at the time of the spring Budget. I hope that, in reply to the debate, the Chief Secretary to the Treasury will make clear exactly what is the Government's economic posture at present and deal with the point, put by hon. Members on both sides of the House, that we believe that there is a fundamental contradiction between the facts and what the Financial Secretary has said. The right hon. Gentleman owes it not only to the House but to the world outside to explain the Government's exact intentions.

The two points I wish to raise are more closely related to the Bill. First, the way in which we are now having the third change in the calendar year 1977 in the basic terms of the taxation of individuals brings into qeustion whether the present PAYE system is suitable for operating personal tax deductions. I was interested to hear what the Financial Secretary said about these matters being under review, and the point will not have been lost upon him.

First of all, in the spring Budget, there were alterations to the threshold. There was then the Committee on the Finance Bill, at the end of which we had further alterations of the threshold, resisted by the Government but finally accepted as a fait accompli. There was also a change in the basic rate of tax. So two further kinds of change had to be introduced in mid-term, as it were. Now, two-thirds of the way through the financial year, we are faced with yet another substantial change in the tax arrangements of the great majority of people who pay income tax.

This will impose a severe extra burden of work on the staff of the Inland Revenue. Indeed, the problem of mortgages has complicated the matter still further. In the summer the Inland Revenue had to introduce yet another change because interest rates are moving around so rapidly these days that the coding system of mortgage reliefs which was operating at the beginning of the year was no longer valid when sharp reductions of interest rates took place in subsequent months. So a new sort of noncumulative code had to be introduced for certain taxpayers, adding further complication, but making it possible for the threshold operations in the Bill to be built into the coding in time for several million taxpayers next year.

Not only from the Inland Revenue point of view is it inappropriate to assume that the existing PAYE system must be the vehicle for dealing with individual taxation, but the individual taxpayer is going to find it almost impossible to know where he stands. If he has any complications at all—and most taxpayers have some over allowances of one kind or another—the situation becomes progressively more and more difficult for him to understand and to know whether he is being correctly coded according to the allowances available to him. When taxpayers also have the basic rate of tax changed in the middle of the year, and when there are further complications about coding changes which are non-cumulative, it is almost impossible to keep track of what is happening.

I do not know whether it would be convenient, practical or possible to reconstruct the PAYE system, but the greater volatility of the income tax system now developing calls into question whether we can carry on assuming that the tax tables we have got to know so well over the years in different circumstances are really going to work in future.

Mr. Peter Viggers (Gosport)

Perhaps I can supplement the point being made so well by my hon. Friend. A number of my constituents have made representations to me about the complication of their tax affairs. Even a simple tax matter like the affairs of a retired widow now needs professional assistance, and in some cases such assistance can cost up to £100 a year—merely for simple matters of taxation.

Mr. Stewart

My hon. Friend illustrates my point. I do not want to sound too complaining—no one wants to complain about amelioration of taxation—but it is getting too complicated to know what is going on. Not only is the Inland Revenue baffled, but the taxpayers are baffled as well. No one knows where he stands.

There is a further complication. Because of the cumulative effect of the PAYE coding system, if the Chancellor makes sharp changes in the middle of the year he produces for many taxpayers quite a substantial lump sum at a particular point in the year, rather than a general easing of their tax payments week by week for the remainder of the tax period.

This is uneconomic, and disruptive to the economy as a whole, because it means a short sharp burst followed by a change of gear backwards. It is disruptive also for personal finance, and housekeeping for individuals, to receive a substantial adjustment of arrears of tax, after which they have to rein back their expenditure again.

I raise this point because the matter deserves more debate. The fact that the Bill brings in this yet further complication in an already complicated year means that we should start the process of reconsideration fairly soon.

My second point concerns the question of the choice that the Government have made in the form of tax relief. I was surprised when they decided to act purely on the threshold for income tax. I can see why they want to do it. There are positive arguments for it. The starting rate is still absurdly low. It is surely the intention of all parties to raise it. On the other hand, it is not long ago that we heard noises from the Government about the importance of differentials. It started last year when the Chancellor said that he had the intention of doing something for middle management—the chap on something between £4,000 and £8,000 a year. Then, I think, the Government were receiving representations from the TUC about the squeezing of differentials, and they appeared to be lending a ready ear to that.

In Committee on the Finance Bill the Chief Secretary to the Treasury made a number of interesting remarks about differentials. He said: That brings me to the reason why we chose 2p off the basic rate rather than take the whole of the sum available—about £2½ billion—and do it all on the thresholds, much as we should have liked to. We have the problem of differentials which is constantly brought to our attention by those whom my hon. Friends have asked me to take note of, namely, the members of the TUC. I ask my hon. Friend to appreciate what the consequences would have been had we done it all on the threshold. … one does nothing whatsoever to help. Indeed, one makes the differential slightly worse. A decrease of 2p in the basic rate will do more for the man on £120, £80 or £90—the skilled or semiskilled man—than for the man on a lower wage. We split the amount that we had available between doing something on the threshold and taking something off the basic rate, and I believe that … that was the best way of dealing with it."—[Official Report, Standing Committee D, 14th June 1977; c. 482.] That was the time when the Government's proposals were to reduce the basic rate of tax by 2p and to do rather less on the threshold than actualy emerged at the end of that Committee.

What has happened now? If the Government find that they have a bit more money in hand, one would have thought that they would do something, if not to correct it, at least to redress the balance; but no, they have made the position worse. They have forgotten all about differentials and they are now going overboard on the threshold. It is a very interesting change of policy. I think that taxpayers need to have an explanation.

What has changed since the proceedings on the Finance Bill in June of this year? Could it by any chance be that phase 3 of the incomes policy never materialised, and so the question of the reduction in the standard rate ceased to be of such political importance and the voice of the TUC in that respect was no longer so powerful in the ear of the Government?

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

This is an important point. I should like to think that the reason is that the Government have taken on board the fact that that their original argument did not actually hold up, because the argument about 2p off the basic rate affecting differentials does not hold up when one then compares four skilled craftsmen on the same gross wage but one being a council tenant, one having a mortgage, one having an endowment mortgage and one having five children. The take-home pay of all of them is totally different. Therefore, because their personal taxation situation is totally different, starting to muck about with differentials has no meaningful effect. Anyway, I should like to think that the Government have taken on board the arguments that I put forward during the Committee on the Finance Bill.

Mr. Stewart

If that is so, the hon. Gentleman was obviously very persuasive. It may be so. However, my point is that if the Government were saying last year and all through the first half of this year that it was their intention to deal with the problem of differentials—because their friends in the TUC and many others had pointed out that this was an increasing problem with an incomes policy and a high rate of inflation, without an indexation of bands for operating tax, and at the lower level with a quite large band covered by the basic rate, and something had to be done —it is very strange that in this short space of time their policy has entirely changed. I am doing the same as the hon. Gentleman. I am asking for an explanation. We ought to know.

Is it now deliberate policy that the Government are not going to deal with the problem of differentials? Do they regard it as less important than the question of the starting point for tax? Governments change their minds on taxation from time to time. The present Government have changed their minds 12 or 13 times in three and a half years, and they are quite entitled to change it again. However, they should not change their minds on a very important point without giving an explanation to taxpayers, who had been given to believe that they would receive this relief, of why the Government have changed their minds. Why are they not prepared to say what they are doing? Otherwise, we are entitled to draw the interpretation that all the talk about differentials, middle management and skilled workers was a lot of crocodile tears in advance of the negotiation of phase 3.

Now that phase 3 has disappeared—we do not hear much about it nowadays—the only possible explanation seems to be one of administrative convenience, to which my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) referred. However, on a matter which up to that time the Government felt so important, I cannot believe that they would allow a technical matter to deflect them from deeply held beliefs about the taxation structure in this country. That is another point on which the Government owe us an answer.

What is the Government's attitude to differentials? Is it their intention to implement as soon as possible the policy that they had announced until June of this year as being high on the list of priorities, or have they changed it? I hope that we shall have an answer to that question, as well as an answer regarding the expansion of the economy.

6.5 p.m.

Mr. John Cronin (Loughborough)

The hon. Member for Hitchin (Mr. Stewart) made an interesting speech. He asked, somewhat plaintively, whether the Government would indicate their economic attitude for the future. I should have thought that it was fairly plain. However, I think that what puzzles practically all of us on the Government side of the House is what is the attitude of the Opposition Front Bench. We hear ceaselessly that the Opposition will cut taxation and expenditure, but we never have any indication of what public expenditure is to be cut and how the money will be found to reduce taxation.

I notice that the hon. Member for Horn-castle (Mr. Tapsell) is taking a note of what I am saying. I hope that he will give some clear indication later of how the Conservative Party will achieve some of its electoral aims of reducing taxation and reducing public expenditure and where the money is to be found and where the cuts are to come.

I am sure that my right hon. Friend the Financial Secretary had great pleasure in introducing a Finance Bill containing a substantial reduction in income tax. I thought that the hon. and learned Member for Dover and Deal (Mr. Rees) gave my right hon. Friend a rather lugubrious reception on this score. He rather suggested that it was in some ways merely a method of compensating for the increase in taxation that took place in 1974. But, of course, taxes had to be increased in 1974 to mop up, as far as possible, the extraordinary expansion of the money supply that had taken place during the last two years of the Conservative Government. There were increases in the money supply then of 26 per cent. and 28 per cent., figures totally unprecedented in times of peace.

If that increase in the money supply had done anything for the economy, perhaps one could look at it with a little more satisfaction. However, it was used almost entirely by property speculators and fringe banks. People were making money out of financial deals without making any contribution to the economy. Those last years of the Conservative Government were the heyday of Slater Walker and of making money by financial manipulations. That is what we have had to pay for in the increased inflation since that time.

Mr. Ridley

Will the hon. Gentleman explain, in that case, why the Labour Party spoke and voted, under the leadership of the present Chancellor, against the Government of that day to urge them to increase Government spending and to cut taxes even further, thereby leading to an even bigger deficit and bigger increase in the money supply? I at least opposed what my Government did, but the hon. Gentleman took the opposite view. Why is he now discovering how wrong he was?

Mr. Cronin

There is no question of the Government being wrong in increasing public expenditure. This is a difference of philosophy. An essential part of improving the standard of living of the whole community is increasing Government expenditure. It cannot be compared in any way with the way in which the money supply was increased and used during the last days of the Conservative Government.

What we have to think about now is what is to happen to the money in circulation when the economy is reflated as a result of the Government's present cuts in income tax. Theoretically, if more money is pumped into the economy and there is more money to spend, business will expand and there will be an increase in investment in the economy. However, I sound a small note of warning. That does not necessarily follow.

One of the features that has been noteworthy over the last few decades is the reluctance by the industrialist to invest. It by no means follows that when this extra money is pumped into circulation, industry will expand—in a manner, anyway, commensurate with the additional money in circulation.

Therefore, I should have thought that this mini-Budget might have approached the matter more helpfully by giving some direct fiscal incentives, in addition to the cuts in taxation, to induce industrialists to invest and to expand their output. I have in mind, of course, fiscal incentives of a type by which the money would be refunded in the form of reductions in corporation tax for actual investment in more plant or more machinery, or any- thing that would improve the efficiency of a firm.

For instance, anyone who visits factories in Britain and factories in, for example, the United States, Germany and Japan, will be appalled by the complete difference in the amount of machinery and technology that is available in factories in those other countries as compared with what is available in our factories. One of the most pressing matters for our economy and for the reduction of unemployment is to get more investment. I appreciate that this is a very difficult matter. It is very difficult to induce industrialists to invest when they do not wish to do so, but it is becoming more and more urgent.

I cite the example of the General Electric Company, which is one of biggest industrial companies in the country. At the moment GEC has more than £400 million, according to the annual report, either in cash or money in the bank or short-term securities. This is one of our most successful companies and it is run by Sir Arnold Weinstock, who is considered to be an industrialist of very high quality. Yet the company has £400 million plus to invest and it is not prepared to do so.

Mr. John Ryman (Blyth)

My hon. Friend has quite rightly drawn attention to the need to encourage industrial investment. Would he not agree that the whole economic strategy of the Government is wrong? The Goverment are not willing to make substantial tax cuts which will give industrialists sufficient profitable return on their capital. That is why many companies, particularly United States companies, are refusing to invest in this country on a sufficiently large scale. They get a better return on capital in Western Europe or America itself. Unless the Government have the sense to cut direct tax and corporation tax substantially, the realities are that companies simply will not invest.

Mr. Cronin

I am afraid that I shall have to disappoint my hon. Friend if he is asking me to suggest that the Government's economic strategy is entirely wrong. I think that it is an excellent strategy. I merely suggest that there are certain ways in which the lily should be gilded and further improvements made.

I consider that Government strategy is on the right course, but the problem we must face is the reluctance of British industrialists to invest. This is becoming a crisis for the whole capitalist system in this country. In Japan, Germany, France and the United States industrialists will invest, but they are very reluctant to do so here. If capitalism continues to be proved a failure in this country, drastic changes and alterations will need to be made in the whole political system.

People talk a lot about unemployment being due largely to inflation. It is, but it is also due to the reluctance of industrialists to invest. It is unfortunate that as our economic system is at present regulated no Government can effectively insist on a high level of investment.

It is very important that we keep inflation under better control. Indeed, this is a cloud on our horizon. Control of inflation depends at present on the Government's wages strategy and I hope that in winding up the debate the Minister will make it clear that the Government intend to take the firmest possible line on their wages strategy, at least until next summer. I hope that the Government will make it quite clear that any union or group of workers intending to use their industrial power to hold the nation to ransom, or, in effect, to mug the nation will not be encouraged or even allowed to do so. One appreciates that a lot of groups of workers are having difficulties at present. Responsibility and sensitivity are required in dealing with these matters, but there must be an underlying note of firmness in Government strategy.

There is a different sort of discontent with this present Budget. Here I would agree with my right hon. Friend the Member for Blackburn (Mrs. Castle). I think that the Government could have done something more to help the children of this country by increasing child benefit. The Financial Secretary to the Treasury said the total being pumped into the economy by reduced taxation was of the order of £1 billion. It is unfortunate that none of that could be used directly for child benefit.

Sir Brandon Rhys Williams (Kensington) indicated assent.

Mr. Cronin

I am glad that the hon. Member agrees with me. I do not think he is the only Conservative who does. A lot of hon. Members on both sides of the House feel rather unhappy about the way in which we are treating children.

Everybody knows how expensive it is to bring up young children. Very few of us who, in our younger days, were having difficulty finding the money for our children's clothes and food did not feel only limited enthusiasm for our wives' reproductive propensities. But however difficult we found it, the cost of bringing up children is even greater for those people in lower income groups.

The Child Poverty Action Group published some interesting figures about food in its latest pamphlet. Using the most economic diet, based on the absolute minimum of necessity for health and growth, the pamphlet estimates that children between the ages of 1 and 2 need about £2.39 a week spent on their food. Those in the 7 to 10 age group need £4.76, while those in the 11 to 14 age group require £6.90 a week. These figures make the present child benefits look derisory.

The Government deserve credit for increasing the child benefit to £2.30 a week for all children from next April. Even that indicates a great discrepancy between the benefit and the actual amount needed just to feed a child. When one considers clothing needs as well, the expenses are even higher. When children become teenagers they need adults' clothes and the benefit from the zero rating of VAT is no benefit at all. Bringing up children is an expensive business and a particularly heavy burden on lower income groups.

An additional circumstance which hits these lower income groups is the loss of earnings brought about by having children. Once a wife has young children, she is obliged to stop going out to work. This is a very heavy source of increased poverty for low earners. The Family Expenditure Survey of 1974 showed that 83 per cent. of childless wives earned more than £20 a week. But only 21 per cent. of wives with children of pre-school age earned more than £20 a week. This gives an indication of the grinding effect on the economy of households in the lower income groups when children start to appear.

A lot has been talked about the circumstances in which some workers are better off on the dole than they are if they work. I think the Press reports are probably exaggerated, but nevertheless this is a real hard-core problem. One reason is that the worker on the dole with a family gets £4.50 a week for each child. If he is working at present he receives £1 for the first child and £1.50 for subsequent children. I suggest that this is completely indefensible and the Government should take the matter seriously in hand.

The difference between how we treat our children in this country and how children are treated in countries abroad, from the point of view of child benefit, is striking. I have in mind the comparative figures for the EEC countries. These figures are recorded in the Official Report of 28th February this year. The figures relate to monthly child benefits and the date to which they relate is October 1976, which is the nearest date to the present one can obtain.

The figures vary in most countries according to the position of the child in the family—whether it be the first, second, third or fourth child. Taking the position of the second child, a family in Germany received at that date £17 a month; in France the figure was £18.48p per month and in Belgium £32.72p per month, whereas in the United Kingdom the figure was £6.50p. Taking the situation of the fourth child, a family in Germany would have received £29 per month; in France, £31 per month; in Belgium, £45 per month; and in the United Kingdom, £6.50 per month. It is disgraceful that in our country we should give such small child benefits compared with those in the other EEC countries. I appreciate that it is difficult to make comparisons between countries because there are varying situations in respect of the value of money, but I suggest that we should consider these figures seriously.

One of the most important factors is that the present Government must be a Socialist Government. So far it has been a Socialist Government in every sense of the word. But at present the Government find it difficult to introduce Socialist policies as a result of the numerical situation in the House and the impossibility of getting through most Socialist legislation. We all know that the Government are surviving on such a small majority with the assistance of our Liberal friends.

