BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 17 April 1978 vol 948 cc33-180

Mr. Speaker

I must inform the House that I have selected the amendment standing in the name of the hon. Member for Bristol, North-West (Mr. Thomas) to the motion under discussion. I shall call the hon. Member or one of his hon. Friends to move it during the course of the day's debate. As soon as the first motion has been disposed of this evening, I am required under Standing Order No. 94 to put the Questions on the remaining motions which stand on the Order Paper. Since the Standing Order requires me to put these Questions forthwith, I am unable to select any of the amendments which have been put down to Motions Nos 6 and 8.

3.39 p.m.

The Chancellor of the Duchy of Lancaster (Mr. Harold Lever)

It is right that on this the last day of the Budget debate I should place special emphasis on the remarkable feature of the Budget—its dealings with small businesses and their taxation. It is right also that I should pay tribute to my right hon. Friends the Chancellor of the Exchequer and the Chief Secretary to the Treasury for finding so much space for these measures in the Budget. Those who have been at the Treasury know that there is a greater fight for space in the Finance Bill by different competing Departments than there is for seats at the Centre Court at Wimbledon on finals day.

It is a great tribute to my right hon. Friend the Chief Secretary that, having been submitted to a continuing flow of evangelical rhetoric on the part of small firms, he nevertheless felt able to support so many of the reforms now incorporated in the Budget and heed the plea for adequate time for them to be debated by the House. I should also acknowledge the continuing and sustaining influence and enthusiasm of the Prime Minister in these matters since he asked me to seek to co-ordinate the departmental activities which are now being mobilised behind the encouragement of small firms.

Small businesses in all countries face special difficulties in modern times. The complexity of administration which small firms experience in this country is not unique. It also applies to other countries. Small firms have had difficulty in other countries, and certainly here, in keeping their heads above water and in continuing an adequate role in the economic life of the country. The result of this is that there is an imbalance in economies as small firms tend to be reduced in number. Instead of having the range of large, medium and small businesses in the economy, the situation tends to become lopsided when the number of small firms is reduced unreasonably.

Nowhere is that danger greater than it is here. We have an affection in the House during economic debates for talk of league tables by which we compare our economic performance with that of other countries. I am not as fond of that as some. If we must have league tables, one at which it is worth looking is that which shows the position of small firms. In the British league table small firms figure lower down than in any of our successful trading competitor countries. In every other advanced country which is enjoying economic success there has been far more support by Government for small firms. Far greater account has been taken of their needs throughout the post-war period than has been taken by Governments of both parties in this country.

Not before time, in this country and elsewhere, attention is being focused increasingly on what Government can do to encourage and enhance the performance of small firms. Not only in this country are minds turning actively to this problem. It is happening all over the world, even in countries which have done more for their small companies than our Government here. In the EEC, America and Japan, enormous efforts are now being made to encourage small firms. This is stimulated partly by the vast new problems that have faced all the advanced economies in recent years. Remarkable structural changes have taken place throughout the world at an accelerating pace. Those structural changes can be benign if they are properly harnessed and proper responses are made. But they can be malign in their unemployment consequences if the response is not made with sufficient vigour, flexibility and resource.

That accounts for the stepping up of interest throughout the country, including in the Government, in recent months. A remarkable response has come from the Prime Minister's appointment six months ago of a special co-ordinated effort on behalf of small businesses. The media, particularly the newspapers, have been extraordinary in the interest that they have focused on the possibilities of small firms. I am tempted to single out certain newspapers which have gone to great lengths to encourage information and discussion about small firms. However, that would not be fair since each of our great newspapers has played an important part.

The great commercial banks, with their branch networks—which are of fundamental importance to the small business man—have responded spontaneously and, indeed, eagerly to the Prime Minister's call for a massive effort behind the small firms. Merchant banks and pension funds have moved into action to see what they can do to help. Even our universities and polytechnics have mobilised their intellectual resources to attempt partnerships with small-firm information centres and so forth. The organisations that are not noted for their immediate response to calls from this Government—the CBI, the chambers of commerce and the small firms business associations—have moved in. Remarkable work has been done in the study by the Royal Commission which was presided over by Harold Wilson. I apologise. I should have said by my right hon. Friend the Member for Huyton (Sir H. Wilson). It is my absence from the Chamber rather than his that has led me into error.

I believe that something of value for small businesses will come from this effort which has taken place among all parties and within such a wide spectrum, including the media, the banks and universities. I cannot but believe that this effort will gain momentum and will produce rich rewards.

I see three main areas for Government action—tax, finance and the relief of administrative burdens. The three are interlinked, as the debate will show.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Before the right hon. Member leaves the mechanics, can he say what the Minister responsible for small businesses, who has been a Member of the Government in one shape or the other for the last four years, has been doing for the last three and a half years? This appears to be a sudden interest in the subject.

Mr. Lever

The Minister has been doing a great deal to help small businesses. I often receive letters from those who avow themselves to be the hon. Member's political supporters. In one case I was surprised because it was such an intelligent letter. They pay great tribute to the Minister for the zeal and effort that he has put in to the needs of small businesses. The hon. Member would be wrong to belittle my hon. Friend. We have worked in harmonious partnership in the last six months in an effort to step up the work which is being done in all Departments on behalf of small firms.

I turn to the question of taxation, which necessarily will be the main topic of my comments this afternoon. I must bear in mind that the informed consensus is clear. It is that the tax system, plus inflation, has continuously, since the end of the war, reduced incentive to start up or build up businesses, or to obtain risk money for businesses. That must be examined and altered. It is true that our present tax system is so geared that it tends to encourage people to build up businesses if they are minded to sell them out. But there is not sufficient encouragement for people to build them up in order to preserve them, develop them and perhaps pass them on.

The process of small firms being taken over in this way by people selling out because that is favoured by our tax system is unhelpful because it adds to the imbalance in the structure of our economy. It gets lopsided. There are many big firms at the top and a greatly diminishing tail of small and medium firms.

Moreover, our tax system undoubtedly gives advantage to institutional investment. That is to say, it gives many entirely justified inducements for people to put their savings in pension funds or self-employed pensions and the like. It gives great tax inducements to do that. But in the nature of things the institutions that manage pension funds cannot possibly cope with the furnishing of funds to a million or more small businesses, many of them requiring sums ranging from £5,000 to £50,000. It is beyond their power. In so far as good will could do it, I am quite sure that the pension funds would do it. The miners' pension fund, for example, has linked arms with two of our leading merchant banks specifically to try to produce funds that will help the small business and to make them available, but, of course, it has a limited ability to do so.

My objectives and the Government's objectives have been to see what we can do in tax that will give encouragement at every stage of a company's life cycle—encourage start-ups, encourage people to build up businesses, encourage people to retain them without their being taken over by conglomerates or big business later, and to enable them to transfer, if necessary.

We have also wanted to produce a situation in which small businesses will act as a magnet for investment. We want to give them some of the attractions—not the same attractions, but appropriate attractions—that we give to savings when they are channelled into institutional directions. So I want to see, too, that we make concessions that will have the effect of making them a magnet for more investment. That is only right to keep a balance in our economy, for the reasons I have given, on institutional use of savings. This is not a creation of loopholes or a creation of favours. It is simply the maintenance of balance in our economy.

I am not ruling out any other means of encouraging investment into small business, but I think that tax concessions of this kind will constitute an important element in creating magnetism in the small businesses for the investor.

I confess that it is my view that whatever we ultimately decide in the way of providing supportive finance for small businesses from Government sources—I am by no means ruling that out, and I am waiting for the Wilson Committee and the Roll Committee to let us have their distilled wisdom on the subject before we plunge in—in general it is better that there should be hundreds of thousands of shrewd investors bringing their brains and money to small business than a handful of civil servants presiding over a fund, however generous. That is not to rule out the civil servants if the conclusion is that that will be helpful. But there is no substitute for harnessing the brains and judgment of hundreds of thousands of people with savings to invest, and they will invest in the small business sector only if it has an appeal that is comparable with that of the other sectors of our economy.

Therefore, what has been done in this Budget—and I am very grateful to my right hon. Friend the Chancellor of the Exchequer and, in particular, to my right hon. Friend the Chief Secretary for the very important concessions that have been made—is only a beginning. The Chancellor has said that he will consider any reasonable suggestions that are put up in this area. I can undertake that quite a few suggestions that I think are reasonable will be put to him during the course of the next 12 months. I am absolutely clear that the Chancellor's statement is not in some ways an emollient brush-off to those who would like to do more. It must be taken as a very firm committal to continue the advance in tax adjustment favourable to small firms which forms so important a part of this Budget.

Mr. F. A. Burden (Gillingham)

Does the right hon. Gentleman agree that the reluctance of a great many people to invest in and to extend private businesses is due to the threat of nationalisation and that many of his hon. Friends are anxious to have a great increase in nationalisation?

Mr. Lever

I must confess that in a fairly wide experience of these matters and in an almost encyclopaedic range of anxieties about small businesses that have been put to me, the one that the hon. Gentleman has thought of has not yet figured once.

The tax changes in the Finance Bill focused around the small business cost in all about £200 million. I am not saying that the whole of that £200 million will go to small businesses, but most of that £200 million will move to the advantage of small businesses. There is no point in my repeating the very eloquent, detailed and entirely accurate Inland Revenue Press release. I shall readily provide a copy to any hon. Member whose curiosity extends to such details. However. I want to put the tax reliefs into a more general setting and to relate them to the life cycle of businesses, because that is the way in which I approach this matter.

First, one has to start up a business. Here we have given, for the first time, loss relief for unincorporated businesses against previous income tax paid. This is of the greatest importance. If any hon. Member, in the light of recent indications, is anxious about alternative employment should his constituencies not wish to retain him after the General Election, it must be comforting to know that should his thoughts turn to the initiatives of a small business, he will be able to recover some of the tax that has been deducted from his parliamentary salary.

Moreover, a small but quite remarkable new concession has been made for people starting up businesses. For the first time in the history of the capital gains tax, one can now get capital gains tax relief on loans which are made to small businesses if that money is lost. That has never been done before.

The reason why I say it is so remarkable is that it is the only case known to me in which the Inland Revenue can lose without having the possibility of winning. The loans that one provides, even if they are repaid in full, cannot attract a revenue tax. On the other hand, they attract relief in case the loans are lost. This must be unique in our tax law. I am deeply grateful to the Commissioners of Inland Revenue for permitting so outrageous an eccentricity to adorn the Finance Bill this year.

When we come to the running of a business, there are important tax concessions, too. We have widened the lower rate band for corporation tax purposes. Very importantly, we have loosened the shortfall provisions very dramatically. We have moved from, I think, £5,000 to £25,000 the shortfall provisions, which are a source of great anxiety to many companies. It means that £25,000, after corporation tax, can be ploughed back unconditionally each year, in cash if necessary, into the assets of the small firm without question or quibble. That is an important provision, and I want to come back to it shortly.

Mr. David Mitchell (Basingstoke)

Am I to understand that the right hon. Gentleman is now repeating the reliefs that were announced during October and is including them in the £200 million that he said is being given in relief in this Budget? It seems to be an item of double accounting, and I am not sure whether that is the right hon. Gentleman's intention.

Mr. Lever

I am telling the House what is in the Finance Bill, which the House will have to pass, and the cost and purpose of it. Many of these provisions were announced or foreshadowed in October. They are here for the first time. Many of the provisions were not even foreshadowed or talked about until this Finance Bill. If the hon. Gentleman wants to make a puny party point out of it, I will tell him that I am not anxious to double the accounts. I am anxious to study the reality of what is in the Bill. If he is interested in that, I shall be happy to expound upon it.

The £25,000 shortfall provision is very important. I shall deal with it further now. In receiving many appreciative comments from small business men about this provision, I have had to tell them that it is not sufficiently understood that the revenue law at present permits any company to plough back any part of its profits—the whole if necessary—year in and year out if it can show that it has a reasonable ground for doing so for use in the business. No one has to pay dividends to himself or incur tax liabilities on that account if there is a reasonable ground for keeping the profits in the business. But the beauty of this provision is that it is automatic; it involves no argument, no specific plan for the use of the money. It is a privilege given uniquely to small companies.

Finally on the question of the on-going tax situation of small companies, I think that they will be at least as much relieved as larger companies, perhaps more so, by the statement that my right hon. Friend made about the permanence of stock relief and the way in which we shall legislate next year if there is no adequate solution of inflation accounting in the meantime. That is tremendously important.

There is another factor which everyone worries about. This is how one preserves a business or sees that it is not destroyed on transfer by the impact of capital gains tax and capital transfer tax. Here we have made very substantial concessions. There is the capital gains tax relief, which ensures that one cannot have the impact of capital gains tax and capital transfer tax unless the business is actually being sold. If it is being maintained, there is no capital gains tax—it is rolled over. I repeat that the capital gains tax can come about only when the business is sold. We have made a very substantial improvement in the capital gains tax retirement provision, from £20,000 to £50,000. We have raised the capital transfer tax threshold from £15,000 to £25,000—a very useful relief on capital transfer tax for small business.

We have increased the business relief on business assets, which, of course, includes the shares in small businesses if they are a controlling interest from 30 per cent. to 50 per cent. This much more than halves the capital transfer tax on a small business's shares when they are held by controllers. We have introduced an entirely new relief for minority shares in small businesses of 20 per cent.

Mr. Robin Maxwell-Hyslop (Tiverton)

Is the right hon. Gentleman sure that what he has said is correct? Is it not the case that a small business owned by a discretionary trust will continue to have to pay capital gains tax every ten years, as it does under the existing law, and that therefore his statement that it has to pay the tax only on disposal of the assets is not the whole truth?

Mr. Lever

That, of course, is the impact of trust law and the tax system in relation to discretionary trusts. But I can say, without any lack of sympathy for discretionary trusts, that they are discretionary. No one is obliged to have a discretionary trust. Although I have great sympathy with those who felt the need to have such provisions, I must say I much prefer a tax system which is viable without the convolutions of discretionary trusts—not that such trusts have not a perfectly proper function to fulfil. All in all, the situation now is very much more favourable for small businesses on transfer than under the old estate duty system.

I do not want to restrain anyone from having a party political angle on this issue. Of course there will be differences between parties and within parties about where the line between the public sector and the private sector should be drawn. For example, I would not want to draw the line to include, owing purely to incompetence, the Rolls-Royce aircraft venture—that is a Conservative performance. Some of my hon. Friends perfectly legitimately would want to bring banks and insurance companies into the public sector.

But wherever we draw the line, we can all agree that in the private sector there is a vital role for the small business, that it has to be encouraged and ought to be given conditions in which it can flourish. I think we also agree that there are many other areas, apart from tax, in which all Governments could do more to help small business. An example of this is reducing the administrative burden. Here I am referring to my right hon. Friend's wise administrative action in reducing the VAT obligation, not merely raising the ceiling but halving the number of questions asked. But much more could be done in that area.

Mr. Frank Hooley (Sheffield, Heeley)

Perhaps I can raise here a party political angle, which worries me. It is that all this is very jolly, and these concessions are very handsome—£200 million is no doubt welcome to these companies—but what guarantee have the Government, having handed out all this cash to small businesses, that they will expand, invest more and provide more jobs? As far as I can see, there is no sanction whatever to require them to do these things in exchange for the money.

Mr. Lever

I welcome my hon. Friend's hard-headed approach to the disbursal of public money. I hope that that will be the universal attitude at all times when money is put out in the expectation of employment or economic advantage resulting, or something else other than aesthetic or doctrinal advantage. But I must tell him that, as far as my judgment goes, it has been from the outset clear to me that any encouragement that we are able to give small business at this time will produce a remarkably rich reward in employment terms. I concede that my hon. Friend is well entitled to express certain scepticism, and I notice that some of my other hon. Friends share it. But I call in aid as confirmation the most recent survey on employment prospects carried out by the CBI. This shows that, in contrast to the big firms, amongst which only 7 per cent. expect to take on more labour next year, no fewer than 22 per cent. of small firms have indicated a firm intention to take on more labour next year. That is quite remarkable and unusual.

I think that my hon. Friend should reflect a little about the great surge of public interest that is taking place in small firms in all newspapers, all parties and in all shades of opinion within the parties. I think that he would be unjustifiably pessimistic if he did not feel that there was great promise of a response to the relatively modest though important sums that are being put into small firms.

I must add that all the tax concessions that have been made so far are amply justified simply in bringing into better balance our tax system, which, at the moment, favours more heavily investment by pension funds and others under the great tax concessions in the larger enterprises.

Mr. Ron Thomas (Bristol, North-West)

Would not my right hon. Friend agree that the track record of the CBI surveys is not very good? Could we not achieve exactly the same result by pumping more money into the public sector?

Mr. Lever

I do not have those partial enthusiasms. I am certainly enthusiastic for putting money into the public sector where that is appropriate. I have never stinted where it has been useful and wise to do so. I have to tell my hon. Friend, however, that although CBI surveys may not have a track record which arouses great enthusiasm from him, they may be a more reliable source of indications for the future than the hunches of hon. Members on either side of the House. Therefore, I am absolutely satisfied, as I was before the CBI survey, that we shall get a rich response to any effort in this area.

Mr. Arthur Jones (Daventry)

On the question of administrative burdens, the right hon. Gentleman will know the tremendous additional work which has been devolved to business and industry by the legislative programme of this Government. That bears particularly heavily on the small business and commercial enterprise. Has he given thought to that, particularly in the context of the very high cost level involved in small companies taking advice, legal and otherwise, on, for example, the effects of the Protection of Employment Act? This is a real load on small companies, and I should be interested to know what consideration he may have given to it.

Mr. Lever

I have already said, in reply to questions on this subject and earlier in my speech, that I have been giving close attention to all burdens placed by all Governments on small businesses, with a view to easing them so far as I can possibly can. It would not help me very much to go into greater detail now.

I was trying to see whether we could increase the impetus in support of small businesses by emphasising the area of unity between the two sides, whatever disagreements we may have about our angle of approach. We can agree also, I think, that we want to improve the financial arrangements for small firms. We all await the reports of the Wilson Committee and the Roll Committee to see how far that can be followed up.

I hope that we shall all be interested to encourage and advance further tax adjustments which are likely to attract investment and the preservation of the actual employment in small businesses. We would want to look at other areas also—I think we should—which have been given greater attention in other countries than they have here, areas in which the Government have made enormous efforts at considerable expense to improve the economic performance of small firms. These efforts involve the possibility of small firms enjoying computer services and things of that kind; the training of small firms in financial management and the like; the borrowing of high-powered executives from some of the larger firms to give their skills and support to small firms—I am glad to see that some of our big firms are looking at possibilities of that kind—enlarging the area of subcontracting by small firms from the big firms so as to reduce the managerial elephantiasis which is becoming a feature of the modern world; and the improvement of the performance of small firms in the inner cities, where they have a uniquely valuable role to play in the revival of those inner cities.

A good deal of the money that we have put in has been put into the inner cities in areas and ways which will tend to help the performance of small firms there. I think that we all miss the old railway arch type of lock-up shop-cum-workshop which used to be available for small firms. The bulldozer has not always left a breathing space for the little man and the little engineering workshop.

Mr. Norman Atkinson (Tottenham)

My right hon. Friend obviously has never had to work in one, otherwise, he would not say that.

Mr. Lever

My hon. Friend must not accuse me of wanting to produce railway arch workshops of an unhappy and insanitary character. What I want to do is reproduce up to the most modern standards the equivalent low rents that the railway arch workshops had. Whatever my hon. Friend thinks of my life—

Mr. Atkinson

They had buckets for lavatories.

Mr. Lever

I am not saying that every workshop, railway arch or any other, in the old days was up to the standards that he and I would like to see in force, but he must not attribute to my youth an innocence of the conditions which prevailed in industrial Lancashire where I was brought up. I have seen railway arch workshops, and they were not all centres of villainy and oppression. Some of them were centres of vigorous and useful employment at low rents. I am not saying that one should reproduce in the modern world any disadvantaged conditions of that time. However, I should very much like to see the cheap rents of that time available and I hope that, in our inner city programme, we shall be able to do something about that.

I am very grateful to my right hon. Friend the Secretary of State for Trade that he has done so much to encourage the role of small firms in exports. But we cannot stand still—especially not on the tax system. However much people think of this proposal as giving money away to small firms in a vague hope of some response from them, they should bear in mind the fact that some of the most successful small firms have developed enormously and then reached a point at which their creators have moved off.

I do not want to name any, but two firms spring immediately to my mind—two enormously successful small firms which started from nothing and which in a handful of years had thousands of employees. One of the creators removed himself to Switzerland. The last straw for him—let me give the Opposition a little consolation—was Roy Jenkins's second once-for-all tax, under which, on an income of a couple of million pounds, he found himself actually making a payment to the Inland Revenue over and above the amount that he had received.

I must say that I think that men worth £20 million or £30 million who uproot themselves from a country because they have no income are suffering from a psychopathic imbalance in their judgment. I should have thought that the only people who could stay in a situation of very high taxation are people with £10 million or £20 million.

We must all remember when framing the tax system that London is only an hour today from Paris, Brussels and Amsterdam and that there are plenty of places for tax exiles, who do not have to retreat into the Martini-drinking belt of southern Spain and into parasitic and tedious idleness to run their businesses a mere hour's flight from here.

We must bear that in mind if we want to retain and extend the employment that those people create and if we want to maintain the high level of variety and specialisation which the small firm brings about, if we want to harness behind our country's economy the decentralised energies of millions of people of initiative and even more millions of their employees.

We all have an interest in improving the position of the small firm in our society. It produces a society of more options and more achievements. I hope that we can at least agree on that and can welcome the major effort made by the Chancellor in including so many changes beneficial to the small firm.

I conclude by repeating what I said earlier. This is only a beginning. The Chancellor of the Exchequer's statement, although characterised by his usual ebullience, must be taken as having a very serious import—an import which means a continuing firm commitment to advancing, in the tax field and elsewhere, the interests of small businesses in our country.

4.20 p.m.

Mr. Nigel Lawson (Blaby)

The Chancellor of the Duchy mentioned the infrequency of his visits to this Chamber. All his very rare visits are most welcome. We were particularly interested to learn from him that only people with £10 million or £20 million could afford to live in Britain with present levels of taxation.

Mr. Lever

The hon. Member must not distort my remarks. What I said was that people with £10 million or £20 million are those who could most afford to live in any country, however high the tax level was.

Mr. Lawson

I am grateful for that correction, but I am not sure whether it carries us much further.

The Chancellor of the Duchy made a speech with which most of us on this side agreed. We admired the way in which he battled through the unrelenting hostility of his hon. Friends. He might have served the small business cause a little better, and perhaps he would not have uttered some of the things he said about small businesses as if they were novelties, had he attended our proceedings a little more frequently. The points which he has been putting have been put time and again from the Conservative Benches, both upstairs in Committee and on the Floor of the House.

Mr. Lever

But not performed.

Mr. Lawson

The right hon. Gentle man says "not performed". I shall come to that in a moment. However, we welcome the Government's apparent deathbed conversion to the cause of the small business. I do not believe that it is a conversion in the case of the right hon. Gentleman. I think that he has always believed in small businesses. But it is certainly a death-bed conversion in the case of the Chancellor of the Exchequer, whom he had to persuade.

Although the right hon. Gentleman put all the reliefs in the shop window at great length, they really are of a modest nature. He himself said that it was only a beginning. The total cost to the revenue is £200 million, not all of which will go to small businesses. The right hon. Gentleman also said that there were more than 1 million small businesses. I calculate that to mean that each small business—not each individual—will get a little under £4 a week from the Government as a result of these changes. Therefore, the changes are perhaps a little more modest than the Chancellor of the Duchy made out.

We must also consider what was said by my hon. Friend the Member for Basingstoke (Mr. Mitchell). I pay tribute to him for the work that he has done for the cause of small businesses over many years. He has pointed out that they cover both the twelfth Budget of the Chancellor, presented last October, and the thirteenth Budget, which was presented last week. Yet this sum of £200 million is a mere fraction of the vast amount of taxpayers' money which has been pumped into British Leyland alone. Nevertheless, it is something. It is better than nothing.

In passing, I note that in this very same Budget there has been a new discrimination against the small man in the shape of the deliberate exclusion of the small hotel from the new capital allowances for hotel construction. But I do not believe that this is the time to examine the specific reliefs in detail, despite the long list of the Chancellor of the Duchy of Lancaster. We shall be doing that, and seeking their extension, in Committee upstairs.

But two general points stand out. The first is that each and every one of the more important reliefs is a relief from burdens which the Government have imposed. They wantonly imposed them on small businesses in the first place and now, belatedly, they are removing some of those burdens. This applies not only to the capital transfer tax reliefs but to the capital gains tax changes, which, in effect, as the Chancellor of the Duchy pointed out, are an attempt to mitigate the crippling total burden of capital taxation caused by the superimposition of the Government's capital transfer tax on the pre-existing battery of capital taxes.

The second general point is that, once again, each and every one of the reliefs to which I have just referred—which are the main reliefs in the package—is a relief which the Conservative Opposition have been pressing for in Finance Bill after Finance Bill ever since capital transfer tax came to blight and bleed the small business man. Every one of the proposals that we put forward was equally consistently rejected by the Government.

Let me quote one example—the increase in business relief from 30 per cent. to 50 per cent. This is an important change. I choose this example because I well remember moving that very amendment myself in 1976 on behalf of the official Opposition. I well remember, too, the Chief Secretary rejecting it out of hand as, in his own words, "far too generous". Indeed, I should like to quote what the Chief Secretary went on to say, because it gives an understanding of the attitude that we have been fighting against all these years. He said: The fact is that the small business man does very well out of capital transfer tax."—[Official Report, Standing Committee E. 24th June 1976; c. 1233.] That is the sort of blind folly with which small businesses have had to contend over the past four years.

