The Economic Prospect (Hansard, 26 October 1977)

§ Sir G. Howe
The whole House will welcome the improvements in the basic financial indicators of which the Chancellor of the Exchequer spoke. The House will be prepared to give much credit for them to the stabilisation programme on which the Government embarked in the last year under the tutelage and guidance of the International Monetary Fund.
We have heard the Chancellor of the Exchequer deliver his twelfth Budget in a short time, speak yet again about the economy being at a turning point, and make optimistic predictions for inflation and unemployment next year. We certainly hope that he is right, but we shall be prepared to judge him by results rather than by his forecasts.
We welcome the extent to which the Chancellor feels able to move towards substantial cuts in direct taxation. That is because we, unlike members of the Labour Party, like cuts in direct personal taxes. We shall be watching with care to ensure that the Government's forecast borrowing requirements are in line with the requirements of the International Monetary Fund, because the conquest of 1446 inflation, which would be jeopardised by any wrong movement in that direction, remains far and away the most important contribution that the British economy can make towards restoring the health of the world economy. We shall have an opportunity to discuss these matters further in the days ahead.
We welcome the impact on the Chancellor of the Exchequer of the Chancellor of the Duchy of Lancaster, because it must have been his advice that led the Chancellor of the Exchequer now, so late in the day, to begin reversing the disastrous effect of capital transfer tax and other measures on small businesses.
We also welcome the Chancellor's decision to bring additional help to the construction industry. However, 30,000 new jobs represents one-tenth of the present rate of unemployment in that industry. The Chancellor has a long way to go to correct the mistakes which he made in choosing to prefer the bureaucracy to the building industry when making the cuts last year.
I turn to the distribution of the increases in expenditure. We are concerned that the increase in expenditure on overseas aid is more than twice the increase in expenditure on the police and law and order.
We welcome the extent to which the Chancellor of the Exchequer has been able to go in restoring the real value of tax thresholds, but he has still a substantial way to go towards restoring them to the levels of 1973. Many thousands of millions of pounds are needed to reduce the real rate of taxation to that level.
I hope that the Chancellor will take account of the need to begin lightening the burden of tax represented by the standard rate. It is still oppressively high on the skilled workers and managers upon whom the country's wealth and prosperity depends.
This is a Budget of repentance—repentance on a massive scale. It will do more to convince the House that the Government are preparing reluctantly to face their judgment at the hands of the people than that the high-tax Socialist Party has, in reality, changed its spots.

§ Mr. Healey
First, I thank the right hon. and learned Member for Surrey, East (Sir G. Howe) for welcoming the 1447 decisions I have announced, although I think that his welcome would have carried more conviction had he not looked so glum and miserable. The right hon. and learned Gentleman attributed the success of the Government in restoring our financial position to the stabilisation programme that we adopted last December. However, the right hon. and learned Gentleman attacked that programme violently at the time as being totally inadequate. The Leader of the Opposition went on attacking it and, in the United States this summer, she attacked the IMF for being far too lenient with us.
I know that the Chancellor of the Duchy of Lancaster will be grateful for the tribute that the right hon. and learned Gentleman paid to him. Without revealing Cabinet secrets, I can say that the credit for these measures should be shared equally between the Chancellor of the Duchy and my right hon. Friend the Chief Secretary to the Treasury.
I am a little confused, but I believe that I understand the general trend of the final paragraph of the right hon. and learned Gentleman's obituary. He seemed to be asking for bigger cuts in public expenditure and then complaining about the cuts. He seemed to be asking for bigger cuts in taxation and then worrying about whether the money supply could be kept under proper control.
The right hon. and learned Gentleman said that it was a Budget of repentance, but it is a Budget of reward for the sacrifices made by the people over the past few years. It seals the victory for this Government in liquidating the legacy that they found when taking office.

§ Mr. Pardoe
Does the Chancellor of the Exchequer recognise that his statement brings the Government halfway to sanity? Does he realise that this will be a matter of regret to the Conservative Opposition?
I give an unreserved welcome to his announcements, particularly that relating to small businesses. One cannot but marvel at the astonishing transformation in the attitude of Whitehall in the last six months to the problems of small businesses. The Chancellor of the Duchy of Lancaster has fully justified the trust we placed in him.
1448 May I ask the Chancellor of the Exchequer to say something about the external position of the British economy—particularly in relation to our exports—and about the Government's policy relating to the future exchange rate of the pound?

§ Mr. Healey
If anything were needed to complete my satisfaction over the improvement in the nation's economy it is the knowledge, on which I can now securely rest, that I have justified the trust of the hon. Member for Cornwall, North (Mr. Pardoe). As for the exchange rate, it is, as we have stated on many occasions, the Government's policy to maintain the stability of the pound approximately at its present level.

§ Mrs. Castle
Is the Chancellor telling us that, despite the measures of reflation which we welcome, he is still prepared only to increase child benefit next April by £300 million? If that is so, can be justify this neglect of the nation's children at a time when, in this year alone, he is spending over £2 billion on increasing the personal allowances for the single man and the childless couple?

§ Mr. Healey
I appreciate my right hon. Friend's strong feelings on the matter of child benefits, but she will be aware that last July we did a great deal to help children in poor families by the prolongation of the milk subsidy and by the large increase in the number of children eligible for free school meals. While there is a strong case for increasing child benefits when we can afford to do so, my right hon. Friend must accept—I know that she understands this—that only 15 per cent. of the total amount of money disbursed in child benefits goes to the poorest 20 per cent. of families. This is essentially a measure of help for people with children at every level of income. It is not a very effective measure for helping poor families.