I recommend the Government to take action to increase child benefits because it would be a Socialist measure which would have a good deal of support on both sides of the House and I am sure that there would be no difficulty in getting such a measure through Parliament. Here is an unrivalled opportunity for the Government to take a step which would be a Socialist measure and would gain the applause of the Labour Party and certainly have support in our constituencies I suggest that the political, economic and humane indications for increasing child benefits cannot be doubted for a moment.

6.23 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I should like to refer briefly to three speeches, and I shall deal last with the speech of the hon. Member for Loughborough (Mr. Cronin)

I wish first to deal with the remarks of the hon. Member for Cornwall, North (Mr. Pardoe), who, alas, has left the Chamber. He said that he would like to raise additional revenue to pay for reductions in income tax by very much larger national insurance surcharges. Why, then, did he and his hon. Friends vote against the 1976 measure which brought in the present national insurance surcharges? I have never heard a more blatant piece of hypocrisy. It is strange to think that the hon. Gentleman could seriously base his whole policy, when speaking for his party on economic matters, on something which only a year ago he totally opposed. That is no way for the Liberal Party to conduct consistent policies.

Secondly, I wish to refer to the excellent maiden speech of the hon. Member for Birmingham, Ladywood (Mr. Sever) and congratulate him on being one of those rare people who can win a by-election for the Labour Party. There are not many of them left. I also congratulate him on an excellent and fluent maiden speech and on having one of the smallest electorates in the country. When the hon. Gentleman spoke of his constituents being in particularly difficult circumstances, he forgot the important fact that most of his constituents have moved into my constituency, which is three times the size of his.

It is odd that a constituency in the centre of the great city of Birmingham should have a population one-third the size of constituencies in the Cotswolds. That appears to be an anomaly. I am sure that the hon. Gentleman, with his sense of burning righteousness, would wish to set that right in due course, but we have a Prime Minister who is consistently on record as seeking to stop any democratic redistribution.

Before leaving the subject of Lady-wood, I must say that we all remember with pleasure the hon. Gentleman's predecessor, Brian Walden, who once made a famous speech about the pointlessness and futility of fine tuning in economic affairs. I suggest that this Budget is only fine tuning. It has dealt with only £1 billion in relation to total revenue of £53 billion, and it was totally unnecessary to bring it in half-way through the financial year because it causes a great deal of upset and change and achieves little economic effect.

I shall deploy that argument a little further, but I wish to point to the fact that there have been protests by the Inland Revenue staff about extra work and confusion caused by the changes in allowances. Indeed, Mr. Cyril Plant, as he sits in his barge on British waterways, must feel cross with the Government, because not only is there more work for the taxman but that work involves giving back tax, neither of which, I am sure, Mr. Plant would applaud.

Why have the Government taken this course? When we examine the economic effects, that question becomes even more relevant, because the Chancellor found in October that his prediction resulted in the fact that the public sector borrowing requirement was to be not £8½ billion but £6½ billion because of the increased revenue from income tax. As to the majority of the £2 billion difference, £1¾ billion extra revenue will come from income tax. Instead of saying "I shall cut £2 billion off tax or add it to spending", the right hon. Gentleman has put back only £1 billion. Therefore, the effects of what he has done have been mildly re- strictive compared with the predictions at the time of the March Budget. It was wrong for the Financial Secretary to talk of an expansionary Budget, because it is mildly contractionary.

I accept the comments of the hon. Members for Loughborough about the cost of feeding children, and I appreciate that he has carried out a good deal of research, but his economics were not so good. It is no good uttering the standard Socialist parrot cry in economic affairs "The last Conservative Government expanded the money supply, which has hampered us". It is true that they expanded the money supply, and at the time I said that they should not have done so. The hon. Gentleman did not say that at the time. He said that they should have expanded it more, since the criticism among the then Opposition was that the Chancellor of the Exchequer had not gone far enough.

The hon. Gentleman had some bright ideas about giving more reward to investors and managers and about spending a great deal more on child benefits, but he never said that there should be any retrenchment elsewhere. He made it clear that he will urge the Government to increase the money supply, but if there is a Tory Government he will blame them for having accepted his advice. That is a typical piece of Socialist hypocrisy.

Mr. Cronin

May I ask the hon. Gentleman to deal with a point of information? There has been no occasion when I have applauded Conservative Governments for increasing the money supply, and I do not think that any of my colleagues have done so. If the hon. Gentleman wishes to make these sweeping assertions, he should verify them with quotations.

Mr. Ridley

I have promised to be short, but if the hon. Gentleman wishes me to do so I can go off and find some copies of Hansard containing reports of Budget debates and read at length from them.

Mr. Deputy Speaker (Sir Myer Galpern)

I do not think that at this stage I am prepared to change the request I made to hon. Members.

Mr. Ridiley

I am relieved to hear that, Mr. Deputy Speaker. Although the hon. Gentleman would have benefited from that exercise, I feel that the House would have been bored.

I support this measure as this is a mildly restrictive Budget. I support the Government in that respect. I also support them because they have used such money as has been used to raise the allowance rather than to reduce the rate. It is necessary that we remove people from the tax net at the lower end of the scale. When we reach the stage that thresholds for paying tax are above social security levels, I should be in favour of concentrating any further reliefs at the top end of the scale or of reducing the rate. I believe that the Government have chosen the right priority, although we have to hear from them why they have changed their strategy from the time of the proceedings in Committee on the Finance Bill. At that time they were in favour of the alternative strategy. We want to know the reason for the change.

I believe that the Government have chosen the right strategy. It was right to have a restrictive Budget—if we must have one at all—leading probably to higher unemployment and a restriction on business activity, which is what the Government appear to be planning. I shall say why I think that it is right.

The borrowing requirement is still greatly too large. It is interesting that we have £1¾ billion of excess income tax revenue during the current year. That misestimate of £1¾ billion must represent over £5 billion of earnings greater than the estimate. That is because of the tax that would have been paid on the earnings if we assume that it was paid at the basic rate of 35 per cent. It means that £5 billion was the underestimate of the income of the people during the financial year.

I wondered how that mistake could have been made. I asked during the proceedings of the General Sub-Committee of the Expenditure Committee for more details and on what the forecasts of tax on earnings had been based. After repeated questioning I received the answer from Mr. Anson, who said: The forecasts are based on Ministers' policy. That means that the forecasts for the whole of our economic performance for the future, including earnings, revenue and the rate of inflation, were based on £6 a week two years ago, 4½ per cent. last year and 10 per cent. during the coming year. It is not because the Treasury thinks that those are the right forecasts; it is because it has been told "If we say in public that no one can have more than 41 per cent., you cannot include in your estimates anything more than 4½ per cent. because the inconsistency would be seen and observed."

Rather than coming clean and admitting that there is a difference between the estimates of the officials and the economists and what the Government would like, the Government have forced the forecasters to base their forecasts on Ministers' policy. That is why the revenue was so much higher in the current year than was originally forecast. It is because the forecasts were based on Ministers' policy. We all know that even during stage 2 there were considerably greater earnings than were ever allowed for under the policy.

How much greater will be the outturn of earnings in stage 3 than Ministers' policy, which is 10 per cent.? It was confirmed to the Select Committee that it was at 10 per cent. that they wished to put in their estimates for the growth of earnings. I had a charming answer from the Under-Secretary of State for Employment when I asked what was meant by the term "self-financing wage increase". He replied: A self-financing productivity scheme is a scheme whereby the savings achieved in unit costs outweigh the costs of the scheme such as the extra payments to those directly or indirectly involved, and any extra capital or running costs. Such schemes do not raise prices. The scheme must be demonstrated to be self-financing and be subject to regular checking that it remains so."—[Official Report, 16th November 1977; Vol. 939, c. 180.] That is within the 10 per cent., but it is still an increase in earnings. Even if those concerned manage to double their productivity and earnings, it is self-financing and it does not exceed the 10 per cent. It would be fun to ask to whom it must be demonstrated that it is self-financing and who carries out the "regular checking" that it so remains, but that would be a red herring.

It seems that the growth of earnings is currently very much greater than we have been allowed to believe and that in the year that lies ahead it will be much greater still. One of the pieces of economic good luck that the Government have had is that in a situation of malforecasting—probably deliberate and probably political—the result is that the borrowing requirement is reduced because of the extra revenue that comes from the extra earnings.

The Government are thus in the position of being able to pretend to be generous and to give away money while at the same time being restrictive and slowing down the growth of the economy. They can do so for the good reason that they know that they must not exceed their money supply targets. We now have the prospect of a second bite at the cherry when, in the spring, we shall be told about the bonanza to be introduced by an electioneering Labour Government. The real truth will be that they will once again have tightened slightly the screw on the economy, thereby causing a greater increase in unemployment and a greater slowing down of the business economy. I support them in that, but I ask that future Budgets should be presented, both by the Chancellor and by the Financial Secretary to the Treasury, whose speech this afternoon was a disgrace, with a greater degree of accuracy and honesty as to what they are doing.

6.38 p.m.

Mr. Robert Kilroy-Silk (Ormskirk)

First, I congratulate my hon. Friend the Member for Birmingham, Ladywood (Mr. Sever) on what I thought was an eloquent and sincere speech. Indeed, that has been said by many others who have taken part in the debate. Strange as it may seem, my hon. Friend was a colleague of mine at school many years ago. When we were plotting against various schoolmasters, I never thought that we would be on the same Bench some years later prosecuting the same cause. I am sure that we shall hear from my hon. Friend on many occasions in future. We shall expect to do so. He spoke with great eloquence and sincerity. He had a command of his subject and the capacity to put his case clearly to the House. I am sure that Members on both sides will welcome him frequently to our debates.

We have had a great deal of talk of optimism from Ministers. That has been the case even in the occasional outburst of hysteria from Opposition Members about our rosy economic and financial propects. My right hon. Friends the Chancellor and the Chief Secretary to the Treasury have on several occasions congratulated themselves and the country on the economic situation and the more secure financial base.

It is true that our balance of payments is now moving into surplus, that the Stock Exchange, ironically, is having an unprecedented boom and that sterling is having to be revalued upwards. However, what everyone seems to have forgotten and what virtually every Opposition Member has omitted to mention today is that we still have the glaring and shaming fact of 1½ million people unemployed. The hon. and learned Member for Dover and Deal (Mr. Rees), who today made his maiden speech from the Opposition Dispatch Box, talked at the end of his speech, if I remember him correctly, about needing to act on differentials and to help small business managers. He mentioned virtually every category as if he were at the election hustings looking for votes. He mentioned virtually every category of individual, but not once did he mention the unemployed—and no wonder. At least, his is the sin of omission.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) mentioned the unemployed. I hope that I misheard him or that it was a slip of the tongue when he said that he supported the Government's measures, which he knew would increase the level of unemployment—increase unemployment, not create more employment. The hon. Gentleman does not take the opportunity to deny my interpretation of his words. He is at least one of the honest men on the Opposition Benches, being prepared to say that he wants an increase in unemployment—and he a former Minister in a Tory Government and by all accounts a putative Minister in any future Tory Administration. The hon. Gentleman's welcome for an increase in the level of unemployment should be well remembered in the country.

This Budget, with the £900 million that the Government are giving away in one form or another, will be welcomed by those who benefit from the new tax allowances and who receive tax rebates. But it does not try to make any significant contribution to bringing down the level of unemployment. It certainly does not attack the chronic level of unemployment in the regions, such as Merseyside, which I represent, where unemployment is now about 12 per cent. We are touching 20 per cent. male unemployment in Kirkby in my constituency. There are 12,000 school leavers unemployed on Merseyside. The rate of unemployment there is as high in the good times when the country is supposed to be experiencing bouts of prosperity as it is now in times of recession and depression in the West Midlands and other parts of the country. People in the West Midlands are rightly complaining bitterly about a rate of 4 per cent. to 5 per cent. unemployment.

Mr. Rooker

Six per cent.

Mr. Kilroy-Silk

It is now the norm for Merseyside to have such unemployment even in the best times. Therefore, priming the economy, welcome though it may be, is not an answer to the problems of the North-East, the North-West, Merseyside and the regions in general.

It is easy for a Chancellor to pump money into the economy to prime it and to do the fine tuning that some hon. Members seem to believe this Budget is attempting to do, although this fine tuning seems to be being done with a blunt instrument. But it is not an effective means of grappling with the real economic problems faced by our declining regions, which have very fragile economies and have suffered a rapid job loss in recent decades. That applies not only to Merseyside, the North-West and the North-East but to the inner cities, to the West Midlands, Birmingham and London.

What we need is a much more finely tuned regional policy that will allocate resources not across the board, not indiscriminately, but to where they are most needed—the areas of neglect, decay and need. More important, it is still one of the failures of our present regional policy to place those resources in a way that will enable them to match the needs of the areas to which they are allocated.

There is a good case for scrapping regional policy, for saying that we shall no longer have special development areas, intermediate areas and depressed areas. We should instead identify, by whatever criteria, the areas with special needs and special circumstances where there have been declining traditional industries and tremendous job loss. The areas would be immediately identified. Beginning with the worst, they are Kirkby, Sunderland and Skelmersdale. Perhaps we could extend the criteria and bring in slightly larger areas. We certainly need to devote far more of our regional policy directly to the most neglected areas rather than, as now, making virtually the whole United Kingdom a development area, a special development area or an assisted area where grants, loans and subsidies are available virtually across the board, with no sensitivity shown in trying to get to the roots of the problems in those areas and tackle them effectively.

In that sense the Budget will not help. It will not help in reducing the level of unemployment. I say that with regret after all that the Government have done with their other measures—the job-saving schemes, the job-creation schemes and temporary employment subsidy, which have all been very beneficial in my constituency and have saved many jobs. It is still not enough for a Labour and Socialist Government to be presiding over 1½ million unemployed. It is a terrible waste of the lives of men and women and young people, a waste of their future, that they should have no better prospect than more dole queues day after day. It is even worse that young people should face them immediately upon leaving school.

A great deal is being done, but we can never rest. However much we are supposed to be grateful to the Government, we shall never be grateful and never be satisfied until not one person is involuntarily unemployed.

I move on to an issue that is even slightly more important. Many hon. Members, not least on the Labour Benches and certainly on the Opposition Benches, have pressed the Government to reduce the burden of individual taxation. They have made persistent and frequent pleas for that trend to continue, and my right hon. Friend the Chancellor is already holding out hopes of that happening in his proper April Budget next year. I want to introduce a caveat. It is important that we also take into account what we are likely to scrifice when we make big demands to reduce the level of personal taxation. I am in favour of high levels of individual taxation as long as they correspond with high levels of public expenditure and of the quality of that expenditure.

However I am in favour of reducing the level of taxation of the lower paid. There is no justification for the narrow differential between those who are unemployed and in receipt of social security benefits and those who are working but who, as a result of our tax system, are perhaps not taking home much more pay. That gap must be widened.

The need is for a lower-rate band of taxation in order to reduce the burden of taxation on the lower paid. There is no reason why reductions in taxation should be made across the board, because when we ask for reductions in taxation we are asking for reductions in expenditure on social services—on hospitals, schools, roads, the police and the firemen, the case for whom has been vigorously put by hon. Members on both sides of the House, including Opposition Members, who call in their next breath for reductions in income tax so that personal income tax will not be as burdensome as it is now.

With their traditional hypocrisy, Conservative Members today asked in almost the same breath for reductions in personal taxation and increases in public expenditure for special groups, special categories, special cases. There are no special cases and no special groups. I plead with the Government not to give way to the pressure, whether from the Opposition Benches, the Labour Benches or the public at large. I accept that it is an extremely popular cause, and there is a great deal of pressure behind it, but we should not give way to the demand for reductions in taxation if they are to be made, as would be inevtiable, at the cost of the quality of our public services and of public expenditure. As my right hon. Friend the Member for Blackburn (Mrs. Castle) pointed out, we are talking about the social wage rather than individual take-home pay.

In any event, it is strange that all the demands for taxes to be reduced come largely from people who are relatively highly paid, highly rewarded and highly privileged. On its front page on Tuesday this week, the Daily Mirror had the headline: Isn't Life Tough! says the boss who's hard up on £30,000 a year". The report underneath began: A boss complained yesterday that he was a 'pauper'—on £30,000 a year. Self-made tycoon Alf Gooding was hitting out at the tax system, which, he said, leaves him only"— I emphasise "only"— £11,800 spending money. About 60,000 people live in Kirkby, which is only half of my constituency. I have a large electorate. I defy anyone here or outside the House to bring me one person in that town who has "only £11,800 spending money". There will be not one such person. Opposition Members are murmuring amongst themselves. I say to them that not one person in a town where there is 20 per cent. male unemployment would have that amount of money. My God, they would not be complaining if they had it. They would not complain if they had even half that amount of spending money.

Mr. Tapsell

Is it not a terrible indictment of the economic policies of the Government and the economic record of the country since the war if what the hon. Member says is true, when one considers the wealth in so many of our competitor countries?

Mr. Kilroy-Silk

I accept that. It is a condemnation of successive Governments for constantly bowing to the kind of pressure that we have from the Opposition, who speak for the well-off and are more able to exercise pressure than are the people whom I and my hon. Friend the Member for Birmingham, Ladywood represent. Our constituents have always had the rough end of the stick.