As the Chancellor of the Duchy has admitted, the belated reliefs are nothing like enough. Capital transfer tax, as I am sure he will agree, is still far too high. Capital gains tax is still levied on purely paper gains. The crippling interaction of capital transfer tax and capital gains tax is still on the statute book, although mitigated in certain circumstances but only in those circumstances. The wealth tax—I am surprised that the right hon. Gentleman did not mention it—in the Chancellor's own words, is still an important part of the Government's programme".—[Official Report, 11th January 1978; Vol. 941, c. 750.] I am surprised that the right hon. Gentleman feels able to remain in the Cabinet of a Government who are pledged to introduce a wealth tax, because I know his views on the wealth tax.

Mr. Lever

Since the hon. Gentleman has referred to it, may I say that I prefer to discuss matters which are not hypothetical but which can be judged only when their context is known and when the extent and nature of the tax is known. Until then it is absurd for the hon. Gentleman to criticise a tax the amount of which is not known, the conditions of which are not known and the context of which is not known.

Mr. Lawson

It is very far from absurd. The right hon. Gentleman adopted precisely the same attitude to the capital transfer tax as a result of which it was introduced in 1975—despite his being a member of the Cabinet—at a most penal and punitive level and has been clobbering small businesses for three years. Now, belatedly, he has to propose reliefs because small businesses are suffering so much.

There are also the non-tax burdens. The right hon. Gentleman mentioned some of them. I am surprised that he did not mention certain sections of the so-called Employment Protection Act. Whenever I talk to small business men, they put it forward time and again as a burden and an inhibitor of employment.

Nevertheless, the House should not lose sight of the immense significance of the fundamental change in the Government's approach to small businesses which the Chancellor of the Duchy of Lancaster outlined this afternoon. I do not want to spend most of my time talking about small businesses, but it is an important point. This is a fundamental change. We are justified in asking where the Chancellor of the Duchy of Lancaster has been these last four years. At any rate, what the new policy now represents is, at long last, an open confession of the failure of Socialism. Surely nothing can be more poignant than the sight of a Socialist Government desperately seeking economic salvation from the small business man. I am not surprised that some of the right hon. Gentleman's hon. Friends found his remarks too poignant for them to be able to take them quietly.

No one is more untouched by the so called industrial strategy than the small business man. No one is further away from planning agreements. Small business men would not touch one in a million years. Nor, of course, would the small business man know a sector working party if he saw one. Indeed, the Government are now desperately seeking economic salvation from the most out and out capitalist part of the entire private enterprise section of the economy. Socialism has failed, as it must always fail. That is the message which the Chancellor of the Duchy of Lancaster has brought to the House this afternoon.

Mr. Bryan Gould (Southampton. Test)

Does not the hon. Gentleman accept that the real enemy of the small business man is the big business man—the capitalist par excellence?

Mr. Lawson

That is not what small business men say to me. They tell me that it is taxation which is their enemy and, evidently, they say the same to the Chan cellar of the Duchy of Lancaster; otherwise he would not have been prevailing upon his right hon. Friend to change the tax regime. The hon. Gentleman should talk to a few small business men and then he might be better informed.

The recognition which the Government have now announced—this blinding flash of insight which comes more readily to the Chancellor of the Duchy of Lancaster than to most of his colleagues, since he is what might be termed a "professing" rather than a "practising" Socialist—has not prevented the Chancellor of the Exchequer from introducing what is in all other respects, apart from the small business aspect, which we welcome, a thoroughly Socialist Budget.

The markets have already given their verdict on the Chancellor's economics. Over £1,000 million has been knocked off the value of Government securities and over £2,000 million has been knocked off the value of equities. The pound is down to its lowest level for nine months. Seldom, if ever, has any Budget received a more decisive thumbs down. Much of the reaction was to the "now you see it, now you don't" July Budget which was announced by the Chancellor's faithful Sancho Panza, the Chief Secretary, on Wednesday. It seems, from reading the financial Press, that worried Treasury officials were hurriedly wheeled along to explain to the journalists that Sancho Panza's remark was meant to be jocular. Certainly it will rank as the most expensive joke in history. No wonder he got such a rocket from the Prime Minister.

Nor was the market greatly impressed by the Chancellor's boast that the British Government bond which is to be floated on Wall Street is to be rated triple A by the United States credit rating agencies, along with the bonds issued by Finland, Venezuela and every other country that has ever borrowed on the United States market. However, as he failed to point out, we are having to offer a higher rate of interest than General Electric.

The best way of evaluating this Budget is to take the House through the various stages which should go into the making of a Budget and the choices that have to be made at each stage. Then, perhaps, I can explain what I mean about this being a thoroughly Socialist budget.

The starting point must be, as the Chancellor himself acknowledged, the target rate of growth for the money supply for the coming year. If we are serious about bringing down the rate of inflation, this clearly had to be, at the very least, lower than last year's target of a 9 per cent. to 13 per cent. increase in sterling M3. Accordingly, the Chancellor announced a target of 8 per cent. to 12 per cent., which was the least he could do to reduce it below last year's target. We would have no great quarrel with that provided that it really means what it says—namely, a central target of 10 per cent., with a margin of error of 2 per cent. on either side.

Unfortunately, neither the recent behaviour of the money supply—with sterling M3 rising at an annual rate of 15 per cent. over the past six months, and M1 rising at a rate of 20 per cent. over the same period—nor the so-called Budget judgment gives any confidence that the Chancellor really means what he says about his new monetary target.

However, let us give him the benefit of the doubt for the moment. Having arrived at the monetary target, the next step is to ensure that the public sector borrowing requirement is compatible with the attainment of the monetary target. There can be no doubt whatever that the £8½ billion public sector borrowing requirement proposed by the Chancellor is too high. Unlike last year, which was a year of stagnation, the Chancellor expects this year to be a year of recovery with a marked increase in bank lending to industry. That in itself contributes to the increase in M3, which means that the public sector's contribution to monetary growth through the public sector borrowing requirement needs to be correspondingly less. Yet the PSBR is scheduled to increase by very nearly £3 billion.

That is not to say that it is impossible for even a £8;½ billion borrowing requirement to be financed in a non-inflationary way, but it does mean that there is no certainty whatever that the trick can be pulled off. The inflationary risks that the Chancellor is running are wholly unwarranted. Even if the trick is pulled off, that would only be possible with the aid of a sharp rise in interest rates, as occurred in 1976, which this year is coming increasingly to resemble. This would, in turn, wholly abort the private sector recovery which is now modestly under way.

All this underlines the total nonsense of the boost that the Chancellor claims to be giving the economy through the Budget. A boost to economic growth is something we all want to see, but it can be given only through the creation of incentives and that is something which this Budget notably fails to provide.

By contrast, the fiscal boost given by an enlarged Budget deficit, if it is accompanied by monetary relaxation, rapidly becomes nothing but a boost to inflation. If it is not accompanied by a corresponding relaxation of the money supply, which is the Chancellor's declared intention, it will simply result in the dangerous nonsense of fiscal and monetary policies pulling in opposite directions with no net boost to the economy at all.

The Chancellor of the Exchequer (Mr. Denis Healey)

Obviously the hon. Member has studied these matters carefully. He says that the public sector borrowing requirement is too high. Will he tell us what he regards as a satisfactory PSBR figure for this year which does not run the risks to which the present one is subject? Will he tell me that without listening to any advice from his hon. Friend the Member for St. Ives (Mr. Nott)?

Mr. Lawson

As a matter of fact, my hon. Friend the Member for St. Ives (Mr. Nott) simply said that the Chancellor was desperate to find something to say for his winding-up speech. But I will answer the question. When he addressed the House in this debate on Wednesday the Chief Secretary said it was impossible to predict the figure within a margin of £2 billion either way. So, for the benefit of the Chancellor of the Exchequer, I would say that the PSBR should be between £4 billion and £8 billion.

Mr. Healey

As the hon. Gentleman well knows, I was asking him not what he thinks the forecast should be, but what he thinks the PSBR should be.

Mr. Lawson

I made it absolutely clear that I said it should have been lower than it is under the Chancellor's proposals.

Fiscal and monetary policies are now leading in opposite directions, as we saw very clearly with the 1 per cent. increase in the minimum lending rate on Budget Day itself. I am prepared to predict that this is only a precursor of further rises.

So much for the purely economic context. It is the next stages of the Budget judgment where the political dimension enters. Having determined the size of the borrowing requirement, the Chancellor must decide at what level of public expenditure, and thus what level of taxation, this should be achieved. In his Budget Statement the Chancellor tried to appear wonderfully even-handed. He gave tax cuts here and spending increases there, with the emphasis, if anything, on the tax cuts. However, nothing could be further from the truth. The whole presentation is "phoney" through and through.

The truth of the matter is that the tax cuts are totally "phoney" since they are more than cancelled out by the increase in taxation caused by fiscal drag. Inflation drags more and more people into the tax net for the first time, and, at the other end, into the higher rates and higher bands.

When the present Government took office, the average rate of income tax paid by each household was £390 a year. Last year it was £880. This year, even after the Budget changes, it amounts to £960 a year. There is another thing, too, which the average working man will quickly feel in his pay packet. If he has not contracted out of the new State pension scheme, taking into account national insurance as well as income tax he will be paying this year 40½p in income tax and national insurance out of every extra pound that he earns. That is even more than he paid last year. So much for incentives and tax cuts.

The fact of the matter is that the true relative contributions of taxation, on the one hand, and public expenditure, on the other, to the so-called Budget judgment can be seen quite clearly from the figures published in the Budget Red Book. It shows there have not been any tax cuts at all. The total yield of tax, including national insurance contributions, is expected to rise this year in real terms—and I stress "real terms"—by 2¾ per cent. If it were not for the expected real fall in national insurance contributions resulting from people contracting out of the State scheme, the rise would be very much greater. The yield of tax alone is expected to increase this year in real terms by 4¼ per cent. In other words, the so-called Budget boost, the sharp increase in the public sector borrowing requirement or Budget deficit, call it what you will, comes entirely from the other side of the accounts, namely, from sharply increased public expenditure. This is expected to rise in the coming year, again in real terms, by a massive 6¼ per cent.—twice the expected rate of growth of the economy as a whole—or some £4,000 million at this year's out-turn prices.

This huge increase in public expenditure, which we voted against, is the reason why there is a sharply increased borrowing requirement this year. It is also the reason why, despite a borrowing requirement of £8.5 billion, the Chancellor can find no room for the genuine income tax cuts that are needed and indeed absolutely essential if incentives are to be restored and economic growth achieved. This, too, is why the present Chancellor's unlucky thirteenth Budget is an out-and-out Socialist Budget.

Mr. Ron Thomas

I note from one of the tables that an individual on £25,000 will get a tax handout of £753. Is that genuine or not?

Mr. Lawson

I think that it is genuine before inflation. It is considerably less if inflation is taken into account, and the hon. Gentleman should do so. But, even so, it is no good picking out individuals. It is necessary to look at the tax side and the expenditure side as a whole. It is incontrovertible that there is an increase in taxation overall, as is made clear in the Red Book, but a far larger increase in public expenditure. Perhaps this will help to reconcile the hon. Member for Bristol, North-West (Mr. Thomas) to his right hon. Friend the Chancellor of the Exchequer, of whom he is such a critic.

But perhaps there is one other explanation. Both the Chancellor and the Prime Minister know very well that this was not what the people of this country were calling for or what the nation needs. Perhaps it is essentially a necessary part of the present Government's debt repayment schedule to the high command of the TUC. In any event, we shall be dividing the House against the Budget tonight. For it is nothing more than a further, and I hope final, instalment of the discredited Socialist strategy on which the present Government embarked immediately on taking office, and which has led the country through the four most miserable years of the post-war period.

There remains the final stage of the Budget-making process. Once the totals for public spending and taxation have been determined—and, to repeat, by budgeting for a wholly unwarranted huge rise in public expenditure, the Chancellor has condemned the British people to a wholly unnecessary burden of taxation—there still remains the question of the form in which the tax should be collected.

In this context, one thing in particular is clear. Even the chancellor admitted this in his Budget Statement when he said that the proportion of total revenue derived from income tax is still too high. Yet what has happened as a result of the Budget? Even after the Budget the proportion is expected to fall only marginally to 47 per cent. of central Government tax revenue, compared with 41 per cent. when the Labour Government took office. This is still far too high, as the Chancellor of the Exchequer says, and remains a massive and self-admitted indictment of the present Chancellor's tenure of office.

Moreover, this year' expected marginal reduction in the proportion taken by income tax—incidentally, a reduction accounted for not by any shift of taxes on expenditure but simply by a shift to a higher yield from corporation tax, which is of particular concern to small businesses, for which the Chancellor of the Duchy of Lancaster purported to be speaking—is to be achieved in a most curious way by the introduction, or, to be more accurate, the reintroduction, of a reduced rate band of income tax.

I say that that is curious because, for reasons best known to itself, this has long been a pet idea of the Liberal Party. I remember the hon. Member for Cornwall, North (Mr. Pardoe) moving an amendment to the Finance Bill a couple of years ago to introduce a 25 per cent. rate.

Mr. John Pardoe (Cornwall, North)

And last year.

Mr. Lawson

Yes, and last year, but the first time he did so was the year before last. He sought to introduce a 25 per cent. reduced rate band of tax for the first £500 of taxable income. On that occasion he was shot down in flames by the indispensable Sancho Panza, the Chief Secretary, who said: If one had a choice between introducing a reduced rate band and raising the threshold, it would be better for those at the lowest end of the tax scale to raise the threshold.. The other problem is that introducing a reduced rate band rather than raising the threshold would result in making the poverty trap deeper"—[Official Report, 11th May 1976; Vol. 911, c. 313–4.] That is true, and yet now we have yet another U-turn and the reduced rate band is back with us.

That has happened, not, I suspect, thanks to the persuasive powers and great personal charm of the hon. Member for Cornwall, North, but because this dubious device has been pressed on the Chancellor of the Exchequer by the tycoons of the TUC. Both in this respect and in the massive rise in State spending, this is very much a TUC Budget. It is quite clear that the Chancellor is prepared to do anything—anything, that is, except to adopt a sound economic policy and a sane tax system—to coax out of the trade union leadership some sort of grudging approval of a fourth round of incomes policy that can then be waved in the electorate's face like some sort of talisman when the appropriate time comes.

Thus, in addition to the measures themselves, the Budget Statement contained the ritual obeisance from the Chancellor of the Exchequer. He declared: The country owes a lasting debt to our trade union movement for its invaluable contribution"—[Official Report, 11th April 1978; Vol. 947, c. 1189–1203]. to the reduction of inflation. [HON. MEMBERS: "Hear, hear."] The Government Front Bench say, "Hear, hear." Stuff and nonsense, I say—and so does the Secretary of State for the Environment. In a most penetrating lecture earlier this year, the text of which is perhaps understandably marked "Not for publication", he said: Self-restraint would however be greatly helped if the case for it was more widely understood; if we could get away from the myth and absurdity that people who forgo excessive money incomes are somehow making a sacrifice by that restraint rather than benefiting by lower inflation and higher employment. That is what the right hon. Gentleman said and it is precisely the policy of the Conservative Party. I hope that I do not damage the right hon. Gentleman's chances in his party's post-election leadership struggle by saying so.

In the meantime, we look forward to the Committee stage of the Finance Bill next month. Having achieved, in somewhat unusual circumstances, an increase in the personal allowances in last year's Committee stage, we shall this year be seeking reductions in the basic rate of tax, in the tax on savings income and in the higher rates of tax, which as they stand, unaltered by the Chancellor, are not so much a tax as a fine for the crime of success. Like a fine, they are a deterrent rather than a revenue raiser. I hope that the minor parties will join us in all this. But if they do, and if reductions in income tax are thus brought about, I wish to make it quite clear that it is not our intention that there should be any consequent increase in the borrowing requirement, which is already too high for comfort.

If therefore Parliament decides that there should be reductions in income tax, it is incumbent upon the Government to trim back the proposed massive increase in their own spending accordingly—and I hope that they will do so—or, if they refuse to do that, to bring forward, as a second best, corresponding increases in indirect taxation.

We have already in previous years indicated our preparedness to see a single rate VAT of 10 per cent., which would bring in an extra £700 million. But that is the Government's responsibility. As the House is well aware, but as those outside are sometimes unaware, there is no procedural means by which anybody other than the Government can move amendments either to increase indirect taxation or to cut public expenditure. But this is well understood by the Government.

If I may quote Sancho Panza once more, this time in reply to the hon. Member for Birmingham, Perry Barr (Mr. Rooker)—I am sorry he is not present because he, together with his hon. Friend the Member for Coventry, South-West (Mrs. Wise), the only female Dalek in captivity, played such a constructive role in the Committee stage of last year's Finance Bill—the Chief Secretary then said: I should not in any way wish to criticise him "— he was referring to the hon. Member for Perry Barr— for not being able to put down an amendment to show from where he would raise taxes. I agree with him that the system that we have in the House of Commons for dealing with both taxation and expenditure is far from adequate. I should never criticise him because he is not able to show, by amendments, where he could find the offsetting savings."—[Official Report, Standing Committee D, 14th June, 1977; c. 481.] I hope that the Chief Secretary will remember that constitutional doctrine, very properly enunciated in Standing Committee last year.

The past four years have been years of total disaster for the British economy. Of all the major trading nations in the world, only Italy has suffered from a greater fall in the internal and external value of its currency and only Canada has a higher level of unemployment. Living standards and industrial production alike in Britain are both well below the level reached in 1973. In no other major nation is this the case.

Productivity—a most inelegant word, but one that sums up the British disease—is still the same as it was in 1973. Again, that is a record far worse than that of any of our major competitors. Unable to blame this dismal catalogue on the world recession—because, after all, these other countries are part of the same world—Treasury Ministers are reduced to complaining that it was always thus. Sancho Panza, the Chief Secretary, earlier in the debate, talked about 100 wasted years, and took us back to 1860. This excuse will not wash either, because it is not true. In the last world recession, in the 1930s, our economy recovered further and faster than the economy of any of our industrial competitors.

Mr. Alan Clark (Plymouth, Sutton)

Was not the largest single contributory factor in that recovery in the 1930s the protectionist enforcement?

Mr. Lawson

My hon. Friend is a devoted protectionist. What he says is not so. Protectionism was world wide. We gained no national advantage from that.

Mr. Healey

It was protectionism.

Mr. Lawson

Perhaps the Chancellor is about to announce his conversion to protectionism, but, I repeat, we gained no advantage from that. That was worldwide. We entered into the era of protectionism very reluctantly. The truth is that in the recovery from the depression of the 1930s we pursued a sound orthodox economic policy which produced a notably greater success than was achieved by less orthodox policies of our industrial competitors.

If the Chancellor does not believe me, let me assure him that between 1932 and 1937 industrial production in this country rose by about 8 per cent. a year. That is a great deal better than anything that the present Government have managed to achieve. We have no wish to go back to the 1930s, but the Chancellor, with his policy, is going the best way about it.

The truth is that it is only in the past 20 years that we have fallen steadily behind, and only in the past four years that that fall has been catastropic. Surely there is no longer any room to doubt the root cause of our lamentable performance over this period. It is the creation of a climate of unremitting hostility to enterprise and to the rewards of enterprise.

The biggest single monument to and perpetuator of this climate is the level of income tax. That is not the only reason, but it is the biggest. In his Budget Statement the Chancellor said that the objectives that he had set himself were to increase the incentive for greater effort and to promote social justice. But for a Socialist this is quite impossible, since, to the sincere Socialist social justice means the removal of any incentive to greater effort, as any incentive, by definition, implies inequality.

The Conservative Party is, therefore, pledged to restore incentives, to make it worthwhile to work, to acquire a skill, to work overtime, to take a risk and to employ an extra man. For let us not forget that in a free society the level of employment is determined not by the Government but by the profitability of employment. We are, therefore, pledged to cut income tax at all levels. This inescapably has consequences for public expenditure in the short run, although in the long run the wealthier the economy the higher will be the level of public expenditure.

In the public expenditure debate on 16th March—columns 758 to 760 of Hansard—I outlined where economies in Government spending might best be sought and where the massive increase that is now under way might be and should be reined back. There is no point now—I should be trespassing on the lime of the House were I to do so—in going over that ground again.

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

Go ahead.

Mr. Lawson

However, if the Financial Secretary wishes me to do so, I shall although it is very old ground indeed. I quote, for the very last time, from Hansard: Two or three years ago on several occasion I asked for a large reduction in Government expenditure. I named the figure of £500 million. What was the reply of the Government? It was the same as they are so anxious to use today, namely, 'Please say exactly what your economies would be'. They do not ask this in order to gain good advice but in order that their canvassers at by elections, or at a General Election, can go from door to door and endeavour to accuse the Conservative and the Liberal Parties of being the enemies of social welfare and improvement."—[Official Report. 27th October 1949; Vol. 468, c. 1622.] The occasion of that quotation was the economic debate in the House following the devaluation of 1949. The speaker was Mr. Churchill, as he then was. Very little changes, except that the £500 million of which he spoke then would be £3 billion in today's money. But Mr. Churchill was perfectly right. If the Labour Party agrees with us on the diagnosis and on the need to curb public spending in order to make room for cuts in taxation, it can say so and we can get down to discussing the nuts and bolts. However, [...] as I suspect, the Labour Party disputes the whole diagnosis, there is no point in discussing the detailed implementation of the necessary remedies. It is the diagnosis itself that is absolutely fundamental.

This country more than any other in the Western world has gone nap on egalitarianism. Those who propounded that doctrine have been perfectly sincere, but the inevitable result has been the destruction of incentive and the worst economic record in the Western world.

Not so long ago it was fashionable in the international summiteering circles that the Chancellor loves to frequent to talk of the locomotive theory of world economic recovery, according to which the strong nations were supposed to expand their own economies and tug the weaker brethren behind them. Nowadays the fashionable phrase is the convoy theory—a sort of locomotive that has taken to the water—the main purpose of which is to point the finger slightly less aggressively at the Federal Republic of Germany.

What we should be really concerned about, however, is not the economic locomotives outside these shores, but the economic locomotives within them. For too long these have been over-burdened, over-restricted and over-taxed, and this Government's record has been worse than that of any other.

This Budget, following the reductions in public spending of the last two years, provided a golden opportunity to start to create the new climate that is so desperately and indeed urgently needed, as the latest trade figures underline, if we are to compete successfully against the exports of the rest of the industrialised world. It was the Chancellor's last chance and he muffed it and we shall be voting accordingly tonight.

4.59 p.m.

Mr. Norman Atkinson (Tottenham)

. The hon. Member for Blaby (Mr. Lawson) is too vulnerable to hand out insults to my hon. Friends, as he did when he referred to my hon. Friend the Member for Coventry, South-West (Mrs. Wise). Perhaps we may return to some of those personal remarks a little later in the debate.

One thing that the hon. Gentleman did was to warn the nation very clearly of the disaster that would inevitably follow the election of a Conservative Government. I listened very carefully to his words. He was saying that in his opinion the public sector borrowing requirement was too big, but he also complained about the meanness of the tax cuts and at the same time talked about the extent of Government expenditure.

Intelligent listeners will deduce very clearly from that the consequences of a Tory Government, which must be the butchering of the public sector. Any worker employed in the public sector—in local authorities, the Health Service, housing, education or wherever—who has a concern for the fabric of our society has been threatened by the speech made on behalf of the Conservative Party by the hon. Gentleman.

The Budget is by no means a Socialist Budget, nor is it the product of the TUC. It is neither a TUC child nor a Budget of Socialist content. It was a consensus Budget because of both the political and the economic conditions that we are experiencing under the leadership of this Government. It is consensus in the sense that agreement was reached with the City and the finance houses, internationally and with the Bank of England. That is the basis of the Budget, and it is the basis of the complaints of Socialists such as myself and my hon. Friends about the Budget.

Our criticisms are of the Budget strategy and not of its detail in terms of tax handout and so on. We are concerned about the direction of the strategy to be pursued by our Government, when re-elected, over the next three or four years. That is the issue that is dividing us over the Budget.

Therefore, it is a question not of paying compliments along the margins, not of how much tax is being handed out, but of what the Budget means in terms of the two biggest issues in British politics today—job creation and incomes for people working in industry, particularly in manufacturing. This takes me on to the first of the points I want to raise following the speech of the hon. Member for Blaby and the speech of my right hon. Friend the Chancellor of the Exchequer in opening the Budget debate.

I should like first to make a small comment on the statement of my right hon. Friend the Chancellor of the Duchy of Lancaster this afternoon about small firms and their health and how the Budget will affect them. The point is that what we as a Socialist Government should be thinking of doing for small companies is assisting them to meet the challenge they face and the insecurity they suffer through the advent of multinationals in this country and their dominant position.

When I speak of small firms, I am talking now about companies with 200 and fewer employees—not exactly small in many ways. By and large, companies of that size in manufacturing are subcontractors to the multinational side of our economy. That is the issue with which we are concerned when we are dealing with small firms. In our opinion, the strategy so far announced will not assist those small firms to be competitive in our society in coming to grips with the challenge put to them by multinational companies.

I come to the question of earnings. A great deal has been said outside, in the TUC and elsewhere, about continuity of incomes policy. This raises the question of our position inside the House as trade unionists, Members of Parliament and members of the Labour Party. We must come to some conclusions about what we want to see during the period of what has euphemistically been called phase 4 of incomes policy.

I must tell my right hon. Friend the Chancellor that there is no chance of the support of many of our hon. Friends, and certainly of myself, being given to a further phase of wage policy if by a wage policy, of any kind so far discussed, is meant pure wage restraint. There is no chance of that being supported by the majority on the Labour Benches or by the TUC, nor, so far as I know, has any trade union given its unqualified support for any policy concerned purely with wage restraint.