§ Mr. Powell
The right hon. Gentleman has announced that in the current year he intends to transfer about £1,000 million from taxation to borrowing. Has he made any estimate of the purposes to which those resources would otherwise have been devoted?

§ Mr. Healey
One of my disappointments, and I hope that it is a disappointment for the whole House, is that there 1449 is at the moment an enormous amount of cash in businesses and, in the banking system, available to businesses. I hope that the right hon. Gentleman deplores as much as I do the failure of business so far to use this money in stimulating investment, and the failure of business to fulfil its declared intentions to increase investment, intentions published both by the CBI and in Government surveys earlier in the year. I can assure the right hon. Gentleman that there will be plenty of monetary room left in the economy for substantial and badly needed increases in investment after these measures.

§ Mr. Heffer
Is my right hon. Friend aware that his statement will be generally welcomed by all Labour Members? Is he further aware, however, that some of us will be marginally disappointed about the aid to the construction industry, which is not to come forward until April next year? Does my right hon. Friend appreciate that some of us had hoped that there would be a massive injection of aid for the construction industry? I ask him, even at this late stage, to think again on this point. We need assistance now, not next year.

§ Mr. Healey
I am grateful for my hon. Friend's earlier remarks. The measures I have announced will be welcomed in all sections of the movement which he and I have the honour to represent. I know that there will be disappointment in various parts of the country and the Labour movement that we have not been able to do more in certain areas. We allocated an extra £100 million for construction in the July measures, to be spent during the current financial year. It takes quite a long time for this type of authorisation to be reflected in actual disbursements of money for doing construction work. Some of that money has still to be fully allocated. One of the reasons why I have given this big increase in money for construction next year is to provide local authorities and Government Departments concerned with plenty of time to prepare plans so that it will be possible to start spending the money as soon as the next financial year begins.

§ Sir David Renton
How does the Chancellor justify the payment of £20 million on overseas aid at a time when 1450 our National Health Service is being kept short of funds and when, in those counties which were given insufficient help under the rate support grant, serious slashes in educational services are having to be made? Will the right hon. Gentleman bear in mind the needs of education and the health service in his future programme?

§ Mr. Healey
The education services will be receiving about £10 million under these measures, to spend next year. The Department of Health and Social Security will be getting £20 million to £25 million, much of which will be spent in the health service. I deplore the right hon. and learned Gentleman's remarks about the increase in overseas aid. We on the Labour Benches felt that it was one of the most unfortunate consequences of the situation in which we found ourselves last year that we had to make a substantial cut in the aid budget. I regret that the increase we are now announcing is not sufficient to make good that cut, but I believe that the great majority of British people will recognise that assistance from Britain to countries whose peoples are far worse off than we are is not only morally justified but has great political and economic value.

§ Mr. Cronin
Does my right hon Friend agree, after hearing the lugubrious and rather envious comments of the right hon. and learned Member for Surrey, East (Sir G. Howe), that to make a Budget Statement without hearing those comments is rather like playing Hamlet without the first grave digger? While congratulating my right hon. Friend on his excellent measures, may I ask him to consider what action can be taken to increase investment by large firms, bearing in mind that small firms represent a small part of the total amount of industry?

§ Mr. Healey
I must confess that listening to the right hon. and learned Member for Surrey, East (Sir G. Howe), and hearing him trumpet the call to arms for a General Election, I could not help feeling that his trumpet had an uncertain, wavering sound. As for the question of investment by large firms, some large firms have already announced, and begun to carry out, substantial investment programmes. Imperial Chemical Industries is a good example. The general level 1451 of investment is far too low. I referred to that in my Mansion House speech last week. I believe that as confidence, which is already at an all-time high in other parts of the world, seeps through into all areas of our own economy we shall find business men reflecting that confidence in increased investment, particularly since I think they are coming to recognise that the continuing flow of North Sea oil will enable this country to maintain a sustained pressure of demand for many years to come without being subject, as was often the case in the past, to a stop-go policy.

§ Mr. Crawford
While I suppose that we must be grateful for small mercies, may I ask whether the Chancellor is aware that his Budget does not contain nearly enough for Scotland? Is he further aware that yesterday's Scottish unemployment figures and the continuing social deprivation in Scotland show that Scotland has become the only country to have discovered oil in her waters and become poorer for it? Does the right hon. Gentleman realise that the use of Scottish oil to fuel this mini-Budget represents one of the biggest rip-offs of Scottish assets since the Darien scheme?

§ Mr. Healey
We are familiar with the hon. Member's views. All I can tell him is that the progressive improvement we can foresee in the economy will bring great benefits to the Scottish people, even though the consequences of that for the party he represents may be less exciting.

§ Mr. Cant
May I ask my right hon. Friend to what extent he has taken into account the further upsurge in the personal savings ratio? Apart from a lack of will on the part of capitalists to invest, there is this fatal reluctance of people to spend. Will the reflation of the economy be as great as he expects, or shall we have the experience of the Americans and the Germans following tax cuts, when people save money rather than spend it?

§ Mr. Healey
If I could predict the movement of the savings ratio, I would find my job easier than I do. Nobody fully understands why, throughout the world in the last few years, in spite of very high rates of inflation, people have chosen to save money rather than to 1452 spend it. It might well be because of high rates of inflation.
I think that the right hon. Member for Spelthorne (Mr. Atkins) is right in saying that the main reason for the present situation is the great uncertainty that exists. However, I believe that in this country, thanks to the prudent policies followed by the Government and the special advantages that we are likely to get from North Sea oil, the uncertainty will be a great deal less than it is in many other countries. We can probably expect the savings ratio to begin falling in the coming year, but my hon. Friend knows as well as I do that this is the most difficult and dangerous thing to predict.