The only way in which we can deal with the kind of social inequities and disparities of income and wealth that exist between the regions and individuals is by the proper and full implementation of Socialist policies. They have never been fully implemented.

I return to the question of Mr. Gooding. Out of his £11,800 he pays £4,500 in school feels for his three children. That is perhaps one explanation for his pauperism. He says: You cannot get a decent package holiday for under £2,000. It costs him another £800 to insure his Rolls-Royce. That is his world. It is not my world, nor is it the world of my hon. Friends. It may be the world of some, if not all, Members on the Opposition side, but it is not the world that is known by my constituents. It is a world that is well beyond their horizons. My constituents do not have even £2,000 a year to live on.

Many thousands of my constituents—those in one-parent families or who are mentally ill, mentally handicapped, disabled, unemployed or in receipt of a pension—have nowhere near £2,000 to spend, let alone £800 to insure a Rolls-Royce. According to the article, Mr. Gooding paid £200 for a suit. After a long category of woes, the Daily Mirror says: Mr. Gooding went bankrupt as a jobbing builder after starting in work as a draughtsman. He is now back in business.

Mr. Gooding said that he refused to give himself a rise because the Government would have taken most of it in tax. He has the ability to choose whether to give himself a rise. The people whom I represent have no choice over their incomes. They do not have the ability to decide how much they will pay themselves. Many thousands of my constituents would give their right arm simply for the opportunity to pay tax.

It ill becomes someone in Mr. Gooding's position to complain about cuts in living standards and that he cannot get a decent package holiday for less than £2,000. The 1½million unemployed would give their right arms to have the opportunity to pay a little in taxation.

Hon. Members should not succumb to this type of blackmail, which is damaging to the fabric of our society. They should have the courage of their convictions. The Labour Party is a party of high taxation. Let us admit that and defend it. At the same time, we are a party of high public expenditure and good public services. One cannot have the level of equity in our public services that we all desire while operating at the same time a low level of taxation. The choice has to be made. On this side of the House we have made that choice, and it is in favour of public services rather than giving way to low taxation and wealth.

We must make further inroads towards uncovering those who do not pay their taxes—those who have not paid their VAT, corporation tax, capital transfer tax and capital gains tax. That cost the country £900 million last year. We gave away £900 million. These are the people who have stolen money from the taxpayer. Let us recover that money and introduce a wealth tax and thereby introduce a greater degree of fairness and equity into our society.

6.58 p.m.

Mr. John Wakeham (Malton)

I agree with the hon. Member for Orsmkirk (Mr. Kilroy-Silk) in one respect. It is not becoming for anyone, whether from the Government Front Bench or anywhere else, to speak in terms of glowing optimism about the recovery of the economy when 2 million people are either unemployed or are receiving employment through Government assistance. No one can be in any way complacent or satisfied with the present position.

Some of us believe that until we have some real growth in the economy we shall never bring the unemployment figures down. We also believe that the self-employed and small businesses have a significant part to play in that growth. If each small business could take on one more employee, we would go much of the way towards solving the unemployment problem.

The significance of the Bill rests on how little it measures up to the great problems of the taxation of, and assistance to, less-well-off people. Obviously any reduction in taxation is to be welcomed. The Chancellor of the Exchequer says, as I understand it, that he has £1,000 million to give away in tax relief. I find it hard to believe that he has very much more to give away at present, even accepting the arguments of my hon. Friends, who have rightly pointed out that it indicates a more jaundiced view of the economic situation than was apparent in the Chancellor's statement last April.

In part, that is due to the number one problem of inflation and the danger that it may well take off again in spite of the current situation. It is clear that the proposed 10 per cent. wage increases will come out at about 15 per cent. It is pretty clear from Government statements and speeches that this is not what the Government intended. In my view, the Government have little chance of bringing inflation down to single figures by the end of 1978 on anything like a continuing basis if wage settlements remain, as they seem likely to do, at the present level of about 10 per cent. Inflation may well fall to single figures at some time in 1978, but, unless there is a fairly substantial rise in the value of the £ sterling, any long-term reduction to single figures will, I believe, be very difficult.

Therefore, when there is £1,000 million of tax relief to be given—and without arguing at this stage that in present circumstances there is much more to give away—we ought to consider the options open to us. I shall direct attention to three of them: doing something to help the low paid; doing something to increase incentives and to improve the differential in after-tax incomes, which was at one time very much in the Chancellor's mind; and doing something about the levels of tax borne by those who might plough back into their businesses some reduction in direct taxation, that is, the self-employed, people running small businesses and professional people. Many in this latter category rely upon their after-tax income to finance their business, and at a time of high inflation this is a major problem for them.

With those options in mind, I ask whether the Chancellor has taken the right steps. As regards the low paid, I believe that he still has a major problem, with social security benefits rising substantially faster than tax thresholds. I understand that the limit for family income supplement is now about £2,500 a year for a married man with two small children, and the same person's tax threshold stands at £1,800. Thus, there is still a major problem for any Chancellor to tackle, and in the year 1978–79 it will become worse by £166 as a result of the change to child benefit.

In these circumstances, one has to view with some scepticism the Chancellor's assertion that he has honoured his pledge about adjusting for inflation in personal allowances, unless he intends in his next Budget to make the poverty trap worse rather than better, which I should regard as disastrous.

We have already discussed the question of taxation and incentives at length. It is now established that a person on average earnings is in real after-tax terms worse off today than he was in 1973. But one has only to look at those on above average earnings, the sector in which the question of differentials principally arises, to see that their position is substantially worse. The trouble with our tax system is that when a person begins to move from average earnings to slightly above average earnings the rate of increase in direct taxation is what matters most to him. Moreover, many such people, especially in my constituency, have had substantial increases in their rates and commuter fares, and these people have been some of the worst affected over the past few years.

The third option I presented was doing something to help the self-employed and the small business man. Here, the tax structure has an even more important function. Not only do the self-employed have to live off their after-tax income, not only are they entitled to look to us for fairness, but they have to find the extra cash flow to keep their businesses going and prospering. There is a problem here. Business profits have fallen in real terms from about 7.4 per cent. in 1973 to about 3.6 per cent. return on capital employed in 1976. Thus, with a marginal rate of tax of about 50 per cent. the self-employed and the small business man is left with less than 2 per cent. to finance expansion, to meet inflation and to fund risk-taking and all the other things which go with it. No one could justify that pathetic basis for financing this country's trade and commerce.

In this context, the working of our taxation system is crucial for the unincorporated business. The Government have made some proposals here. They are rather vague in detail, but some of them seem encouraging. First, I gather that they propose to raise the level of earnings of a close company which are exempt from apportionment on its members. That is not in the present Bill, but it should be brought into consideration. In other words, this is to increase the level at which shortfall assessments apply.

It is right that the Government should do something in that respect as soon as possible, but I put two points to them. It is not, in fact, a concession to small businesses. It is the ending of a discrimination which small businesses have suffered for some time. Second—this will apply to all such changes of taxation—it is bound to increase somewhat the Inland Revenue's worries about avoidance.

I have no doubt that the Inland Revenue will rightly tell the Government about that, but it is up to the Chancellor and the Government to make a judgment. How much abuse will there be, and how much of a burden will be put on the great bulk of taxpayers as a result of the extra restrictions which the Inland Revenue will almost certainly try to introduce for the sake of stopping what may well be only a small measure of avoidance? The Government have to consider the revenue loss, but they should consider also the cost to the Inland Revenue of collecting the tax and, more especially, the cost to the taxpayer of complying with the legislation.

All the Government's answers on a number of taxation questions raised during the past few months have, in general, exhibited one weakness. They have been highly unconvincing in their approach to compliance by the taxpayer and the view which the Inland Revenue will take. They ought to look more carefully at this and elicit more substantiation from the Inland Revenue in he matter of these costs, and they ought also, I suggest, to consult the professional bodies, which could give them some guidance on the heavy burden of compliance costs under our tax system.

There is a second proposal worthy of some thought. Consideration is being given to help for small traders so that they can carry back losses against earlier income, such as income they may have had from employment before becoming self-employed. I am sure that that is an improvement, but the argument is just as strong in respect of existing small traders being able to carry back losses further than they can at the moment against existing income. As I say, that applies to this type of trader just as much as it does to one who moves from employment to self-employment. It is worthy of greater study, and that study should include also the question of carrying back capital allowances as well as just losses.

I cannot say that the Government are wrong in their present proposal to direct the bulk of this small amount of tax relief to increases in personal allowances, but the fact that one has to come to that conclusion when there are many other sectors urgently in need of tax relief is the biggest condemnation of this Government that one could bring to bear. Therefore, any talk of a spectacular improvement in the economy is moonshine.

The biggest criticism of the Chancellor is that he finds himself in this position after the Government have been in office nearly four years and when in 10 out of the past 40 years there have been Socialist Governments. That is a damning indictment of the Socialists' management of our economy.

7.10 p.m.

Mr. John Ryman (Blyth)

I have listened with astonishment to part of this debate. I have been astonished by the Government's complacency and I have been astonished by the Opposition's impertinence.

I listened with very great interest to the speech of the hon. and learned Member for Dover and Deal (Mr. Rees). I congratulate him on having made what was, I believe, his first appearance on the Front Bench as a Shadow Treasury spokesman. He is a gentleman who is very learned and is a most distinguished member of the Bar, specialising in Revenue matters. There are very few distinguished members of the Bar in the House at present.

I have great respect for the hon. and learned Gentleman's learning and erudition, but the partisan political flavour which he injected into his speech towards the end deprived the House of the value of some of his comments, because we were left with the distinct impression that he was seeking to make cheap party political points rather than a serious contribution and a critical, constructive view of the Government's attitude on tax relief.

I was astonished by the Government's complacency because they, having made a derisory effort in income tax reduction, have left the most serious problems of our time untouched. It is most important to try to focus attention on some of these problems now devoid of partisan political speeches but bringing pressure to bear upon the Government to channel help where it is most needed.

Lack of encouragement for investment has been spoken about and it is a key to the unemployment problem in the North-East, where my constituency is. Business men will never be persuaded to invest unless they get a decent return on their capital. That is a good Socialist policy which I strongly support. There are many companies in my constituency which have made men and women redundant because the companies are not getting a sufficient return on their capital. There are many multinational companies in the North-East, particularly American companies, and it is not worth their while commercially to invest in the North-East because they do not get a sufficient return on their capital. They are going to Europe, to California, to South America, to the Near East. They are not investing in the United Kingdom. It is simply not worth their while to do so. The result is that there will be fewer jobs than ever in the North-East.

I have had talks with industrialists from many reputable companies and they say that they have serious thoughts about not investing next year when they had originally planned to do so. The North-East is now one of the areas of the country where the problem of unemployment is greatest.

What is now required—surely we can all agree on this—is to cut the level of direct taxation to such an extent as to provide an encouragement and a stimulus for all taxpayers to work harder because at the end of the day they will keep more money. People work for money. It is as simple as that. It is no use fiddling around with a 1 per cent. reduction of income tax, because that is absolutely footling.

The trouble about this Government and their awful complacency is that one gets ridiculous letters from the Chancellor and from the Financial Secretary, but they are completely lacking in flair and originality. They are not only prisoners of the International Monetary Fund. The Chancellor is the prisoner of the Treasury. Any remedy that is introduced by this Government, as on previous occasions by the Tory Government, totally lacks in imagination.

This Government must have the guts to cut direct taxation substantially. That can be done in a number of ways. Also, the Government must have the courage to abolish the ridiculous distinction, which I have never understood and which I still do not understand after about 12 public speeches, between unearned income, so called, and earned income. I do not understand what merit there is in an investment surcharge which seeks to tax at a higher rate money from investments which has been earned either by the receiver of that money or by somebody else. I cannot see any distinction between so called unearned income and earned income, because unearned income has been earned either by the recipient or by somebody else.

I know dozens of cases in my constituency of elderly people in dire financial straits living on small incomes from investments. They are taxed to the hilt and do not have sufficient money to pay for the necessities of life.

Mr. Budgen

The hon. Gentleman described his views earlier as being good Socialist views. Will he tell the House whether that particular view, which will certainly be warmly embraced by most hon. Members on this side of the House, is also to be described as a good Socialist view, and, if so, when he expects to see it in the Labour Party manifesto?

Mr. Ryman

I am indebted to the hon. Gentleman, whose intervention was articulate, if not particularly helpful. I have sought to make the point that we should try to take partisan party politics out of this debate and try to approach the matter on merit. I would encourage the Government and the Tory Party to do so.

The Tory Party I describe as impertinent because the hon. and learned Member for Dover and Deal, in his penultimate peroration from the Front Bench, talked about the necessity to reduce taxation—capital gains tax, capital transfer tax and other forms of taxation. Yet it was his party that introduced capital gains tax in the first place.

The Finance Act 1962—a copy of which I have in my hand, quite by chance—introduced the short-term capital gains tax in table 10 of a schedule to that Act. It was a Conservative Administration—I believe that the Chancellor was then that distinguished gentleman Mr. Selwyn Lloyd—who introduced a short-term capital gains tax for the first time in the history of this country.

It is absolute nonsense for the Tory Party to criticise tax on capital gains—which in my opinion are far too high, anyway—at 30 per cent. when it was the Tories themselves who introduced the tax in the first place in a different form.

Mr. Nicholas Edwards (Pembroke)

In the interests of non-partisanship, accuracy and so on, may I urge the hon. Gentleman carefully to study the Finance Act 1962, which he has with him? He will then see that what Mr. Selwyn Lloyd, as he then was, introduced was an extension of income tax to cover certain limited classes of short-term speculative gain. That is a totally different thing from an overall capital gains tax which makes no allowance for inflation, which lasts for ever—the gains can be taxed, however old they are—and which covers virtually every class of asset. That is a capital gains tax itself, whereas what the former Mr. Selwyn Lloyd introduced was a limited extension of income tax because the Revenue had had difficulty in collecting tax on certain speculative gains. The opinion of the Revenue—whether it was right or not is another matter—was that there was a certain loss of revenue from avoidance in this way.

Mr. Ryman

With great respect to the hon. Gentleman, he is not quite right. Of course there is a distinction between the short-term capital gains tax introduced by Mr. Selwyn Lloyd and the capital gains tax introduced by the Chancellor in the 1975 Budget, but the principle is the same. In 1962, for the first time in the history of this country, certain capital gains were treated as income for tax purposes if made within a certain period of time and were not allowable for relief against tax liability. That is what it comes down to. I shall not engage in this esoteric argument much longer, although I am sure that the hon. Member for Pembroke (Mr. Edwards) has many valuable points that he could make. Capital gains tax—although, I agree, in a distinguishable form that was different from the 1975 tax—was introduced by a Tory Government.

I want to make a point about something quite different. What are the Government doing about the many tax anomalies that exist? What about widows? Appalling hardship is suffered by widows, whether war widows, industrial widows or any other widows, under the present tax system. The Chancellor has received many representations from widows' organisations, many individuals and hon. Members. I have had endless correspondence with my right hon. Friend about it. The only reply that one receives, year in and year out, is that there is generally Treasury sympathy for widows, but there is no specific action of any kind. Only yesterday I received a letter from the Financial Secretary to the Treasury saying that the Government were not willing to put widows in a different tax position from that of the ordinary taxpayer.

The Government must act in this matter now. There is no need for me to go into detail, because the facts are only too well known. The hardship suffered by widows as a result of the present tax system is impossible to describe sufficiently well. We hear stories of hardship, deprivation and poverty suffered by widows in many parts of the country, and particularly in the North-East.

There will be more widows as the years roll by because, according to the insurance companies, women live longer than men and the development of modern medicine means that there will be an ageing population. In any event, there will be more widows around. Therefore, if the policies of this Government and their predecessors are pursued, widows will be poorer. That will be a disgraceful state of affairs.

It is extraordinary that, in spite of the partisan speeches that we have heard from both sides of the House—and we have heard a lot of twaddle from both sides—there are still a lot of rich people about. In spite of the incidence of high taxation, which I deeply deplore, there are still people about who can spend a great deal of money. How is it that in 1977, when the Government are grinding the faces of the poor and the workers, there are still people swanning up and down the country living in enormous opulence?

I suggest that there are several reasons why certain people are still living extremely well when the majority of us cannot manage within the ambit of the present tax system. It is unfair, and it causes disparity and great hardship to the general taxpayer. One of the reasons is that as often as not anybody in a cash business is, to put it bluntly, "on the fiddle" with the inspector of taxes. The Government and the inspectors of taxes should address their minds much more forcibly to tax evasion, because cash businesses—whether launderettes, greengrocers, horse dealers or second-hand car dealers—are often involved in an absolutely astronomic amount of tax evasion. My limited experience in revenue matters leads me to the view that the Inland Revenue is well aware of the problem with cash businesses which avoid the tax net and that there must be enormous loss to the Revenue as a result of such evasion. Yet tax inspectors are not doing anything effective. If they need further powers, they should say so and come to the House. If not, they should enforce the existing laws more rigidly. If a large body of people avoid tax illegally, it inevitably means that the other taxpayers, who pay their taxes lawfully and whose tax is deducted through PAYE, have to pay more.

Mr. Budgen

Will the hon. Gentleman explain what encroachments on individual liberty he has in mind? Is he suggesting that there should be a right for the Inland Revenue to enter houses without warrant, to demand to see the books at any time, to go to a citizen's house at night and get him out of bed? Perhaps he could explain how that would be consistent with some of the views he has put forward.