What we are concerned about is not those negative elements of wage planning but obtaining agreement with the TUC to enable us to face the future, to secure growth and to do something about job creation to get us out of the eternal low wage attitude that we have, which is destroying British industry. We want to get away from that and use all elements of wage planning in order to look with much more confidence to a better future.

Strategically my criticism of the Budget relates to those issues, and my criticism of my right hon. Friend the Chancellor of the Exchequer is of his negative attitude in looking for short cuts to solve his immediate problems instead of facing the difficulties that will arise in the years ahead. I ask my right hon. Friend to raise his sights beyond the difficulties of the next six or 12 months and look towards the creation of a fully employed, higher wage society than we have now.

I am sorry that the tax system has not been used in a way which would have encouraged discussion of a different wage policy relating to job creation. I shall discuss a little later the question of incentives within the economy and personal incentives for raising production and improving matters in industry, enabling us to compete much more effectively with our overseas competitors.

Before going on to that, I want to refer to what must be one of the biggest contributors to the restoration of full employment, which is a fresh approach to wage bargaining. In the absence of a massive reduction in the working week, early retirement, longer holidays and less overtime, we shall certainly not secure the kind of enlarged work force in manufacturing that will be essential if we are once again to achieve full employment in this country.

I am thinking numerically here of a shift from the present total work force of 7.2 million in manufacturing to about 8 million. Unless we can stabilise a fully employed economy at such a figure, there is no hope of solving the problems in the service and administrative areas of the economy within the foreseeable future, if ever, as I have tried to point out elsewhere.

The establishment of a 35-hour week would mean additional shift work and new jobs to make up for those reduced hours, while we should have to achieve a 25 per cent. increase in living standards to sustain the growth that would of necessity arise from the changes I am talking about. All those improvements in wage conditions and the sustaining of this increased productivity could mean about a 45 per cent. increase in labour costs over a four-year period. That would be an increase above the rate of inflation.

Clearly, if we are to succeed in a strategy of that sort, we must go for a massive improvement in output and productivity from the productive areas of our economy. That is the real challenge the Government face—how to accomplish that task in order to achieve the success of full employment along the lines I am talking about.

My right hon. Friend the Chancellor of the Exchequer briefly went into the cause of some of the employment difficulties that we now face. The basic cause is often overlooked. It is a simple conclusion but it is overlooked by many people, though not by my right hon. Friend, who referred to it obliquely. The basic cause is that the number of jobs has not kept pace with labour supply. In other words, there has not been a reduction in the number of jobs within the economy but the labour supply has increased considerably, and so the gap has widened. That is the basis of our unemployment.

I should like to direct the attention of the hon. Member for Blaby to the lesson that must be learned, which is that a free market economy is unable to transfer resources of that order from manufacture to services and administration in such a way that we can maintain a fully employed economy. It is the inability of the free market system to do that which causes all the difficulties.

Mr. Julian Ridsdale (Harwich)

Will the hon. Gentleman give way?

Mr. Atkinson

No. I promised Mr. Speaker that I would be brief. My comments are normally very provocative, and Mr. Speaker has asked me to forgo the luxury of debate and exchange across the Chamber which I usually encourage.

Between 1951 and 1966, at least 1 million additional jobs were created, but from 1966 to 1977 we lost 1½ million jobs from manufacturing. Since 1951, therefore, there has been a net loss of 500,000 jobs. It is the cause of that to which the Chancellor of the Exchequer should be directing his attention.

It is often suggested that structural employment changes arise from technological change, but economic and commercial changes have brought about the biggest job losses in manufacturing. The reorganisation of capacity has contributed more to job loss than has innovation or technical change in industry.

A fine analysis of the situation proves clearly the cost to our workers of amalgamations, takeovers and the regrouping of manufacturing capacity. The job losses represent an enormous sacrifice.

As a result of Labour Governments—because the shift has taken place during the terms of office of post-war Labour Governments—administration and general services in the public and private sectors have provided 3½ million new jobs in the past 25 years. It is a tribute to Labour Administrations that this job creation has taken place.

The Chancellor of the Exchequer has adhered to his targets and said that the £8.6 billion ceiling on the borrowing requirement which has been agreed internationally, particularly with the IMF, should not be exceeded. That is the essence of failure. There is no justification for the Chancellor of the Exchequer relating increases in the retail price index to money supply. A certain coincidental arithmetic occurs when one sees certain increases in the figures, but that is a coincidence rather than a base for concluding that one must produce the other.

The hon. Member for Blaby is smiling. I know that it is fashionable to say that inflation is the result of increases in money supply and an excessive public sector borrowing requirement. It is the political purpose of the Conservatives to make that case. When looking for a theoretic handle on which to hook its case, it finds these dubious relationships.

Tragically, the disease has spread to the Treasury and infected the Chancellor. He comes to the Dispatch Box as a convinced monetarist and says that we are unable to have growth because we are constrained by the financial ceilings imposed on us by the limits of the international finance houses and so on. We reject that concept as totally inadequate.

The biggest difference between the majority of the Cabinet and the majority of the Labour Party NEC, the TUC, trade unions and supporters of the Labour movement throughout the country relates to the July summit in Bonn and the proposals that we are to make. This concerns whether it is possible to bring about the monetary reflation of the world economy. The Chancellor says that much depends upon the ability of the world to reflate the economy and so solve some of our problems in this country. With the Prime Minister, he goes on to argue that non-interventionist policies in the monetary sense will have to be used and that, if we are to reflate the world economy, all countries are dependent upon conventional monetarism and fiscal manipulation.

I suggest that that is not possible, because one country's deficit is another country's surplus and the propensity to import varies from country to country. There are no two sets of conditions that can be equated. Exchange rate variations mean little in terms of import propensity, and merely adjusting exchange rates has no significance in reflating the world economy.

There is only one thing that nations can agree on in Bonn. There must be international regulation of trade balances. Each nation must be selective in its import programme and strategy. There is no other way for this country, Germany, Italy, France and even the United States, despite the strength of its economy and its influence in the world, to solve their problems.

Questions of money supply, raising the level of demand and so on are insufficient to have the desired effect upon the world economy. The whole thing is so contradictory. The Chancellor of the Exchequer says that he cannot raise the ceilings because there would be an immediate problem with imports. That may be true, but there is a Socialist answer to that problem. For the past 10 years, each 1 per cent. increase in our gross domestic product has meant an 8½per cent. increase in imported manufactures. If we take from that minimum figure the projections of the Chancellor of the Exchequer and those of Chancellor Schmidt in Germany, together with the analogous situation in France and Italy, and consider the Chancellor of the Exchequer's strategy of halving unemployment in the next three years by creating 800,000 jobs, that will increase our GDP by 14 per cent. If this action is taken on a non-interventionist basis, it will mean a 120 per cent. increase in imported manufactures.

No one believes that this is on. What would be the effect on domestic employment of an import increase of 120 per cent. in three years? We are talking about an economic impossibility. Those are the effects and consequences of the policy enunciated by the Government. It could lead to lower domestic consumption, with all its consequences.

Socialists in this country join Socialists in the rest of the Western world in recognising the depths to which the crisis in Western capitalism has descended. We recognise how critical the crisis has become and that there are no conventional methods that will allow us to climb out of the crisis. There is no way that the Bonn summit conference can come to constructive conclusions or a constructive strategy that will help to bring full employment back to this country or help to solve the problems of France, Italy or the United States and at the same time raise living standards. There is no way in which that conference can succeed if it does not realistically discuss the international regulation of trade balances. That is the only way in which it can be done.

Far from the Budget being a Socialist Budget, and far from its containing a strategy which will ultimately solve our problem, my view, and the view of many of my hon. Friends, is that it is so contradictory that it may lead to successive difficulties of a far greater kind than those from which we suffer at the moment.

5.20 p.m.

Mr. Donald Stewart (Western Isles)

I hope that the hon. Member for Tottenham (Mr. Atkinson) will forgive me if I do not follow his speech in detail, although I must say that I greatly enjoyed it. I think that for the most part it was a shrewd enough analysis of the situation. I feel bound to tell him that his pleas for full-blooded Socialism will be as badly received on his own Front Bench as they will be on the Conservative Front Bench.

Mr. John Stokes (Halesowen and Stourbridge)

And by the right hon. Gentleman.

Mr. Stewart

I am an innocent observer.

The whole Budget has the aim of a sticking plaster operation. It is a temporary, populist, vote-winning Budget, and the Chancellor will have the chance to claw back what he has given after, he no doubt presumes, the next General Election. Even the concessions—many of them are indeed welcome, as other hon. Members have said in the debate be largely recovered by other factors such as the increased insurance contribution and inflation later in the year.

The Chancellor of the Exchequer resembles the proprietor of a Chicago gaming saloon who is quite content to see people off the premises quite affably with their winnings because he knows that further down the street his strong-arm men are waiting to recover the loot.

We knew already, before the Budget, that there was to be no separate oil fund for Scottish oil—not even a British oil fund, if hon. Members do not accept that there ought to be a Scottish oil fund. There was not even a suggestion in the Budget that any new resources would be diverted to the Scottish Development Agency. The Treasury will collect all the revenues from the oil and there will be little or nothing for the deprived areas of Scotland.

The Government may be interested in some of the reactions from trade unionists in Scotland. Mr. James Milne, the general secretary of the Scottish Trades Union Congress, said: The major impact of the Budget lies in tax adjustments. Welcome as these are, their impact on employment levels will be marginal. Any increase in employment arising will be in the longer rather than the shorter term. Mr. John Pollock, the general secretary of the Educational Institute of Scotland, said that the £40 million injection into schools was a "drop in the bucket" in comparison with the cuts of recent years. He said that the £40 million spread throughout the United Kingdom was "totally inadequate".

It has been pointed out by Alan Fisher, the general secretary of the National Union of Public Employees, by Hugh Scanlon, and by Geoffrey Drain, of the National Association of Local Government Officers, that dole queues will not shrink significantly as a result of the Budget.

The most glaring omission from the Budget is proposals which could reduce unemployment in Scotland, which is now running at 200,000.

There is a derisory increase in the Budget in public spending. The allocations for health, education and environmental services are minimal. The Chancellor of the Exchequer made play the other day with the extra money for health and spoke of the extra kidney machines to be provided. There is no reason for believing that the money will be used in that way by the National Health Service. In my constituency a kidney machine has been provided totally by public subscription. According to the last information that I had, there was some doubt whether the local health board would pay even for the maintenance of the machine now that it has been supplied.

There is no commitment in the Budget to reintroduce the regional employment premium, despite protests from many quarters in Scotland about the future disadvantages from its withdrawal. It is believed that about 20,000 jobs have gone in Scotland as a result of the withdrawal of REP.

The tax cuts are inadequate to restore to the working man his former standard of living. Despite the Chancellor's sunny speech, it is clearly not a Budget especially for low wage earners. Inflation will snuff out the small improvements which have been made.

I support the demand—which I think is supported by all parties—to remove all taxes on food. Here again, it is the low-paid for whom food bills are the main cost of living. Let us see what the response will be from the Labour Government to this reasonable and humane demand. After all, the Labour Government have, in the words of the Prime Minister a month or two ago, reduced the standard of living.

It has been suggested by the Chancellor that there may be a phase 4 of the incomes policy. Contrary to the general belief that the trade unions are dictating to the Government, I believe that the opposite is the case and that the trade union leaders have allowed themselves to be used by the Labour Government to the detriment of the members of the unions.

It was of great interest to hear the speech with which the right hon. Gentleman the Chancellor of the Duchy of Lancaster opened the debate. There was a great paeon of praise for the small business and the self-employed. I have no doubt of the sincerity of the right hon. Gentleman on this score, but I should have thought that during his comments on that matter he should, subject to the approval of the Chair, have been facing his own Benches rather than the Opposition Benches, because his Government have done the damage to the small business man and the self-employed. I must doubt the belief which many people hold concerning the great influence that the Chancellor of the Duchy of Lancaster has in Cabinet circles if he has not been able to convince his colleagues before this of the necessity for more assistance to small businesses.

My party will be seeking to abolish the Tory-inflated and Labour-sustained levy on the self-employed, which is surely one of the most stupid impediments to initiative, industry and enterprise ever imposed on industry.

One fundamental improvement to which the right hon. Gentleman referred was the raising of the VAT threshold to £15,000. My hon. Friends and I have put down an amendment to that end. I draw the attention of the Treasury to an anomaly which could easily be corrected, as a matter of justice. An individual, on reaching retirement age, can obtain exemption from capital gains tax, up to £10,000, which accrues on the disposal by way of sale or gift of a family business. There appears to be no exemption for persons under 60 years of age. But for inshore fishermen it is suggested that the age for retirement should be 55 years instead of 60 years. As the Inland Revenue superannuation fund office has already conceded this point in respect of inshore fishermen. I hope that this can be accepted and written into the Finance Bill.

The Government ought to stop the game of announcing in April increases in old-age pensions for November. This is a very cruel deception of old people. It is a long way ahead, and many of them will have died in the meantime. Much of the effect of the improvement will have gone by the time of the November pay-out. The Government should stop this game and make an announcement that the increases in pensions will come into effect at the earliest possible moment.

My hon. Friends and I will be abstaining in the Division tonight and reserving our fire power for the Committee stage.

5.30 p.m.

Mr. Julius Silverman (Birmingham Erdington)

I will not pursue the series of varied complaints expressed by the right hon. Member for Western Isles (Mr. Stewart) against the Budget and the Government. I welcome many of the features of the Budget, but I have my reservations about others.

In particular, in common with other hon. Members I regret that more has not been done to remedy the deficiencies in some of the public services, particularly the National Health Service, with its waiting lists. These are very serious matters which are causing pain and illness to many people, and I should have thought that even if no more money was available that should have been a priority even above reduction in taxation. The same applies to education and housing. Investment in these sectors means jobs immediately. When the Opposition talk about further reduction in public expenditure, let there be no doubt about what that means. It means hardship and the loss of jobs, sacking people in order to reduce public expenditure. That is why we are entitled to ask them, and particularly the hon. Member for Blaby (Mr. Lawson), which sectors they would reduce.

Next Thursday there is to be a debate on the National Health Service and its inadequacies. It is being initiated by the same people who talk about reducing public expenditure. That is sheer humbug. It is all very well the Conservatives saying "Let us first agree how much should be cut and then we shall decide on the nuts and bolts"; but that is nonsense. If the man in the street is to decide between the policies of the two parties, he has to consider where the cuts will fall. Will he be the one to be sacked, for instance, under Conservative policy? Is he the sort of person who will suffer hardship by it? In a democratic system the people are entitled to weigh up the two sides and to know precisely what the parties are talking about.

I do not believe that reflation [...]in itself will necessarily do all that much for employment. There are two aspects to the current situation. The first is the international recession which exists throughout Western industrial society. It has been suggested, as it was suggested two or three years ago, that the recession is due to the increase in oil prices and the failure to recycle the funds that arose from that increase. After four years most people would agree that the features of the recession are far too sustained and permanent to have arisen from a single factor, important though it may have been in triggering Off and aggravating the recession.

When the Government leaders meet in Bonn in July, therefore, perhaps they will consider that there are in what I would call the present system of capitalist production serious permanent structural defects which cannot be remedied merely by temporary reflationary methods.

Let me come now to the specific factors which affect our economy and to what is sometimes called the English disease. Inflation is a serious matter, but that is not the major problem. The major problem is this. This country is traditionally a trading nation. Over the years it has produced and sold manufactured goods in order to buy the basic raw materials it needs for food and industry. That picture has now radically altered. In the past year, according to the figures that I have, we exported manufactured goods worth £27,172 million and we imported manufactured goods worth £21,681 million. That means that to a large extent those imports could and mostly should have been produced in this country. That factor is one of the major sources of unemployment in Britain. It should have received more consideration in the debate—it has been mentioned only once or twice—because that is our basic problem.

We have a total deficit in manufactured goods with three of the major industrial countries of the EEC of £2,000 million a year. The majority of that sum is with West Germany. It is true that since last year our trade with West Germany has increased; but so has the deficit on our exports. We are now importing from Germany manufactured goods worth £3,203 million a year. We are exporting to that country goods worth £1,870 million a year. Clearly this is the matter which the House should be discussing and which industry should be discussing with the Government and the unions.

What should we do about it? Import controls may be essential, especially in the light of the last two sets of balance of payments figures. That proposal would involve difficulties and problems, but it might have to be considered as a necessity. Import controls alone will not solve the problem. We must also face the questions of investment and of increasing the capacity of our industry. Again these will have to be tackled on a tripartite basis by the Government, industry and the workers in industry.

Until we solve that problem the high level of unemployment will continue and we shall have a worse record than our competitors. I have not dealt with the ridiculous import-export balance with Japan and the similar situation that applies to some other countries as well. We shall not solve the problem simply by reflation. If we reflate and give people more income by reducing taxation that would clearly do no good to employment in Britain if the money is simply spent on Datsuns, Fiats, Volkswagens and other Italian, German and French industrial products.

According to Tory theory, the reflation introduced by Mr. Barber in the last Conservative Administration should have provided sufficient incentive to create a revival of investment. The record shows that it did nothing of the sort. It was completely disastrous because it did not recognise the nature of the problem which this country has faced under successive Governments. This is a matter which the Government should tackle.

I hope that reflationary measures will do something for unemployment, but at best they can be only a small part of the answer which will involve a more radical approach to our foreign trade. As my hon. Friend the Member for Tottenham (Mr. Atkinson) said, if we cannot achieve international agreement we might have to take whatever steps are necessary in order to deal with our own problem.

Some economists have suggested that the situation, far from improving, might become worse. Lord Kaldor and other economists have said that with an increase in the number of employable persons, and because of other factors, it is possible for the situation to become worse. I therefore ask the Government to look at the matter realistically and to take the necessary steps whilst there is time.

5.41 p.m.

Mr. Julian Ridsdale (Harwich)

The hon. Member for Birmingham, Erdington (Mr. Silverman) talked about the Bonn summit and international trade. I hope to be able to deal with some of the important points that he raised. There is an alternative way to the fortress economy which has been advocated by members of the Left wing of the Labour Party. That alternative way involves international agreement between industry and industry and a freer movement of capital. That would mean that the capital could be invested in those countries which were showing a deficit. If that is to be done, it behoves those on the Left wing of the Labour Party not to react in the way that they did to the investment possibilities of Hitachi when that company wished to invest here.

The hon. Member for Erdington accused Conservatives of wishing to cut back on the National Health Service and other Government services and of not wishing to pay correct wages to Service men and those involved in defence. We are anxious to get investment out of capital from the countries that are in surplus so that we can increase our production.

The sad thing about our economy since 1964 has been the failure to increase our productivity. As a result we have not been able to improve the Health Service, nor to build more hospitals and schools. A switch of resources to productive industry from unproductive industry is vital if we are to succeed.

I agree with the right hon. Member for Western Isles (Mr. Stewart) that the Government should try to shorten the period between announcing and implementing pension increases.

I am concerned about the Budget itself. When I listened to the Chancellor of the Exchequer, I thought that I was listening, as usual, to a great conjuror. In his Budget Statement the Chancellor tried to hide the 1 per cent. increase in the minimum lending rate. It came out eventually, but this was an important factor in the Budget. How the Chancellor must wish that he could have hidden the alarming balance of payments deficit that was announced on Thursday. Were the figures available to him when he made his Budget Statement? Is not the £8½ billion public service borrowing requirement extremely large? Does not this mean rising interest rates and, once again, the familiar Socialist pattern of pressure on sterling and prices?

It is obvious in the Budget and in the fear of things to come that the Prime Minister will rush to get the General Election out of the way by November. Where did the Chancellor and the Government go wrong? Why did we have this big deficit in our balance of payments? Wage settlements have been a factor. The Government have boasted that the settlement is 10 per cent., but it is higher. It created the demand which led to the balance of payments crisis.

World trade has turned down. Our production in industry, particularly in the motor car industry, has been bad. Our strike record has been appalling, in spite of high unemployment. The Prime Minister and the Government should have been more honest with the country about the reality of competition from abroad. They should have warned of the danger of increasing wages by 190 per cent. since 1974 without any increase in productivity. Since 1964, when the Socialists came into power after 13 years of Conservative rule, the Americans, Germans and the Japanese, by relying on the market economy, achieved increased productivity.

The hon. Member for Tottenham (Mr. Atkinson) asked how it was possible to achieve that in a market economy. It happened in those countries and it happened whilst our economy remained static during the years of Socialist rule. What effect has this had on the welfare of our country, particularly on the National Health Service? Because we have not had increased production we have not been able to increase expenditure on welfare and we have not been able to pay our Service men the right wages. The Germans and Japanese and others now have welfare services twice as good as ours. We have been unable to improve our services because of the failure of Socialism to produce.

What a challenge it is that since the Socialists came to power our share of world trade dropped from 7.2 per cent. in 1964 to 4.7 per cent. in 1976, the latest date for which figures are available. Yet world trade during that period increased by 150 per cent. This is the sum of and the answer to the failure of Socialism in these years.

Why do not the Government tell us more about why our performance has been so dismal? Our fall in these years has been equal to nearly £14,000 million in exports. What a hefty surplus in the balance of payments that would have given us, even without the advantages of North Sea oil.

What should be done? I know what the answer will be from certain sectors of the Left wing of the Labour Party. Wage increases and tax deductions should be more selective to encourage the vital increase in production. There should be a move from direct to indirect taxation, as outlined so ably by my hon. Friend the Member for Blaby (Mr. Lawson) this afternoon. Bearing in mind our failure to increase production, the Government are doing too much. That is why we are criticising Government expenditure. Anyone who knows how low our social services have become at present wants to see them improved. But we must put first things first. The first thing that we must do is to put everything into increasing productivity as much as possible.

In all sections of industry our tax is higher than that of our competitors. The average worker on the shop floor in Britain pays over 20 per cent. of the average wage. I listened to my hon. Friend the Member for Blaby saying what the present tax position was. It is disturbing when considered in comparison with the tax position of a person on the average wage on the shop floor in Japan, whose tax on the direct wage is below 1 per cent., as it is in France as well.

It is no wonder that as one has gone around small industries in Britain—although I welcome some of the what the Chancellor of the Duchy of Lancaster said about small industries today—time and again in the last year the answer has been "I am working three days for myself and then two days for the Government." That does not necessarily apply for just the person on the shop floor in industry.

We must support our successful industries, such as agriculture, energy, and tourism, and the City, and we must move ahead with advanced technology. The help that the Government have given to agriculture should have been given much sooner. That is why I say that, because of our adverse balance of trade with the other countries in the EEC, not enough has been done early enough to encourage production in agriculture.

We must do everything we can to encourage our invisibles. The high rates of taxation that are applied against workers in the City particularly will cause a great challenge to some of their competitiveness in comparison with some other countries that are earning great surpluses and whose currencies are appreciating very much. The Government must look very carefully indeed at this matter, otherwise our invisibles will come under great attack.

I welcome, of course, the help given to small industries, but, as I said to the Chancellor earlier today, I hope that the Government will pay more attention to certain of the sections in the Employment Protection Act, which are preventing expansion in some of the smaller industries.

Of course, I welcome the profit-sharing Bill. I am awaiting its publication to see whether its clauses will be exactly the same as those in the Employee Investment Bill which I attempted to introduce in February last year but in relation to which the Government told me then of every possible reason why it could not be introduced.

We must also encourage foreign investment. As the Minister of State, Department of Industry, said when he returned from Japan the other day, we have 1,000 American companies in this country but only six Japanese companies. We must try to ensure that we get more investment from the surplus countries, and not only for the developing world, which is one answer, again, to the problem of expanding world trade. It does not mean reflation. It means proper investment and trying to get the surpluses invested here in joint ventures. I hope that they will not be opposed by certain reactionary people who merely say "We wish to put up the barriers. We wish to have our tariffs. We wish to have protection." As a trading nation, we cannot survive in a protectionist world.

I have listened so many times to the Chancellor of the Exchequer that I can understand how the Left wing of the Labour Party has reacted to him. It is really time for the Chancellor of the Exchequer to go. We must remember the bad advice that he gave when he was in opposition, when he encouraged the Conservative Government to reflate, and that in 1974 he had the huge wages explosion and a vast increase in Government spending. Our inflation is twice as bad as that of any other country. We call the Chancellor "Mr. 8.4 per cent." I would call him "Mr. Inflation himself." What a pity it is that Mr. Roy Jenkins went to Brussels and that now no one, apparently, is on the Labour side to do what is necessary, and we have possibly to wait for the Chancellor to introduce a fourteenth Budget. I only hope that we shall have the General Election before then. If I may paraphrase the words of Kipling about the present Prime Minister and Labour Government, I would say: Waiting some easy wonder, Hoping some saving sign, He saw that industry lay idle, And he let the months go by. Idle except for your boasting, And what is your boasting worth, If you cannot tell the truth, To the most realistic country on earth?

5.56 p.m.

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

I am sorry that I cannot follow up the remarks of the hon. Member for Harwich (Mr. Ridsdale), or, indeed, those of some of my hon. Friends, in looking at some of the undoubtedly extremely important problems that face this country, particularly in terms of the achievement of industrial efficiency, greater productivity and output, and so on. I want to confine my remarks to a very narrow field. Chronologically speaking, at any rate, that is really the next six months. Having been a Member of the House for 12 years, it is my experience that the financial markets, in the short term at any rate, are perhaps even more important than the real economy in deciding what is to happen to us.

I should like to be very critical of the hon. Member for Blaby (Mr. Lawson) for what he said and of the Liberal economic spokesman for what he is about to say. This is one of the very few occasions on which I would rather have been called to speak about half an hour later, when I could have heard what the Liberal spokesman had to say, because I am gravely worried about the implications of the new Lib-Con pact, as adumbrated this afternoon, rather briefly, and off the cuff, I thought, by the hon. Member for Blaby and as summarised, with a very handsome photograph, on the front page of today's edition of the Daily Mail.