§ Mr. Godber
Will the right hon. Gentleman expand a little on what he said about exchange control? I was glad to hear what he said on this subject, but will he go a little further, because I would relate that to what he said about overseas aid? If he can ease exchange control, that can be just as effective as, if not more effective than, the help that he is giving through overseas aid. I do not wish to denigrate the latter, but a more positive easement of exchange control can help businesses to invest overseas.

§ Mr. Healey
We on this side of the House believe that we should take every step to ensure that the benefits of North Sea oil lead to a big increase in investment in British industry and a strengthening of our own manufacturing base at home, rather than to the acquisition of assets abroad. Indeed, it could be argued that one reason for the relatively poor economic performance of this country throughout the twentieth century was the over-reliance on income from investment abroad in the nineteenth century. I do not think that this is the time for loosening controls on direct or portfolio investment overseas.

§ Mr. Urwin
Enthusiastically though the proposals enunciated by my right hon. Friend undoubtedly are being, and will be, received in the country, it is clearly impossible for him to satisfy the demands of all sections of the community in the allocation of resources, even in a mini-Budget. I welcome wholeheartedly what my right hon. Friend said about the construction industry, but I support 1453 the representation that has been made that £400 million is by no means adequate to take up the slack in unemployment in that industry.
Secondly, may I ask my right hon. Friend how he managed to resist what must have been a considerable temptation to allocate at least £100 million for industrial development in the Northern Region, if only to compensate for the withdrawal of the regional employment premium? How did he resist the further temptation to allocate £300 million to £400 million to establish a Northern Region Industrial Development Agency?

§ Mr. Healey
I share the desire of my hon. Friend to reduce unemployment in the construction industry, and I agree that it will remain far too high even when the £400 million that I have allocated for next year is spent, but, as he admitted, we have to try to judge between competing priorities. I think that the large amount of additional public expenditure that has been allocated to the construction industry is itself an indication of how seriously we take its problems.
I appreciate my hon. Friend's concern about the North-East Region. All I can say is that it will remain a constant preoccupation to improve the treatment of industry there. As I said on another occasion, with the Prime Minister's permission I hope to occupy this post for another two and a half years before my six-year stint is over, and during that period I might be able to do something about the problem.

§ Mr. Emery
Does the right hon. Gentleman realise that we are all delighted about the strength of sterling, as we should be, but will he realise that he must not go on braying against industry not investing as much as he wants bearing in mind that in many areas industry is under-utilising its existing equipment by 15 per cent. or 20 per cent. and will never invest while that is the case?
Secondly, will the right hon. Gentleman assure the House, and particularly his hon. Friends in the Tribune Group, that his success has been based on traditional Conservative economic policy and not on Socialist economic theory?

§ Mr. Healey
The hon. Gentleman must accept that in declaring their inten- 1454 tions both to the CBI and to the Department of Industry British firms predicted and promised very much higher investment in the current year than they have carried through. This is a shortfall against their own tests, and not against the tests of the Government.
One of the great weaknesses of business in this country is that far too many firms do not invest until they are working at capacity, with the result that their investment does not come on stream until their competitors have taken their markets. If they would only show the wisdom shown by, for example, the firm from Sweden that was described in the Financial Times yesterday, the economic history of this country would be very much happier.

§ Mr. Atkinson
Does my right hon. Friend agree that, generally, private investment is labour saving, whilst public investment is labour creative? If, according to his own calculations, the rise hi consumer demand is soaked up by the present unused capacity in manufacturing industry, will he be prepared to discuss the whole question of making further resources available for public investment in the manufacturing sector as a means of creating jobs?

§ Mr. Healey
I cannot agree with my hon. Friend that all private investment is labour saving and that all public investment is labour creative. If he were to talk to the steel workers in South Wales he would find that they have a very different view on that matter. Indeed, if he were to talk to some of his hon. Friends from the mining areas he would hear a different view. I believe that if we can strengthen our industrial performance we shall achieve much higher levels of investment and employment in industry, in the way that countries such as France and Japan have achieved in recent years.

§ Mr. David Mitchell
Is the right hon. Gentleman aware that we welcome his comments about, and the prominence that he has given to, small businesses? Has he any proposals to end the 2 per cent. National Insurance surcharge, to end the deferred liability for stock relief, to lower the rate of corporation tax on small businesses, and to take away the threat of a wealth tax that is hanging over their heads?

§ Mr. Healey
I think continually about all those matters. Indeed, I think of little else. The hon. Gentleman knows that business in Britain pays a far lower level of National Insurance surcharge than in any other country in the European Community. I do not think that to reduce the surcharge from its existing level would be consistent with wise economic policy.

§ Mrs. Wise
Will my right hon. Friend accept that all of us on this side of the House are pleased to know that the tax threshold will now be approximately similar to the level of supplementary benefit? This is a change which some of us have been advocating for some time, and we welcome it.
I call upon my right hon. Friend to resist the blandishments of Opposition Members to reduce the standard rate of tax or to make any other changes in the contribution which would benefit largely their friends. I also call on him to ensure that further progress is made in the restoration of public expenditure cuts and in increases in child benefits, and that we go ahead with the imposition of a wealth tax to pay for some of these necessary developments.

§ Mr. Healey
If I may say so without offence, I welcome the apparent ending of the alliance between my hon. Friend and the Opposition which led to certain changes in the last Finance Bill. I assure her that I am not likely to succumb to their blandishments when she is being so endearing towards me.