Mr. Ryman

The hon. Gentleman, who is on the right of his party, always comes along with such extraordinary suggestions. I do not know whether he is trying to be naive or whether he cannot help it. I am advocating only that the Inland Revenue should scrutinise more carefully the returns that are made by cash businesses and, if necessary, challenge them more rigorously. None of the Draconian or Gestapo-like powers advocated by the hon. Gentleman are necessary. More common sense and a more realistic approach by tax inspectors is necessary.

I do not know whether the hon. Gentleman has ever had experience of running a fish and chip shop or such an enterprise as a fruit and vegetable market stall, a taxi or a horse-dealing business. Such businesses make negligible returns, and no tax inspector should accept such figures without further investigation. It is jolly unfair that there are many people who fiddle their tax returns so that the rest of us have to pay more.

Another category of people who swan around and live like kings these days, while the rest of us are all grinding away and paying huge sums of tax is those who own their own companies. They live off their companies instead of for them, and the companies subsidise the directors and provide private comforts for them. There are dozens of cases known to the Inland Revenue in which directors of private companies, particulary in industries such as construction, spend a great deal of money on their own pleasures, comforts and standard of living that they would not be able to spend if they were not using the resources of the company—whether those resources are company cars, company workmen doing up their houses, or expensive accounts in connection with entertainment. A step was made several years ago to try to control this more rigorously.

Companies have people on the payroll who are, in fact, girl friends or the wives of owners and who do not contribute a single sensible thing to the welfare of the company. It I were a shareholder in such a company, I should object strongly. The Inland Revenue knows of a wealth of such devices and schemes, yet often the tax inspector merely raises an eyebrow and does nothing about it whatsoever. Why is that? On the one hand, inspectors of taxes are tyrants who hound small people in an extraordinary way. This is not a laughing matter, because I have heard of cases at my constituency surgeries of widows and poor people who have been hounded over negligible sums while, on the other hand, company directors are swarming around at the Carlton in Cannes and in Rolls-Royces at Ascot, living in a way that they could not possibly afford if they were paying their proper rate of tax. It is all most unsatisfactory and it is not funny, because the tax system will work only if it is fair and is seen to be so. The disparity of treatment of taxpayers by inspectors of taxes is inherently unfair.

This country is now, unfortunately, developing an attitude rather like that held by the Poujadistes in France at one time, because it is becoming clever to diddle the taxman. We are basically an honest people. Tax attitudes of this sort are encouraging normally honest people to become dishonest. That is a most undesirable state of affairs.

What is the Treasury doing about it? The Treasury is utterly wet and feeble and does absolutely nothing. The Government are utterly wet and feeble. They have no imagination, no flair and no guts. They simply have conventional attitudes to taxation—drinks, cigarettes and things of that kind.

Why on earth cannot the matter be tackled vigorously and with imagination? Why on earth cannot we cut direct taxation substantially and reward the people who work hard? Men and women in my constituency are in an intolerable position. Women work hard because they have to. If they do not work, the household does not have sufficient money coming in for the necessities of life. It is not pin money. It is not luxuries that they buy. They work because without the wife's income there is insufficient money coming into the household to pay for the essentials of life.

Yet one has this ludicrous position where husbands and wives, whether jointly or separately assessed, are lumped together for the purpose of direct taxation. What possible incentive is that for a women to go out to work or for a married woman, perhaps when she has had her children, to go back to work? She might be a teacher whose service and experience is invaluable to the community. But what incentive does she have to go out to work when at the end of the day the taxation burden is so terribly high?

I do not want to take up any more time. I am sorry that I have spoken so long already. I am not an expert on these matters. I am simply reflecting the views of the ordinary oppressed taxpayer. We are now in a situation where it is high time that the Government pulled out their finger and dealt vigorously with these abuses.

7.32 p.m.

Mr. Nick Budgen (Wolverhampton, South-West)

Much though I enjoyed the vigorous and uniquely Socialist contribution—I am sure he would describe it as such—of the hon. Member for Blyth (Mr. Ryman), I shall not take up the point that he makes, even though it would be in my interest to do so. I understand that the hon. Gentleman wants some form of differential treatment by the Revenue as between those who are at the Bar and those who may be directors of companies. None the less, perhaps the hon. Gentleman will forgive me if I return to the arguments touched upon briefly by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) which were dealt with at more length, but with much greater inconsistency, by the hon. Member for Cornwall, North (Mr. Pardoe).

It was, I recall, the staple diet of politicians during the period from 1974 to 1975 and, indeed, the early part of 1976 to be talking incessantly about the size of the public sector borrowing requirement. It is remarkable, when we look at what was said by the Chancellor on 10th November, that there was very little serious discussion about the best and most safe size of the public sector borrowing requirement.

I agree with my hon. Friend the Member for Cirencester and Tewkesbury. I, too, would wish to see the public sector borrowing requirement reduced. It was remarkable that throughout 1974, 1975 and 1976 the great debate was whether it was safe to cut the public sector borrowing requirement quickly, or whether the difficult financial situation in which we found ourselves necessitated a gradual and phased reduction of the public sector borrowing requirement.

The oddity is that when we were in difficult times it was said that it was too difficult then to cut dramatically the public sector borrowing requirement. Now, of course, with trumpets blaring the Chancellor is saying that everything is going well in the financial sector. He is saying that he has obtained the support and approval of the financial markets and of those who run the great banks of the world. Now, he says, there is no need to reduce the public sector borrowing requirement. I contend that he is wholly wrong.

He is as unhappily inconsistent as the hon. Member for Cornwall, North. The hon. Member for Cornwall, North, is so inconsistent—and so inclined to read with approval the latest article which happens to tie in with his current political position—that he brings no distinction and no consistent thread to anything which he says about the economy. On the one hand, the hon. Gentleman bashed the monetarist line and the mistakes made by Lord Barber. With that I entirely agree. But at the same time he says with the voice of a vigorous Keynesian "I want to see the public sector borrowing requirement revalorised and expanded this year."

The hon. Gentleman did not explain how that is safe or consistent with the view that he put forward in the earlier paragraphs of his speech when bashing Lord Barber. But, of course, it is consistent with the pact. It is consistent with what he wants to say in support of the present Administration. It may be very consistent if we find that in the spring the Chancellor is expanding the public sector borrowing requirement with a view to winning the next General Election. Then, no doubt, if he decides that he wishes to see a pact between the Liberals and the Labour Party renewed, the hon. Member for Cornwall, North will be able to say "Look back to my tremendously far-seeing speech of 17th November when I, too, said that there was a prime necessity to increase the public sector borrowing requirement." Indeed, the hon. Gentleman might say next Spring "I want you to know that I have made representations to the Chancellor". If the Chancellor increases the public sector borrowing requirement, the hon. Member for Cornwall, North will be able to say "The Chancellor is doing it because I told him to do it." The fact is that the hon. Gentleman, with all the vigour and vulgarity of his political debate, is wholly inconsistent. There is no sort of philosophy or consistent theme in any of his comments with regard to the way in which the economy is managed.

Let me say a word or two about the way in which the Chancellor is at present contending that he has done so well. Yes, he has done very well. Yes, he has demonstrated that much is possible. It is remarkable the way in which public expenditure has been brought under control by the cash limits which for so long and so consistently were advocated by Opposition Members who take an interest in these matters. Yes, the Chancellor has been remarkably successful in reducing the subsidies that were previously paid to the public services with the exception of the nationalised industries, such as steel and British Leyland.

In a number of areas the Chancellor has been remarkably successful in cutting public expenditure. But more could be done. For instance, he is not prepared to increase the level of council house rents. He is not prepared to do anything about the continuing subsidies to the steel industry and to British Leyland. He is not prepared to say what he no doubt knows to be the case, that most of the jobs which are being conjured out of nowhere in non-productive activity, such as cleaning up graveyards, will have no real effect upon the wealth of this country and will not provide opportunities for continuing employment for our young people.

The reality of the situation is this. We are now up to the outer edge of the IMF money supply constraint of an increase of between 9 per cent. and 13 per cent. There is a real danger that the money supply may once again get out of hand, possibly before next spring. The crucial point is whether the PSBR will be allowed to get substantially out of hand in the period after next spring.

I urge the Chancellor to say now that he has a plan for a reduction of the PSBR. I do not ask him to say that he will necessarily do it in one year, or even in two years. But one of the constituent parts of encouraging confidence in our financial markets has been to say that there will be a money supply constraint, and for the Bank of England to say that it regards the money supply constraint as a highly important factor in the management of the economy. So in the same way confidence would be vastly increased if the Chancellor were prepared to say that he had a definite plan for the gradual and consistent reduction of the PSBR. That would make it clear to everyone that the money supply promise was going to be kept.

In the next few months there will be a substantial cut in direct taxation. It would be done, I suspect, whichever party was in power. If the Conservatives were in power, I am sure that there would be an immediate cut in the present levels of income tax. The Minister is mumbling about the danger of reflation, and he is right. It is safe to reduce direct taxation only if there is in prospect a substantial reduction in public expenditure.

The situation is even more dangerous because when there is that reduction in direct taxation it will probably bring eventually in its train a substantial stimulus to the economy. As the hon. Member for Blyth said, in what he no doubt would characterise as a Socialist speech, people at least partly work for money. If there is a stimulus by extra effort throughout the country, so there will be an increased demand for financial resources.

So the Government will find it more difficult to borrow money from the non-banking public. We shall then be back in the old dilemma of deciding whether to increase interest rates or print money. As the hon. Member for Blyth so wisely said, investment decisions are taken on the basis of what is a proper net return on capital. That is decided partly by the cost of borrowing money, but partly also on the reduction of return by taxation.

I urge the Chancedllor to announce now that it is his continuing prime responsibility to reduce inflation and that it is his desire and intention to do this by gradual and continuous reduction of the PSBR.

There remains one great uncertainty that the Chancellor relies upon as though it were a total certainty. Everyone has trumpeted the importance of North Sea oil. Of course, it is important for the way in which it gives us a great potential surplus on our balance of payments. But to those of us who believe in free and floating exchange rates that is not so important. It is most important, however, for the increased revenue that it brings in.

All the calculations that are made about the revenue and the balance of payments effects of North Sea oil are based upon a continuance by OPEC of its present pricing policy. At the end of 1973 the nation was totally caught out by the quadruple increase in oil prices. It went completely against the conventional wisdom which believed that cheap oil was here for ever. I wonder whether we might be caught out again. Will the OPEC cartel break? Might we be back in a world of cheap oil? If so, we have to face the fact that we as a nation are just as dependent upon a high world price for oil as are the Arab States. In that way all our calculations could go wrong.

Our PSBR could be increased by £2 billion overnight by a change in the price of oil. I hope that I am wrong about that. But the only safe posture is to reduce gradually and purposefully the PSBR. We do not need to go as far as Mr. Roy Jenkins went and have a budget surplus, as we had just before the 1970 General Election, of £1 billion. But if we get back slowly and steadily to a balanced budget the proud boast that all Labour Chancellors think that they are more conservative than the Tories will have been honoured and we shall be back in a posture from which we can properly say that inflation has been halted.

7.48 p.m.

Mr. William Hamilton (Fife, Central)

We on the Labour Benches are always amused when the Conservatives launch their attacks on our Liberal friends. I was interested when the hon. Member for Wolverhampton, South-West (Mr. Budgen) attacked the hon. Member for Cornwall, North (Mr. Pardoe) on various propositions that he put forward, and complained about his inconsistency. I do not think that any hon. Member can afford to attack any other on those grounds. If we consider the matter, most of us, whether on devolution, the Common Market, or any other major issue, have changed our minds in one way or another. It is not a bad thing to change one's minds. The evil is to refuse to concede that one has.

Mr. Budgen

The hon. Member for Cornwall, North (Mr. Pardoe) changed his mind in the same speech.

Mr. Hamilton

Yes, and the hon. Member for Wolverhampton, South-West has done precisely that, too. Let me pose a problem to him. He talked about subsidies to the steel industry, to British Leyland and on council house rents and building. The implication of that is surely that the Conservative Party would eliminate or substantially reduce those subsidies in some or all of these areas. I hope that the Conservatives will spell that out very clearly and follow it through in all its implications. Those implications are substantially increased council house rents and substantially increased unemployment in the steel industry and the car industry, and in several other ways. There would be very important and wholly unacceptable social, economic and political side effects.

This is one of the dilemmas that we are facing in this country. Most of us agree that there is evidence of substantial over-manning, not only in the public sector of industry but in the private sector. It is very easy to pose the problems but extremely difficult to suggest any socially and politically acceptable solutions to them, because we are dealing with the lives and livelihoods of ordinary working me and women and their families.

It is extremely difficult to solve these problems. My right hon. and hon. Friends do not need any lectures on how to deal with industrial relations, problems of investment, and so on. Every Opposition Front Bench speaker speaks with a forked tongue. At every Question Time, from Monday to Thursday, Back Bench and Front Bench Opposition Members complain about shortages of hospital facilities, shortages in road provision and, individually and collectively, they demand more public expenditure in one form or another, as do my hon. Friends. At the same time Opposition Members, while they are in favour of all these things, urge more substantial reductions in taxation. The two simply do not go together.

We can tell the public that if they do without new hospitals and make do with slum schools, if they do without all the things that my right hon. Friend the Member for Blackburn (Mrs. Castle) called the social wage, we shall be able to reduce taxation. But we cannot do both. The public must choose in these matters. It is a great pity that more hon. Members do not take the opportunity that this Bill provides to encourage a much broader discussion of taxation and the whole economy. Everybody welcomes the Bill—

Sir B. Rhys Williams


Mr. Hamilton

I am glad that the hon. Gentleman says that he does not welcome the Bill. I should like to hear what amendments he would like. He will prob- ably say that more should have been done or that the money should have been spent in other directions. It comes back to the principle of priorities. This is a matter of political judgment, not only between the two sides of the House but between individuals within the political parties.

On one subject on which I hope to speak my priorities differ violently from those of the Government. It can always be argued that the money that has been made available by tax concessions might have been spent to better advantage in other directions. My right hon. Friend the Member for Blackburn indicated that that was her belief, too.

On this point I would accept that the Government have erred on the side of caution. When my right hon. Friend the Chancellor of the Exchequer made his announcement, the criticism was made that he had not been over-generous and could have gone much further. But we were at the beginning of a crucial phase of incomes policy and it was right to say "We have given the amber light and if we get a responsible commitment by trade unions and employers on wages and prices, we can be a mite more generous come the April Budget." Surely this was a sensible course to take, not only on the basis of incomes but—probably more important—on the basis of productivity.

Several hon. Members have talked about the need for investment, but that investment is no use unless it results in increased productivity. There is not much evidence that our investment record is much worse than that of our competitors in terms of total investment. The big difference is that the productivity resulting from investment in this country is very bad compared with productivity in Germany, Japan and most of our other competitors.

I wish to refer to what the hon. Member for Kensington (Sir B. Rhys Williams) said when he disapproved of the way in which the available money is to be spent by this Bill. I believe that for the Labour Party the redistribution of the national wealth in favour of those at the lower end of the scale must be the motivation of every Budget and every fiscal measure that we take. That redistribution exercise is not achieved by fiscal measures alone. One does not simply juggle with the tax system to achieve that end.

I wish to re-emphasise a point made by my right hon. Friend the Member for Blackburn, namely, the importance of the social wage, not only for workpeople on the factory floor but for middle-class people. Far more important than tax concessions—or as important—is the quality of the school to which one sends one's children, the quality of the hospital to which one goes when one needs hospital treatment, or the quality of provision for old people who have no bargaining power.

The quality of the social services, which we have taken far too much for granted for far too long, costs increasing amounts of cash. These are the things which, more than most, safeguard and improve the quality of life of most people who simply could not go into the market and buy these things on a private basis. This is the great gulf, the great ideological gap, between the Tory Party and the Labour Party. We in the Labour Party believe passionately that we have to provide more and more facilities and more public housing, education, hospitals, health services and the like. Less and less should these services be dependent on the depth of one's purse.

The Tories take the opposite view, and say so consistently. They say that more money should be left in the pocket of the private individual, because the less one taxes people, the more they can spend on the education of their children and on health provision. But that means the law of the jungle. The Tories are entitled to that view, but they cannot expect us in the Labour Party to accept it.

On the contrary, I believe that there is great merit in increasing public expenditure. I have told the Government that one of the first things that should be done in the next Budget is to get rid of the public expenditure cuts in health services, in education and in the other sectors of which I have spoken, because the people who support us depend more than supporters of the Tory Party on the provision of those services. People who depend on the National Health Service and on the State sector of education cannot be classified as rich but, unfortunately, they have been clobbered most by inflation, by the very high marginal rates of tax and by the public expenditure cuts.

This Bill is exclusively about tax concessions. I do not complain about that. That is the purpose of the exercise.

But the Tory Party as a whole—I presume that the hon. Member for Kensington is the odd man out in the sense that he is complaining about the priorities—is complaining that the tax cuts are either not big enough or are going to the wrong people.

One of my hon. Friends referred earlier to the man who, at the conference in Brighton of the Confederation of British Industry, was complaining about the penal taxation on his income of about £30,000 a year. He was left with £11,000 net, out of which he could not afford a £2,000 package holiday. I grieve for him but I suppose he will have to endure his lot as best he can. But the Tory Party pays more attention to him than to the kind of people I represent. The Tory Party's dishonesty is blatant, and it is seen through by most of the electorate.