What we are faced with here is really the very simple issue that the Liberals and Conservatives are to have an unholy alliance to reduce income taxation, and they are to force amendments to the Finance Bill in Committee. It may be that there will be countervailing increases in indirect taxation. That will have to be decided, as will the way in which it is to be done. It may be that, together, they will force this to happen and cause a General Election. That would be the most traumatic experience. But let us assume that that did not happen.

I am sorry to have to cross swords with my hon. Friend the Member for Tottenham (Mr. Atkinson) about the general problem of monetarism. I am sure that my hon. Friend got it wrong when he said, first, that the Governor of the Bank of England was a monetarist, because the Governor said that he was a practical monetarist, and, secondly, when he said that the head of the Treasury had said that the Treasury was still Keynesian. My hon. Friend still has some friends in the upper echelons of the Civil Service.

I would agree that my right hon. Friend the Chancellor of the Exchequer is not a monetarist. When I said that he was a monetarist, he told me off about that. What he said he was was a monetary pragmatist. Perhaps that means the same thing.

The significance of this—it is a very serious issue—is that, whether monetarism is some new form of totem pole or merely a result of arithmetical statistical coincidence and there is some relation between the amount of money and prices—I do not know, all the important people, economically speaking and in political terms, think it to be the case. I do not want to associate myself with important people, but that is the fashionable view. The important thing is that they believe it whether rightly or wrongly.

If my right hon. Friend the Chancellor of the Exchequer has said that the range of his money supply targets is between 8 per cent. and 12 per cent. and we get way off balance with that, the situation could become quite serious. The same thing applies to the public sector borrowing requirement. If one ever thought that a single concept would have been dethroned, it would have been the public sector borrowing requirement, because we have the simple situation that we said in December 1976 that the deficit would be £12 billion. Eventually, it got whittled away and finished up, at any rate this year, at about perhaps £6½ billion.

I know that there are various explanations, such as the revenue from BP shares, the relieving of the burden on the Budget because we changed our export credit arrangements, the fact that we had a lot of Tory councils elected which did their hatchet job merrily, enthusiastically and with conviction, and perhaps the fact that the Treasury simply could not count, but I do not know the full explanation.

Let us assume, however, that we have a position today in which the Chancellor has said that the PSBR is £8.5 billion and we then have this tussle over what is to be the Budget revenue, because the Opposition want to reduce income tax. That is one aspect. It would, of course, increase the PSBR. So the Liberals then come on the scene and say "Let us increase VAT". That might restore the PSBR. If one says "There is a third option—to hack away once more at public expenditure", I think one will find, although the Treasury may be wrong again, that the same real issues arise.

When I say that the financial markets in the short run are themselves as important as the real economy, I bear in mind the attitude of the Prime Minister and the Chancellor of the Exchequer, who talk about the irrationality of the financial markets. I could not agree more with my right hon. Friends. I think that the financial markets over-react and exaggerate. But I ask those of my hon. Friends who are perhaps intending to vote against the Government at this stage to remember that, as Keynes said, it is the short run that matters and in the long run we are all dead.

There are two things that could happen which could be of significance, not in 1981 but perhaps in the hot, dry summer of this year, in about August or September or before. One of these is the behaviour of the gilt-edged market, which is closely related to the rate of interest. That is extremely important. The other, mentioned by hon. Members already, is the exchange rate. My right hon. Friend the Chancellor of the Exchequer—I think that he thought he was being clever—gazumped the money market, as one financial journalist has described it. He said "I do not want to be in a situation in which on Friday you say that you do not like the Budget, so I have put the rate of interest up then." Instead he cleverly put the interest rate up on the Tuesday. But I think that the general impression, although I hope that I am wrong, is that we are going to see further increases in the rate of interest. This is one of the reasons why I think that, in their talk about reducing income tax and increasing VAT, the Opposition, whether Tory or Liberal, are being totally irresponsible. The one would add to prices and would fuel inflation—and that cannot be a sensible thing to do now. The other might easily increase the PSBR if we found ourselves in a situation in which these cuts in public expenditure were not quite as possible as was imagined.

So what we are saying is that if people are now going round the City saying "Do not buy gilts now because you will get a yield on gilts by July of 14 per cent.", acting together with the financial journalists to talk us into rising interest rates, we are back where we were in 1976 instead of enjoying the balmy days of 1977. It is very much more difficult to fund exactly the same amount in terms of gilt sales or the PSBR when one is faced with rising interest rates than if one is faced with falling interest rates. Every kid in the street knows that now.

If, as a consequence of the combined opposition, which looks very formidable, of Tories and Liberals, we are to introduce into the financial markets these degrees of uncertainty about the rate of interest, that will be against the country's interests. Do not let us underestimate, either, what might happen to the £ sterling. If the people who operate in the gilt-edged market, to say nothing of that other little casino, the equity market, the Stock Exchange, tend to have their errors of pessimism and optimism and so on, they are not in the same street as the people who operate in the foreign exchange markets.

The OPEC funds are still a vital factor, for example. But it is interesting to note, although one must not dwell on this, that, if one is a Chartist in matters of what is happening in the various markets, this rapid fall of the weighted exchange rate index down to 62 creates for sterling a situation, if one believes in the Chartist interpretation, in which the fall could be on the cards.

Let us not think that we can simply say that the answer is lower taxes because that increases incentives. If anything that the Opposition want to do increases the demand within the economy through reducing taxes or whatever and spills over into the foreign exchange market, they will have something to answer for. My hon. Friends have mentioned various factors here. I shall not take up further time on that.

We have now a new set of initials—PTI, propensity to import—referred to by my hon. Friend the Member for Tottenham. We really do import stuff. The whole of the increase in retail sales since October 1977 is accounted for by imports. I do not know what it is about us that puts us into the situation where, as soon as we get some money in our pockets, we have to spend it abroad, but it is a very important facet to this problem. Therefore, I say to the Opposition that they carry a very heavy responsibility in the next few months to maintain within the financial markets of this country, particularly the foreign exchange and money markets, an element of stability. If we do not do that, we may get over-exaggerated reactions.

What I am saying is supporting the Chancellor, which is unusual for me, but I believe that he has now moved into a policy situation in which we can look to the future with confidence, given a chance. I am saying that there are sufficient demand management factors to exert pressure without any need to add to them. It is obvious that, in terms of the increase in the standard of living since the last quarter of 1977, the economy is beginning to move. If it moves in accordance with the Chancellor's wishes and we have a 3 per cent. economic growth, that, given my right hon. Friend's present money supply targets, will stretch things a bit. With no growth at all, we could not keep within the 9 per cent. to 13 per cent. limit. Therefore, with 3 per cent. growth it will be difficult to stay within his targets.

My hon. Friend the Member for Southampton, Test (Mr. Gould) is laughing. He obviously did not listen to what I said earlier about the psychology of monetarism. That was extremely important. If this nation's destiny were in our own hands, things would be easy, but when it is in the hands of the gnomes of Zurich or the sheikhs of Araby or anybody who operates in the foreign exchange markets of other countries, we must listen.

One component of this equation about which we know practically nothing is the savings ratio. Those who want to disturb what I regard as the satisfactory position created by the Budget by acting recklessly and reducing taxes should ponder on the savings ratio. It is not mentioned often, and when it is mentioned it is often brushed aside.

However, in the last quarter of last year we saved 16.1 per cent. of our income. A movement of 1 per cent. in our savings ratio is equal to a tax reduction of 2p.

We are not dealing with small matters. When our normal savings ratio is 8 per cent., it is inconceivable to me that we should be able to move up to 16 per cent.—no doubt through the saving of tax cuts—and not expect that ratio, especially in the more favourable conditions opening up, to fall.

Because of this Budget, the country can now move forward without any addition to its inflationary problems. People will have the beginnings of cuts in taxation which they all want, public expenditure will be, if not adequate, at least as high as we can afford at the moment, and the inbuilt pressures in the economy are adequate for our present purposes. I would indict anyone, Liberal or Conservative, who intended to rock the boat and make the Chancellor's position more difficult and the country's prospects much less rosy than they are.

6.15 p.m.

Mr. John Pardoe (Cornwall, North)

I am glad to follow the hon. Member for Stoke-on-Trent, Central (Mr. Cant), and I hope that some of my remarks will assuage his worst fears. I am not in total disagreement with him, which may give him some spark of hope.

I start by stating categorically that my right hon. and hon. Friends and I have absolutely no intention of voting with the Conservative Party tonight. We regard tonight's vote by the Conservative Party as an empty and meaningless gesture. It is no coincidence that the only resolution on which the Conservatives are choosing to vote is the one which says nothing specific but simply that it is expedient to change the law on public finance. That commits them to absolutely nothing.

The Conservatives are interpreting tonight's vote—this was made clear by the right hon. and learned Member for Surrey, East (Sir G. Howe) in a speech at the weekend—as a vote against the Budget as a whole. He said: On Monday, the Opposition will be voting … against the Budget as a whole. It would indeed be ridiculous for us to vote against the Budget as a whole, because there are many things in it not only of which we wholeheartedly approve but which we believe are there largely because of us.

I would say to the hon. Member for St. Ives (Mr. Nott), who is to wind up for the Conservative Party, that a vote against the Government tonight will be a vote against a whole list of things that we regard as positive discrimination in favour of small businesses and which we have been pressing on the Government and, therefore, wholeheartedly welcome. A vote against the Government tonight will be a vote against the lower tax rate band, which we urged on the Government and which we welcome. It will be a vote against the averaging of farm incomes, from which some of the hon. Member's constituents will benefit substantially.

It is extraordinary that some Conservative spokesmen in this debate have said that that provision was too late. We have been talking about the averaging of farm incomes as long as I have been in the House, and the NFU tells me that it has been pressing the matter for 30 years. If it is too late now, why was it not done between 1970 and 1974? The climate affected farm incomes even in the 1950s, when the Conservatives could have done it.

A vote against the Government—perhaps this is more important to the hon. Member for St. Ives—will be a vote against the substantial help which is to be given for the first time to hoteliers. Will the hon. Member really vote against the interests of his hotel constituents in St. Ives? I shall not vote against the interests of my hotel constituents in North Cornwall. This provision is in the Budget largely because the Liberal Party insisted on it, and North Cornwall has some interest in these matters.

Mr. Victor Goodhew (St. Albans)

Perhaps I may remind the hon. Gentleman that during the Budget debates last year he and his party refused to vote against the increase of 5½p in petrol duty yet in the debates on the Finance Bill they joined my right hon. and hon. Friends in voting for the removal of that increase, which he and his party had allowed to be put on. They then claimed the credit for reducing petrol taxation. I hope that the hon. Gentleman will not try that sort of nonsense today or in a few months' time.

Mr. Pardoe

I will certainly try that sort of nonsense all over again and I expect that it will be just as successful as what we did with petrol duty. If we do for income tax what we did for petrol tax last year, who in the country will blame us for it?

I found extraordinary the response from Conservative Members today to the speech of the Chancellor of the Duchy of Lancaster—dismissing all this positive discrimination in favour of small businesses and then saying that this Government have destroyed small business and acted against its interests and that the record of the Conservative Party in this respect is splendid. The Conservative Party did absolutely nothing to foster a good climate for small business.

How do I now that? It is because the right hon. Member for Leeds, North-East (Sir K. Joseph) has told me. Speaking in the House on 13th March 1975, he said: I wish … I could turn to the party record and point out that the Conservatives have an infinitely better record than the Labour Party in looking after small businesses. But in fact neither party has distinguished itself on this subject …I must confess that no Government have given small businesses the encouraging climate recommended by Bolton."—[Official Report, 13th March 1975; Vol. 888, c. 826–32.] Those were the words of the right hon. Member for Leeds, North-East, and I think that he is rather more honest in these matters than some other Members on the Conservative Front Bench. The Conservatives will be voting against all these concessions tonight, but we shall not join them in their lunacy. We hope to be able to amend the Finance Bill in Committee, but in any case we regard ourselves still as being in negotiation with the Government and there is plenty of negotiation to be done.

That does not mean that we regard the Budget as satisfactory. We want to change it and we shall vote when our votes will count in making changes rather than tonight when a vote would change nothing. The hon. Member for St. Ives may say that it would change the Government, and then he invites me to believe that the Conservative Party would make more changes in the tax system in the way that we have advocated than the Labour Government have done. Even if the Government did change, we do not trust the Conservative Party to reform the tax system for the better. The Conservatives made a mess of it last time and are even less well prepared to carry out the necessary changes now than they were then. I am not sure that they even want to reform the tax system or bring down income tax. Their reaction to the Meade Commission's proposals was so dismissive, not to say contemptuous, as to make one suspect that they want to do nothing at all.

The Conservative Party is, as we see from the contrast between its two Front Bench spokesmen in this debate today, in an unholy mess over the Budget. One half believes that the income tax cuts are too much while the other half believes that they do not go far enough. The hon. Member for St. Ives last week was quoted in the Western Morning News as saying that for the Liberals to suggest that tax cuts should have gone further was utterly irresponsible and could only be dangerously inflationary". Yet the hon. Member for Blaby (Mr. Lawson), in his opening speech this afternoon, and the right hon. and learned Member for Surrey, East, in his speech at the weekend, said that the Conservative Party was at last about to urge further tax cuts. Who is right? Let us get it straight. I hope that we shall have some denial of his own words from the hon. Member for St. Ives.

Mr. John Nott (St. Ives)

To save time later tonight, because there is a lot to cover in half an hour, may I say now that the statements of my right hon. and learned Friend the Member for Surrey. East (Sir G. Howe) and my hon. Friend the Member for Blaby (Mr. Lawson) can be perfectly easily reconciled with mine. Of course we all want further tax cuts. But we would finance them out of increases in indirect taxation and we believe that the borrowing requirement is too high. That is precisely what my hon. Friend the Member for Blaby said.

Mr. Pardoe

Presumably, when the hon. Gentleman gave the benefits of his views to the Western Morning News last week, he was not aware that the Liberal Party has exposed itself almost obscenely on the point of raising indirect taxes. Is he saying that he did not know that that was our proposal? If so, he is ignorant.

Mr. Nott

It has been my misfortune to read the Liberal Party's Budget, and in that Budget it was perfectly clear that the Liberal Patry intended to reflate the economy by £3 billion. That is thoroughly irresponsible, and I stick to every word I said in the Western Morning News.

Mr. Pardoe

The sum of £3 billion in a full year is not a great deal more than the Government have given. It is substantially less than the TUC advocated and very little more than that put forward by the CBI. Since the hon. Gentleman did not make that clear and did not at the time make clear that we had advocated increases in taxes on spending, I believe that his action was a piece of pique. He has mentioned the publicity we received. I think that he was rather unnerved by the fact that we got rather more publicity than he did. We have spelt out what taxes we would increase to pay for our income tax cuts. The Conservative Party has not done its homework. It has not set out exactly how it would pay for its cuts.

Let me say how we propose to pay for the cuts. Our aim is to reduce the standard rate of income tax, over a period of three years, to 20p in the pound with the top rate coming down to 50p. It is extraordinary that in Britain such an aim should be regarded as dreamland or pie in the sky. Those levels of taxation would only bring us into the middle band of industrial countries in terms of the burden of income tax. How did we reach this conclusion? We did so by much the same course that led the late lain Macleod to the same conclusion before 1970. It was a belief that something fundamental was wrong with our tax system.

I do not offer tax changes as a panacea. Of course, there are an enormous number of other problems affecting the British economy. It cannot be proved that increasing incentives to this effect will work. No one who believes in incentives can prove that. But, clearly, the tax system in this country is very different from that in other countries. The main difference between our tax system and the system in other countries is the amount that we take in income tax. I quote an answer by the Chief Secretary to a parliamentary Question of mine of 26th January 1978: In 1975, the latest year for which information is available, the proportion of total tax revenue raised by taxes on personal income was 39 per cent. in the United Kingdom compared with 26 per cent. in the EEC as a whole."—[Official Report, 26th January 1978; Vol. 942, c. 760.] That is why other countries enjoy such lower levels of income tax. Income tax at anything like its present levels in Britain is a thoroughly misconceived tax.

There is nothing in favour of income tax, even in theory—apart from equality. For some considerable time, I suffered under the illusion that at least it had that to be said for it. Even that is in doubt. To take so great a part of our total revenue in income tax we must go very far down the income tax scale. If we look at the numbers alone, we can see that there are only 845,000 taxpayers with incomes above £7,000. It is becoming an increasingly difficult problem to get money out of them. Yet £1 on the income tax of the millions of people at the lower end yields quite a large revenue. Because we have placed so large a burden on income tax for our revenue, we have to go down to these people who are by any standards poor. Often they are people in receipt of family income supplement, which can be taken as some definition of the poverty line for families.

As long as we need this amount of revenue from income tax, we must tax people at this level. But taxing people at these income levels seems unfair. Even now, we are to take 40p in the pound from a married couple whose income is no more than £45. To make the taxation of poor people politically bearable, we have to appear to tax people who are better off at punitively high rates. A rate of 83p in the pound is clearly a punitive rate. It is far and away the highest rate in the world. The next nearest is Italy with 72p, and that is on an income of over £300,000 a year. If we use these rates on people at the higher end of the income scales, what happens? We have to invent a plethora of special allowances which high income earners can deduct from their taxable income.

A vicious circle develops in such a situation. Allowances become bigger and bigger. We are going round in ever-decreasing circles. The system cannot stand the burden. The result is that the tax system is not progressive as I had once believed and as, no doubt, many Labour Members believe. It is not even as progressive as VAT. VAT is always thought of as a broad-based expenditure tax. It will be asked, how can such a tax be progressive? The reason is that it exempts the more necessitous part of personal consumption.

How can we cut income tax? First, we can do it by cutting total taxation. But we are not a high tax country. I hope hon. Gentlemen will take account of that. What expenditure are we to cut? Is it expenditure in the Health Service, in education or in the social services? Last week, both the Conservative Party and ourselves—indeed, all quarters of the House—universally welcomed an increase which in the next full year will cost £1.3 billion on the uprating of pensions, unemployment benefit and other benefits. That is a pretty substantial increase in public spending to start with. That will go on ad infinitum unless the Conservatives end the guarantee—which all parties in this House have so far subscribed to—that these benefits will be raised in line with inflation either on wages or prices.

Shall we cut defence? The Conservatives will increase defence spending. Shall we cut expenditure on law and order? Certainly not. The Conservatives will increase that as well. The only section which Conservative spokesmen ever really mention—and then it is not very specific—is housing. Can that be cut quickly? I very much doubt whether it can be cut over the next financial year without making a tremendous change in family budgets at all levels of income. Let us not kid ourselves: if we do it for council house tenants, we must do it for owner-occupiers, because the subsidy is seen by one group as being to the other, and vice versa. It is no good thinking that we can cut the subsidy to council house tenants if we do not offer, at least as some kind of political quid pro quo, fairness in our attitude to the tax concessions to those who have mortgages.

Secondly, we might cut income tax by shifting the burden within the income tax. Here I must say that I am deeply worried by the speech of the right hon. and learned Member for Surrey, East at the weekend. He seemed to be saying that the Conservative Party would be seeking to lower the standard rate and the higher rates by making changes to the lower rate band. Indeed, the attack which the hon. Member for Blaby launched on the lower rate band left me in some doubts about this matter.

I hope that tonight we shall have a categoric assurance from the Conservative spokesman that in its amendments to the Finance Bill the Conservative Party will not be trying to take from the poor to give to the rich within the income tax structure. That would be absolutely disastrous. It would be seen to be unfair and it would not work. Indeed, no one can conceivably suggest that we tax the poor too little in Britain. The whole area of the poverty trap is to a large extent created by the high incidence of taxation at very low levels of income.

Thirdly, we might cut income tax by increasing—

Mr. Alan Clark

The hon. Gentleman has used phrases such as "our aim is", "we would" and "we might". Is he referring to what he intends to do in Committee, or is he fantasising about what some future Liberal Government might do? Without wishing to seem ungenerous, that latter possibility seems so remote that it is really trespassing on the time of the House and on the time of a large number of other hon. Members who wish to speak.

Mr. Pardne

The hon. Gentleman keeps putting forward proposals about what he would do for the economy. But that is in the world of fantasy, because no Government—certainly no Conservative Government—will adopt the siege economy tactics which the hon. Gentleman has been advocating all over the West Country, as well as from a sedentary position in this Chamber this afternoon.

If we are to cut income tax by increasing taxes on spending, I believe that we must come clean about it and state exactly what it is. We have had from the hon. Member for Blaby a mention of VAT. The Conservative Party and the Liberal Party agree entirely that the best rate for VAT this year would be a standardised rate—one positive rate—of 10 per cent. That would be a wholly useful change which would bring in an extra £700 million. That would certainly pay for some cuts in income tax.

If, however, the Conservative Party is saying that it would increase only VAT—I do not mean only this year, but in future—to what level will it have to raise it in order to finance its proposals on income tax? A lot of private talking has gone on and figures of 15 per cent. are mentioned. It would be better if we had from the Conservative spokesman tonight a categoric statement about whether the Conservative Party intends to move to a rate of 15 per cent. in the future. Is that how it proposes to finance its cuts in income tax?

Of course, we could do it by borrowing. The hon. Member for Blaby was extremely scathing about borrowing. So was his right hon. and learned Friend the Member for Surrey, East in his speech at the weekend, when, referring to the Chancellor, the right hon. and learned Member said: First, because his plan to borrow £8,500 million this year—almost £3,000 million more than last—is fraught with risk. Well, well! The hon. Member for Blaby refused to answer the Chancellor's question as to what he regarded a proper PSBR. Why not go back to 1973–74? That is where the Conservative Party wants to go back to with regard to income tax. Surely that must be the model for all future Conservative Governments. Yet in 1973–74 the borrowing requirement was 6.1 per cent. of GNP. If, indeed, the borrowing requirement this year—which will be 5¼ per cent. of GNP—was raised to the Conservative standard of 6.1 per cent., there would be £1.4 billion more with which to cut income tax. That is quite a lot of money. One could do a great deal to the standard rate. One could bring it down to 30p and lower. One could do a lot to the upper rates as well, and one could actually attack investment income surcharge. One could lower a whole panoply of changes with that kind of money.

The Conservatves did not even bother to borrow it in a non-inflationary way. I am sure that the hon. Member for Blaby will lecture us at great length on what is non-inflationary and what is inflationary borrowing. But the fact is that in order to finance its deficit the Conservative Party had to increase the money supply by 18 per cent. during the last year it was in office. I think that that shows what happened last time. It ought to be a warning—perhaps Conservative Members are above being warned of anything—to those in the Conservative Party who continually preach cuts in income tax.

One has to look at the record and ask why the Conservative Party was not able to carry out those cuts last time. The answer is that the late lain Macleod had done his homework and had come up with a whole list of taxes on expenditure which would be increased but, unfortunately, his death stopped that being perpetrated and his successor, Anthony Barber, was not strong enough to carry those increases in indirect taxation through the Conservative Cabinet. Therefore, it had to be done by borrowing. In any case, we were left in 1973–74 with a standard rate of income tax of 30p in the pound and a top rate of 75p in the pound. That was nothing like enough to deal with the problem of incentives in British industry or really to get industry going.

I have already set out the three-year plan which the Liberals have advocated. The real question is how we finance it. I take some of the points that have been made about Government borrowing. What is the correct level of Government borrowing? I have already quoted the figure for the Conservatives in 1973–74. I do not see how it is possible to calculate what is the correct level of Government borrowing unless one has a sophisticated full employment Budget model to work on.

On that kind of full employment Budget, I have no doubt that at, say, 3 per cent. unemployment the level of borrowing would be substantially above the £8.6 billion which the Chancellor has gone for. I think it would certainly mean an injection this year of £3 billion, and it might even mean an injection of more than that. Nor is our borrowing requirement out of line with other major industrial countries, as any comparison will show.

However, my major difference with the Chancellor with regard to this Budget is not over the question of borrowing at all. It is over the question of how far he has moved from taxes on income to taxes on expenditure. The Chancellor, alas, has not done so. He is still stuck in the rut left him by the previous Conservative Government and, unfortunately, this year he has actually gone slightly in the wrong direction. Table 9 of the Red Book, on page 24, shows that the estimate of income tax after the Budget changes is 45.2 per cent. of total revenue, whereas last year it was 44.9 per cent. It is only a marginal change but it is a change in the wrong direction.

Mr. Lawson

The hon. Member for Cornwall, North (Mr. Pardoe) really cannot say that the Government are stuck in the rut of the last Conservative Government. If he looks at the Red Book at the time of the last Conservative Government in 1973–74, he will find that taxes on expenditure brought in substantially more money than taxes on income. In the coming year, the Government expect the reverse to be the case.

Mr. Pardoe

The hon. Member for Blaby seems to equate the tax on incomes of companies with the tax on incomes of people. I am primarily interested in reducing the taxes on the incomes of people, even though he may be interested in trying to reduce taxes on institutions.

In 1969–70, the financial year before the Conservatives came to power, personal taxation on income amounted to 29.7 per cent. of total tax revenue. By the time the Conservatives left office in 1973–74, it was 30.6 per cent. Therefore, personal income tax actually went up as a percentage of the total tax take. Therefore, it is absolute nonsense for the hon. Member for Blaby to quote figures of income tax cuts by the Conservative Government. If he looks at any figures for revenue between 1969–70 and 1973–74, he will find even more horrific increases in taxes than those during the period of this Government.

How can we raise the money? For a start, I suggest cigarettes and tobacco. The real tax take from these has fallen substantially since the 1960s. It was 78 per cent. of consumer expenditure on tobacco in the late 1960s and now it is 58 per cent. Also, there is a strong public health argument for increasing taxes on tobacco. Secondly, I would suggest that beer and other alcoholic drinks should be considered. If we put 2p on beer and the equivalent amount on other alcoholic drinks, we would bring in £300 million. If the Government brought in a standard rate of VAT at 10 per cent., this would raise £700 million.