§ Mr. Biffen
Is the right hon. Gentleman aware that the campaign to reduce and eradicate inflation from our society will not have been assisted by his measures announced this afternoon, and, on account of the dangerous element of gamble with the monetary element in his total economy, can he confirm that the public sector borrowing requirement will still remain about 6 per cent. of the gross domestic product for the current year? Will he explain how he will protect himself from the monetary explosion which could come about if the exchange rate is rigged at its present level and there is a substantial inflow of foreign funds?

§ Mr. Healey
The House is familiar with the fact that the hon. Gentleman, 1456 whose views we all respect, is a monetarist in the national, international and strictest sense of the word. All that I can do is to recommend him to read the Nobel Lecture of the guru of his theology, Mr. Milton Friedman, and he will discover that his guru blew up the idol before which he has been genuflecting for so long. I suggest that he stops worshipping those smoking ruins.

§ Mr. Ashley
I congratulate my right hon. Friend on what he has said today, but is it not a pity that he was not able to do more for children, especially as he announced last July that he would be introducing child benefits which will not be paid until next April? His reply to my right hon. Friend the Member for Blackburn (Mrs. Castle) was quite unsatisfactory because the concessions announced today are to be paid immediately and others announced in July are being paid, but the payment of child benefit must wait. Therefore, will he reconsider his policies and undertake to consider the possibility of backdating child benefits to when they were announced last July?

§ Mr. Healey
I appreciate my hon. Friend's views on the question of child benefit, but he must accept that the very large increase in the married person allowance will be of immense benefit to all families with children. I have already explained that I believe that the increase in child benefits planned for next April—and it had to be announced last July so that it could be paid next April—is appropriate in all the circumstances.

§ Mr. David Howell
Will the right hon. Gentleman now answer the question of my hon. Friend the Member for Oswestry (Mr. Biffen)? If it is the policy to keep the exchange rate at about its present level, is it also the policy to allow the reserves to continue accumulating at their present enormous rate?

§ Mr. Healey
I read the literature as assiduously as no doubt the hon. Gentleman does—[HON. MEMBERS: "Answer."] I am answering, and if hon. Members opposite contain their impatience they may learn something to their advantage. There have been very large inflows of foreign currency into the reserves in the current year. Hon. Members will know 1457 from perusal of the monetary figures—the figures for the growth of money supply —that in nearly all months until last month it was possible to sterilise the effects of the inflows on the money supply by very large domestic sales of gilts. A potential conflict could arise between the exchange rate policy, interest rate policy and monetary policy. Of course I know that. If it arises, I shall take appropriate action. But I should be foolish in the extreme if I were to give any indication of what I regarded as appropriate policy in those circumstances and the hon. Member must know that.

§ Mr. Gould
If the inflow of hot money into London continues, will my right hon. Friend ensure, through physical controls if necessary, that the speculators' search for capital gain will not be permitted to push up the exchange rate to the prejudice of British industry?

§ Mr. Healey
Physical controls might have a role to play if this contradiction became an important and urgent one to deal with. But my hon. Friend must understand that physical controls have not proved very effective when used by other countries, such as Switzerland and Germany, in dealing with this problem. I think that one of the lessons learned by all people who hold my job is that there are fairly strict limits within which it is possible to withstand market pressures.

§ Mr. Nelson
I welcome much of the content and balance of the right hon. Gentleman's statement, but will he accept that many of us are deeply worried about the continuing level of the public sector borrowing requirement at £7 billion or £7½ billion next year? Does he accept that his Government, and indeed future Governments, have a long-term moral and economic responsibility to eradicate the public sector borrowing requirement and, hopefully, one day to return to contributing to a sinking fund?

§ Mr. Healey
I do not accept that view at all when the economy is working well below capacity. When the economy is working well below capacity, to seek to eliminate the public sector borrowing requirement would be to inflict needless social and economic damage on the people. The hon. Gentleman must know that the level of our public sector borrow- 1458 ing requirement this year is well below the level which I forecast a year ago and, as a percentage of GDP, very much further below the level of the public sector deficit—the general Government deficit—in Germany, a country to which no doubt the hon. Gentleman would always turn for advice.

§ Mr. Alexander W. Lyon
While welcoming that the relaxation in exchange control was much less radical than forecast—one recognises the danger of too much hot money coming into the country —may I ask whether it is possible by the extra allocation of gilts to use that money, by direct investment through the National Enterprise Board, for a much more purposive intention than anything that the hot speculators would use it for?

§ Mr. Healey
I wish that it were as simple as that, but I fear that it is not. There is a latent and potential contradiction between the three variables to which I have referred. I do not think that it has become acute, but it might, and then the Government would have to deal with the situation as they thought best. Public investment will not help the economy unless it produces a real return in terms of goods which are saleable at the price that they cost to produce. This is a central problem as much for public industry as for private industry. I believe that the appointment of Mr. Edwardes as the new Chairman of British Leyland may help to ensure that that problem, which is very acute in that company, which is under the control of the NEB, is finally resolved.

§ Mr. Higgins
Is the right hon. Gentleman aware that his remarks about physical controls could be open to serious misinterpretation? Will he spell out the point a little more clearly? He referred in his statement to an increase in living standards. Is not that a very misleading way to put the position? Is it not the case that, even after the tax reliefs he has announced, living standards will not be restored to their earlier level?