The Tory Party cannot talk about tax concessions at the same time as it is arguing vehemently for enormous increases in defence expenditure. When the police were agitating for their pay increase, the Tory Party said "Give them what they want." I am not quite sure where the Tory Party stands in relation to the firemen. I was among the 58 who voted for the motion for the Adjournment of the House when the firemen's strike was debated. It was partly because I think they have a case and also for a reason that I shall come to in a moment. But the Tories simply cannot say honestly that they will increase public expenditure on defence and in other areas while at the same time pretending that they can enormously reduce taxation.

At my weekend surgeries the most common complaint is about taxation. Ordinary working people come to me partly because their tax forms are incomprehensible to them and also because of the enormous delay in dealing with them by the computer at East Kilbride. They also come to me because of the high rates of taxation, which start at a very low level of income.

It makes my blood boil when I have to listen to widows and married women, or separated people, complaining about enormous tax burdens, and then I find that some people in this country are not paying either taxes or rates. There are some people who are fortunate enough to be in that position, and I shall refer to them in a moment. I shall not make any criticism of the individuals concerned. If I did, I should immediately be called to order. I am criticising the Government for what they have done.

I received a Written Answer to a Written Question on the Civil List on 8th November 1977. The information would not otherwise have been available from the Government. I find that in itself quite sinister and quite unacceptable. When these increases are made, the Government should feel a commitment to make a public statement that they have been made, without a curious fellow such as myself having to put down a Question.

I make no assertions against the people concerned, but these are the figures that were given to me in the Written Answer. The Queen Mother received £95,000 a year tax-free in 1975. That has gone up in 1977 to £155,000 a year. That is £3,000 every week, and a 60 per cent. increase in two years by a Labour Government committed to redistributing the national wealth on some basis of equity.

The Duke of Edinburgh—he is always telling us to get our fingers out and to increase our productivity and the rest—was labouring on £65,000 a year in 1975. That figure has now gone up to £85,000 a year—a 30 per cent. increase in two years. We should remember that in these two years the Government were asking all the workers in the country to restrain themselves to a £4 increase.

I think that we are all glad that Princess Anne has been safely delivered of her child. Perhaps that is why she received a £5,000 increase. She was getting £35,000 a year in 1975, and this year she is getting £55,000 a year, tax-free. That is an increase of 57 per cent. in two years.

Mr. Peter Bottomley

It is £50,000, not £55,000.

Mr. Hamilton

I am sorry. The hon. Gentleman is quite right. It is £50,000. I was looking at the wrong person. I was being too generous to her. The Government saw fit to give her only £50,000. It was an increase of £5,000–30 per cent.—over the previous year.

Princess Margaret received £35,000 a year in 1975. That figure was increased to £55,000 in 1977—an increase of 57 per cent. Princess Anne's was only a measly 30 per cent. in two years.

Princess Alice, the Duchess of Gloucester, was paid £20,000 in 1975 and she received £25,000 in 1977—an increase of 25 per cent.

When we look at the amount payable by the Royal Trustees under Section 3 of the Civil List Act 1972, we find that the Duke of Gloucester was getting £15,000 completely tax free, as all these sums are, in 1975. He is now in receipt of £26,000—an increase of 70 per cent. in two years.

The Duke of Kent received £35,000 in 1975. That was increased to £48,000 in 1977—an increase of 38 per cent.

Princess Alexandra is a charming young lady, but who would not be charming on these figures? She received £30,000 in 1975, and £50,000 in 1977—an increase of 66 per cent.

Mr. Peter Bottomley

Will the hon. Gentleman do the House the courtesy of reading out the note in relation to these figures?

Mr. Hamilton

I wish that hon. Members would not be so predictable. Every time that these increases take place it is said that the Queen hands out these fiddling little sums to the Duke of Gloucester, the Duke of Kent, and so on out of her public pocket. But where does she get it from? She gets it from the public purse and from the enormous tax concessions given by the Government.

I believe that it is obscene and indefensible for my Government, my party, to be doing this when trying to redistribute the national wealth in the cause of equity. I do not believe that it is done under pressure from these people. I do not believe that they are greedy. There is no need for them to be greedy when they have a silly, soppy Government like mine ready to dole out the money.

But at the same time the Government are telling the miners, the firemen, the steelworkers and the police that they cannot have what they want because the country has to get out of its difficulties. I accept that there is great merit in that argument, yet at the same time the Government pay out these large sums of money to these other people. Psychologically, it does a great deal of damage to what we are trying to do for the economy as a whole.

Let my hon. Friend the Minister of State convey this message to the Prime Minister, who sought to get cheers from the Tory Party at my expense when I put a supplementary question last week. He said that 70 per cent. of these increases were due to the wages of the staff. Of course they were, and I do not object to that. I am objecting to the annuitants. Let not the Prime Minister or any other Minister every try to make a cheap jibs at my expense and get cheers from the Tory Party, because I shall not stand for it without public protest in this House and outside.

Mr. Kilroy-Silk

In fairness, my hon. Friend should recall that the Prime Minister also pointed out that some of the money given to the Royal Family this year was to cover the expenses of the Jubilee. Fine! But if that is the case, my hon. Friend has to watch carefully to ensure that expenses for the Jubilee are not given next year as well.

Mr. Hamilton

The point is well made. I suspect that it will not happen. Indeed, I would bet my last halfpenny that it will not. But the present Government are even more generous than a Tory Government in these matters.

All this will not do. All the letters that I have received on the matter indicate that there is a vast volume of opinion in the country supporting these views. The Prime Minister and the Chancellor of the Exchequer should not assume that the great mass of the public are in favour of these sums. Whatever might be said about the Head of State, there is no defence for sums of the size paid to the particular individuals I have indicated.

I can let the Minister of State see the letters I have had on the matter. They rate about 80 per cent. in my favour. I am not surprised. A lot of them come from constituencies represented in this House by Tory Members, although I concede that the writers may be Labour voters.

But some of the most radical people in these matters are country vicars. They are a radical element in the country mainly because they find it difficult to make ends meet and find this sort of payment obscene in the present situation of the country. They regard it as their task to encourage the spirit, and yet they find the materialists on this list putting their hands deep into the public purse. It is indefensible.

If there had been a vote on this Bill tonight, I would have voted against it because of these provisions. Whenever I get a chance to vote against the Government, so long as these obscenities prevail—

Mr. Peter Bottomley

What about last night?

Mr. Hamilton

The hon. Gentleman must leave it to me to choose my targets.

A very important principle is involved here for a Labour Government. If we want to get the ordinary working people behind the policies we are pursuing, we have to be consistent in everything we do, and these huge increases to the Royal Family are a scandalous and indefensible inconsistency that has done a lot of damage out of all proportion to the sums involved.

It is no use the Minister of State saying that the sums involved are infinitesimal. That misses the whole point of the argument. It is the philosophy behind it which is important, and I hope that my hon. and learned Friend will not dismiss it as the meanderings of some kind of eccentric individual in this House—as I suspect that he may—brushing me off as someone who does not really matter and who has a bee in his bonnet. I have a bee in my bonnet, and until it is removed I shall not be supporting the Government very much.

8.14 p.m.

Mr. John MacGregor (Norfolk, South)

I do not wish to follow the last remarks of the hon. Member for Fife, Central (Mr. Hamilton), except to say that I thought that the Prime Minister, and other Ministers who responded to his Questions last week, caught the mood of the House much more than he did—and I say that not only of my right hon. and hon. Friends but, judging from the reactions that I could see, of hon. Members opposite as well.

But the hon. Gentleman's earlier remarks were more fundamental and fascinating and followed the same broad theme of many of his hon. Friends who have spoken in the debate. He said that it had to be appreciated that one could not look for higher public expenditure and a reduction of taxation at the same time, as though there were a generally static situation which meant that better public services, or higher income standards for the below-average earners could be achieved only by a further redistribution of wealth. He said that the redistribution of the national wealth must be the objective of every Budget.

In this he followed the right hon. Member for Blackburn (Mrs. Castle) when she talked about the necessity of a Labour Government reducing take-home pay. She asked "How do you provide all the public services, such as health, housing and education, except by reducing take-home pay?" That is a marvellous slogan for the Labour Party in the next General Election "Vote Labour and reduce your take-home pay again."

Mr. Kilroy-Silk

My right hon. Friend the Member for Blackburn (Mrs. Castle) is not here to defend herself, but I heard her clearly. She said nothing about reducing take-home pay. She made the relevant point that one should concentrate on making comparisons on take-home pay, not on gross pay. In no way did she say that we should attempt to decrease take-home pay.

Mr. MacGregor

We shall see from Hansard tomorrow. The right hon. Lady certainly gave the impression that reductions in take-home pay could be justified because with the social wage added on top it would be to the benefit of lower income groups. I thought that she also specifically said that reducing take-home pay was not therefore necessarily unreasonable.

That is certainly what has been happening in the last three and a half years. The hon. Member for Ormskirk (Mr. Kilroy-Silk) said, fairly, that he believed that Labour was the party of high taxation. Over the past three and a half years it has also been the party that has achieved much higher unemployment, reduced living standards, deterioration in certain public services, and no growth. We are still at the growth levels of the three-day week.

All hon. Members who put such a case should realise three things. The first is that, overall, over a period, we shall not achieve higher living standards all round unless we get extra wealth created—and that is one of the fundamental things missing in the last three and a half years, in accordance with the strategy of so many people speaking from the left wing of the Labour Party, and in their speeches today.

The second point is relevant to what was said by the hon. Member for Ormskirk about the gentleman who spoke at the CBI conference. The key point about redistribution of national wealth is that, at the top, there is very little room for further distribution of wealth if we are to create much additional revenue for extra public expenditure. That is apparrent from the yield figures—I leave aside comment about the effects of incentive and, therefore, on the creation of new wealth and new jobs.

The third point is a dilemma which has been facing the Government in the last year or so. If we go on increasing public expenditure—and we all want to see better public services—without getting the extra wealth, it is inevitable because there is little room left for redistribution of wealth, that the burden of the higher taxation will be felt by the average wage-earner and the below-average wage-earner, because that is where the great yield comes from. This point has been grasped by the Chancellor of the Exchequer and other Treasury Ministers in the past year, but it seems that the right hon. Member for Blackburn and others have still failed to recognise it.

This situation explains why the hon. Member for Fife, Central is getting in his surgery, as I am getting in mine, so many people who are by no means well off and who are frequently on very low incomes and who find the burden of taxation unacceptable. It disturbs me greatly also.

That is why I believe that those hon. Members who now think that we can go on concentrating on the social wage, irrespective of where the funds are raised to achieve it, are on the wrong course in the context of electoral response. So many people now say that it is the burden of high taxation that is affecting them—and that burden has been achieved by the failure to get extra growth. I am fascinated that we should have had the same old theme from hon. Members opposite in this debate. It must be very disturbing to the Treasury Ministers, for a reason to which I shall refer.

Before coming to my main theme, I want to put to the Minister of State two points which I hope he will be able to cover. The first is in relation to computerisation, to which I would not have referred had not the Financial Secretary done so. I had the impression that the Financial Secretary might not have been aware of what the Chairman of the Board of Inland Revenue said to the Public Accounts Committee.

According to the timetable set by the chairman, 1979 is the critical date for deciding the main elements of the tax system if there is to be computerisation. But 1979, in fiscal planning terms, is not very far away—as we know as we try to prepare for different tax changes every year. Therefore, it is critical for all of us in the House who are interested in these matters to know whether that timetable is correct and to know what kind of options are to be excluded from consideration of future major tax reforms by the end of the period in which we have had to make up our minds.

Some of us have been spending some considerable time looking at the future of the taxation system. I agree with the hon. Member for Fife, Central in his reference to the East Kilbride computer, because I know the problems that it has created for Scottish taxpayers. If the computer system is to be programmed correctly after 1979 and no major changes are thereafter possible, we need a major series of debates in the House about the implications before that date.

The second point that I wish to put relates to the matter to which my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) referred. That is the discovery that the yield this year from direct taxation mainly, would be £1.75 billion greater than was thought at the time of the March forecast. I think that we are due a more detailed explanation from Treasury Ministers than we have had so far. Indeed, we have had no explanation whatsoever from them, although we have had a brief explanation from some Treasury officials at the General Sub-Committee of the Public Expenditure Committee.

Such a large difference as this is of great importance to the House. It means, as I tried to point out to the hon. Member for Cornwall, North (Mr. Pardoe), that when one talks at the start of a tax year about the impossibility of introducing a tax change at Finance Bill Committee stage because of the cost of another £15 million, or the implications for public expenditure proposals in achieving savings here, there and everywhere of £50 million or £60 million a year, such changes are dwarfed by the fact of such fundamental changes in the forecasts about revenue yield within such a very short time.

Of course I accept that the £1.75 billion is a very small percentage of very large figures in the tax system. Nevertheless, whilst so much emphasis is put on the public sector borrowing requirement, if we get a situation within six months in which that key factor, the PSBR, is shifted by £1.75 billion simply because of a change in revenue forecasts about yield, obviously it is very important that we should understand why it has happened.

It may be that my hon. Friend the Member for Cirencester and Tewkesbury is quite right and that the Government have deliberately manipulated this situation in order to put themselves into a better posture both in this Budget and later on. If so, I think that we need to have that clearly put before the House. If not, we deserve a better explanation than we have had so far.

Incidentally, in passing I say that the hon. Member for Cornwall, North thought that to be able to introduce Budget changes on the basis of a change in forecasts in revenue yields was a "phoney" practice. If so, it means that this Budget, to which he is supposed to be allied through the Lib-Lab pact, is a "phoney" Budget.

I did not originally intend to participate in this debate, because I have spoken in many other Finance Bill debates. However, as I am about to take the same monastic vow of silence as my hon. Friend the Member for Blaby (Mr. Lawson) took last year, I should like now to make one or two comments on my experience. My hon. Friend took a very good monastic vow of silence which I hope to follow.

I want to comment on how the Budget looks in relation to the experience of many of us who have been through the proceedings of Finance Bills in the past three and a half years. I want to ask two questions. First, how permanent is the conversion of the Chancellor of the Exchequer, in his public comments and now in this Budget, to restoring some incentive to small businesses and to containing increases in direct taxation—I put it no higher than that, because that is all it is, to containing increases in direct taxation? How much has the leopard changed his spots? How much does the "tax till the pips squeak" Chancellor actually repent?

The only sign of even slight repentance that we have seen so far came from the Financial Secretary when he said that the Budget would "correct some of the anomalies that have arisen." Whose fault was it that the anomalies were created? Is the matter not very much wider than simply anomalies? Has the Chancellor been warned time and time again of the obvious final results which we are now experiencing of policies pursued by himself and his Treasury colleagues during these past three and a half years?

My second question is whether what the Government are doing is enough to remedy the current defects of the tax system and the disastrous economic effects of the course pursued on tax in the last three and a half years.

Dealing with the first question about a permanent conversion, we have almost implicitly had the answer to that question in the debate, because, whatever Treasury Ministers say, whatever the Chancellor has been trying to say, in public and here in the House, it is clear that a very large number of their own colleagues on the Back Benches do not go along with them.

Concerning help for small businesses, in the mini-Budget and to come later in legislative form, all that the Chancellor has been doing so far is to undo the damage of previous taxes introduced by himself and to remedy the ravages of inflation. I recall all the debates that we have had on the implications for small businesses of the capital transfer tax over the past two and a half years. I recall the Chief Secretary's constant resistance to the amendments that we were putting forward and his constant claims that what we were saying would be the ultimate effects in terms of damage was pie in the sky and that it would not have such effects. Gradually, bit by bit, we have seen some of the changes for which we have been calling, as he begins to realise the implications.

What worries me is that after a General Election, should the country have the misfortune of having the present Government returned, the hostility of so many of the right hon. Gentleman's colleagues on the Back Benches towards small businesses, wealth creators, and towards allowing anyone who has built up a business and created employment to retain some of that wealth, will again come out in full and we shall again see the attitude that we saw earlier in capital transfer tax debates.

There is, admittedly, some change. Some Labour Members have now realised that one of the major areas in which unemployment will be reduced is through extra jobs being created by small businesses. That realisation may mean that they will not, perhaps, be quite so hostile to small businesses in the future as they have been in the past. But I suspect that that realisation is not sufficient to outweigh the hostility which we have always seen and, therefore, that we shall not only not see the extra measures required—which I believe are not enough to help the small businesses—under a future Labour Government, but we might even see the extra measures already introduced cut back.

What has been done so far is not enough to deal with the problem for two reasons. First, in the past so many small businesses have obtained their original risk capital from individuals who had the wealth to invest, to take the risk and to hope for a higher rate of return in the long run. That kind of risk capital has not been replaced by the funds, but it is still necessary and these measures will not provide it. Secondly, extra measures are needed also because what has been done to raise the thresholds on apportionment is not enough to deal with the cash flow implications created for small businesses in times of high inflation.

I am even more alarmed about the proposal of changes in direct tax and the allowances as we have them in this Finance Bill. It may well be, and I accept this, that in the future a Labour Government will, for a period, continue indexing the basic personal allowances because they have become aware, as they have found from their surgeries—although we have been telling them for a long time—that unless this is done, the poverty trap problem will remain. Maybe we shall see that one element of direct taxation keep pace with inflation.