I know that the hon. Member for Blaby does not agree with me on the payroll tax. However, I find it strange that the Conservatives should believe that the answer for British industry is to increase its overmanning. That is what their argument means if it means anything at all. If they say that a payroll tax will discourage people from taking on more employees, they must believe that British industry is short of people, whereas it is largely overmanned already, as we know perfectly well. The right hon. Member for Leeds, North-East, in a speech in December 1975, said that it was absurd and anti-social to claim that men should be kept in the work place going through the motions of working and being paid for it when their work was making no contribution whatever to the national wealth creating process. At least he has got it right.

In the debates that we shall have on the Finance Bill we shall seek to reduce the standard rate of income tax, to reduce the higher rates of tax and to change the bands.

Mr. John Mendelson (Penistone)

I have been taking some comfort over the last two years or so from the fact that there has been developing across the Floor of the House a certain consensus not to do anything that would endanger employment and to encourage the Government to mend their ways and spend more money on creating employment. Surely the payroll tax would be a step in the wrong direction—even after the hon. Member's attempted explanation.

Mr. Pardoe

The payroll tax argument is rather more sophisticated than the hon. Member for Penistone (Mr. Mendelson) thinks, but, unfortunately, I have no time to develop it now.

Other countries which have better employment records than we have rely very heavily on the payroll tax for revenue. The Chief Secretary said in January this year: The proportions"— of total tax take— contributed by employer-paid payroll taxes and national insurance contributions were 10 per cent. in the United Kingdom and 22 per cent. in the EEC"—[Official Report, 26th January, 1978; Vol. 942, c. 760.] That comparison alone shows that payroll tax does not necessarily create unemployment. It may well act towards an efficient use of employment. Indeed. I hope that that would be the case.

I am not saying that in this Budget the main aim is to raise revenue by a payroll tax. We have put forward a range of expenditure taxes which would enable the Government to recoup any cuts that we make in income tax. If we succeed in making the cuts in income tax, we shall be fully prepared to support the Government's amendments to replace the revenue. It is possible that a phase 4 or a successful economic summit may make it unnecessary to replace all the cuts, but that is in the future and we shall have to wait and see. In the meantime, we shall vote for sensible amendments to cut income tax.

The Chancellor of the Exchequer, in his speech in Glasgow not long ago, said: We must lead the market instead of following it. This task, as always, will primarily be the task of alert and energetic entrepreneurs. How do we make it possible for those alert and energetic entrepreneurs to do their job? We can do so only by cutting income taxes substantially and by indicating that we are prepared to go on cutting them as a proportion of total tax take over three or four years so that we get them down to something like the levels in the majority of our competitors.

6.48 p.m.

Mr. Sydney Tierney (Birmingham, Yardley)

The hon. Member for Blaby (Mr. Lawson) described this Budget as a TUC Budget. My hon. Friend the Member for Tottenham (Mr. Atkinson) said that it was a consensus Budget. Certainly the Budget has had a number of descriptions, and if I were to give a description at all I would call it a family Budget. It helps all the family—grandparents, parents and children. We have also heard what has been done for family businesses and family farms. Because of this, it is difficult to fault the Budget. If one helps the family one helps everyone, and this Budget brings help all round and is fair in its application.

I should have liked much more account to be taken of the state of the economy, particularly unemployment. I welcome what has been done and hope that even more will be done in future. The Chancellor said that his main purpose was to encourage economic activity and to bring down unemployment. I welcome that because the greatest problem for all of us is how to return to full employment.

When we finish all our arguments about the various aspects of the Budget, the fundamental question is that of unemployment. Whether it affects school leavers or those in their fifties and sixties it is no less intolerable. Unemployment is a condemnation of a nation's social priorities. It affects not just the United Kingdom but the world as a whole. I welcome the growing trend and the belief that no country can solve unemployment problems on its own. We must all support any move towards a spirit of co-operation in the world economy.

Because this objective is becoming more acceptable we must not be lulled into the belief that unemployment is a necessary evil simply because it occurs throughout the world. Unemployment brings degradation, and if we accept it we are further degraded. The Chancellor talked about the slow growth of the world economy and the fact that action is needed on a world scale. This tragic problem of world unemployment has been with us far too long.

The single and most outstanding indictment of our world civilisation is the continuing existence of stark and widespread poverty among two-thirds of the world's population. For millions of people survival is a day to day challenge. They suffer privation, disease and incessant hunger which is never satisfied day or night. This goes on in a world in which the great medical and social problems of the wealthier nations lie in combating the killer disease of over-eating. It is a world in which defence spending rockets and commands the highest priorities in resources—defence spending which mostly protects the rights claimed by greed and ignores the rights of need.

Is it beyond the wit of so-called civilised people to provide resources for the developing and under-developed countries can supply? This provides a own wealth and establish a demand for the commodities they need—commodities which we and other industrialised countries can supply. This provides a further reason for bringing the world out of further recession and to restore human dignity to millions of its people.

Although I welcome the Government's further measures to maintain and create jobs, work experience and training programmes, I believe that they are short term and much more needs to be done on a long-term basis. North Sea oil revenues must be used to finance and maintain new public sector employment. Much of our future investment in industry generally will of necessity be capital-oriented and will lead to further job disappearance.

Therefore, special attention must be given to labour-intensive industries to avoid industrial deserts. The Government must intervene directly and invest in certain trades to encourage the innovation of new products and to create new jobs. There is also a need to list, encourage and capitalise on the development of new technologies. The "corporate plan" produced by Lucas shop stewards is an example of the kind of initiative we need to create new jobs and produce socially useful products.

My right hon. Friend the Chancellor of the Exchequer was right to emphasise the debt which the nation owes to the trade unions for the moderation and responsibility which they have exercised in recent years. The Opposition would do well to acknowledge it.

It is also right that the trade union movement should now benefit from the sacrifices made by its members. This is why there must be an "unguided"' return to collective bargaining. The trade unions must be allowed within the framework of economic realities to exercise their responsibilities to negotiate freely with employers. Their responsibility includes overcoming the conflict between applying an overall strategy to contain wage levels, inflation and unemployment, and yet being sufficiently flexible to deal with such matters as differentials, low pay and special cases. That conflict appears to be impossible to resolve, but the attempt has to be made, and it must then be left to trade unions and employers to deal with.

It is my hope that the trade union movement will eventually, as a single united movement, specify and seek to incorporate responsible "living wage" levels for the low paid and deal with special cases and differentials. In my trade union, USDAW, and others representing the servicing and food industries, we have an involved interest in the most devastating differential of all—the difference between average earnings for the lowest paid quarter of adult workers and average national earnings. Although fringe tax adjustments in this Budget are welcome, particularly in the low pay area, the ever continuing problem of low paid workers and their struggle to escape the poverty trap can be permanently resolved only by substantial increases in real wages.

The fact that the problem exists at all is not because social benefits are too high, but because employers in industries such as those I have mentioned labeled "low paid" have got away with miserably low wages for far too long. They are low wages in industries which are efficient and prosperous, and yet the workers never get the rewards or the recognition that their services deserve. They are low wages that qualify for social security benefits but do not provide for a standard living rate.

I wish to return to the subject of unemployment and to mention the great majority of the unemployed who want to work. When the Chancellor, as he pointed out in his Budget, has his talks with both sides of industry, I hope that he will examine with them work-sharing plans, in the light of the fact that 700 million hours of overtime were worked in 1977. I hope that he will also examine the structure of the working week, and earlier retirement. The 35-hour, four-day week and earlier retirement are desirable objectives on humane grounds alone. Now all at once, because of basic structural employment problems, particularly among young people, there are powerful political and economic arguments for these objectives to be realised much earlier than seemed possible a year or two ago. The growing importance of leisure services, too will create more jobs.

The provision and maintenance of a realistic retirement pension in dealing with the subject of early retirement must be achieved if we are to prevent earlier retirements from becoming just another form of early and permanent unemployment.

Many hon. Members have had fears about the effect which the "productivity" element of incomes in the present pay round has had on unemployment. One man's bonus is usually part of another man's wages. Thousands of bonuses paid has often meant pro rata the elimination of hundreds of jobs. Profit sharing—which was mentioned in this Budget and details of which we still await—contains these same job-destroying elements. I hope that the Chancellor will make himself aware of what effect productivity schemes have had on employment prospects in our economy and will find out how many jobs have disappeared in the name of bonuses. I ask him also to ascertain whether the proposed profit-sharing schemes have a place in our economy where unemployment is such a deep and fundamental problem.

So far as it goes, the Budget is hard to fault in its fairness and application. I think that the Opposition realise that. So far they seem to have made more political capital over the argument about the date of the next Budget than over the present Budget. Whenever the date of the next Budget is—whether June, July, September or any time in 1978, or in 1979—I put it to the Chancellor that he should continue to insist that the main purpose of his Budget, whenever it takes place, will be to encourage greater economic activity, to bring down unemployment and to create wealth and greater prosperity for all our people, and particularly the unemployed.

Although we have the green light on monetary stability, the slowing growth rate of inflation, the balance of payments and so on, the dominant red light of unemployment, so long as it remains, will hold us up and prevent any forward movement of our economy and our people.

6.58 p.m.

Mr. Alan Clark (Plymouth, Sutton)

The hon. Member for Birmingham, Yardley (Mr. Tierney) described the Budget as a family Budget. That is a nice, cosy title, with election-winning overtones attached to it, and in some ways I would not dissent from that title. However, this thirteenth Budget presented by the present Chancellor of the Exchequer has an ominous significance attached to it since it offers evidence of a major alteration in the Chancellor's economic strategy, and a notable setback to the quality of his so-called industrial strategy. He has finally abandoned the much-trumpeted and oft-declaimed object of export-led growth and he has had to settle for the much more dangerous and, as history shows, crisis-inducing expedient of stimulating domestic consumption to achieve growth.

There is already testimony to the Chancellor's awareness of the dangers of that course reflected in probably the most significant element in the Budget—namely, the immediate raising of minimum lending rate and the likelihood that that rate will continue to be raised this summer.

To stimulate consumption in this country is and has been fraught with danger. It is particularly untimely now because there is considerable evidence that consumption will probably be increasing in any case, for a number of reasons. The fall in inflation will of itself increase real earnings. There are a number of wage settlements due and current which will be back-dated and which will have an effect on disposable income. There are the tax cuts in this Budget and the working through of the tax cuts in the August Budget. There is also, as the hon. Member for Stoke-on-Trent, Central (Mr. Cant) said, the fact that the savings ratio is likely to come back gradually over the next six months.

So the likelihood, anyway, is of a considerable increase in consumption, and with the extra stimulus which the Chancellor has given there is likely to be an increase of anything up to 7 per cent. over last year's figure in the next six months. What is particularly dangerous about increases in consumption that are not accompanied by other measures is that the goods consumed can be and in this country often are made by workers in factories outside the United Kingdom, and the payment for the goods consumed finds it way to the countries of origin of the manufactured goods that are being purchased.

The net effect is that unemployment is added to our import bill and jobs are added to our export balance sheet. We are, with the increase in money that we spend on foreign goods, adding to employment abroad and reducing the possibilities of our own people being in employment and making those same articles. Of every £1 spent on manufactured goods by the consumer public in this country, at least 35p is automatically added to the balance of payments deficit unless measures are taken to restrict this. I was very encouraged on Monday of last week when I questioned the Prime Minister on his attitude to protectionism. The remarks that he made on his return from the European conference gave some indication that he was changing his attitude. He said that he was ready to take a long, hard look at the subject. It is encouraging that he will have a long hard look if by "hard" we understand him to mean ruthless and untainted by any of the received ideas on the subject that have been circulating for the last 20 or 30 years.

But why anybody should need to take a long hard look at the matter I do not understand. We need only to look at the matter for about one and a half minutes to see that there are certain sectors of manufactured goods and certain places from which those goods originate, in which the need to protect British industry is manifest and where that need can easily be discharged without the slightest risk of retaliation, although the retaliatory risks, which I hope to touch on presently, are greatly overestimated.

I take three countries at random. Japan, South Korea and Poland are countries that supply us with manufactured goods in a proportion varying from 40 to one to 10 to one in value terms in relation to what they take from us. The question of retaliation has become a parrot cry raised by those who wish to dismiss the arguments for protectionism. I suspect that the; often use it because it saves them the trouble of examining in detail the individual sectors, products and markets.

For example, the motor industry is often held up as the one industry that would suffer dreadfully in a protectionist climate because it exports so much. If we subject this to the kind of detailed scrutiny which every manufacturing sector requires, the retaliatory argument is not nearly as strong because the export emphasis in the motor industry is on components, specialised vehicles and commercial vehicles. Commercial vehicles may conceivably be vulnerable to retaliatory measures, although retaliatory measures in themselves are not imposed systematically and simultaneously by all our customers.

Motor components are usually on longterm contracts with other manufacturers and specialised vehicles are of a kind—for example, Rolls-Royces or Land Rovers—of which we have a virtual monopoly, and exclusion by retaliation is highly unlikely. In the sector in which we are particularly vulnerable—that is to say, in assembled manufactured, middle-range cars—we are enormously in deficit in value on our export and import balance sheet. The foreign market penetration in finished motor vehicles in this country was 45.8 per cent. in the last year in which these figures were collated. This is a market of 700,000 vehicles. It is enormously in excess of the total exports of those same products.

Labour Members talk about unemployment and how necessary it is to create jobs. We have only to realise that if we enlarged our market by this extent we could not only offer jobs to those who would come back into the industry but simultaneously persuade them to abandon the restrictive practices and the overmanning with which, very naturally, the unions concerned now defend themselves, because they understand that they are in declining industries. They understand that they are industries which the State does nothing to protect, though one might think that such protection is one of the three primary duties of the State. Those three primary duties are to protect its subjects from foreign military interference; to protect them from theft and violence at home; and to protect their livelihood from foreign competition. These are the fundamental parameters within which the State can construct a framework in which freedom can operate effectively.

To enlarge a market by that degree would allow a completely new relationship with the trade union movement. The trade union movement would see that unemployment was contracting fast. If this were allied to proper incentives and to genuine productivity deals, it would have a substantial impact on British industry, which would at any rate remove some of the Chancellor's apprehensions about our import bill.

It is a source of puzzlement and anxiety to me that those who reject the idea of protectionism cannot scrutinise it in detail and objectively, looking first at each market and at each product and at where each manufactured item originates. They should be guided simply by what they believe, and what can be seen from projecting the figures, to be most likely to have a favourable impact on the United Kingdom economy.

Mr. Mike Noble (Rossendale)

Does not the hon. Gentleman agree that those who oppose any form of protectionism do so because they are wedded to a totally outdated definition of what is fair competition? One of the problems is that we face competition in many cases from cultures in which the workers are wage slaves and whose wages—for example, in Thailand, in the textile industry—are no more than 18p an hour.

Mr. Clark

That is perfectly true. This is one of the arguments that come into the matter. I am not concerned with looking at the reasons why the manufactured goods which drive our own products off the market are doing so. Quality may be a factor in respect of goods which originate in West Germany and parts of the EEC. Very low cost may come into it in the case of those which originate in parts of Asia. British industry is so demoralised and run down that, unless it has a long period of protection from competition of this kind, it is unlikely that we shall be able to get it to recover. In some senses this has already been admitted. I suspect that protection is even being discussed within the Government now, although I am sorry to say that my right hon. and hon. Friends continue at present to resist it very vigorously.

This Budget has a self-confessed reliance on consumption and it returns to a defence of the exchange rate. When one starts defending the exchange rate again, one is admitting that one is no longer bothered about exports but is trying to keep down the cost of living by holding the rate at a certain figure. That admission is implicit in the raising of the minimum lending rate.

The hints that MLR is likely to continue to be raised lead me to make this forecast: over the next four months, into the autumn, we shall see a steady deterioration in our trade balance. This will be punctuated by periodic exchange control alarums and interventions by the Bank; little crises about how the pound has had a bad day and so on; and a steady ascent of interest rates, with all that that means to the revival of industrial activity and investment and to small businesses in this country.

Then in due course, probably at the traditional time, there will be an international meeting and there will perhaps even be pressure upon us from our partner countries to start borrowing again so that the United Kingdom market will stay open. This will be treated as a kind of transient crisis which can be got over by further loans and so on.

Finally, we shall be compelled to adopt some kind of protectionism. Then, because it will not have been properly examined, because it will not have been properly researched, it will not be carried out with the necessary conviction, which it would have if it were looked at seriously now and if proper plans were being laid. As in the words of my hon. Friend the Member for Blaby (Mr. Lawson) about the Budget as a whole, it will be too little and too late.

7.12 p.m.

Mr. Ron Thomas (Bristol, North-West)

There were certain points made by the hon. Member for Plymouth, Sutton (Mr. Clark) with which a number of us on the Labour Benches would not disagree—the spiralling contraction and decline of British manufacturing industry, the problem of import penetration, and so on. However, I do not know whether the hon. Gentleman was here when the right hon. and learned Member for Surrey, East (Sir G. Howe) was in the Chamber, because it seemed to me that the hon. Gentleman was suggesting that we were heading for a massive consumer boom, whereas the right hon. and learned Gentleman told us that very few people would get anything out of this Budget. I know that the Tories are very fond of saying that if one cannot ride two horses at once one should not be in a circus at all, but we cannot reconcile those two statements.

I also agreed with a great deal of what the hon. Member for Cornwall, North (Mr. Pardoe) said. His point about the public sector borrowing requirement being just over 5 per cent. of our national income was very important. We must bring ourselves up to date. It is all right to talk about a deficit of a couple of thousand million pounds when the national income was £30,000 million, but we are not living in that kind of age. It is very important to set the PSBR against our total national income.

Secondly, and perhaps more importantly, we must bear in mind that all the studies indicate that if we were to inject into the present economic situation all the other variables and assume a level of unemployment of 700,000 rather than 1.5 million there would be a Budget surplus and not a Budget deficit.

We cannot carry on as if we were living with full employment. We must take into account, whatever argument we may get involved in, that we have 1½ million unemployed. I would suggest that by having 1½ million unemployed we are giving up the production of about £5,000 million-worth of goods and services and probably paying the people concerned £4,000 million to £5,000 million not to work. The idea that one can balance the books or balance the Budget or have a small public sector borrowing requirement in that situation is a bit of a nonsense.

However, I should have been grateful if the hon. Member for Cornwall, North had told us what would be the impact on the retail price index of the switch to indirect taxation that he proposes. This, too, is very important. I have no objection to using indirect taxation on certain items, because I think that this can be a form of taxation that is acceptable, provided we can use different rates on different products. That is why many of us opposed the introduction of value added tax. I would much prefer the old purchase tax, under which we could inject a progressive element into indirect taxation. We could have a tax of 500 per cent. on Rolls-Royces or 200 per cent. on diamonds, or whatever.

But I suspect that the Liberal philosophy is to have an increase in VAT right across the board. If that is not so I shall be happy to hear what it is. I believe that this would have a profound effect on the index of retail prices.

I take the point that many of the poorer members of our society are paying income tax. But a massive shift to indirect taxation must be regressive. It cannot really be based on the ability to pay. It must mean that low paid families, especially large families, are paying in total a higher level of taxation.

The hon. Member for Blaby (Mr. Lawson) made a very amusing speech, but it was completely lacking in economic accuracy. One of his most amusing suggestions was that the Budget was an open confession of the failure of Socialism. Many of us on the Labour Benches have been waiting a long time to see some really Socialist measures. I shall be very grateful if whoever sums up for the Opposition tells us what are the Socialist measures that we have been having up to now and why this Budget can possibly be seen as an open confession of the failure of Socialism.

The only measure that Conservative Members seem to keep coming back to is the Employment Protection Act. They say that it is ruining countless firms throughout the country. I am tempted to say that if there are firms in Britain in 1978 which cannot reach the minimum requirements of that Act, the sooner they get out of business, the better.

The hon. Gentleman also made it quite clear that the Tories were opposed to any wealth tax. It is important to emphasise this, because from whatever study one reads it is clear that Britain is probably the most divided industrial nation in the world in terms of the spread of wealth holding. I understand that a smaller proportion own a larger proportion of the wealth in Britain than in, for example, the United States and most other industrial countries.

The main point that I should like to make about the Budget is that I do not believe that it will have any impact on the level of unemployment, which is the major problem that we face. I am convinced that the present level of unemployment has nothing to do with Socialist measures. It exists because of a lack of Socialist measures, and it is a clear indictment of the capitalist system.

We have only to look at the fact that there are more than 6 million unemployed in the European Economic Community. We were invited to join that bloc because we were told that if we did British capitalists would act like nineteenth century innovating entrepreneurs, that they would rush in and modernise British industry, and everything would be all right. Instead of that, we seem to have joined a bloc whose unemployment grows every year.

In looking at the unemployment figures, not only in the EEC but in other countries, we should ask ourselves which capitalist country has been most successful in terms of Tory policies and, I am sorry to say, Treasury orthodox policies that have been put forward time and again by our Government. The answer is obviously West Germany. That has all the ingredients that people would presumably say are the virtues of a market economy. Those who believe in a market economy would not expect us to be doing better than West Germany. But West Germany has lost up to 2 million jobs it has well over 1 million unemployed, and the level of unemployment is rising. That tells me that Treasury orthodox policies, capitalist economies, market economies—call them what one will—will not solve the unemployment problem. I am open to be convinced, but the current level of unemployment indicates the truth of what I have said.

It has been suggested that this was a TUC Budget. That is nonsense. The TUC had asked for an injection of £4,500 million into the economy, divided roughly between tax cuts and increased public expenditure. It was felt, on that basis, that we would achieve a rate of economic growth of about 4½ per cent. and bring down the level of unemployment to about 700,000.

It is clear that we need to create in the next three years a total of 1½ million new jobs. I doubt that the Budget will create any jobs. The Chancellor has made clear that the pressure for greater growth, without stimulus from the Budget, is about 2 per cent. to 2½ per cent. and that his measures might push this up by about ¾ per cent. to about 3 per cent. But that will clearly have little, if any, impact on unemployment.

We must see the situation against a background of savage cuts in public expenditure, cash limits under which public authorities cut back far more than they needed to, and the ludicrous situation of one public authority sacking someone and another offering him a palliative such as a work experience scheme.

We have savage cut-backs in public expenditure, an increased savings ratio which, it has been suggested, will start to be lowered before long—though we have been offered so many possibilities through economic indicators in the last three or four years that I am sceptical about any of them—and, perhaps most important, serious import penetration of finished and semi-finished manufactured goods. Including chemicals, these goods amounted last year to about £22,000 million—an increase of about £3,000 million on the previous year. The TUC economic review dealing with import penetration in different industries sets out in stark detail what this means in terms of jobs and future job opportunities.

If we deduct oil from our total import bill, imports of finished and semifinished manufactured goods account for more than 65 per cent. of that bill. Just 10 years ago, they represented about 30 per cent. We could sit here all day and argue about who is responsible, but that will not get us anywhere. If we take no action, we shall have no industries or incentives to argue about.

We urgently require selective—I emphasise that word—import controls. My hon. Friend the Member for Rossendale (Mr. Noble) has suggested that we should demand that some of those who sell us these goods should have social clauses inserted in their contracts to ensure that they offer to their workers the same sort of working conditions that we offer in this country.

I accept that selective import controls could lead to retaliation, but when we consider the deficits between us and other industrialised countries—which are the countries I am most concerned about—it is a nonsense to suggest that they would stop trading with us. They would be cutting off their noses to spite their faces. We have a deficit of £1,000 million with West Germany. It is nonsense to suggest that it would stop trading with us. I wish to God that it would because we would be £1,000 million and a lot of jobs better off if that were the logic of the argument. But of course it is not.

We must consider seriously the introduction of selective import controls backed by the modernisation of our industry and more capital investment. We cannot isolate the introduction of such controls from other measures that have been demanded from these Benches in terms of the alternative economic strategy, including the strengthening of the National Enterprise Board, planning agreements, an extension of public ownership, and the rest.

Many of my hon. Friends are concerned that the Government seem to have taken on board the ideas of the hon. Member for Blaby and others and have become militant monetarists. They pay so much attention to M1, M3, domestic credit expansion and so on. In the comparatively short time that I have been a Member of the House we have never had a detailed debate on the whole question of monetarism. We have accepted the ideas hook, line and sinker without an intelligent and detailed debate on them. We have accepted what Mr. Friedman has said. I understand that some of his ideas have been put into practice in India recently, with appalling and disastrous effects.

We may be going in the right direction because the Government are talking about a rolling target, but there are ludicrous examples of the consequences of concentrating on monetary figures. In January, the real figure of M3 growth was plus £98 million. Seasonally adjusted, it became plus £982 million. I was given reasons in a Written Answer for seasonal adjustments creating these two figures, but if someone sees that M3 has gone up in one month by almost £1,000 million, seasonally adjusted, on the reckoning of the hon. Member for Blaby it is an invitation to the gnomes of Zurich to withdraw their money.

I welcome the lower band in terms of tax cuts. We can debate whether it would have been better to push up the thresholds. I believe that it would have been more welcome if we had spent the £2,000 million on pushing up the thresholds, but the TUC was asking for a lower band and we can debate its effect on the poverty trap. Many of my hon. Friends and I are completely opposed to the increases in the higher rate tax bands. The average wage earner will get about £94 a year in tax cuts from the Budget while someone on £25,000 a year will get £753 in tax cuts—and the same thing happened last year.

The Chancellor of the Exchequer said that he wanted to push up the basic tax rate band to £7,000 because of certain working people who were now receiving this sort of income. We are talking of people who, before allowances, are getting about £9,000 or £10,000 a year. We are talking, in other words, of £7,000 of taxable income.