§ Mr. Healey
I have made it clear on many occasions that there is no way in which the British or any other people who use large quantities of oil can recover the fall in their living standards which was the consequence of the increase in the price of oil. This is as true of Britain as it is of the United States, Germany 1459 or any other country. But I expect a real improvement in the living standards in this country over the coming year, and I think that that improvement will help to ensure that the rate of inflation is kept down by reasonable pay settlements.
I made it clear that I do not believe that physical controls are a very effective answer to the problem to which I referred a moment ago. I referred to the experience of Germany and Switzerland in trying to operate such controls and finding mat their imperfections became more apparent as time passed.

§ Mr. Madden
I welcome the main features of the statement, but will the Chancellor tell us what is the Government's definition of full employment in percentage terms, and when he believes that that level of employment will be reached, bearing in mind the view of certain economists that we need 5 per cent. expansion between now and 1985 if unemployment is to fall below 1 million?

§ Mr. Healey
I wish that I could answer my hon. Friend's question but I honestly cannot. I do not think, for example, that any economist in this country had forecast that the employment figures for the last month, which were published yesterday, would show a seasonally corrected fall in the level of employment, a substantial increase in the number of job vacancies and a reduction in the amount of short-term working. I think that predicting employment in its relationship to movement of output all over the world has become extremely difficult. I believe that the measures which I have announced this afternoon, if they are accompanied by continuing moderation in wage settlements, will enable us to get unemployment moving regularly down in the coming year. As to what level and by what time, I do not believe that anyone can predict that.

§ Mr. Cormack
Is the Chancellor aware that his worthy efforts to boost police recruitment are unlikely to be very effective unless something is done to boost police pay, and that there is a very genuine and deep-seated anger in the police force at the moment, with which there is sympathy throughout the country?

§ Mr. Healey
I read an opinion poll on the police. I was rather surprised to find in the opinion poll that, when asked 1460 whether the police should be treated as a special case, a quarter of those asked said "No". [Interruption.] Three-quarters said "Yes", of course, but when people are asked a question of that nature it is not difficult to get a very large majority to say "Yes". But I put this question seriously to the Conservative Front Bench, and particularly to the right hon. Member for Penrith and The Border (Mr. Whitelaw), who spoke on this matter recently at the Conservative Party Conference. Does he think that the words he used and the terms in which he spoke were calculated to help this country to get inflation down in the coming year?

§ Mr. Bagier
Does my right hon. Friend not agree that it is rather nice to be mixed up in a squabble about how to distribute about £1 billion this year and £2 billion next year? Will he not agree that to a great extent the reason that he has this kitty to distribute is the restraint shown by the trade union movement over the last two years? Will he not agree that in some ways the £100 million to be given in the form of Christmas boxes to old-age pensioners is something that the trade unions have been able to provide? Will he not further agree that in some ways there is a moral to be learned by our trade union colleagues, in that because of their restraint over the last two years we hope it will be possible to continue to make progress in the next two years?
Is my right hon. Friend satisfied that the measures he has announced will be sufficient to eat into the difficulties in areas such as the North-East and Wear-side in particular, where there are particularly bad pockets of unemployment?

§ Mr. Healey
I agree very strongly with my hon. Friend's remarks—as would all my friends who are Finance Ministers in other countries with whom I have discussed the matter, and also my friends in international institutions such as the International Monetary Fund and the Organisation for Economic Co-operation and Development—concerning the cooperation between the British Government and the trade union movement, and the restraint shown by ordinary working people in pay negotiations. This applies not only to the last two years but also 1461 to the present time. It has made an essential contribution to getting inflation under control in this country and creating a basis for measures of the sort that I have announced this afternoon.
The House will be aware that this co-operation with the trade union movement has been steadfastly attacked and derided by the Conservative Party. When there is talk of the Government owing their success to Conservative policies, I am bound to remind the House that the two major elements in our success have been a relationship with the trade union movement—which the Conservative Party has never sought and can never achieve in its present posture—and control of the money supply, which was allowed to explode under the previous Government.

§ Mr. Lawson
Is the Chancellor aware that the contradiction which he acknowledged to exist in his financial policy is a very serious contradiction indeed, with grave inflationary consequences for the year ahead? Will he reconfirm his determination to keep the money supply in the current year at between 9 per cent. and 13 per cent., and will he tell the House what is his guideline for the money supply increase next year?

§ Mr. Healey
My answer to the hon. Gentleman's last question is "Certainly not". I shall do so at the appropriate time, when I have considered all aspects of the British economy in the coming year.

§ Mr. Ron Thomas
My right hon. Friend is no doubt aware that economists are predicting a level of unemployment of 2 million. In the light of that, many of us will be very disappointed with the employment creation effects of this afternoon's statement. In arriving at his figures, did my right hon. Friend take into account the dangerous penetration of finished and semi-finished manufactured imports into this country? Could I urge him, even at this late stage, to restore the cuts in public expenditure which have enabled Tory councils up and down the country, such as the Avon County Council, to slash education, health and social services?

§ Mr. Healey
Economists predict all sorts of things, as the House knows very well. I recall the research department 1462 of the Association of Supervisory, Technical and Managerial Staffs predicting that there would be 2 million unemployed last autumn. That prediction was absolutely wrong. I have not the slightest doubt that we shall not reach 2 million unemployed in the coming year, as the economists to whom my hon. Friend refers seem to believe. I believe that we can get unemployment firmly on to a downward path in the coming years.
We published some very interesting figures on imports during the recess. They show that British penetration of foreign markets has matched foreign penetration of British markets in the last few years. This is a two-way business. There is a very great increase in the volume of trade all over the world from which Britain is now deriving more benefit than other countries. This is the first year for many years in which we have actually increased our share of world trade. When we lose domestic markets to foreign imports, the reason is inadequacy of design, inadequacy of delivery or excessive cost, and all these are matters which the Government are deeply concerned to correct.