But I do not believe that we shall see in practical terms of policy the real changes in direct taxation elsewhere, the need for which the Chancellor has publicly said he recognises. There are two fundamental reasons for this.

First, Labour Back Benchers, especially on the Left, have made it clear that they are opposed to any increase in indirect taxation which would be required to make the real changes necessary in direct taxation, even given that public expenditure cuts are also achieved. Secondly, reductions in taxation at basic rates and higher rates, and increases in thresholds at the higher rates, which are necessary to restore the whole direct taxation system to some form of sanity, will simply be opopsed by large numbers of Labour Back Benchers, as hon. Members are acknowledging.

This is why I believe that this is not a permanent conversion and that the country cannot expect from any future Labour Government, after the election is out of the way, the achievement of the Chancellor's objectives in practice. These can only be achieved by a future Conservative Government.

Is what the Chancellor has done enough? Certainly it is not enough to keep pace with inflation. My hon. Friend the Member for Dover and Deal (Mr. Rees) quoted the figures in his opening speech. On the basic marriage allowance along another £107 would be required to restore the allowance to its 1973 level in real terms. We know that the changes are not enough to deal with the problem of direct tax rates in this country for the crucial managers, doctors, hospital consultants and even the university teachers whom we need so desperately. They are not enough to put us in a comparative position with our major competitors overseas. They are not enough to deal with current problems either.

I turn to the question of the poverty trap and those on below-average incomes. I recognise the changes made in tax allowances here will help to some extent. If one takes account of the 10 per cent. probably increase in earnings, the combination will help reduce the gap between those in work and those out of work. However, the changes are nowhere near enough yet to overcome the fundamental problem. They are only cushioning the allowances against inflation—that is, cushioning lower incomes groups against inflation. The differential is not sufficiently reduced, particularly taking account of the extra factors involved in being in work which have nothing to do with taxation.

For example, there is the cost of getting to work. I was talking recently to a Forestry Commission worker who had to travel 25 miles in his own car to work each day. That had to come out of his take-home pay which had been taxed. This expense alone in fact almost make it not worth his while to go to work. When I asked him why he did he said he went because he felt that he should do a job when it was offered to him. The failure to push the allowances up far enough means that this sort of problem still exists.

When, moreover, the enormous range of tax-free benefits which come with FIS and unemployment benefit or supplementary benefit are taken into account, the real differential in earnings and standard-of-living terms between somebody on £70 a week and someone on £44 or £45 a week is very little. This is the next problem looming up on this poverty trap question which will soon have to be tackled in some form or another.

The second major group one must consider in this context is the skilled workers. The Chancellor's strategy of appealing to them not to require too much restoration of differentials in terms of earnings because he is giving tax reliefs has not worked. I do believe that 4p off the basic tax rate—going back to the 30p basic rate which the Chancellor had when he came into office—would be a greater psychological benefit and would give much more real help in dealing with the problem of differentials of skilled and unskilled workers than anything else. This would be much better for his reason than all the changes in allowances on which this Bill is concentrating. So still have the bitterness, the higher wage demands, the moonlighting and the tax evasion that we have had in the last few years.

I turn next to the higher income groups, the managers in industry, the doctors and the rest, on whose behalf the Chancellor claims to speak. Nothing has been done for them at all, except that they will get a few more extra pounds in their pockets through the increase in allowances than will those on the basic rate. But it is not good enough to look only at cash figures. The key is to look at the heavy relative decline in their living standards and see how tax changes have ameliorated the situation. The answer is very little indeed.

Mr. Robert Sheldon

I do not want to make too much of the fact that the hon. Gentleman is shortly to become a Whip, but I am interested in how the hon. Gentleman reconciles his preference for a 4 per cent. reduction in basic rate compared with the need, as expressed by the Conservative Opposition, for the indexation of allowances to be the first and most important call on our resources.

Mr. MacGregor

I accept that not everything can be achieved in a single Budget. However, we Conservatives have not been responsible for the course of tax affairs and economic and public expenditure policy in the last three-and-a-half years, and these things cannot be done immediately. I was trying to make the point that if the Government feel that they have done a great deal to reverse the harm of the tax difficulties created in the last three-and-a-half years, they are wrong. They still have an enormous problem in overcoming the differentials as between the skilled and the unskilled, and that will be overcome only by dealing with the basic rate.

On the higher rates, even compared with 1974, it is clear that all the higher tax thresholds must be doubled, and this was revealed in a recent parliamentary answer. I accept there is nothing sacrosanct about going back to 1974, although when I examine some of the thresholds and the higher tax rates among our competitors overseas suspect we must do better than that. But the comparison with 1974 shows how far the Chancellor still has to go to get anywhere near the situation then. So the difficult problems for this group still exist.

Finally, there is the pension group. I concede that on this occasion the age allowance has been generous because it has got over the problem that faced the country last year in that some pensioners reliant on basic State pension alone were beginning to pay tax, for the very first time. But there are a large number of other pensioner groups who are facing difficulties in their own way, which the Chancellor has not tackled. I refer to those who have built up modest investment savings throughout their lifetime to which investment income surcharge now applies, whereas those who are fortunate to have company pensions are in a different position.

Those whose savings—here I refer particularly to widows—are concentrated in owner-occupied houses and who have no other savings have great problems. Some of these people are in their late 70s. They live alone and have no other resource but their house. They face high repair costs on that form of saving, and yet find that they can obtain no other form of benefit. Those groups have felt a severe reduction in their living standards over the past three-and-a-half years. In return for a lifetime of saving, those groups have been savagely treated, and the present proposals will do nothing to help them.

I do not want to have to repeat the battles of the last three-and-a-half years during which period the country has had to face the damaging tax changes introduced by the Labour Government and we have had to fight them constantly and then to see some reversal in the last two years of their life for electoral reasons. My fear is that if a Labour Government get back again, that is precisely the course we shall see again.

8.39 p.m.

Sir Brandon Rhys Williams (Kensington)

I am sorry that the hon. Member for Fife, Central (Mr. Hamilton) is not in his place. If he were here, I should invite him to act as a Teller with me in dividing the House. We should then be able to see how many Labour Members accept the priorities set out in this recent Budget.

The sum of £940 million in the current year which the Budget is handing back to the British people is a large amount of money. It is possible to discern Government priorities, and indeed Labour Party priorities, in the way they have made their allocation of these funds. Such a large sum is bound to have important social, employment and incentive effects. There are clearly also administrative implications.

I wish briefly to deal with some of these points. First, I wish to draw attention to an extremely interesting reply given to my hon. Friend the Member for Norfolk, North (Mr. Howell) on 30th March this year. He asked for a comparison over a period of years between the tax allowance of a single person and the child tax allowance. It is clear that there has been a sharp percentage reduction from 1957 to 1977. I shall not weary the House with all the figures, but for children not over the age of 11 we see a reduction from 71.4 per cent. to 33.7 per cent. after allowing for clawback. There has been a reduction from 89.3 per cent. to 38.5 per cent. for children not over 16 years. For children over 16 years, we see a fall of from 107 per cent. to 42.5 per cent. From the figures, we discern that the tax changes that have been introduced by successive Governments during this span of approximately 20 years have consistently shown the anti-family bias on the part of our Treasury rulers. We must reflect, too, that the Labour Party is the party of organised labour: it is clear that women and children do not come very high in the scale of the Labour Party's priorities.

I have often made the point that when there is a sharp increase in the cost of living—especially in the cost of essentials on which families are bound to spread their budgets, such as food, clothing and heating—it is the larger families that are selectively hit harder. For example, if a housewife has to cover several plates with food, she will find the cost-of-living increase for bread or meat much more damaging than it is for a single person or a couple fending only for themselves, especially if both are at work.

Although we know how the cost of living is rising, this Budget is not concerned to help families. It panders to organised labour because the Government are putting at the top of their priorities the acceptance by the trade unions of their policy of limiting wages. It throws everything it can at organised labour in the form of tax relief; but it forgets mothers and children, especially in poorer families. The Labour Party boasts of its Socialism and its concern, but it seems that it is prepared to allow £940 million worth of expenditure to go through without the presence in the Chamber of one Labour Back Bencher.

Mr. Peter Bottomley

Or a Liberal.

Sir B. Rhys Williams

Indeed. There has been a poor attendance on the Government Benches throughout the afternoon. Not one remark have I heard from the Government Benches—I believe that I have listened to virtually the whole debate—on behalf of one-parent families. We heard a brief reference to widows. We heard two or three sincere Labour Members complaining that nothing was being done about the child endowment, but I do not think that they will be here with me if the issue comes to a Division.

Government expenditure of £940 million—this applies to tax reliefs or to expenditure—can be expected to have a serious effect on the pattern of employment. We need to analyse much more fully what is happening to employment. It is no good making emotional speeches about unemployment, such as that that we heard from the hon. Member for Ormskirk (Mr. Kilroy-Silk), without analysing the situation more fully. I was brought up in South Wales during the depression, and I shall never speak lightly about unemployment. But we should be rather more penetrating in our analysis of what is happening.

I received a most illuminating answer on Friday of last week about the total number who are at work in the United Kingdom rather than the total out of work. It showed that there had been a significant increase between 1972 and 1976. That increase was not among men or heads of household but was among women doing part-time work. If over the course of a few years there has been a sharp increase in the number of women doing part-time work—a development against the trend of the economy—we need to analyse why it has taken place and to decide whether we wish to introduce further incentives just now to encourage women to enter the labour market at a time when it is difficult for men who have families to look after to find jobs.

The unemployment problem is mercifully more one of disturbance in the employment market and of relocation than long-term unemployment. The number of men who are heads of households and have been out of work for more than six months is still relatively small, thank God! I am not trying to underestimate the number of human tragedies in the increase of perhaps 120,000 or 130,000 cases over the past three or four years. But we need to look at the changing pattern of employment—the move into part-time work and the way in which women, particularly married women, are coming into employment—and decide whether we wish to encourage that trend just at this time. This Budget is unfortunate in the effect that it is likely to have in attracting women to take part-time work at the expense of men who are seeking to do full-time jobs to provide the wherewithal for their families.

The Financial Secretary dealt with the question of incentives. It would have been better if he had kept off that subject, because this Budget is doing nothing about the poverty trap. Let us look at the figures as they apply since the increases in supplementary benefit rates which have just come into effect. I calculate that for a man with three children aged 4, 6 and 8, which is not an untypical family, the loss in family income if he goes into low-paid work and ceases to draw supplementary benefit is at least £10 a week. That is simply because the child allowances and child endowment are so much lower than the amount that must, for the sake of humanity, be paid to look after the children of people on supplementary benefit. We shall not tackle the poverty trap or the disincentive to work for people able to earn only low wages until we raise the family allowance for those who go back into work so that they do not suffer that loss.

Let us see how much worse is the position where the children are older and the supplementary benefit allowances are that much larger. I calculate—I am open to correction—that the loss for a man with children aged 11, 13 and 15 would be £17 a week because of the difference between the family benefit that he receives on supplementary benefit and that which he receives once he returns to full-time work.

Mr. Peter Bottomley

The incidence of tax makes an even greater difference to such a sum earned at work.

Sir B. Rhys Williams

I am grateful to my hon. Friend. That is so, and it is a fact that is well known to the Treasury. But I was looking at the case of a man who would be able only to go into low-paid work and who would therefore probably be below the tax threshold. The loss to such a man with three children—and the three-child family is not so uncommon—is still striking.

Do the Government wish to do anything to improve the incentive to work or to accept regular work? Many people on supplementary benefit are tempted—one cannot blame them—to take part-time work without declaring it. To regularise the position and improve the incentive to go back into full-time work, the Government must increase, child endowment. All the excuses for doing nothing about child endowment show the true character of the Labour Party and its insensitivity over child poverty.

I should like also to deal briefly with population trends, because a Budget such as this is not a negligible incident in the tax year. We must see it in the context of social trends over a long period. The live birth rate in the United Kingdom in 1966 was the not particularly high figure of 18 per 1.000. Ten years later it had shown what I suppose one must call a catastrophic fall to only 12. Let us look at the way in which the figures have fallen in even the past three or four years, taking the month of June in each year. The figure in 1973 was 14.3 per 1,000. In 1974 it was 13.4; in 1975, 12.9; in 1976, 12.5; and this year, 11.9. With that fall, the live birth rate in this country has fallen below the death rate, so the crude figures show that we are no longer replacing ourselves.

A few days ago it came to my notice that figures had been published for the different London boroughs showing for 1975 the borough of usual residence and the birthplace of mothers. My borough, Kensington and Chelsea, has the highest figure for mothers whose birthplace was outside the United Kingdom. The figure was 57 per cent. Westminster has the next highest figure of 52 per cent. The figures indicate the change in the pattern of fertility in the country. The fertility of the indigenous population is adapting itself to the tax climate. Hon. Members must take note of their responsibility in shaping the take-home pay of families since this striking effect is being shown so clearly in the figures.

Should anyone think that I am making a cheap point about immigration, I hasten to add that of the 57 per cent. of babies in Kensington and Chelsea whose mothers were born outside the United Kingdom only 12 per cent. came from the new Commonwealth. This theme needs to be developed more fully. There are important population changes taking place, and I am certain that family incomes influence them.

The hon. Member for Loughborough (Mr. Cronin) spoke about the rates of family benefits in other countries and in the European Community in particular. He reminded us of the shameful comparisons between this country and the Continent. I do not need to go over the figures, but we should ask why family allowances in this country are so much lower than they are on the Continent.

One of the reasons is that the trade union movement here is so much more powerful and united than it is on the Continent. It does not have the denominational affiliations which tend to change the attitudes of trade unionists towards family benefits. Trade unions here exist to maximise the take-home pay of working men. They are bitterly hostile to increases in housewives' receipts if they are given at the expense of the organised trade unionists.

In Germany, what we call the tax credit system was brought in two or three years ago in a matter of months. I suppose that the Germans brought in tax credits in as many months as we shall have taken years.

This partly reflects the lack of enthusiasm by the Labour Government for child endowment. It also reflects the bad leadership, poor organisation or tragic inefficiency of the Departments that handle benefits and taxation in the British Civil Service. I do not wish to attack the people whose intellect and dedication I admire; but the way in which we organise the Civil Service in this country and the leadership it is given—from politicians and the permanent heads of Departments—is not always of the best quality. As a result British public administration is lagging behind that of other countries. That is nothing to be proud of.

The Chancellor of the Exchequer mentioned the large number of people who would be excluded from the tax system as a consequence of the changes. I think he said that the figure was 900,000, on top of the 1,200,000 who were excluded from the tax system by the changes made earlier in the year. Many people will be brought back into the tax system by rises in wages by the time the next Budget is introduced. New measures will then have to be introduced to take them back out of the system again. It would be better to change the system so that we no longer have this stage army of people moving in and out of the tax system and bringing it to the point of breakdown.

It is nearly 10 years now since I opened the campaign in the House of Commons for a reform on the lines now known as the tax credit scheme. I recall that I was greeted with incredulity on the Labour Benches and with a certain element of scepticism and dismay on the Conservative side. But the logic of the reform is so obvious that it commended itself in the end to a large number of Members, and at the end of a long story we now have child endowment, though still only bringing a pitiful benefit for the mother of the first child.

That is nothing to be especially proud of, but at least it is a beginning on the right road. But why do we not go much further? Why does not the Treasury go through the whole list of negative benefits and abolish them all, turning them all into positive payments? We should then have a clear-cut tax system under which everybody would pay the same rate of tax in the pound, and everybody would receive the same rate of benefit, week in and week out, to which he was entitled. With such a system, we should not find our tax administration brought to the verge of mutiny or breakdown every time there was a change in rates of tax or benefit.

The Financial Secretary introduced his mini-Budget Bill this afternoon by saying that large numbers of civil servants felt able to live with the situation. What an extraordinary window that opens on the state of affairs in the Inland Revenue now. Surely we can devise a system which is flexible enough for modern needs and not have to carry on with a system which was already obsolete in the 1950s.

I shall close with a few words on the question of the tax threshold. I often hear hon. Members on both sides insisting that the tax threshold ought to be raised. My own view is the opposite. I do not want to create two nations in taxation—those who pay tax and those who do not. I recognise that if we ask everyone to pay the same proportion of his income in tax, we must look after those on lower incomes by giving them generous credits. But if we turned into positive payments the personal allowances, the marriage allowances, the whole of the child allowances and all the apparatus of negative allowances in the tax system as it has grown up since the time of William Pitt, we should have something better than a negative income tax system. We should be able to give to people on low wages take-home pay greater than their gross wage, and if, for administrative reasons and reasons of social policy, we then asked them to make the same contribution in every pound as that made by people on the higher or even the highest rates of tax, that would simply be an extension of equality into the field of taxation. I believe that this is something which must come.

I do not, therefore, agree with those of my hon. Friends and hon. Members opposite who say that we should raise the tax threshold, for that is simply creating two nations in taxation; but what I do insist is that we should give more generous treatment through positive payments to people on low wages, and especially to those who have large family responsibilities.

I have not had many polite comments to make about this mini-Budget. It is a trade unionists' Budget at the expense of the family. A Government who aim to give so much to people who already have a reasonable standard of life but forget the people at the bottom of our society have forgotten their Socialism. This is not a sincere social-reforming Government at all.