I have been looking at the earnings survey for 1977, and while some of these people have got an additional 10 per cent., I cannot find among them any of the people to whom my right hon. Friend the Chancellor of the Exchequer referred. There are quite a few judges, barristers, tax advisers, accountants and so on in this bracket, but I cannot find the foremen and the other people mentioned in the Budget Statement who are now on £9,000 or £10,000 a year. This is a nonsense. I ask my right hon. Friend to consider how many of them are the sort of people that we ought to be assisting, and how many of them are the kind of people who will vote for the Labour Party at the next General Election, which is a very important aspect indeed. Even though it is only to cost £160 million, there is still a very important principle involved where we are giving tax handouts of £750 to those on £25,000 a year.

I am also very concerned about the idea that we should gradually write off the stock relief scheme. Here is another £4,000 million of public subsidy and national assistance that we have given to private industry.

I do not see any justification—the hon. Member for Cornwall, North does because he represents a farming community—in farmers being able to average their incomes over a couple of years. If they are to do this, why not unemployed workers? What about those who are made unemployed in March and get only part of their tax back? Should not they be able to spread their tax affairs over a couple of years? After all, they are in much greater need than farmers, who now seem to have become very big business indeed. Their operations are capital-intensive, and they do not have needs of the same sort as millions of other people in this country.

Mr. Pardoe

It is true that I represent an agricultural constituency. Sometimes we have droughts and sometimes we have gluts. This is entirely climatic and has nothing to do with what the farmers have done; therefore, they have a very strong case for averaging. We recall the potato glut, and the drought last year. As to imports, what about import substitution? Why not increase the self-sufficiency of Britain in foodstuffs?

Mr. Thomas

I do not think that any of us would disagree with that but in order to achieve it one of the first things we should have to do would be to scrap the Common Market's common agricultural policy, to which the hon. Gentleman and his party so readily agreed. Indeed, we would have to get out of the Common Market altogether in order to do what the hon. Gentleman suggests.

I agree that farmers' incomes fluctuate. So do those of many other people. Certainly anyone who is in a job on 1st March and unemployed on 15th March has a fluctuating income, and there is a case for giving him the same treatment as is given to the farmer.

I appeal to the Government, even at this late stage, to consider the whole area of public expenditure, because this is the only area in which we can really build up employment possibilities. There is no question about it. The vicious cut-backs in health, education and so on, linked to the cash limits, have led to a very serious situation in the National Health Service, in education, in the social services, and so forth. It is all very well to offer these little palliatives.

Although I welcome very much the indication that more kidney machines are to be provided, I understand that it costs more to run a kidney machine than to make the initial capital payment.

Mr. Laurie Pavitt (Brent, South)

It does.

Mr. Thomas

I know of a local hospital which said that it could not accept a kidney machine because it had not the funds to run it. Are hospitals to be given the kidney machines and the funds to run them? We want to see a restoration of the public expenditure cuts.

I want to refer to what I think is a fundamental change in the philosophy of my party, as expressed by the Government, namely, the relief on capital gains. I point out that Mr. Speaker was good enough to say that he would be calling an amendment on this matter that was on the Order Paper in my name and the names of some of my hon. Friends.

It is quite wrong that we should be creating a position in which people can have tax-free gains up to £1,000 a year, and in which they can also have, up to £9,500, reduced liability for capital gains tax. As far as I can judge, it would appear that someone with capital gains tax of £5,000 would be saving up to £900. This is in addition to the £750 that he would have received elsewhere in the Budget. If he happened to be a farmer he would also have received the advantages to which I referred earlier.

I think that this is an erosion of an important principle. I am sure that my right hon. Friend will agree with me that the Labour Party and the Labour movement fought for a very long time for the introduction of capital gains tax and to get acceptance of the idea that capital gains were just as much income as earned income because of the demand on resources and the expenditure possibilities.

Many of us feel that, having once made these concessions in the first year, there will probably be increases in them in the second year. I also note that these benefits in any event are to be backdated a year. If we have money to spare for relaxing the capital gains tax and assisting people on a much higher level of income, I say to my right hon. Friend that all of us on the Labour Benches can think of better ways of spending that money. Therefore, unless later on we get some definite indication that the Government intend to withdraw the proposed changes in capital gains tax, many of us will be voting for the amendment.

Mr. Deputy Speaker (Sir Myer Galpern)

Before the hon. Member for Bristol, North-West (Mr. Thomas) sits down, will he please move formally the amendment standing in his name?

Mr. Thomas

I beg to move, at the end of the Question, to add or (d) the making of any provision for the further exemption of individuals from liability to capital gains tax.

7.38 p.m.

Mr. John Stokes (Halesowen and Stour-bridge)

I do not wish to speak immediately on the amendment moved by the hon. Member for Bristol, North-West (Mr. Thomas) as I feel that the whole subject of the Budget is—if I may say so with great respect—of greater importance than the amendment.

We have had nearly a week in which to consider the Budget. I have heard every speech today, and on the whole it has been a thought-provoking debate. In some cases it was rather like a dirge, but that showed how worried hon. Members in all parts of the House are about the state of our economy today. Surely the object of these debates is to try to see how we can do something to improve that state of affairs.

A great many Members, particularly on the Labour side, have naturally talked about unemployment. I feel that they sometimes regard unemployment rather in the way that people regard sickness—as if it requires treatment and therapy or a spell in hospital to get it right. Infinitely sad as unemployment is in individual cases—and I have much personal knowledge of it, at least among executive and managerial staff—it is primarily, of course, a business matter and a matter for the nation's economy. It will not be cured by welfare motions alone, however well meaning. I and most of my right hon. and hon. Friends believe that the only cure for unemployment is greater production, better marketing, more confidence and investment and, above all, by allowing enterprises to earn larger profits. There is no other way forward.

The House was interested to hear my hon. Friend the Member for Plymouth, Sutton (Mr. Clark) giving us his well-known views on protection. Protection has a long and honourable history in the Tory Party. I am old enough to remember the protection that was introduced by the National Government in the 1930s. However, world conditions and the condition of this country were entirely different then. If productive efficiency and the total of production continue to fall, eventually, possibly, such desperate measures may be required. I sincerely hope and trust that we have not reached that point yet.

I prefer to look at our best companies and exporters so that we may see what they do and learn how to raise the level of the middling and poor performers to that excellent standard. There is a magnificent firm in my constituency which employs thousands of people making record turntables. Those turntables are sold at home and throughout the world, particularly to Japan and America. That shows what can be done by the best of British industry which is highly technical and is extremely well led with excellent labour relations.

The hon. Member for Stoke-on-Trent, Central (Mr. Cant), who is, I believe, an economist, made a most interesting speech. In many ways it was a very grim speech. I do not know to what extent the warnings about a fall in the value of the pound, about the balance of payments and about further inflation were directed at my party for its proposed income tax cuts, and to what extent they were meant for his own Front Bench. Still, the Government must take prime responsibility for running the country's affairs.

The hon. Member mentioned what he called the Lib-Con pact. There is no such pact. Whatever value such a pact might have for my party during the Budget, it would, I believe, be very short-term. I am sure that the Conservative Party will win the next General Election handsomely on its own. We must leave the Liberals to the fate which inexorably awaits them, in spite of the volubility of the hon. Member for Cornwall, North (Mr. Pardoe).

The hon. Member for Stoke-on-Trent, Central made an even more serious remark which I found wrong and profoundly depressing. The destiny of this nation is in our own hands. If we conduct ourselves well, we have nothing to fear from the gnomes of Zurich, or anyone else. It is depressing once again to hear talk of a bankers' ramp or of misbehaviour by the foreign exchange markets. Their actions merely reflect the state of affairs here. Why has the Stock Exchange—both gilt-edged and equities—fallen? It is because thousands of people making individual decisions have unfortunately lost confidence in the Government and particularly in the Budget.

The Budget was disappointing and dangerous, and that was reflected in the behaviour of the stock markets. It was disappointing because it raised hopes of tax cuts which have not been realised. It was dangerous because the whole tone of the Chancellor's speech, and particularly his somewhat oily broadcast to the nation the same evening, suggested that our economy was on the mend when we may well be facing an economic crisis in the autumn. The unfortunate jibes and jeers about a further Budget in July only weaken confidence in this country and in the Government.

The Chancellor seemed to be more concerned with being a party politician with his own ambitions than a statesman looking after the nation's affairs. His record is open to criticism. It does not inspire confidence. Why should his analysis be right this, the thirteenth, time when it was wrong on every previous occasion?

As we have heard repeatedly this afternoon, the country's main problem, surpassing even inflation and unemployment, is its failure to produce the goods and services that we require, let alone those needed for export. Everyone knows that from personal experience. If one wants to buy a household gadget in the London stores, it is hard to find those that are British made. If one wants to get a gadget repaired or to have a new part fitted, one must endure weeks of delay.

We must ask ourselves what is hap pening in our factories. Why are they failing to produce? I do not believe that the skilled workers, middle management or the top executives on whom so much depends will have had any worthwhile stimulus or incentive from the Budget. What is reduced in taxation will be clawed back in higher national insurance contributions and continuing inflation. There is still not enough incentive to work hard in this country, as we hear so often from the shop floor and from the self-employed.

One Labour Member suggested that unemployment should be dealt with by creating many more jobs in the public sector. But who will pay the salaries of those people? What wealth will they create? Surely it should be the other way round. We want more and more people to go into manufacturing industry and commercial services so that they work for a better standard of social services, as has happened in the richer nations on the Continent.

We have heard what Labour Members have said about cuts in public expenditure, but we see that there has been an increase in that expenditure of more than 6 per cent. On the Conservative side we believe that, much as we want tax cuts, they can come only from cuts in public expenditure. The Government keep on trying to trip us up by asking what we would cut. I am certain that before this country can get its economy right there have to be substantial cuts in the Civil Service and in local government services. There is plenty of evidence of heavy overstaffing in those services, as many hon. Members know from experience. Our young people must be encouraged to go into industry and commerce, which are and have been for years the country's lifeblood, instead of going into the public service.

There are many other anxieties for us over the economy. The money supply is not being properly contained. The pound is now undoubtedly coming under pressure, which may increase as the summer passes. The Government's borrowings, in spite of their having paid back some of the debt, are still vast. They are an appalling charge on us for the rest of our lives and, what is worse, on our children. The public sector borrowing requirement of £8½ billion is, in the opinion of most people, far too high. Talk of an even higher requirement must mean even greater inflation in the years ahead.

I find that in the main the Budget is the same Socialist mixture as before. Perhaps it is not as full-blooded a form of Socialism as some hon. Members below the Gangway on the Government side would like. Socialism seems able to distribute wealth, but it is incapable of creating it. Profits will still be far too low after the Budget proposals come into effect. Only higher profits will generate confidence and ultimately reduce unemployment. Under this Government, Britain continues to be the sick man of Europe.

Nothing less than a complete change of direction in Government is required. We need a Government who really believe in capitalism, in private enterprise, in risk-taking, in thrift, in personal effort and in enterprise. If production continues to lag as it has done in the last four years, we shall see grass growing in our streets within the next generation. We really have reached the eleventh hour. No amount of oil money, no expanded NEB and certainly no bogus job creation schemes will save us. Import controls will not save us either.

We need a combined effort by a united people who believe in themselves and in their destiny. What is it that the French, German, American and Japanese workers have that we do not? Is it that some of them lost the war? Is it that life has been harder for them? Clearly, more financial incentives are required. We need a Government who unashamedly believe in our people and in their future. I do not believe that we shall have that from the present Government.

7.52 p.m.

Mr. Stan Thorne (Preston, South)

I do not intend to take up the plea of the hon. Member for Halesowen and Stourbridge (Mr. Stokes) for a return to free competition—if we have ever had free competition within the capitalist society. The hon. Member probably shares my view that capitalism per se is doomed. It is in crisis in most parts of the Western world. I do not believe that its death pangs will be short-lived. It will continue to fight for a considerable time. It is a pity that the present Government appear to be determined to rejuvenate it in certain areas rather than assist it to pass away.

In the Labour manifesto of 1974, reference was made to the establishment of a National Enterprise Board. It referred to taking into public ownership highly profitable manufacturing industry. Various other steps, including the grandiose idea of the irreversible shift of wealth to working people and their families, were included in that manifesto. We understand why some of those goals have withered away in the past three or four years. Today we are addressing ourselves, as we have done for a few days, to the question of another Budget from the Government against the background of that manifesto and the events of the past three years.

I intend to vote for the amendment in the name of my hon. Friend the Member for Bristol, North-West (Mr. Thomas) because it seems that no good case can be made for additional exemptions from capital gains tax such as the Chancellor of the Exchequer proposes. The main thrust of the Budget has been to put £2,500 million into the economy. My view, which is shared by many in the trade union and Labour movements, is that that is not enough. It is possible, as some hon. Members on this side have shown, to analyse the economic situation against that background, whether we are putting in £4,500 million or £2,500 million.

I wish to relate the situation to what I believe is the major problem that we face in Britain today. It is the problem about which in our 1974 manifesto, firm and categorical assurances were made. We were not going to allow a major increase in unemployment from 600,000 to 1½ million.

Will this Budget result in any reasonable or foreseeable reduction in that unemployment figure? It has been argued—although the Chief Secretary may not argue this tonight—that giving people increased spending power and lifting demand will create further demand for goods that are made in British factories and that that will necessitate taking on more workers. It is argued that we could make a contribution to reducing unemployment through tax reductions. For me that argument does not hold, for a number of reasons. There is already excess capacity in industry. Many manufacturers can produce more without taking on a single pair of extra hands.

Apart from that, there is no guarantee—the evidence is to the contrary—that the spending, power will be used for British goods. It could be spent on imports from various parts of the EEC, Japan, the United States and elsewhere. The only way to do something in the short term—and even that would take some months—is in the sphere of health, education, housing and the social services, which are labour-intensive industries In those spheres we could do something about the housing problems that exist in many of the large cities and towns.

In my constituency there are several multi-storey blocks of flats where families with small children still reside. This is despite assurances by local Labour administrations over the years that as soon as possible all such families would he cleared out of unsuitable accommodation. What is the prospect of fulfilling that undertaking when we are cutting back on the provision of resources for house building? These flats should be demolished or used for student accommodation. There are many areas in the town which could be developed for housing, either to let or, in some cases, for sale. The prospect of doing that without a major Government input in this sector is slim.

I turn to the question of planning and our economic resources. Reference has been made to the National Enterprise Board. The other day we had a debate about extra funds for that organisation. But we have yet to see the first planning agreement.

In my constituency we are suffering from the shortcomings of the NEB itself in that a bakery, Harrison's, employing 500 people, is to close because Spillers, a private enterprise undertaking, has decided to sell 40 bakeries to Rank Hovis McDougall. Of those 40 bakeries, 27 are to close, one of them being in Preston.

There is a very important aspect of this deal. I often have to listen to Opposition Members talking about workers' restrictive practices. In the agreement involving Spillers and RHM there is a clause which says that the bakery, Harrison's in Preston, which has new plant and has had new extensions built recently, must not be used for the production of bread or morning goods related thereto, confectionery of various types. In other words, it is deliberately restricting the production of bread in the interests of the profits of two companies which operate as a monopoly.

What is the NEB doing in this regard? What, one might ask with more relevance, is the Monopolies and Mergers Commission doing? Are we faced with a situation in which the Secretary of State for Prices and Consumer Protection has done a deal on the basis that no reference will be made because certain jobs are in jeopardy and we cannot afford to threaten numbers of jobs additional to those already forecasts? I cannot accept that, because it seems yet again that we are trying to close the door after the horse has bolted.

Spillers and various other firms involved in the production of bread have been actively working towards a position of further concentration for some time. Our Government ought to have foreseen the events in which we are now involved and ought to have taken action through the NEB or through some measure of public ownership so that we and the Government took the decisions on the basis of people's needs and not on the basis of what is profitable to a group of private shareholders.

The Prime Minister made a statement not very long ago which is, I suppose, the basis for certain parts of this Budget. He said that from going around various parts of the country and talking to people it was obvious that what they value was extra purchasing power in their pockets and, therefore, that they were looking for tax reliefs. I have never known a situation in which one could talk to any section of the British people and not find them ready to accept an increase in their purchasing power. Most of them spend a considerable part of their lives struggling to achieve an increase in purchasing power in the form of wages.

The main thing that captures the concern of the people in the North-West is the problem of jobs and of security for the future. Certainly in the sphere of tax relief they will welcome any additional increment that they obtain, but, as my hon. Friend the Member for Bristol, North-West pointed out, even in this sector the Government seem to have been extremely clumsy, to put it at its best. There has been massive tax relief to the wealthy. The £22,000 to £25,000-a-year man gets £723 in terms of tax relief. The bloke on average earnings will be lucky if he gets £90 to £95. I cannot understand how it is possible that a Government who claim some degree of Socialist philosophy should still operate in this way.

In the meantime, of course, no one wants to talk about a wealth tax. It is in the manifesto. It has been referred to on occasions over the last few months in relation to a possible manifesto that we might have to put to the people should there be a General Election later this year. I do not know what will be the reaction of people reading that manifesto if they read in it that we propose a wealth tax. I imagine that some will say that they seem to have heard that before. It was five years ago, in fact, when they heard it before. Some hon. Members—I might not be one of them—may have the opportunity to see whether the promise will be made good this time.

I take the view that the alternative economic strategy which has been spelt out from these Benches over the last three or four years by my hon. Friends the Members for Tottenham (Mr. Atkinson) and for Liverpool, Walton (Mr. Heffer) and many others is still the only road that the present Government can take to extricate themselves from the economic difficulties that they face. In relation to any future prospects at a General Election, it seems to me that the control of prices is still very high on the agenda. The fixing of prices in order to ensure that the additional profits that ensue from tax reliefs do not go in certain directions seems to be of considerable value.

As I have indicated, improved social services, particularly in housing and education, are vital and can make a direct impact on unemployment. However, it seems that the one thing that the Government have been asked to do time and again and have failed to do must still be an urgent priority, and that is in the matter of selective import controls. When one looks at the figures for exports and imports with the main countries of the EEC and with Japan, Canada and the United States in the overseas trades statistics for 1977, one sees that with eight out of 10 countries we have a deficit, and a major deficit at that. With Germany we had a deficit of £1,073 million in 1977. With others we had deficits of £596 million, £575 million, £512 million and so on.

When we raise this question of import controls, we hear the suggestion that there would be a major retaliation if we took certain action. I would argue that one of the countries with which we must take action, in regard to motor cars, for example, is Japan. In 1977 our imports from Japan totalled £1,065 million, against exports to £469 million. In other words, there was a deficit of nearly £600 million. Why should we be concerned about any retaliation from that quarter?

I close by suggesting that in Northern Ireland, in North-West England, in the North-East and in the Midlands the major problem is still unemployment.

It is only on the basis of the Government taking a firm grip through the National Enterprise Board, through an extension of public ownership, through control of the prices of major essential goods, through the establishment of selective import controls and through a major input into the public sector that we shall be able to get out of the extreme difficulties that we face.

8.10 p.m.

Mr. Robert Taylor (Croydon, North-West)

I apologise for not having been present throughout the debate today but I had to attend a meeting of the Public Accounts Committee.

The speeches that I have heard from hon. Members opposite have put a great deal of emphasis on import controls. They would hardly expect me to support that philosophy when I am involved very much in exports. The hon. Member for Preston, South (Mr. Thorne) mentioned Japan. My company exports successfully to Japan. We have made great endeavours in that market, which have created employment in Birmingham, where our products are made. After the effort and expense in which we have been involved, it would matter considerably to the people whose employment has been created by these efforts if import controls were to be placed on Japanese products. Many companies are trying very hard in that market, and for the hon. Member to cast those companies aside and forget their efforts as being of little consequence does British exporters no good.

I was glad to hear the speech by the Chancellor of the Duchy of Lancaster. As a small business man myself, I naturally enjoyed hearing him extolling the virtues of small business and small business men. He put great emphasis on the fact that small businesses can make a contribution in the fight to reduce the high level of unemployment He has obviously had some success in convincing the Chancellor of the Exchequer that that is the case. Most small business men will be appreciative of the measures included in the Budget to that end. But I do not think that those measures go anywhere near far enough.

I believe that there is a danger in some of the measures suggested, not only on this occasion but in previous Budgets, of regarding a small business as one solely controlled by a single shareholder. Many small businesses are formed by two or three individuals on a shared equity basis. By contrast to the speech of the right hon. Gentleman, my hon. Friend the Member for Blaby (Mr. Lawson) seemed to show great understanding of this point when he made his main attack on the very high levels of direct taxation which remain after the Budget.

It is my experience of small businesses that the directors are motivated by two different aspects. First, they desire to improve the standard of living of their families and, I can add with considerable emphasis, the standard of living of the families of those working in the business. Secondly, they are motivated by the satisfaction that they have of creating a successful enterprise which they hope to be able to pass on to succeeding generations of their families who, they hope, will continue to develop and expand the business.

Today these two motivations are completely dormant. No longer are small businesses expanding to offer the employment that is required and to create more wealth from which the whole community can benefit. Why is this so? It is, as my hon. Friend said, because success is penalised.

If the chances for expansion of a small company are grasped by the management, the business obviously becomes more valuable. As the business becomes more valuable, so the prospect of capital transfer tax—I am not talking about controlling shareholders—becomes more real. In addition, the threat, which is always there at present, of a wealth tax becomes more and more frightening.

If, to avoid such enhanced value of their company, entrepreneurs or small business men decide to distribute much of that profit in order to keep down the value of the company itself, and if they do so by way of enhanced earnings to themselves, they will pay tax at 83 per cent., which is 8 per cent. more than was the case when Labour took office in 1974, and they will even be taxed at 98 per cent. if they do it by way of dividends.

So, at a time when we are expecting companies to expand and to create more opportunities for employment, we have the absurd situation that the lower the value of the business, the more secure is the company in the hands of its management. Today the small business man will be foolish in the extreme if he works to the fullest extent once his business has been placed on a secure foundation and he can see a sound income for the future. That is not just a selfish outlook. It also affects all the employees.

As the company gets bigger and as the threat of capital transfer tax becomes more apparent, the chances of a takeover bid increase and the security of the people employed in the business vanishes rapidly. Indeed, if a firm exports about £1 million per annum and has profits of £100,000 or £200,000 per annum, why should the directors make further efforts to expand? Why should they go abroad to markets overseas, leaving their families for long periods, in many cases travelling and living in unpleasant conditions, while putting their livelihood in jeopardy because of the enhanced value of their business?

To make matters worse, if the company expands, the whole rigours of the Employment Protection Act can be placed against it. That is not to say that the directors of the business are treating their employees unfairly. I give an example of an accountant who told me that he had queried with a small building firm an item of £3,000 for legal expenses which had not been in its accounts before. The explanation was that the company had been taken to industrial tribunals. In each case the application by the former employee had been thrown out. But the company had been involved in expense and had no reclaim against the persons who had taken it to the tribunals.

In 1974 the Chancellor of the Exchequer said that he was going to make the pips squeak—we all remember that expression. But the pips did not squeak. Many smaller businesses decided not to expand, not to move forward, not to create further jobs because of the dangers involved. As a result, we rarely have flotations of new companies on the Stock Exchange. The acorns which used to turn into mighty oaks have stayed acorns; and indeed one can say that the Chancellor's chickens have come home to roost.

It is not only the entrepreneur who suffers from high taxation. It is all those who are successful in business today. Taxation is too high, and the British nation is sick and tired of it. This Budget gives very little change to many people who are working extremely hard. The distinguished economist, Arthur Seldon, of the Institute of Economic Affairs, in his recent book "Charge" said: The resentment against high taxation is growing at such an alarming rate that it threatens to challenge the liberal character and temper of the British people. I believe that statement to be absolutely accurate. The British people do not resent paying high taxes to help those less fortunate than themselves who cannot cope with their difficulties. But they do resent paying unnecessarily high taxation. If people do not believe that 98p in the pound on distributed dividend income from a successful small business is totally ridiculous, I cannot understand their philosophy.

The reduction of the top rate, as recommended we understand by the Liberal Party as well as by my own, from 83 per cent. to 70 per cent. would have a dramatic effect upon management. That in turn would have a dramatic effect on the high level of unemployment. Skilled men and entrepreneurs would try to reach for heights which are now impossible. As my hon. Friend the Member for Blaby said, those who advocate reducing taxation have an obligation to say what they would cut from the present levels of expenditure. He reminded us that he had done so himself on previous occasions.

One aspect of Government expenditure terrifies me. There was a long article in the Financial Times on 9th December 1977 which informed us that rents paid by the State in the 1980s will reach £180 million a year. That is the figure which will have to be taken from the British taxpayer during the next decade to pay the rents of office building in the public sector. That figure was compiled in December.

Most of us get the weekly Estates Gazette in our mail. In Saturday morning's edition it was announced that the PSA had acquired another office block in Edinburgh, and there were details of two other transactions. So that £180 million forecast is probably out of date. Much of the accommodation is being occupied by peripheral activities from which the Government could quickly disengage.

I have often made clear my opposition to the Government's great involvement in industrial training, as opposed to retraining. I totally favour expenditure on retraining, but I do not believe that industrial training involvement has produced any return on the investment. Indeed, in this afternoon's session of the Public Accounts Committee—it is open to the public, so I can quite quote it—the director of the Manpower Services Commission said that there was still a shortage of skilled workers and that that was holding back industry.

I would end the professional executive recruitment service which is costing money and whose activities could be well covered by the private sector. I would wind up the Commission for Racial Equality, because that causes great anger to many people who feel that some are getting a better deal than they. I have no patience with Government expenditure on the Equal Opportunities Commission.

All these activities are occupying office blocks and other accommodation and costing a great deal of money. Unless we get rid of the involvement of Government in a wide area where it is unnecessary and bring back incentives to good management we shall not get the unemployment figures down. However much hon. Members laugh, the figures will remain high because incentives are lacking.

8.23 p.m.