§ Mr. Tapsell
Is the right hon. Gentleman not aware that the sterling exchange rate is today more than 20 per cent. below the level at which he inherited it, and that this is one of the prime causes of domestic inflation at home?
Is he further aware that the German experience has not been that rising prices have adversely affected their export trade and that the whole contradiction in the economic policy he has put before the House this afternoon would be greatly relieved if he would allow sterling now to float freely?

§ Mr. Healey
I know that that is a view widely held by the hon. Gentleman's friends in the City, but it is not held by those who are engaged in trade and production in this country. It is with the protection of our manufacturing base that I think the House should be primarily concerned. The hon. Gentleman will be aware that the sterling rate has risen 10 per cent. in the last 12 months.

§ Mr. Spriggs
Will my right hon. Friend take a look at the ever-increasing cost to the worker by way of National Insurance contributions, taken from his wage 1463 packet before he ever sees his wages? Will my right hon. Friend also take his mind back to the fact that it was a Labour Chancellor of the Exchequer who abolished the tax allowances for National Insurance contributions? Will he now, even at this late stage, reconsider his statement today and include tax allowances for all National Insurance contributions paid?

§ Mr. Healey
I will consider any suggestion put to me. But as I said earlier, the level of social benefits paid for by National Insurance contributions in this country is still, regrettably, substantially lower than in other countries and the size of the contributions towards them is also considerably lower. I think it right that superannuation in particular should be properly funded. The scheme we are bringing in next year will be one of the most comprehensive that the world has seen and will be something for which this party and movement has fought for a long time. But it must be paid for, and it will be paid for.

§ Mr. Patrick McNair-Wilson
Will the right hon. Gentleman comment on the very gloomy state of the American economy and the predictions made for many European economies? Will he answer the question whether we can wholly isolate ourselves from this fall in demand? The steel industry in this country is already in the doldrums, and protectionism in the United States could do even more damage to our steel industry than we are seeing already.

§ Mr. Healey
I am deeply concerned by the question raised by the hon. Gentleman. I devoted to it a good deal of my speech at the Mansion House last week. I have also attended meetings of the IMF in Washington and of the Council of Finance Ministers of the EEC in Luxembourg in recent weeks, when the matter also formed a major element, as it did in the discussions which I had with my West German colleague when the Prime Minister and I visited Bonn last week. We are all agreed that it is necessary to stimulate demand, and that we have shaded risks in recent years too much against growth—a point made by Dr. Witteveen in his speech to the IMF. I may add that that speech disagreed strongly with the views of the hon. Member for Oswestry (Mr. Biffen), as the 1464 hon. Gentleman knows. We have agreed in the European Council to try to increase demand by 1 per cent. of Europe's GDP over the coming year, and the measures I have announced today represent the British contribution to that collective end.

§ Mr. Molloy
Is my right hon. Friend aware that much of what he has announced today should provide considerable encouragement to those trade union negotiators negotiating wage increases in the months ahead? But is he not also prepared to consider that much of what he has announced can be vitiated if there is any form of a race to increase prices? Does he not agree that he should point out to the Secretary of State for Prices and Consumer Protection, the CBI and all others concerned that they, too, have a contribution to make in holding down price increases to the absolute minimum?

§ Mr. Healey
I strongly support the last point made by my hon. Friend. It is important that both the House and the country should recognise that, as a result of the measures I announced in July and those I have announced today, a married man with two children on only two-thirds average earnings will be actually better off at the end of this year, even without a wage increase, than he was at the beginning of the round. A married man with two children on average earnings—about £80 a week—would need only just over 2 per cent. wage increase in order to maintain his living standard. So there is a strong incentive for pay negotiators to keep the increase in earnings to the limits set in the Government guidelines. If they do, I shall be able to give further tax reductions in the next Budget, and I think that the House and the country are aware that an increase in living standards generated by tax reductions is infinitely better for the economy, for employment and for trade than an increase in living standards generated by excessive wage increases.

§ Mr. Ogden
Does not my right hon. Friend agree that it has sometimes appeared that the Opposition are scraping the barrel very deeply in order to find any criticism at all of his statement today? Will he take up the point about overseas aid? If we were to take only one part of the £20 million to be made available, and use it for rural electrification in the Middle East, for example, that 1465 would bring more work to Merseyside and the Midlands.

§ Mr. Healey
I agree with the impression of my hon. Friend that the Opposition have been scraping the bottom of the barrel, although perhaps it has sometimes not reached as far as the bottom of their particular barrel. I agree that overseas aid, disbursed differently in different countries, according to the nature of the aid required, flows back to this country in ways which in turn provide additional work here.

§ Mr. Grylls
When the right hon. Gentleman talks about investment, will he bear in mind that the uniquely low rate of return of 2 per cent. on investment in British industry is almost the lowest in the developed world? Does he not agree that uncertainty is the key to this problem? What is he doing about it?

§ Mr. Healey
The rate of return has been falling all over the world in recent years per unit of capital, and our experience is not very different from that of other countries. The movement of investment seems to be worse in some other countries, such as West Germany, than it is here. There is all over the world an unexpected lag, in investment. It was not expected by the Governments of France, Germany, the Low Countries, the United States and Canada, and it is to some extent a baffling problem. I believe that it is to do with the uncertainty referred to by the hon. Gentleman, but I believe also that in this country we are beginning to remove some of those areas of uncertainty. As I said at the Mansion House, we are one of the few countries expected by international organisations to have a higher rate of growth next year than this, It looks as if our economy is going to improve significantly faster, while the performance of other economies which have previously been ahead of us is deteriorating. This is a matter that the House should consider and, I hope, welcome.