8.59 P.m.

Mr. Peter Bottomley (Woolwich, West)

I shall try to be brief, and I shall not spell out all the arguments, although I may make a few assertions. It is clear from the attendance on the Government side that there are those who are looking forward to the "Miss World" contest which is due to begin in half an hour, and there may still be others who wish to go and join them. However, I regret in particular the absence of the hon. Member for Fife, Central (Mr. Hamilton), since he took me to task for quoting bits, or asking him to quote bits, from the Written Answers recorded in col. 80 of Hansard for 8th November, dealing with the Royal Family.

The hon. Gentleman said that whenever he made his comments about the Civil List someone jumped and made the same points. In fact, it was the first time that I had made those points, and I can only say that if it is a fact that every time the hon. Gentleman opens his mouth on the subject someone stands up to say that he is being partial or not giving the full information, that shows that the mood of the House is rather against him.

Just to redress the balance, I should like to quote three lines from the footnote to that Written Answer which says: Her Majesty The Queen contributed £150,000 towards the cost of the Civil List in 1975 in addition to meeting the deficit of £8,535. In 1976 and 1977, Her Majesty has met the whole cost of payment by the Royal Trustees under section 3 totalling £118,000 and £130,000 respectively."—[[Official Report, 8th November 1977; Vol. 938, cc. 79–80.] I should like also for the record to reiterate that the cost of the Civil List came to 4p per family per year in this country. As one of my hon. Friends said, that would buy a quarter of a sausage at a British Railways buffet. If the hon. Member feels so strongly about his 4p, he can always contract out of the political levy for his trade union, which is being increased by 4p a year this year as a contribution to the Labour Party, and he could then make his contribution to the Civil List without reducing his net take-home pay at all.

Mr. William Hamilton

This point has been made several times before. I always reply to people who have written to me and sent me 2p stamps—I return the stamps—by asking them to try to calculate what the enormous cost of the tax concessions to the Royal Family is. It is quite incalculable. It must be tens of millions of pounds every year.

Mr. Bottomley

That is a fair point that the hon. Gentleman makes. Again for the record, it might be said that the Exchequer benefits by £5 million from the income that the Duchy has given up, though I accept that the hon. Gentleman could make the point about taxation again. I would go on to make a further point, and then perhaps we can leave the subject for the time being, but I am perfectly willing to return to it on some other occasions. We have a three-part constitution consisting of the monarchy, the House of Lords and the House of Commons and if we were to abolish the monarchy we would then find that other things would replace it and the cost of the salaries to the staff working for whoever might replace this part of the constitution would equally go through, perhaps not under the Civil List, but under some other payment or some Budget heading from the Treasury and exactly the same argument could be made. So it comes back to which system we prefer. I prefer to keep the monarchy.

I want to go on and make a passing reference to the very good maiden speech of the hon. Member for Birmingham, Ladywood (Mr. Sever) and then pass on from that to the speech made by the right hon. Lady the Member for Blackburn (Mrs. Castle). I shall not criticise her. I want to pick up one point in her speech, however, because in the autumn of her life in Parliament, in contrast to the hon. Member for Ladywood, she has fought valiantly for child benefit since she left the Cabinet.

One must point out the difficulties that right hon. and hon. Members face when they join a Government in having to support things or not get things through that they particularly want. We saw some of this yesterday on the guillotine motions for devolution. We saw it in the right hon. Lady's time as Secretary of State for Social Services. In debate after debate, night after night, in response to pressure mainly from this side of the House—though I accept that if the Conservatives had been in Government it might have been the other way round—when the Opposition tabled amendments seeking to get a date for the introduction of child benefit, which was originally supposed to come in 1975 or 1976, when it came through in the Bill the right hon. Lady was obliged—I am not saying that she particularly wanted to—to lead the Government to oppose the various amendments which had been tabled.

It is regrettable both that there was high alumina cement up in Washington and even more that the Government were not able then to fix a firm date for the full introduction of child benefit, because if that had happened and we did not have this confusing situation of a bit of child allowance and a bit of child benefit it would be much easier for people, like myself, on both sides of the House to argue strongly for putting up the rate of child benefit at the same time as personal tax allowances are increased.

The hon. Member for Ormskirk (Mr. Kilroy-Silk) talked about the obscenity—that was not his word, perhaps; it was another hon. Member's word—or his distaste for people having high levels of income. Most people in this country, certainly the electors in my constituency, many of whom were previously Labour supporters, or else I would not be here, would regard it as far better that a man should build up a business worth £½ million, perhaps providing employment for 100 people and producing exports worth £¼ million a year for this country, and become wealthy in that way than that a man should earn—or gain—£½ million, say, by being successful on the football pools after using Labour Weekly Perm No. 37 which is advertised on page 13 or page 11 or whatever it may be in the political magazine Labour Weekly each week during the autumn and spring football season.

I now come back to the Bill. I strongly supported almost everything that was said by my hon. Friend the Member for Kensington (Sir B. Rhys Williams), who has a good record in this matter. I should also like to quote a selection of figures from a Written Answer which was given to my hon. Friend the Member for Norfolk, North (Mr. Howell) by the Financial Secretary at column 188 of Hansard of 15th November, comparing the combined value of family allowance and child benefit as well as child tax allowance plus residual child tax allowances for a family with three dependent children aged 16, 14 and 12 years as a percentage of a married person's tax allowance, assuming tax at the standard rate, over the last 17 years. I shall not go into the figures for each year but I shall give a selection.

In 1960–61, the combined net value of the benefit to those three children would have been more than 200 per cent. of the value of the married person's tax allowance. By 1970 that figure had dropped to 112 per cent., and it is now 88 per cent.

Those figures demonstrate that no Government of either party during the last 17 years have made a serious attack on this decline in the value of the social wage or transfer payment support for people with dependent children. There are several reasons for that. One is that political parties tend to be dominated by those who go to political meetings and they tend not to be looking after dependent children, so that the interests of parents are not directly represented. Another reason, as my hon. Friend the Member for Kensington said, is that trade unions, although they contain a large proportion of people with children and who are at the worst point in their financial life cycle, do not make it easy for the financial position of those people to be reflected in a special way. Basically, a trade union represents the interests of those at work, without discrimination over family responsibilities.

I know that the TUC sometimes goes out of its way to put in a plea for child benefit, but usually it does not go further because of the way that the TUC engages in discussion with the Government. If the subject is mentioned by the TUC during discussions with the Treasury, one can only assume that the Treasury has reasons fir not agreeing to the TUC's suggestions. Either the TUC's priorities change when it is in a closed room or the Treasury refuses. That does not happen only with this Government. The problem has worsened during the last three years, but it applied also during the last 17 years.

Another, reason is that we always regard transfer payments as a transfer from those who have no children to those who have children and consider it a static transfer, but that is totally wrong. We need to reflect the reality, which is that if one receives substantial transfer payments as a child they are paid back when one goes to work and pays taxes. The childless person is paying back the cost of his support during childhood. It is not a horizontal transfer between the childless and those with dependants.

A residual problem associated with this is that many people brought up families in the days before substantial allowances were available, before the war when, although life was difficult, food, clothing and fuel were cheap. Things are far worse now. The running costs of a baby, apart from the capital outlay on clothes and such items, is now £4 a week, and in winter there is an extra fuel charge of about £1 per week. There is no way that the million one-parent families in this country can obtain the transfer payments that they need until the general level of income for all children is increased. One can only get the guaranteed maintenance allowance after child allowance has been increased to a proper level.

I agree with the right hon. Member for Blackburn that indexing is not sufficient. It would have helped had, we had indexing during the last 18 months, because it would have stopped the position getting worse. However, we need to raise child benefit to the level of the long-term child supplementary benefit rate of about £7 a week. Once that has been done, families on high incomes will be paying back their share through taxation and it would help those families where parents are in and out of work, families on low incomes and one-parent families. It would provide a certainty of income for those children and they would not have to rely on going to courts for maintenance orders. They would not have to rely on making sure that unemployment benefit came through as soon as it was needed.

I said that I would make a short speech. I shall not make the other points that I feel are necessary. However, I want to make one last point. This is a debate about £1 billion of tax relief and about what inflation has done to tax allowances during the last 12 months. It has taken place in an almost deserted House. We often find that when we are discussing whether the. British Steel Corporation or some other organisation should be able to raise its borrowings by £500 million or £1,000 million the House is almost deserted.

I would ask the Government this question, and I also hope that my own party will take this to heart. If we can find an extra £500 million subsidy for the British Steel Corporation, why is it not possible to find £500 million for people bringing up children in this country? One result of the declining birth rate is that more married women are going out to work and the number of families with children is becoming a smaller and smaller proportion of the population. The standard of living for those families has dropped alarmingly. I seldom use the word "obscenity", but it is a word that I would use to describe this situation, which seems to be ignored or, at least, accepted with equanimity, by many hon. Members.

9.12 p.m.

Mr. Tony Newton (Braintree)

I am a little hesitant to intervene in the debate having, for various reasons, been unable to hear all of it. I am encouraged to do so by the fact that my hon. Friends the Members for Woolwich, West (Mr. Bottomley) and Kensington (Sir B. Rhys Williams) have both concentrated mainly on the issue which interests me most. I was able to be present earlier to hear the speech of the right hon. Member for Blackburn (Mrs. Castle), who also concentrated on the relationship between tax allowance and child benefits.

It is that on which I want to speak briefly before the winding-up speeches begin. I shall in no way attempt to go through all the figures that my hon. Friend the Member for Woolwich, West touched upon and which illustrate how relativities have changed between the single and married allowance for people without children and for families with children over the years since the war.

This has been admirably pointed out in a number of recent articles including a very powerful piece by Frank Field in New Society which, no doubt, has been read, learned and, I hope, digested by Ministers in their examination of these subjects. What has happened with regard to the change in relativities is very clear. By itself I accept that it does not prove very much, because one has to decide on the starting point so that one's choice is right.

But what is indisputable is that during most of the period since the war—apart from short periods, particularly during the Conservative Administration of the 1950s and early 1960s—the balance has moved steadily and sharply against families with children.

The point I want to make—not in any way based on some learned statistical analysis but as a matter of observation —is that as a Member of Parliament for nearly four years I find it absolutely clear from my correspondence and from the people whom one sees at surgeries that, apart from special groups like the disabled and in some cases the retired there can be very little doubt that the worst hardship and the biggest struggle in our community today are being faced by parents with two or three children. That is true not only of those on social security but of those with incomes that would normally be regarded as being well able to make them fully self-supporting.

The fact is that the amount which they are allowed to keep out of that income, or the amount of assistance which they obtain out of taxes to help with their children, leaves them in a situation in which they cannot cope on what ought to be an adequate income. That is a matter of observation and I think it will be fairly generally agreed by hon. Members on both sides of the House.

One consequence of the way in which we have been proceeding is that a large number of women who do not want to go out to work and who would prefer to be at home looking after their children have been forced to go out to work. There is a powerful school in the country—and I stress that I am not a supporter of it—which believes that married women ought not to go out to work. My wife works and has done for most of the time since we have been married. I am happy that women who want to go out to work should be able to do so. Many women are much happier doing that and in such cases it is better for their families. But the choice should be left to them.

That means that the tax system and the arrangement of social benefits should, as far as possible, be neutral and should not compel women to go out to work. They should provide a genuine option for women to choose whether they want to be full-time housewives and mothers or to combine that duty with going out to work.

It can in no way be said that the tax and social benefits systems are neutral in that respect. Large numbers of women cannot afford to give up work because to do so would totally destroy the finances of their families. That is a most unsatisfactory state of affairs. I believe that undoubtedly the financial problems of bringing up children and the financial problems which cause wives to go out to work have depressed the birth rate. That is having serious consequences on the balance of the population and will no doubt create serious consequences for the level of taxation which is required to support the dependent population, and so it is relative to our argument tonight.

I take it as indisputable that families have suffered and that there is a good deal of hardship and difficulty. The social consequences of that are to me thoroughly objectionable and need a complete examination.

I turn next to child benefits. Unless we do more in that direction, I do not think that we shall fully tackle the problem surrounding those who are better off out of work than in. The biggest single factor in that is the position of families with children. Very few single people and very few married couples without children are better off out of work than in. The move towards child benefit, therefore, is a significant part of any policy to get rid of the problem of people being better off out of work than in.

We need action on four fronts. First, we need a speedy transition to full child benefit. Secondly—and I agree totally here with the right hon. Member for Blackburn—we must raise the level of the child benefit to a more realistic and sensible point, a point which restores some part of what has been eroded over the last few years. The third and fourth aspects go together, and here I slightly differ from the views expressed by the right hon. Lady in saying that indexation was not the main point. We need to devise machinery which can speedily adjust child benefit and which does not take months of bureaucracy to get anything done.

Unless these steps are taken, unless child benefit can be uprated as flexibly as tax allowances can be increased, and unless the benefit is indexed in the way that the main tax allowances are indexed, I believe as a practical matter of politics that families will go on steadily losing out.

It may be said that that is not wanted and people may declare their intentions that families should not go on losing out. However, unless we devise machinery to permit indexation and rapid change in benefit, families will go on losing out and all of us, regardless of party, will live to regret the consequences.

9.20 p.m.

Mr. Peter Tapsell (Horncastle)

I should like first to congratulate the hon. Member for Birmingham, Ladywood (Mr. Sever) on his maiden speech. He spoke with confidence, fluency and obvious sincerity. I particularly want to congratulate him also, as did the right hon. Lady the Member for Blackburn (Mrs. Castle), on his quite extraordinary self-assurance. Most of us who remember our maiden speeches recall our extreme state of nervousness. If the hon. Member was nervous, he certainly betrayed no sign of it. In Mr. Brian Walden he succeeds an exceptionally distinguished Member of this House. Listening to the hon. Member I felt that he would be a worthy successor. We look forward to hearing many further contributions from him.

This is the twelfth Budget and the sixth Finance Bill that this Socialist Government have spawned in three and a half years. Taken together, those measures form a deplorable record of miscalculation, vacillation and inconsistency. No doubt that is what the Chancellor had in mind last Thursday when he said: I am an unorthodox, neo-Keynesian monetarist. The significance of this Finance Bill can be comprehended only when it is set in the context of all its Socialist predecessors, starting with the utterly disastrous one of March 1974. Yet I agree with Lord Morley's observation: There is something repulsive to human nature in the simple reproduction of defunct Budgets". So I shall spare the House a catalogue of past Labour Budgets, save to say that the Government's previous Budgets have indeed been mostly repulsive and that the raison d'etre of this Budget is to seek to demonstrate that they are now defunct.

After all, election day draws nearer. But what is not defunct is the public memory. It is impossible to consider this Finance Bill—perhaps the Government Whips will be good enough to stop chattering, if they can. We do not want the habit to spread now that we have an exceptionally silent Whip on our side. It is impossible to consider this Finance Bill in a Second Reading debate except against the terms of the Chancellor's Budget Statement of 26th October and his speech moving the Ways and Means Resolution on 10th November which provides his justification for this Bill. His sentiments were echoed by the Financial Secretary this afternoon when he opened this debate with a wide-ranging speech.

On 10th November the Chancellor spoke in characteristically confident and optimistic terms saying: our financial situation has improved dramatically in all respects over the last few months."—[Official Report, 10th November 1977; Vol. 938, c. 875–981.] What the Chancellor, by a curious lapse of memory, forgot to tell the House was that this financial recovery was brought about by the adoption of Conservative policies, notably control of DCE and the money supply and reductions in public expenditure—each of them a precondition for the granting of the IMF loan, the lowering of interest rates and the firmness of the currency which resulted, strongly aided by the timely arrival of North Sea oil. I shall come in a moment briefly to consider the real economy, where goods are manufactured, where services are rendered, where companies invest, where delivery dates have to be honoured, where growth takes place or should take place, where price stability is important, where jobs are created, and see what contribution this Finance Bill makes to all that.

As to the financial economy, of which the Chancellor was boasting, I have some news for him: the modern world does not date from 25th October 1976, when sterling fell to 1.57 against the dollar. "BC" does not stand for "Before Crisis", nor does "AD" signify "Amass Debt". One would have thought that the Chancellor's 8.4 per cent. inflation prediction before the last General Election might have persuaded him of the unwisdom of basing economic analysis on very short and unrepresentative time-spans.

If, by contrast, we take the three and a half years' period in office of the Government as a whole and compare it with the record of other Governments in other countries over that same period, we get the true measure of this Chancellor's stewardship and of the relevance of this Finance Bill. Since the end of February 1974, when this Government first took office, the value of the British currency, even at today's improved levels, has fallen by one-third against the German and Japanese currencies and by one-fifth against the American currency. Those are the facts about the financial situation after three and a half years of Socialist Government.

Mr. Pardoe

There is a most extraordinary coincidence here. Is the hon. Gentleman aware that if we consider the value of the £ sterling against the dollar when the Conservatives came to power in 1970 and its value against the dollar on the last day before the General Election of February 1974, we find that it had fallen by almost exactly one-fifth—21 per cent., to be precise.

Mr. Tapsell

That is absolutely untrue. In the last days of the Conservative Government the pound was standing at around $2.29.

It may be argued—particularly by the type of defeatist "little England" mind which produced the recent Think Tank report on our overseas diplomatic representation—that we should not even be trying to keep up financially or in any other way with the Japanese, the Germans, or the Americans. That school of thought, not wholly unrepresented on the Government Benches—I readily accept that there are honourable exceptions—prefers Britain to measure herself only against nations such as the Swedes, the Dutch and the Austrians, admirable as they are.