Mr. Laurie Pavitt (Brent, South)

I have never been so tempted in my time in the House as I am now to take up the speech of another hon. Member and tear up my own speech. I shall not do that because I want to speak for only 10 minutes.

I should, however, like to comment on the claim by the hon. Member for Croydon, North-West (Mr. Taylor) that there would be a dramatic change in the business world if we gave the rich some more money. The first time I heard that thesis was from Chancellor of the Exchequer Heathcoat Amory. I then heard it from Chancellor of the Exchequer Selwyn Lloyd. Yet in the 18 years that I have been a Member of the House, whenever an incentive has been offered to big business, the donkey has eaten the carrot and we have seen no further work as a result.

As for small businesses, I have probably lost more small businesses in my area than any other hon. Member in the last 20 years. But that has not been through Government action. There have been large rationalisations, there was the action of the Weinstock empire, and that was how small engineering contractors have been wiped out. Big business has been concentrating, rationalising the small units and in asset stripping.

I must leave the hon. Member's speech there, to concentrate on that part of the Budget about which I know most—the £50 million which the Chancellor has been able to release to the National Health Service in the hope of relieving some of the pressures upon it.

That £50 million is very welcome, but it is like an aspirin for a headache in the light of the real needs of the NHS. It will relieve many of the pressing problems, but if we are really to deal with the NHS my right hon. Friend should draw up a five-year plan based on massive resources—£800 million or £1,000 million, not £50 million.

This Government have perhaps done more than any other by raising the amount devoted to the NHS from 4 per cent. of GNP in 1974 to 5.8 per cent.—nearly half as much again. Their record has been fantastic, perhaps the best since 1949. The Americans, however, spend 9 per cent. of GNP, although they get only 50 per cent. of the service that we get. We need to achieve a level of about 6 per cent. of GNP if we are really to tackle the urgent problems.

I should like to deal with two of the seven points of allocation which were described by the Secretary of State for Social Services. One which has caught the imagination of hon. Members throughout this debate is the dramatic possibility of £3.5 million being spent on kidney machines. For some reason, we are a mechanically minded race, and talk of equipment seizes our imagination.

However, I would warn my right hon. Friend that, on the basis of the facts, this proposal is half-baked and raises hopes which cannot be realised. Anyone who knows this field knows that machines are no good without people to use them. It is like having grass growing at a great rate and buying many lawnmowers but having no one to push them.

In renal units throughout the country there is an acute shortage of nurses and technicians who are capable and trained in that specialty. That is amazing at a time when, according to an answer I received only today, 3,845 State registered nurses and 385 nurse administrators and executives—roughly 4,200 in all—are unemployed. Yet we have an acute and serious shortage in renal units. So if these machines are delivered they will be put into moth balls in the corridors of our hospitals because there is no way of bringing them into service.

We are short at the moment of about 250 nurses trained in dialysis techniques. A new unit in Wales is still difficult to operate. Renal units in London teaching hospitals cannot operate to capacity. Nurses who are specialists in this area are working tremendous hours of overtime merely because there are not the trained and qualified people to operate the equipment we already have.

Great Britain has led Europe for 15 years in the treatment of renal failure, but over the last two years, for the first time, we have slipped behind Europe. The Department has given orders for kidney machines extending over the next two years. In my constituency there is one of the Lucas factories which make the machines, and that organisation can complete its present order, which is for two years delivery, in 12 months, if required. What is the point of manufacturing and delivering machines within 12 months if on delivery the machines are put into moth balls?

My right hon. Friend the Secretary of State must institute a crash course. Arising from the Budget Statement, the whole nation has been seized with the idea that the 3,000 people who are at present dying because they do not have kidney machines will be saved because the hardware will be forthcoming. My right hon. Friend must take immediate action if he is to allay the concern of those with relatives suffering from kidney failure. Intensive training is needed if the present shortfall of 250 renal nurses is to be remedied.

Under the Budget, £2 million is to be devoted to trying to reduce the number of 600,000 people on the waiting lists. The biggest problem in surgery is not the transplant of a heart, which costs about £12,000: it is the steady stream of elderly people with hernias or varicose veins needing attention. This is the area at which the Government should be looking. To his credit, my right hon. Friend has sought to tackle the problem. By making £2 million available, it is hoped that more operating theatre facilities will be available for such "cold" surgery on patients who will be in hospital for only one day, and that in that way the problem can be tackled.

Just as on the question of renal dialysis, although there are 4,000 unemployed nurses there is a shortage of qualified and trained theatre nurses. There is no shortage of consultants, registrars or housemen, but there is a shortage of nurses for this highly specialised work. As a result, in my area there is unused operating theatre capacity. Expenditure on capital equipment is useless unless there are people to service it.

I am pleased to see my right hon. Friend the Financial Secretary present tonight. I want to pay tribute to him by saying, for the benefit of the House and the Royal College of Physicians, that no one in Parliament has done more than my right hon. Friend over the past 10 years to try to stop the human holocaust of one death every 10 minutes from diseases arising from smoking. I welcome, therefore, his increased tax on tar. There is much talk about the number of days lost through strikes; but 50 million working days a year are lost through emphysema, chronic bronchitis and carcinoma of the lung arising from smoking.

Recently the New England Journal of Medicine in the United States has shown that the cost of treatment of diseases arising from smoking is greater than the tax collected. In this country we have to consider the cost of 50 million working days lost and the cost of providing health services to cater for those suffering from diseases arising from smoking.

It is important to realise that deaths arising from diseases contracted through smoking often occur between the ages of 45 and 65. Thus, the nation will gain financially from the Chancellor's action in making it much more difficult for people to take in large quantities of tar by smoking cirgarettes. This may well be just as big a fillip to the National Health Service as the £50 million of which mention has been made.

On 18th March the British Medical Journal drew attention to this problem. Since the war, the scourge of tuberculosis has been almost wiped out in Britain. It is no longer one of the major killers and, as the MBJ pointed out, a pro-tuberculosis lobby would have been inconceivable. yet £80 million a year is being spent on persuading people to smoke. So it has been an uphill fight and all the more power to the elbow of my right hon. Friend the Financial Secretary, who has done so much in the open and behind the scenes—in Opposition and as a Minister—to seek to reduce the effects of one of the English diseases, chronic bronchitis, and other chest complaints.

The public are of the firm belief that the third largest party in the House is the Liberal Party. That is not true. The third largest party is the Co-operative Party, of which I have the honour to be a member. The Co-operative Party has such a close relationship with the Labour Party that it is sometimes indistinguishable from it. In the Co-operative Party there is profound disappointment at the fact that year after year, when we are trying to encourage small savings, housewives who put their money into the co-op are penalised. The Post Office has a tax exemption of up to £70 of interest received, as has the Trustee Savings Bank. The housewife who saves her money by allowing her dividends on purchases to accumulate with the local co-op finds that her savings are entirely taxable. I cannot understand this.

When, in Opposition, I have moved amendments to the Finance Bill to deal with this situation, my right hon. and hon. Friends have supported me against a Conservative Chancellor. The moment we get into Government it seems that my right hon. Friends change their minds. I do not know what the cost of making this concession would be, but I do not believe that it would be very high. If ordinary, working-class savings are of any moment, this is a concession which ought not to be beyond the Chancellor, and I ask him to write to me on this matter.

When listening to debates of this type dealing with public and private expenditure I often find that there are acute symptoms of schizophrenia among Tory Members. During the Session, whether we are talking about four-wheeled invalid carriages or help for the elderly, for the sick and disabled, the social services or education, Tory Members say "Yes, we shall do more." They demand more expenditure on the National Health Service. But the only way to cut public expenditure is to cut down on those most in need. I am certain that no Tory Member really wants to cut public expenditure if it means that an old person would have to do without a heating allowance and possible die of hypothermia.

8.37 p.m.

Mr. Michael Marshall (Arundel)

I hope that the hon. Member for Brent, South (Mr. Pavitt) will forgive me if I do not follow him in his remarks. I know that he will understand my reasons for not doing so. I can say from my own constituency experience that he has a powerful and effective argument to deploy on the question of kidney machines. His argument is equally powerful when he gets on to the question of minor but important operations. I share his views.

I want to deal with two points. The first relates to the general economic management of the Government, while the second concerns their tax policies. I cannot avoid joining in the condemnation of the ham-fisted way in which the Budget has been handled. When we see what has happened to the stock market and to sterling, we are entitled to look at matters using the broad perspective of a Government who are taking such a short-term view over the whole of their life. This is the thirteenth Budget which this Government have brought before the House.

The immediate point to make concerns the total failure of the Government to appreciate the significance of the industrial and economic cycle, at least in their own planning terms. On average, there is a five-year period between the time when a company makes an investment and when it expects to receive a reasonable return. One of our basic worries about quarterly Budgets has been the fact that the economic management of the country and the industrial strategy, if such there be, are out of kilter.

It was interesting to know that the Prime Minister, when this question came up earlier, said that the market had overreacted. He did not say that a year ago when there was speculation about an early General Election and a Conservative victory. He claimed then that the stock market had got it plumb right. He cannot have it both ways. For me, the stock market is reflecting the uncertainties and fears felt by many investors. The effect on sterling tells its own story.

It is not just a matter for party dogfight and worry when we get badinage about a July Budget. The way in which this has an immediate impact has produced a situation which means, if the trends are right, that we shall have a fourteenth Budget in another three months. If the Government are to continue to move towards a strategy involving Budgets at such regular intervals, it calls into question the whole basis of their forecasting. We have to ask whether they are beginning to move into some kind of quarterly arrangements.

I cannot help noticing that within the nationalised industries there is an increasing tendency—this is certainly true of British Steel—to say that we cannot now take a very long-term view of world conditions which are so unsettled and that only a quarterly forecast is any good. But if we bring down the business of Government to that kind of time scale we are immediately running directly counter to the way in which we must look at our industry if it is to profit and survive.

I want to move on to another particular argument about the tax changes. I join with all those hon. Members Mio deplore the fact that no attempt has been made to reduce the standard rate of income tax. I should like to take one particular example to demonstrate precisely how changes of this kind could, in my view, make a substantial difference to the way in which unemployment could be tackled and the way in which the economy itself could receive a much greater stimulus than might seem apparent at first glance.

In giving this example I declare an interest in that I run a small consultancy business which for many years has been involved in a "brain gain" operation. Its activities are to bring back to this country students who undertake business degrees in foreign countries, particularly in the United States and France. Over the years it is true to say that, on average, there are at least 100 such persons qualifying for a master's degree in business administration who are normally expecting to come back to this country. Therefore, if we think in terms of a decade—which is a reasonable period in which the influence any such persons coming back to this country might be seen to be working—we are talking about 1,000 people.

That group of people—certainly the vast majority of them—is faced with having to pay extremely high tuition fees in the United States, France or other countries, where the whole of the economy is geared at a higher pitch to lower taxation situations and, indeed, to a situation in which the business of getting into debt is not one that raises major problems because there is in general a much better track record on interest rates as well as a better record of people's ability to go out to earn, save and repay their debts.

The sort of figures we are talking about are between £4,000 and £6,000 for a two-year training course. Whenever these people come to consider whether they should return to this country and take up employment, they immediately find that to repay debts of between £4,000 and £6,000, even over a five-year period, is still a massive task, given our tax structure.

I am referring to schemes which are run by non-profit-making organisations such as the Business Graduates Association, although there are some commercial banking schemes and others. However, they all run into the same problem. Those who would seek to borrow money on this basis find that they frequently have to stay in the country in which they have studied and work for a number of years in order to earn the money to repay their debts in this country. In doing that, there is inevitably substantial slippage. From the 10 years that I have been involved with this programme I could cite many examples of those who are no longer working in this country, or have no intention of working in this country, because they have found significant employment opportunities elsewhere.

I realise that some Labour Members might regard this as some kind of elitist argument, but it is important that we should consider whom we mean by the people that I am talking about. If hon. Members believe, as I do, that the increasing of skills and professional management are a vital part of a true regeneration of British industry—above all, if they look at the record of those who undertake this kind of training for a master's degree in business administration—they will see that typically they are self-starters and highly motivated. In the majority of cases they are probably seeking to come back and work in small businesses. In many senses they are perhaps seeking to be the last of this country's entrepreneurs.

Some gestures have been made in the Budget towards small businesses. Indeed, the Chancellor of the Duchy of Lancaster was waxing lyrical today. I think that we are sometimes apt to assume that small businesses can take up all the slack. I am certainly one who has much sympathy with the view that, with 800,000 small businesses employing 500 people or fewer, if each took on one extra employee because of additional incentive at the personal or corporate level, this would halve unemployment. However, one must recognise that within those figures there are some very small businesses employing only two or three people. Therefore, the equation does not balance as nicely as one would wish.

Nevertheless, if incentives are provided by a reduction in the standard rate, to give the opportunity to people to come in and start small businesses and create extra work, there is a real possibility of seeing those 800,000 businesses substantially increase in number. That is the way in which the Government should be thinking if they mean business.

There is a whole range of features that one could criticise in the Budget, but what comes through above all else is the kind of tinkering and short-term thinking that I described earlier. We came up to the Budget with the kind of euphoria that was being engendered by the Chancellor, who seems to blow hot and cold.

As one of my hon. Friends said, it must be remembered that this is the same Chancellor who came to office talking about 8.4 per cent. inflation and taxing until the pips squeaked. Now he takes a more moderate stance, and, indeed, he seems to have learnt a little humility, which surprises me. But, when his humility is expressed in the form of uncertainty of his own forecasts and a reiteration that only short-term views can be counted upon, and, above all, when it seems that we still have a prospect of yet another dose of the Budget before the summer is out, we are right to look at this Budget with concern and scepticism, which will lead us to vote against it tonight.

8.48 p.m.

Mr. Bryan Gould (Southampton, Test)

Within the constraints that my right hon. Friend the Chancellor of the Exchequer has accepted, there is much to be welcomed in his Budget. The major disappointment is, of course, the failure to do very much on the public expenditure front. I echo the remarks of my hon. Friend the Member for Brent, South (Mr. Pavitt) on the National Health Service. This is one consequence of the central Budget judgment—the decision to reflate by only £2½ billion.

In any economy where men, money and resources are lying idle in any substantial quantities it is the matter of the merest and most straightforward common sense that the first priority should be to try to get the economy moving again. The Chancellor said as much in his Budget Statement. However, I believe that he would be the first to concede that he has not done enough to bring the rate of unemployment down and to get the economy moving at the rate of full employment.

Obviously, the Chancellor has left himself constrained by two familiar inhibitions—the balance of payments and the money supply. The first constraint arises in the familiar fear that if we wore to expand demand, British industry would not be productive or competitive enough to meet that demand. This would lead to an increase in manufactured imports and then to balance of payments problems.

It is now fashionable to talk in terms of our propensity to import. It is as though that is in some way an explanation of our difficulties which absolves us from the need to seek a solution rather than to look to an alternative formulation of the problem.

I was at least glad to hear some acknowledgment in the Chancellor's speech of price competitiveness. That is a useful antidote for a lot of the nonsense that has been talked on the subject in the recent past.

It might be useful to the House if I were to draw the attention of hon. Members to the way in which this sort of issue is seen by objective observers outside this country. I was recently sent a copy of an economic commentary prepared by the American securities firm Merrill Lynch, dated February this year, in which that firm said quite flatly and matter of factly: If $2.40 was the equilibrium exchange rate in 1970 then the average equilibrium exchange rate in the fourth quarter of 1977 was $1.47. By the fourth quarter of this year the average equilibrium exchange rate should be $1.45. During the 1970s the British authorities seem to have kept sterling over-valued by between 7½ and 21 per cent. For political reasons they forecast that sterling will be maintained at an over-valued rate, representing a 25 per cent. over-valuation by the end of the year. It is against that background that we can see that the rise in sterling which began in October last year was a ghastly mistake. Despite all the comforting and optimistic words of the international monetarists, that rise in sterling has caused enormous damage, as I, perhaps not too immodestly, can claim to have forecast at the time. What that rise in sterling has done is to make very difficult indeed for the Government the option of an October election. As I argued in October last year, the effects of a rise in sterling would be felt by the time we were thinking of going to the country in October this year.

It is not solely a matter of electoral considerations. The refusal to face facts on exchange rates is not peculiar to the present Government. It is imbedded deep in the national psychology; it has been endemic in our economic policy over many years. Until we face facts, we shall not solve our problems.

The second major constraint is that of money supply. A few years ago we did not realise that we had such a constraint. The one thing we are rather good at is inventing reasons for not expanding the economy. I seem to detect a greater air of cheerfulness about the place now that we know that we have yet another reason for not doing what common sense dictates.

It is true that in some senses we are all monetarists now. We all accept that no Government can expect to print money or to allow unlimited credit expansion without stoking up inflation. To move from that position to a dogmatic and overriding adherence to a particular figure is a large step, but it is a step which apparently my right hon. Friend is prepared to take.

Given all the difficulties and uncertainties of measuring the money supply and deciding what it is we are trying to measure, and given the doubtful value of trying to control simply the quantity of money where it is the demand for money which is so important, surely in all these ways we can see how far common sense has fallen victim to shibboleth.

There is, in my view, a further reason for being suspicious of monetarist doctrines, and it is the fact that the trademark of monetarist theory is that one takes a relatively simple phenomenon for which there is an obvious explanation and then invents a circuitous chain of causation to try to explain it. Let me give an example. When the pound began to fall a month or so ago, monetarists said "That has happened because the supply of money has increased too fast." Why we should need to have recourse to an explanation which rests on an uncertain prediction, which depends on a doubtful theory, which in turn depends on an unreliable measure, when we have plenty of evidence from the real economy to explain this phenomenon, I do not know. Surely the pound fell because the experience of people trying to sell our goods in overseas markets and at home was that they were overpriced. That was reflected in our balance of trade figures, in statements by British industry, including the chairman of ICI, and in all the statistical indicators of competitiveness.

Exactly the same thing happens when we look at the so-called money supply constraint. Again, by far and away the most obvious direct and convincing explanation is offered by the real economy, not by monetarist theory. The money supply constraint is presumably explained by monetarist theory in the following terms. If money supply rises, inflation will increase. That will produce a fall in the exchange rate and, borrowing from the words of the international monetarists, that in turn will produce an equivalent increase in the domestic inflation rate. In the end it is said that our goods become uncompetitive, we cannot sell them and we run into a balance of payments crisis. In other words, the monetarists, true to form, arrive at the self-same conclusion as is offered in the old-fashioned demand inflation, but they do so by an unnecessarily complicated route.

None of this would matter if it were simply a question of rival analysis, but the danger with such analysis is that it leads us to ignore the fact that our real problems are those of stagnation and lack of competitiveness and that what we should be doing is embracing policies for growth and for making exporting more competitive and more profitable. Instead of recognising these problems, the monetarists say that what is required is further restriction and that one of the objects of that restriction should be to tie us to an exchange rate which makes it impossible for British industry to expand.

Unfortunately, although this is nonsense, more and more people believe that this is what matters. They therefore act according to minor measurements and minor movements in the exchange rate. Therefore, simply because they believe that it is true, it achieves a certain importance and credibility. That is one of the charges to be laid against the Treasury now, that it has done so little to disabuse people of this nonsense.

I believe that in the end my right hon. Friend the Chancellor has to choose between expansion and monetarism. His present monetarist policies mean that the underlying restriction implied by a tight money supply is reinforced by the high interest rates and the uncompetitive exchange rates which are the necessary concomitants of that tight money supply.

The consequences of that are all too familiar, because we have them now. We shall have no growth. We shall have balance of payments crises which are, in turn, a further constraint. We shall have unemployment. Even inflation, which is partly benefited by the economic paralysis which this policy produces, is hindered by the fact that unit labour costs and unit costs generally are forced upwards.

The alternative is a policy for expansion. That in itself would make it possible for the economy to grow and thereby reduce, as was said earlier by my hon. Friend the Member for Bristol, North-West (Mr. Thomas), the PSBR. We could have low interest rates. We could have—I that we would—a falling exchange rate, which would make industry more competitive and allow us to escape the balance of payments constraint. If that falling exchange rate meant an outflow of foreign capital, according to monetarist doctrines that would solve our money supply problem. If an inflow of foreign capital means an increased money supply, an outflow of foreign capital must mean a reduction of the money supply. Therefore, in all these ways I believe that the policy for expansion offers great advantages for the people of this country over the policies currently being pursued.

To sum up, my right hon. Friend has made the error of concentrating far too much on the cost of living and has paid too little attention to the standard of living. I conclude by pointing out that I have not found it necessary to refer to the Conservative Party on this sort of issue. The reason for that is that its prescriptions are not only not relevant to our problems but would make them immeasurably worse.

8.58 p.m.

Sir Anthony Meyer (Flint, West)

I very much regret that the Chancellor has spread the margarine so thin and I regret that he has done nothing to stimulate production. I deplore in particular his evident intention to leave it to the Conservative Party and to the Liberal Party to force him to do what he knows perfectly well has to be done if this country is to attract and encourage wealth-creating talent, namely, to cut the penal rate of income tax on high salaries. That is a step which he knows to be necessary but which he has not the political courage to take himself because of what his hon. Friends in the Tribune group would say to him if he did.

Of course, there are things in the Budget which I welcome. I welcome the lifting of some of the burdens from small businesses. I welcome the easing of the tax burdens on elderly, retired people through age relief, particularly age relief on investment income, though I wish that that relief could have been much more substantial.

I welcome in particular the overdue help for the tourist industry by extending investment allowances to hotels outside development areas. I hope that it will be possible to extend that help a little further downwards. The 10-bedrooms requirement is still a little big for some of the establishments in my constituency.

I listened with mounting depression to the prescriptions which were so lavishly offered to us by hon. Members below the Gangway from the Tribune group, calling for an intensification of the policies which have made British industry so uncompetitive in many spheres that it is unable to offer employment to the hundreds of thousands who so badly need it. I heard hon. Members from the Tribune group putting forward policies for curing unemployment by more State intervention and by expanding the role of the NEB—in short, by adopting policies which in Eastern Europe produced very low figures of unemployment—without at any stage making it plain that the corollary of such policies is living standards comparable with those which the people of Eastern Europe had no choice but to accept.

It was our hope on the Conservative Benches that the Chancellor's Budget would firmly and finally repudiate such policies. It is because the Budget does not do that that many of us on the Conservative Benches will have no hesitation in voting against it.

9.0 p.m.

Mr. John Nott (St. Ives)

It is not an easy task at the best of times to wind up a four-clay economic debate. It is even less easy when there is no Hansard with which to refer to earlier speeches. In addition, Parliament sometimes seems as confused about the economic outlook and the correct prescription for our ills as do our constituents whom we represent.

Having passed through a period when many commentators suggested that North Sea oil would revive our fortunes, only a few days after this Budget we find that some of those same commentators are suggesting now—I think quite wrongly—that we are back in an era of balance of payments crises and emergency Budgets by the autumn. I emphasise that I think that that is wrong. Nevertheless, confusion abounds.

What I can say about this debate is that we have had our disagreements, such as they are, in a fair spirit. That is more than can be said of the experts, who are not only in greater disarray but, much more so, in greater discord than ourselves, whether they are monetarists arguing among themselves about which indicators to use or Keynesians arguing about whether the Budget stimulus should be £1,000 million or £1,100 million in the current year.

The background to the Budget is that the Western world has been facing a prolonged recession and rapid inflation, which have undermined business and consumer confidence not only in this country but in many other Western economies. A belief in the efficacy of demand man agement—I come immediately to the comments made by the hon. Member for Southampton, Test (Mr. Gould)—as represented by the Budget judgment, the so-called net stimulus to the economy, call it what one will, was the bench mark which allowed all Chancellors through the 1960s to proceed in a fairly leisurely way in stimulating the economy here and stimulating it there. I believe that the common and accepted view of the 1960s that the Budget stimulus is effective is now held by very few hon. Members.

The right hon. Member for Down, South (Mr. Powell) now holds views so tediously fashionable among economic commentators that I am sometimes in expectation that he will abandon all his previous views and strengthen the Keynesians with all that ideological passion which we know he can put at his command. He is now very fashionable and not a bit radical in what he says.

The lack of enthusiasm with which this Budget has been greeted in the country has little to do with the fact that the average worker will probably be about 14p a week better off when he looks at his payslip and the fact that, in spite of the reduced rate band, more families rather than fewer will be in the poverty trap at the year end. I think that the hon. Member for Cornwall, North (Mr. Pardoe) rather over-simplified the arguments for and against the 25 per cent. reduced rate. There will be an even greater feeling of resentment and frustration among middle managers and middle income group people who have had no help at all in this Budget.

I do not often quote from leaders in The Times, but the final sentence in the leader on the Budget seems to me relevant to this very point. It said: A Chancellor who restructures direct taxation without altering the rates is a Chancellor who is determined that no ordinary manager starting fom the bottom shall have the chance to reach those levels of comfortable affluence which most of the Cabinet have got for themselves. It is less for these reasons, I suggest, that the country is somewhat bored by the Budget and more that the country instinctively knows that, in spite of all the ballyhoo, the Budget can make precious little impact on living standards in anything other than the very shortest term.

Of course, a Budget is still an important political occasion on which the Chancellor of the Exchequer can demonstrate that his hat is still in the ring for promotion, one day, to the leadership of the Labour Party. It is an important social occasion for Parliament, being the equivalent of a sort of royal garden party—although we now dress in accordance with our circumstances—and it is a public relations exercise in which our more frantic self-publicists, of whom more anon, are provided with a national stage on which to demonstrate the fatuity of some of their economic notions.

I do not know where the Chancellor stands on the question whether net stimuli to the economy are effective. It has been difficult to detect consistency and coherence in the 13 Budgets that we have had from him. He sometimes talks the language of demand management when fending off the £3 billion stimulus proposed by the Liberal Party.