§ Mr. Greville Janner
Now that, happily, the financial state of the country is improving, will my right hon. Friend be able to give some hope to the hundreds of thousands of men who are suffering so much because they are unable to retire at 60, however ill they may be? Will he 1466 consider making some financial provision during the coming year to provide for voluntary retirement by men if they wish to retire and are unable to carry on at work in the way that we hope my right hon. Friend will be able to carry on for many years to come?

§ Mr. Healey
I do not think that there is any intention on this Front Bench to opt for voluntary retirement, but I will bear in mind what my hon. and learned Friend has said.

§ Mr. Crouch
Will the right hon Gentleman give his views on the level of wage demands to come, particularly as they might be affected by his statement today? Was it not his former policy to withhold tax concessions as a stick, as it were, to ensure that wage demands met the Government's requirements? Now he is changing his policy and offering a tax pay-out in order to encourage low wage demands. Does he think that he will be as successful as, or more successful, or less successful, than, in the past?

§ Mr. Healey
I do not know, but 1 believe that the improvement in real take-home pay generated by my measures in July and by my statement today is also having its effect on wage settlements—not always on wage demands, which are a different thing. The hon. Gentleman will have been impressed, as outside observers have been impressed, by the high proportion of settlements made so far within our guidelines—about 97 per cent. of those collected by the CBI data bank. I am certain that this is due to the growing realisation that the period of falling living standards is coming to an end and that an increase in living standards can now be rationally expected. I dare say that the House—although perhaps not so much the Front Bench opposite—was pleased to see that the last monthly index of consumer satisfaction and expectation, published in the Financial Times, was the best since 1970.

§ Mr. Skinner
Is the Chancellor aware that during the course of his speech the Leader of the Opposition looked decidedly chilly? Is that because he has been stealing her clothes? Does the Chancellor agree that this mini-Budget is, perhaps, too much influenced by the presence of the Liberals and that it should have been more adventurous?
1467 Will my right hon. Friend give a specific answer to the point made earlier in relation to the growth rates for this year and the next financial year when taking account of the proposition, which he put earlier, about the need for a 5 per cent. growth rate to keep unemployment below the 1 million mark over a long period of time?
Will the Chancellor tell the Treasury that if it wants to increase consumer purchasing power it should keep its nose out of every argument in the so-called free collective bargaining arena? If it must use sanctions, it should use them instead against firms which constantly put up prices to increase profits at a time when there has been massive wage restraint over a two-year period.

§ Mr. Healey
I assure my hon. Friend that I am not, never have been and never will be a transvestite. In relation to his last point, I must tell him that the Government are determined to use their influence in the public sector as an employer, and in many cases as paymaster; and in the private sector, where they are free to grant or withhold discretionary assistance to firms, to ensure as far as possible that our guidelines are adhered to. My hon. Friend the Member for Bolsover (Mr. Skinner) will be as happy as everyone else if we are successful in doing this, because if inflation takes off again next year the consequences for all the objectives and principles that he and I hold so dear will be disastrous.

§ Sir A. Meyer
Does the Chancellor realise that in his forthcoming and very welcome visit to North Wales he will be pressed very hard to explain how quickly his measures will have an effect on unemployment, particularly in Clwyd? This county now has the highest level of unemployment in Wales and the third highest in the United Kingdom, but previously its unemployment rate was very low.

§ Mr. Healey
Wherever I go, I am pressed on these matters.

§ Dr. Bray
Is my right hon. Friend aware that the House understands why he is not making further drawings on the IMF? Will he use his influence as Chairman of the Interim Committee of the IMF to explore whether the resources that are released can be used for the developing countries, which many of us on this 1468 side of the House feel should have high priority? Will he remind Conservatives that, if they are worried about excessive accumulations of reserves, it would be possible to make some repayments to the IMF at an earlier date than planned?

§ Mr. Healey
The latter possibility is always in my mind, but I have come to the conclusion that the time for doing so has not yet arrived.
On the question of the IMF, in certain areas of potential lending the IMF will very much welcome the fact that we are not drawing the November standby and do not plan to withdraw any further tranches. The IMF has been lending very heavily and successfully to developing countries. However, the difficulty is that the higher credit tranches have not so far been used by the developing countries, which find the conditions and requirements of the IMF which are imposed on their use unacceptable. I have persuaded the IMF that to prolong periods of adjustment beyond a single year has enabled the Jamaican Government, for example, to make a successful drawing recently. If the IMF shows more understanding of the circumstances of some of the developing countries, much more use can be made of the facilities which are available.

§ Mr. Stanbrook
If public expenditure is to be increased, no doubt the Chancellor will be assailed from many sides in support of special interests. Is it not a fact that, unless the police receive a substantial increase in their pay, law and order, which are essential in a civilised society, cannot be maintained?

§ Mr. Healey
I do not propose to enter into this matter, which is not my departmental responsibility. However, like all the members of the Cabinet, I am deeply concerned about it and I hope that we can find a solution that is satisfactory to both sides. I must point out that there is enormous regional variation in police recruitment, in wastage and in the nature of the tasks necessary for maintaining law and order. The problems in Manchester, London and Strathclyde, for example, are different in scale and definition from those in country areas. All these matters must be considered.