What is this Government's financial record in that league? If we take the 14 currencies in which Britain conducts most of her trade—those of Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden, Switzerland, the United States and Australia—what has been the relative performance of our currency against the currencies of all those countries? Since February 1974 sterling has depreciated against that basket of currencies by 23 per cent. If, to please the Little Englanders, we take the United States dollar out of that basket, the depreciation of sterling is seen to be significantly greater, because much of the recent strength of sterling—it is important for us to remember this—has been due to the weakness of the dollar. That prop will not be there indefinitely—certainly not if Dr. Arthur Burns has any say in the matter.

That is the financial record on which the Chancellor last week and the Financial Secretary today have been congratulating themselves and on the basis of which they are sponsoring this Finance Bill. We have sterling devaluations ranging up to 40 per cent., according to one's choice of alternative currency. If we take the Chancellor's preferred time span, short and unrepresentative though it is, since the recovery in our currency began last autumn, and since the very nadir of our national fortunes a year ago, we find that he has had everything going for him—a massive IFM loan, stringent and long overdue IMF-imposed disciplines at last introduced, public expenditure cut, the North Sea oil beginning to flow, the terms of trade moving in our favour, and speculative hot money pouring into this country to take advantage of the situation. Even with all that to help him, what has been the actual extent of the Chancellor's vaunted dramative improvement in the financial situation?

Since October 1976 sterling has appreciated against the basket of trade-weighted currencies by only 7½ per cent. and is still 23 per cent. below the level at which it stood in the middle of the miners' strike in February 1974. Even since October 1976, again to take the Chancellor's carefully-chosen time-span, the pound has actually lost a further 5 per cent. of its value against the Japanese yen.

Still examining the very optimistic speech with which the Chancellor commended this Bill to the House on 10th November, let us look at another aspect of our financial position—the reserves, to which he referred, as did the Financial Secretary today. At the beginning of his speech moving the Ways and Means Resolution the Chancellor said: Our reserves are now over 20 billion dollars second in size only to those of Germany and Saudi Arabia."—[Official Report, 10th November 1977; Vol. 938, c. 875.] How splendid that sounded and was intended to sound! No better news had been heard since the relief of Mafeking. But, alas, the right hon. Gentleman had suffered another of those sad little lapses of memory to which he is sometimes prone.

The Chancellor had forgotten our debts, and so did the Financial Secretary when he made the same point today. The Chancellor forgot, until I jogged his memory later in his speech, that since 1st March 1974 this Socialist Government have run the country into debt to the staggering total of over 16 billion dollars, and that the overall total of our indebtedness as a country actually exceeds our present reserves, so that our true reserve position today is still negative.

So much for the financial position on which the Bill is founded—and I am not surprised that the hon. Member for Cornwall, North (Mr. Pardoe) has retreated from the Chamber.

The Minister of State, Treasury (Mr. Denzil Davies)

How can the hon. Gentleman equate what he has just said with his advocacy of freedom of exchange control and capital movement? If the position is as he has described, surely he should argue that there should be no relaxation in exchange control.

Mr. Tapsell

Because when the Chancellor let it be known that he did not want any further purchases of British Government bonds from overseas, there was inevitably a massive upsurge of purchases of British gilts, and few things will do more to restore confidence further and ensure an increase in our reserves at this time than for the Government to begin gradually to liberalise exchange controls, as I am fairly confident events are going to force them to do. One certain thing is that when the miners' strike threat has been withdrawn, the hot money will start pouring in again. The Government said up to the last moment that they would not allow sterling to float, and, whatever the Minister may say now, in a matter of weeks or months someone at the Dispatch Box will announce some liberalisation of exchange control.

One important thing for us to remember is that the very welcome recovery which makes this Finance Bill possible is only financial. Apart from the fall in interests rates, it has had little beneficial effect on the man in the street or on the real economy. Indeed, I found it salutary to be reminded on my most recent visit to Saudi Arabia, last June, that that country has a 30 per cent. annual rate of inflation, and an even higher rate if rents are included, while many of the jobs there are held by immigrant workers.

It would be a profoundly unwise thing for the present Government or any politician to suggest to the British people that a large oil income will solve most of our national problems. It can and probably will make some of those problems worse and others more difficult to overcome. [Interruption.] The Minister of State thinks that Saudi Arabia is a poor example, but if he went to Norway he would find a similar analogy.

This effect of oil income—welcome as it is in many respects—making many of our problems more difficult applies particularly to prices and industrial competitiveness. The Chancellor himself acknowledged this when in answer to a Question on 26th October he admitted: We should all recognise that our very dramatic … improvement has not been accompanied by an improvement in our real economy."—[Official Report, 26th October 1977; Vol. 936, c. 1469.] He can say that again. When any ordinary mortal approaches the promised land he is confronted by a large notice board on which is boldly inscribed: "Private. Keep out. Reserved for dealers in foreign exchange."

When one turns to the real economy, to the real Britain in which people actually live and hope to work and to earn a decent wage, one finds that after nearly four years of Socialist Government we have an inflation rate still twice as high as that of our competitors, we have personal taxes at some of the highest rates in the Western world and starting at some of the lowest wage levels—a situation that will still exist even after the increases in personal allowances contained in this Bill come into effect—a number of unemployed almost trebled since the days of the last Tory Government, and it would seem inexorably heading towards 2 million. Production is still at the levels of February 1974, and future investment intentions are still extremely cautious and hesitant.

All of this has resulted in a cut in the real living standards of the people of this country of about 9 per cent. I wish that I felt that this Finance Bill would make a major impact on this situation, but it will not, I fear.

As far as they go, however, the provisions of this Finance Bill are welcome. The Bill has even one not inconsiderable claim to fame: it will probably prove to be one of the very few Finance Bills ever passed by a Socialist Government in this country which may do little positive harm.

We particularly welcome Clause 2, which ensures that the increases in retirement pensions, widows benefits, invalid care and mobility allowance will not be taxed for the rest of this financial year, even if this is only because of the Chancellor's incessant tinkering with the tax system, usually in an upwards direction, has brought the Inland Revenue to the brink of exhaustion.

Even so, the Bill fails to make good the harm already done, even within the tax spheres to which it is addressed. The proposed adjustments in the personal allowances, as the Financial Secretary admitted when he opened the debate, do no more than keep in step with the rise in the Retail Price Index for the calendar year 1977, on the assumption that this will not be more than 12 per cent. They fall well short, as my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) and other of my hon. Friends have pointed out during this debate, of restoring the real value of these personal allowances to their 1973 levels, in the last year of Conservative Government. I point out in passing that age relief is not included at all, and this will come as a great disappointment to many people.

Even after the £1,200 million in a full year, or £950 million in the current financial year, of the proposed tax reliefs have been made, a further £1,430 million would have to be slashed from the tax bill before these allowances were restored to the levels of the personal allowances enjoyed by the people of this country before Labour came to office. Not one of these proposed new personal allowances is as valuable in real terms to the recipients as in the past under a Tory Chancellor.

To restore the position to the 1973–74 tax year, even after this Bill has taken effect, it would be necessary to make a further increase in personal allowances for a single person from the proposed level of £945 to £1,199, increasing it by £254. For a married couple it would be necessary to increase the allowance from the proposed £1,455 to £1,562, an increase of £107. For the age single allowance it would be necessary to increase it by £161 from £1,250 to £1,411. For the age married allowance it would have to be raised from the proposed level of £1,975 to £2,016. Those adjustments would be needed just to bring everyone eligible for personal allowances back to the level that applied under the last Tory Government.

Even after this election-tinged Finance Bill reaches the statute book—and we shall not oppose it—it remains profoundly true that Conservative Governments cut taxes and Labour Governments put them up.

9.43 p.m.

The Minister of State, Treasury (Mr. Denzil Davies)

We have had today, as often occurs on these occasions, a wide-ranging debate covering many areas, not all of which are strictly within the confines of the two clauses in this Finance Bill. We have been regaled by the knowledge of Conservative Members about the Japanese yen and other currencies around the world. I should like to return to the matter under discussion and briefly answer some of the points arising from the debate.

On the question of assessments, the increase in personal allowances will mean that very many assessments of tax under Schedule A and Schedule D in the current year will have to be adjusted if the Bill becomes law. These assessments will have to be adjusted for the current year because they reflect the personal allowances that could be given under the provisions of the Finance Act 1977. If the assessments are under appeal, the adjustment will be done when the appeals are settled. If they are not under appeal, the tax will be due for payment under these assessments on 1st January 1978 and interest will run from that date if the tax is not paid.

This may be a source of difficulty to taxpayers if, because of the size of the task, the Inland Revenue is late in telling some people of the new reduced liability. Therefore, the Chancellor of the Exchequer has authorised the Inland Revenue to make administrative arrangements to meet this problem in advance of the appropriate legislative provision. The intention is that nobody will have less than 30 days after notification of the adjustment before the interest starts to run. The Inland Revenue will be issuing a statement to the Press which will explain the arrangements in detail, and legislation to deal with this matter will be brought forward in the Finance Bill of 1978.

I wish to add my congratulations to my hon. Friend the Member for Birmingham, Ladywood (Mr. Sever) on his excellent maiden speech. Remembering my own maiden speech, I share the sentiments of the hon. Member for Horn-castle (Mr. Tapsell) and agree with him that the new Member was far more eloquent, and certainly far less nervous, than we were in our day. My hon. Friend showed great concern for his constituency, which probably has more problems than most constituencies, including inner city depopulation and immigrant issues. I am sure that we shall hear a great deal from my hon. Friend in many of our debates.

The hon. and learned Member for Dover and Deal (Mr. Rees) dealt with the matter of mortgages. Perhaps the House will bear with me if I read from my brief so as to get absolutely right the situation as it affects PAYE taxpayers with mortgages.

Most PAYE taxpayers on building society mortgages were put on non-cumulative codes in September to limit under-payments arising from the reduced building society interest in April and June. It is true that this will mean that they will not immediately receive rebates, since employers can deal only with taxpayers on cumulative codes. They will, however, receive the immediate benefit of weekly or monthly reductions for the rest of the tax year. Tax offices will be reviewing these cases in the next two months in conjunction with the 1978–79 PAYE code review. If it shows that rebate is due, those people will be put back on to the cumulative code so that any rebate can be made before the end of the 1977–78 fiscal year. The Inland Revenue cannot, however, undertake a full review of those tax cases immediately.

One hon. Member referred to 5 million fewer taxpayers, but the number involved is considerably lower, around the 2½ million mark. There are 4 million PAYE taxpayers with building society mortgages compared with 25 million PAYE tax- payers in all.

A number of other points were raised in the debate, and I shall try to deal with them. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley), who informed me that he would not be here for my reply, made the point, as have others, that the Budget shows the pointlessness of fine tuning. It has been said that we are now on the twelfth Budget which again sets out to change tax rates, but if Conservative monetarists—they are all monetarists when in Opposition—adhere strictly to the monetarist position, which involves a close examination of the public sector borrowing requirement and M3, they will appreciate the difficulty of forecasting any change in the course of a year. It inevitably follows that more fine tuning is required, and that is one of the parodoxes of the monetarist approach. One needs more fine tuning if one has to rely on estimates which, for reasons that lie outside Government control within the fiscal year, can vary. This has happened and will continue to happen in respect of the PSBR.

My hon., Friend the Member for Blyth (Mr. Ryman) asked why more benefit had not been given to widows. But the Bill does benefit widows in respect of allowances, and there is an additional allowance in respect of children. Indeed, the Bill helps widows and others on low incomes.

My hon. Friend also said that the tax system discriminates against the married woman who goes out to work. That again is untrue. The tax system discriminates in favour of married women who go out to work, because there are three lots of personal allowances paid in respect of them.

The hon. Member for Norfolk, South (Mr. MacGregor) asked me about the Inland Revenue's computerisation programme. I take the point that he made. We do not wish to foreclose the options before we have decided how the tax system is to develop. We do not want the options foreclosed by the compu- terisation programme. I can assure the hon. Gentleman that we are fully aware of that hazard and that there is no danger of its happening.

The hon. Gentleman also asked me why the estimates for the yield from income tax were different from what it is now likely to be. With respect, I think that his figures were not entirely accurate. The estimates are slightly different. They are different by only some £200 million. The reason why the PSBR estimates are different is partly for that reason, partly the great success that the Government have had in controlling public expenditure with cash limits and other measures, and partly the fact that the financial requirements of the nationalised industries have been much lower this year than were estimated at the beginning of the year. That demonstrates how difficult it is to assess the PSBR and to plan the economy on the basis of PSBR targets.

What we have not heard from the Opposition is how they would resolve the particular dilemma that would be the consequence of their solutions. They say that we must further cut taxes. They say "This is not enough. We want a further reduction in taxation. We want a further reduction in the PSBR." At the same time, they say that they want us to adhere to the monetary targets.

The hon. Member for Blaby (Mr. Lawson) and other Opposition spokesmen have not said how we cut taxes, cut the PSBR and keep to the monetary targets. That is the one glaring gap in the Opposition's so-called economic programme. Once they have gone along that road, they have to say "And you must cut public expenditure." However, we are now led to understand that they will not cut public expenditure. The speeches that we have heard from many Opposition Back Benchers indicate that they will seek to increase public expenditure. We have been told that we should spend more money on child benefits, thereby increasing public expenditure. The Opposition have not told us exactly what they will do about public expenditure. All that I can conclude is that their monetary stance is as confusing when they are in Opposition as they were irresponsible when in Government.

When in Opposition, Conservative Members espouse conventional, orthodox and sensible views, but when in Government they forget them entirely, with the result that Labour Chancellors have to set the country back on the right financial course. For example, the hon. and learned Member for Dover and Deal espoused the virtues of Lord Barber. I do not wish to go over that history again. The hon. and learned Gentleman is fully aware of what happened when Lord Barber decided to cut taxes and public expenditure and to inflate the money supply by printing money to cover the difference. The issue is not so much the level of the PSBR, although that is important, as how we fund it. That is something that the Tory Party still has not quite understood. It certainly did not understand it when in Government. The Conservative Government decided to fund the PSBR by printing money. That was what caused the enormous inflation that we have had to live through for a considerable period.

Mr. Lawson

The Minister has put forward a series of propositions for a long time, none of which has been true. I have been patient until now. The record shows that under the Conservative Government a much higher proportion of the public sector borrowing requrement was funded by genuine borrowing than is the case under the hon. Gentleman's Government. That was confirmed to me by a Written Answer from the Treasury.

Mr. Davies

The hon. Gentleman should remember that when his party was in office the money supply was completely out of control. There was the most awful boom in the money supply, with the result that all the money flowed into property speculation. The banking system was brought almost to collapse. We had to try to clear up the mess left by his right hon. and hon. Friends. For him to quibble about how the financing took place is an indication that he does not understand the problems of that time.

Mr. Budgen

Does the hon. Gentleman agree that in following his argument the present Administration will either have to cut public expenditure by next spring or conform to the agreed constraints on the money supply, which means that it is almost inevitable that interest rates will have to increase sharply in the spring, which will have a most harmful effect upon any investment boom that might come about?

Mr. Davies

The hon. Gentleman, who is looking forward to the spring, does not have the benefit of the money supply figures for the period between now and then, and the matter cannot be decided now before the position becomes clearer. However, I entirely accept what the hon. Gentleman says. If the money supply is to be kept under control, interest rates must also be examined. Such an examination is part of the whole picture in controlling the supply of money.

Many speeches have been made about the Bill, but its object is simply to put some extra money back into people's pockets. I accept that the Opposition do not like that very much. They do not want this Government to do that. They prefer that a Labour Government should increase taxation, so that they can make their set speeches saying that a Labour Government always increase taxation. A Labour Government are putting more money back into people's pockets, into the pockets of those who are worse off.

The people who will benefit most are those on the lowest incomes. [Interruption.] I know that the hon. Gentleman does not like it, but those who will benefit are the people on the lowest incomes, pensioners and widows, those who deserve to have the benefit first. We are doing this now, and we intend to do it in the next Budget, so that we can remedy the fact that so many people on low incomes have been brought into the tax net.

Mr. Lawson

Who brought them into it?

Mr. Davies

The hon. Gentleman does not understand the effects of inflation, caused partly by his own Government, partly by the increase in the price of oil and partly by world economic factors. The mutterings of Opposition Members show that they do not understand what has happened to the economy in the past few years, just as they do not understand what happened to it when they were in Government. This is a clear case of a Labour Government reducing taxation, a start on the process—

Mr. Peter Rees

The hon. Gentleman has not yet addressed himself to a point that I put to him. Why has the Chancellor changed his stance since the summer, when he was proposing to reduce the basic rate from 35 per cent. to 33 per cent.? Do we take it that the Government no longer believe in the preservation of differentials? Have they been overruled by Mr. Kitson or Mr. Moss Evans with this dramatic change of front?

Mr. Davies

The hon. and learned Gentleman sees drama and changes everywhere. There is no change. What we have done was deemed to be at this time the best and fairest way of reducing the tax burden on the British people. I should have thought that the Tories would welcome that instead of quibbling about it as they have done tonight. This is the first instalment. We hope that in the next Budget we can go further and again improve the standard of living of the British people.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Frank R. White.]

Bill immediately considered in Committee; reported, without amendment.

Motion made, and Question, That the Bill be now read the Third time, put forthwith pursuant to Standing Order No. 56 (Third Reading), and agreed to.

Bill accordingly read the Third time and passed.