§ Mr. Hooley
Is the Chancellor aware that the restoration of 20 per cent. of 1469 the £100 million cut from overseas aid will be welcome as far as it goes? However, many of us feel that it is far too modest. Unless we and other countries pay greater attention to the interaction between the West and the Third world, we shall not get out of the general economic recession.

§ Mr. Healey
I agree with my hon. Friend that it is not enough, and I hope that maybe we shall be able to do more on a later occasion. We should all recognise that our very dramatic—indeed astonishing, as it was described by Dr. Witteveen—improvement has not been accompanied by an improvement in our real economy. The measures that I have announced today will help the improvement in our real economy to get under way. We have a long way to go before we can feel satisfied. That is why we have no intention of giving way to the rather unconvincing demands from the Conservatives for an early General Election.

§ Mr. Peter Bottomley
Will the Chancellor confirm that his mini-Budget represents a transfer of resources away from people with children? Can he deny that the increase in the married person's allowance will transfer resources to all those without children? When the Chancellor talks about investment, he should think about investing in the people who are bringing up the future generations rather than simply in terms of plant and machinery.

§ Mr. Healey
The hon. Member is talking bunkum. The increase in the marriage allowance goes to all families—with or without children. It is not in any sense a discrimination against families with children. The hon. Member should know better than to talk that kind of claptrap.

§ Mr. Litterick
Will the Chancellor tell the House whether, when drawing up his modest reflationary proposals, he took account of the deflationary effect of the fact that throughout the country Conservative-controlled local authorities are under-spending significantly on budgets which themselves were significantly lower than those of last year? This situation has led, for example, to the ludicrous and scandalous situation in Birmingham that half a dozen new nursery schools, which are fully equipped, are not being used because the Tory authority refuses to 1470 finance the staffing of them. Then there is the even more scandalous situation of the new wing of the Selly Oak Hospital, which is fully equipped but is not being used because the local authority will not fund the staffing of the hospital.

§ Mr. Healey
I am aware that in some local authorities, particularly those administered by the Conservatives, there is gross under-spending. We should use the opportunity provided by democracy and sweep the rascals out.

§ Mr. Peter Rees
Will the Chancellor explain why he has not proposed a cut in the basic rate of income tax—not even the 1 per cent. foreshadowed in April last year?

§ Mr. Healey
The reason why I am not doing so is contained in the admirable words that the first need is to reduce the burden of taxation on modest earnings and to restore a reasonable differential. That is from "The Right Approach" and will be recognised by the Conservatives. I believe that it is right to concentrate on increasing tax thresholds rather than reducing the basic rate.

§ Mr. Newens
I recognise that the increases in public expenditure will be welcomed, but does my right hon. Friend agree that they do not go far enough to restore the cuts which have been made or to maintain the standards of health, welfare, education and public transport, which, deplorably, are lower than they should be? In these circumstances will he recognise in future that priority should be given to the provision of more funds in the public sector, which must take precedence over any cuts in the standard rate of income tax?

§ Mr. Healey
My hon. Friend will know that public spending has risen very substantially in the last three and a half years, even after all the cuts which the Government have had to impose. Private spending has fallen substantially, largely as a result of the increase in oil prices and its effect on national wealth. I believe that we are right to restore the balance somewhat towards private spending, and that a balance of two for tax cuts and one for public expenditure is right on this occasion.

§ Mr. Wyn Roberts
The House recognises the beneficial effect of the right hon. 1471 Gentleman's measures on the employment situation, but does he not acknowledge that the effect is slight compared with the total unemployment figure of 1.5 million? Will he promise to consider any special measures that may be suggested to him for reducing unemployment in areas such as Wales, where even fast month the seasonally-adjusted figure increased rather than decreased?

§ Mr. Healey
As I said earlier, our main objective must be to reduce unemployment, and I believe that these measures will lead to a fall in unemployment. The hon. Gentleman must recognise that in the last year unemployment has risen all over the developed world. This is a difficult and intractable problem. The Government regard it as their main objective to bring down the rate of unemployment, and I believe that the measures announced this afternoon will be a useful start.

§ Mr. Flannery
My right hon. Friend mentioned the use of more unemployed teachers in deprived areas, but he did not put a figure to it. In view of the enthusiasm of Conservatives in topping up our cuts by Draconian cuts in their areas, will my right hon. Friend now put a figure to it so that the teachers will know that some of the vast pool of their talent will be employed?

§ Mr. Healey
My right hon. Friend the Secretary of State for Education and Science will be making a more detailed announcement on this matter in due course.

§ Mr. Michael Morris
Will the right hon. Gentleman explain why he never gives the pensioners a fair deal? Will he confirm that the £10 bonus should be £20 if it is to be merely equivalent to the figure in 1972 introduced by a Conservative Government?

§ Mr. Healey
The extravagant language used by the hon. Gentleman baffles belief. He must know as well as I do that under the Labour Government the real value of the old-age pension has been increased by over 15 per cent. at a time when the real value of the earnings of those at work unfortunately has had to fall. The present Government have done more for the pensioner than any Government in our history.

§ Mr. Stan Crowther
Will my right hon. Friend accept that although progressive local authorities welcome the extra money to be spent on the building industry they will be concerned about the absence of any assurance on local government expenditure in general in the next year? Is it not a fact that, because local government is a labour-intensive industry, a substantial increase in rate support grant could not restore the damage inflicted on services in recent years but would have an immediate impact on unemployment?

§ Mr. Healey
My right hon. Friend the Secretary of State for the Environment will be discussing the rate support grant with the appropriate local authority bodies in the very near future. An important point was made a little earlier to the effect that there is no guarantee that the money will be spent by councils.