Perhaps these are my valedictory remarks, since the Prime Minister has stopped all the talk of a July Budget. I had intended to keep my polite remarks about the Chancellor until his fourteenth Budget in July, not least because I fear that the nicer I am to the Chancellor, the nastier he will be to me. Now that the Prime Minister has reprimanded the Chief Secretary in public and called a halt to all these Budget Statements, I fear that this may be the last occasion on which I shall be facing him across the Dispatch Box.

Over the past four years, we have watched the Chancellor acquire the stature of the hon. Member for Manchester, Ardwick (Mr. Kaufman) and we now hold him in comparable esteem. I anticipate that his wind-up speech will not answer the debate. Indeed, it would be rather difficult for it to do so since how can one answer a debate if one has not heard it? I am not criticising the Chancellor because he has had some difficult tasks to perform, but, as he has not heard the debate, I hope that he will not misrepresent our views and policies.

I intend to try to answer some of the points that have been made in the last few hours. I wish that we could agree that economic growth has virtually nothing to do with Budget stimuli. The objectives that we all share of promoting a higher level of employment and securing rising living standards and a stable pound depend increasingly upon the supply side of our economy.

Whatever level of demand the Chancellor chooses, if we erode the incentive to acquire a skill, the incentive to work overtime or the incentive to work at all, if we are prepared to go on accepting the immobilities of our economy, represented by restrictive practices and incomes policies, and if we accept the rigidities of the economy, represented by the Employment Protection Act, rent restriction, the Land Commission and exchange control, our productive potential—which is what it is all about—will remain at the bottom of the league table.

We have to be clear about what a Budget can do and what it cannot do. It can create changes within our tax system that stimulate incentive and the wish of people to work harder, but it cannot create employment by stimulating demand.

The point was illustrated to some extent in the speech of the right hon. Member for Manchester, Central (Mr. Lever). We wholeheartedly endorse much of what he said about small companies. He spent a lot of time speaking from our pamphlets on this subject and, as the right hon. Member for the Western Isles (Mr. Stewart) said, he should have been directing his remarks to his hon. Friends behind him rather than to us.

There came across an endearing nostalgia for the industrial Lancashire of the right hon. Gentleman's youth when he talked of the small firms working under railway arches in Manchester. His hon. Friend the Member for Tottenham (Mr. Atkinson) shouted from below the Gangway, "You have never had to work in an arch below a railway siding in Manchester." Indeed, I do not suppose that the right hon. Member for Manchester, Central has had to do that. But it seems to me that the right hon. Gentleman was probably right, because what perhaps the hon. Member for Tottenham does not appreciate is that small firms with inadequate facilities can very often be much happier work places than very large companies, where men are bossed around by shop stewards with the sort of attitudes that we get from him. I think, therefore, that perhaps the right hon. Gentleman had a point there.

The hon. Member for Bristol, North-West (Mr. Thomas) criticised us for going on about the Employment Protection Act. Let me mention one example of the rigidities in the small business area. It may be more important for the Labour movement that every married lady should be kept in secure employment until the last married lady in the land is too old to become pregnant. That may be a major priority of Socialism. It may be more important to Socialists than that employers should employ young married ladies coming out of universities who actually want to work, but we cannot have it both ways in the Employment Protection Act.

While every young married lady has a right to return to her previous job up to 29 weeks after a confinement, I am afraid that young married ladies will find it difficult to get jobs. However, that is but one rigidity in our economy and important as the tax changes ate—and we welcome them—in the small business area it is in the area of rules and regulations and bureaucracy that the unleashing of energies in our small businesses must lie.

I want now to make some remarks on the broad Budget strategy. Sir Douglas Wass, who is still the permanent secretary to the Treasury, and a man whom I personally like and admire, made a very interesting speech the other day in which he said that the principal change in the latter part of the twentieth century in the world economy was its increasing internationalisation—the way in which markets more and more dominate our affairs. He went on to draw the conclusion that forecasting was still very important. But I think that in practice the increasing internationalisation of our economic affairs, our business affairs and our financial affairs has made forecasting an increasingly unreliable tool of policy making. In fact, I am sure that national income forecasting has become almost counterproductive to sound policy making.

We only have to look at the forecasts of the Chancellor of the Exchequer over the last four years to know how wrong they have been. They have been no worse than many others but they have been very wrong. It seems ironic that in the age of the computer it has become more and more necessary for a Chancellor of the Exchequer to drive by the seat of his pants. I mean this seriously, because I think that a feel for markets is now the most crucial need of all. It is an area, of course, in which successive Chancellors have lacked good advice, because, cocooned in the Treasury, Chancellors and their officials are not in touch with markets, although they get advice from the Bank of England.

In my view, the Chancellor has made his worst misjudgment in the Budget—I am talking now of the economic side—in misunderstanding the likely reaction of markets to his Budget. Immediately the market saw that an £8.5 billion borrowing requirement was not reconcilable with his money supply target of 8 per cent. to 12 per cent. The Chancellor suspected that this would be the case. If he had not suspected it, he would not have announced an increase in the minimum lending rate in the middle of his Budget. He suspected that that would be the reaction of the markets, and that led him to make an over-optimistic forecast about gilt-edged sales.

I have not time to go into this argument now. Hamish McRae in The Guardian set out all the reasons why, in his view, it was a gamble which he does not think—neither do I—will come off. The borrowing requirement is too high. This has nothing to do with the national income forecast. It is too high because markets regard it as such, and for no other reason at all. That was the theme of the excellent speech by the hon. Member for Stoke-on-Trent, Central (Mr. Cant). I know that that will embarrass him with his hon. Friends, but, if I may say so, I thought that it was an excellent speech.

When the Chancellor of the Exchequer interrupted my hon. Friend the Member for Blaby (Mr. Lawson) to ask what we, the Conservatives, thought the borrowing requirement should be, I felt that it was a revealing interruption. He was seeking some ammunition for his knockabout wind-up in which he will add up all our increases in expenditure and consider the borrowing requirement. That has nothing whatever to do with the debate—[HON. MEMBERS: "Oh."] That is the sort of speech that we expect from him. There is no scientific way—and this is the fallacy of the Chancellor's question—of knowing what the borrowing requirement should be. It is a judgment of how markets will react. As the hon. Member for Stoke-on-Trent, Central said—and I agree with him—unfortunately the reaction of financial markets has very often become a more important factor than the real economy. I wish that that were not so, but it is.

The policy conclusion is clear. Either in this Budget there should have been no tax cuts, or public expenditure is far too high, or both. When my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) proposed a year or more ago that there should be reductions in the Government's planned programmes of £4 billion he was laughed to derision by the Labour Party. Labour Members said that it would create intolerable unemployment. Yet within a few months the Chancellor and the Government had come forward with reductions in planned programmes of almost precisely the same amount—£4.1 billion Likewise, now that we say that the Chancellor should have held public spending to his own planned programme, to the outturn for the year which has just ended, so we shall be derided once again But if the Chancellor can get his programmes down to that, so can we.

The Prime Minister and the Chancellor have to make up their minds what they wish to accuse us of. During Prime Minister's Questions the other day the Prime Minister's line was that the Tories were ruthless slashers of public spending and jobs. That was his view on 16th March—column 632 of Hansard. No doubt the Chancellor tonight will say that we are profligate inflaters of the borrowing requirement through tax reductions and defence spending. I am sure that will be his line tonight. We could be either, we could be neither, but we could not be both.

Our prescription is very simple, and it is this. We would have held public spending to the Chancellor's own planners programmes, to the outturn for 1977–78—since the Labour Government planned it, I do not think that is asking too much. We would certainly have sought further reductions in the borrowing requirement beyond that by the sale of some Government-held assets in due course, and we would have reduced income tax far more dramatically by recouping amounts by increases in indirect taxes in precisely the same way, to some extent, that the Liberal Party has been proposing. But there is no question whatever of our increasing the borrowing requirement. That is out of the question, and, whatever misquotations or misrepresentations we may hear tonight, it is simply not true.

Perhaps I may make a few quick remarks about the summit, because it figured in the speeches of the hon. Members for Birmingham, Erdington (Mr. Silverman) and Tottenham and in an interesting speech by my hon. Friend the Member for Plymouth, Sutton (Mr. Clark). I am glad that the Prime Minister has just arrived in the Chamber because I hope that at the July summit, when he presents his plan for recreating another boost to inflation in the Western world, Chancellor Schmidt will show the same leadership and statesmanship that has prevented this foolish course of action up to now. I do not think that growth can be created in the Western world by stimulating the economies of Germany, Japan and the United States. If the Prime Minister believes in an open trading system, as I believe he does, by all means let him ask for more orderly marketing arrangements such as the Multi-Fibre Arrangement, a revised safeguard clause under GATT, and more effective antidumping measures. But all these things will come out of the present Tokio round anyway without the Prime Minister's intervention.

Where the right hon. Gentleman can make a contribution is in the whole sphere of non-tariff barriers, but it is in this very area that he, as the British Prime Minister, has been the world leader in the race to protectionism by protecting some jobs by open-ended subsidies and, in the process, destroying others.

The Cambridge Bulletin figured in the debate today. It is difficult to cover everything. Even assuming there were to be no retaliation against our exports because of the imposition of import controls, the impact of them would still be substantially to raise prices in the domestic market for the housewife. It would still limit the housewife's choice to a narrower range of goods. It would still necessitate the harshest economic policies to avoid the diversion of goods from exports to the domestic market.

I do not believe that fortress Britain could be anything but very bad for jobs—after all, about one quarter of our GNP finds its way into exports.

I can understand hon. Members below the Gangway advocating this course because a protected Britain inevitably would be a Socialist Britain, with planning agreements, central controls and, ultimately, rationing. That would be inevitable. I say to my hon. Friend the Member for Sutton, in the most friendly spirit, that I do not believe that it is possible to envisage a policy in this country which is comparable with that advocated by the Cambridge school without our economy becoming totally dominated by Socialist attitudes. I know that my hon. Friend wants that as little as I.

Mr. Brian Sedgemore (Luton, West)

The hon. Member has used words such as "fortress" Britain and "rationing". The Cambridge group advocates restriction in the growth of manufactured imports by 8 per cent. per annum. How does he square that with his use of the words "fortress" and "rationing"? Since the hon. Member wants the import of manufactured goods to be increased by 8 per cent., can he give the figures and the reasons why he wishes that?

Mr. Nott

If we were having a debate on trade nothing would please me more than to argue this point with the hon. Members, but I am short of time. In this country we have to pay in currency for half our food and nearly all our raw materials. We shall not do that by imposing import controls against foreign products.

This is a disappointing Budget. The Chancellor of the Exchequer has spread his tax cuts so thin that with the new pension contributions few people will be better off. The Chancellor's overall strategy leads us to vote against the Budget.

That brings me to the speech of the hon. Member for Cornwall, North. We can all understand that this Budget has been a deeply distressing experience and a shattering personal tragedy for the hon. Member. For months he has been "we-ing" here and "we-ing" there. I thought for a moment that he was referring to the royal "we". I thought that all this power had totally gone to his head and that it was an exercise of the Royal Prerogative. In fact, he was speaking on behalf of the Government. The hon. Member has become quite breathless as he has rushed from one ministerial office to another, pausing only to issue a statement as Big Ben chimes each quarter.

I am sure that this is not the case, but I am told that one day the hon. Member was seen—and this is appropriate in view of the title of the agenda—rushing out of the Whitehall Theatre which he had mistakenly taken for the Cabinet Office. As late as the night before the Budget the hon. Member was celebrating—I do not know why—the anniversary of the Lib-Lab Pact. The hon. Member quoted my remarks from the excellent paper, Western Morning News, so I shall quote him. He was reported as saying: It will be a Cornish Budget. The next sentence is much better. He said: Wine will flow in streets all over the county on Tuesday. I was in Cornwall two days later, and, although I met several people who did not know that there had been a Budget and several people who did not know what a Budget was, there was nothing out of the ordinary to be seen at all.

I am told that the hon. Gentleman issued a further statement trying to correct the earlier statement, stating that the reference to wine flowing in the streets was to non-alcoholic beverages, such as ginger wine, which were the only cordials to be exempted from the Liberals' increases in excise duties, in view of the large Methodist vote in his constituency.

I shall not go in detail into what the hon. Member for Rochdale (Mr. Smith) said in his speech on the National Insurance Surcharge Bill, but he said that this tax, the surcharge on national insurance, could have only three possible effects—increased prices, more bankruptcies and increased numbers of people out of work. So it is the speech of the hon. Member for Rochdale that is being sent to all the business men in North Cornwall and no doubt the version of the hon. Member for Cornwall, North is going out to the national Press.

But we all knew that the Liberal Party would not support us in the Lobby tonight because the leader of the Liberal Party—I am sorry that he has all these awful problems in Nuneaton; it is very distressing for a liberal-minded gentleman such as him, in view of his known views about the matter—obviously prefers Socialist Ministers to his own supporters; and having fought several elections, we can all understand how he feels.

We have had 13 Budgets from the Chancellor of the Exchequer. During his stewardship our currency has lost about half its value, industrial production is still running at around the level of the three-day working week, productivity has been virtually unchanged and unemployment has remained higher for a longer period than that of any of our competitors.

It is appropriate that to mark this period of our history the Bank of England should have issued a new £1 note. Here it is. It is totally in conformity with a Socialist view of Britain. If I were the Prime Minister and my Chancellor issued a £1 note such as this, after all that has happened in this country over the last few years, I would sack him. It is a mean-spirited little piece of paper, and it represents ideally what Socialism stands for in this country.

However, I said to the Chancellor that in these valedictory remarks I would be polite. Of course, we know the conflicting demands which bore in upon him, the competing claims, the seemingly irreconcilable requirements which he had to face, and the tiresome Cabinet colleagues who did not understand the issues—and, perhaps the most tiresome of all, the hon. Member for Cornwall, North.

But there was only one pressure that really boxed the Chancellor in on this Budget, and that was to reconcile the needs of our country with his natural ambition to lead the Labour Party. I am afraid that the latter won, and, unfortunately for all of us, "Labour's Programme for Britain" and what Britain needs could not be further apart.

In the Chancellor's first words to the British people after his first Budget Statement, he said on television—he said it quite breezily— There was one good thing about the last election campaign. It gave me the chance to get about the country and find out what ordinary people are thinking. I hope that a similar experience will not be too long delayed.

9.30 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey)

This has been a very interesting debate. I agree with the hon. Member for St. Ives (Mr. Nott) that it has created some difficulties for those who have had to follow it without the advantage of having Hansard. It has been a particularly agreeable Budget debate for me, because I have rarely had so much sympathy and support from my own Benches—at least, until today.

I should start by congratulating the hon. Member for Ilford, North (Mr. Bendall) on a most attractive maiden speech, particularly on his tribute to Millie Miller, his predecessor, who was greatly loved on both sides of the House.

The hon. Member for St. Ives made a speech which in every way was in most agreeable contrast with all the other speeches in the debate from the Opposition Front Bench. I was glad that he did not follow the hon. Member for Blaby (Mr. Lawson) in holding out the 1930s as the golden age of the British economy this century.

Mr. Lawson

rose—

Mr. Healey

In a moment. I shall give way when I have finished with the hon. Gentleman. It was in the 1930s that the pursuit of the hon. Gentleman's rigid financial orthodoxies produced 3 million unemployed and we achieved growth only through a monstrous apparatus of import controls, which the hon. Member for St. Ives has rightly rejected.

Mr. Lawson

As the right hon. Gentleman well knows, I referred to the recovery from the recession of the 1930s. I do not know whether he thinks it a bad thing that we recovered. I referred to it in the context of the speech of the Chief Secretary to the Treasury, who took us back to the 1860s.

Mr. Healey

We are used to the hon. Member for Blaby rewriting history, but he really must not rewrite this afternoon's history.

The hon. Member for St. Ives was as witty, courteous and thoughtful as ever. Apart from his last few sentences, when I thought that he was clearly playing to replace his neighbour on the right as Shadow Chancellor of the Exchequer, he was philosophical and thoughtful, and I shall try to comment on what he said in kind.

First, with respect, I think that, if he reflects, the hon. Member for St. Ives must recognise that he grossly exaggerates the extent to which the whole world now agrees with him and the right hon. Member for Down, South (Mr. Powell) that lack of demand has nothing to do with the level of activity in a country. That view is held by very few Governments and no international institutions.

The hon. Gentleman referred, quite rightly, to the forthcoming summit meeting. I spent the morning talking to my Finance Minister colleagues in Luxembourg on the matter, and I must tell the hon. Gentleman that, apart from the one country to which he referred, the representatives of every other member country of the EEC believe that it is essential that we should produce in Europe increases in demand which are sufficient to produce increases in activity. That was also the well nigh unanimous view of the last conference of the IMF in Washington. It is also the view of the OECD.

I know that it is not the hon. Gentleman's view, but he really must not exaggerate the extent to which a one-dimensional view of our affairs has swept the world. It is his view, I know, and, in so far as he understands it, it is the view of the right hon. Member for Down, South, but it is not the view of the majority of the world's Governments and I know that it is not the view of the right hon. Member for Sidcup (Mr. Heath).

The hon. Member for St. Ives might do well, when he tries to attribute all our troubles to growth and so on, to this or that single factor, to read a lecture given only the other day by Samuel Brittan in Chicago. Mr. Brittan is a man with whom I do not always agree; indeed, I did not agree with the whole of his lecture. But no one who has read it through can doubt that the causes of our problems in the United Kingdom are far more complex and far more deep-seated than can be explained by differences in the level of inflation, differences in the level of public expenditure, differences in the level of State intervention and so on.

But Mr. Brittan was right in saying that it is very difficult to manage demand in any economy effectively when it is so difficult to know where one is at any given time and even more difficult to predict where one will be in six months or a year. The hon. Member for St. Ives will know as well as I—I think he conceded this—that although the Treasury record for forecasting is better than that of most other bodies in this country, it is by no means infallible.

To take, for example, the problem of the balance of payments, I made it clear in my speech last Tuesday that to form a judgment on the level of activity which is compatible with avoiding inflation and balance of payments difficulties is a very difficult matter, but a very relevant one.

For example, last year's forecasts of the balance of payments were far too pessimistic about our performance on physical visible trade. The hon. Member for St. Ives will know, because he follows these statistics, that at that time we gravely exaggerated the contribution that our current account would get from our invisible trade, yet we came out with a balance in our external payments, rather than a deficit of £500 million because the performance of our visible trade—both exports and imports—was a great deal better than we then expected.

The central issue on which the hon. Member for St. Ives sought to challenge the Government—I want to try to discuss this rationally—was the market's reaction to the monetary aspects of the Budget. He is right to say that the initial market reaction was very unfavourable, although I am glad to say that the markets are now much steadier than they were at the end of last week.

Much of the market reaction has been due to fears, as the hon. Gentleman said, that the PSBR is too high to be consistent with the lower target range for sterling M3 which I announced last Tuesday. But it is very odd that the hon. Member should be accusing us of this weakness, because, as was pointed out the other day, it is only five years since he himself, as a Treasury Minister, said: It is wrong to think that an increase in the public sector's borrowing necessarily means an increase in money supply. He said: the size of the borrowing requirement, although large, need not necessarily lead to inflation as long as it is financed with the nonbank public."—[Official Report, 8th March 1973; Vol. 852, c. 721]. I think that I carry the hon. Gentleman with me so far.

My view—I think that this will be borne out in the event—is that the PSBR, as forecast first of all, is within the limit we agreed with the IMF 18 months ago. I think that the hon. Gentleman will also agree that the forecast could turn out to be a good deal too high this year, as it turned out to be £4 billion too high last year. But even if the £8½ billion forecast turned out to be right we should have a financial deficit representing the same percentage of GDP as in Germany, and there is no reason why it cannot be financed here, as in Germany, in ways which are consistent with the target range for sterling M3.

If I may say so to the hon. Member for St Ives and even more to his right hon Friends when they accuse this Government of ignoring monetary factors in running the economy, they are not so much Satan rebuking sin as Satan rebuking virtue. I ask the hon. Gentleman to cast his mind back to the situation he left me to inherit in 1974 and to compare it with the situation today. Today, the growth of sterling M3 has been below the growth of money GDP for four years, and we have now adopted monetary targets and shown our determination to maintain them. We showed that through our intervention policy last October which was criticised by my hon. Friend the Member for Southampton, Test (Mr. Gould)—I know his views—and through the 1 per cent. increase in minimum lending rate last week.

One would never have thought from the way that the hon. Member for St. Ives spoke this afternoon that when he was a Treasury Minister a few years ago he said that he did not believe in having monetary targets at all Because one of the main qualities of monetary policy is its flexibility. I do not propose to lay down numerical targets. The policy will be geared to the needs of the situation and will change as those needs change."—[Official Report. 21st March 1972: Vol. 833, c. 1347.] There is a Daniel come to judgment. Butter would not have melted in the hon. Gentleman's mouth when he was speaking earlier in that fine, reflective way. On a fair comparison of the situation when he was responsible in the Treasury for this very area of policy, I do not know how he has the gall to criticise the present Government for their behaviour in this regard.

Let us take a few other differences between the present situation and the situation a few years ago when the hon. Gentleman was a Minister. There is much less pressure on resources in the British economy now than there was after two years of his Government's fiscal profligacy. There is a much higher savings ratio today than there was then, and it is likely to last. We have moderation in pay claims now and a relationship between the Government and the trade union movement which has made the most powerful and impressive contribution to the conquest of inflation. We have a rate of inflation which has been falling steadily for 10 months and which will continue to fall and remain at a level below that of many of our international competitors, at least for the rest of this year.

When the hon. Gentleman was in power, he presided over an explosion in house prices which in itself reflected and created a massive increase in the money supply. We have taken action to limit that possible increase this year. There is now less likelihood of a commodity price explosion.

I appreciate the reasonable and philosophical way in which the hon. Gentleman presented his case. He might have shown one scintilla of humility in admitting that what he was saying this evening was in direct contradiction of everything he and his colleagues did during the whole three and a half years they were last in power.

I come now to the question of whether we have done too much or done enough and done it in the right way or done it in the wrong way. From listening to this debate so far as I was able, and from reading what I was not able to listen to personally, I was glad to find that there was almost universal approval for what we have done for small businesses, for hotels and for farms and for what we have done and promised to do on stock relief and on profit sharing. The hon. Member for Cornwall, North (Mr. Pardoe), whose talents attracted so much attention from the hon. Gentleman, can rightly take much of the credit for what the Government have done in this Budget, at any rate on the question of profit sharing.

I know that many people who praise what we have done in these fields say that we should have done more. What struck me most about the reaction of those on the Tory Front Bench towards the decisions I announced in the Budget is that it seems completely to have transformed their attitude to public expenditure. They have been telling us for quite a time that public expenditure is a bad thing and that we should be keeping it down to the level of last year. Indeed, the hon. Gentleman devoted a great deal of his speech to saying that.

However, how did the Tories treat the increases in public expenditure which I announced last Tuesday? The hon. and learned Member for Dover and Deal (Mr. Rees) welcomed the increase in child benefits—£165 million extra on the PSBR. I must confess that he was a little equivocal about the £50 million extra for the National Health Service. He said, and it was typical of the attitude of the Tory Party to the whole of this Budget, that it was either too much or too little."—[Official Report. 13th April 1978; Vol. 947, c. 1696.] He did not tell us which it was.

The right hon. Lady the Leader of the Opposition, when she replied to my speech last Tuesday, said that £40 million extra for education was not very much. It was not clear whether she thought that we should have done more or whether we should not have done it at all.

Mr. Robin Corbett (Hemel Hempstead)

That was off the cuff.

Mr. Healey

We had the hon. Member for Blaby, when I asked him what he thought the PSBR should have been this year, thinking furiously with advice from his hon. Friend the Member for St. Ives, and saying that it should have been something between £4 billion and £8 billion. The greatest confusion and uncertainty, which must have caused Tory speakers hours of anguish, was over their inability to decide whether this was too timid a Budget or too risky—whether it was vote-catching, electioneering or whether, as the right hon. and learned Member for Surrey, East (Sir G. Howe) said on television last week, it contained "sham" cuts which would make no difference whatever to the situation of anyone in the country.

In so far as there was any perceptible theme in what the Tory Party has had to say in the past few days, it was essentially—the hon. Member for Flint, West (Sir A. Meyer) repeated this a few moments ago—to the effect that we had spread the butter too thinly, in particular that we should not have introduced the lower rate band. I have been told again and again by the Tories that we should have done less for the average person and more for those on higher incomes. Indeed, the hon. Member for Blaby went so far as to say—I must say that I bridled with pride and looked round at my hon. Friends—that it was a Socialist Budget, a TUC Budget. They were the worst words he could think of. I am bound to say that my hon. Friend the Member for Bristol, North-West (Mr. Thomas) did not wholly agree with every aspect of it. Nor did my hon. Friend the Member for Tottenham (Mr. Atkinson).

I do not apologise, and the Government do not apologise, for trying in this Budget to help those who most need help. Those in the poverty trap who are getting particular assistance from the lower rate band frequently have a marginal tax rate as high as, and even higher than, those earning over £20,000 a year. They are much less able to bear it. The point at which the poor man or woman enters tax in this country is higher than anywhere else in the world. After the increase in tax thresholds last October, the time had come to lower the rate and to concentrate assistance on those who need it—those 4 million people the overwhelming majority of whom are in the poverty trap. I have tried to help the average family and I think that I have done so.

The right hon. and learned Member for Surrey, East has tried to prove otherwise by ignoring the help given to the mother and children in the family. When he said the other day that the Budget gives only an extra 14p a week to the average man, I presume that he meant a married man with two children, a man earning £80 a week. This ignores altogether that the income of the family of that man has gone up by £2.24 per week this April through the increase in child benefits and will go up another £1.40 through the child benefits increase next November.

If, instead of taking the family man with two children, we take a married couple on £80 a week without children, the Budget gives them an extra £1.22 a week, and single people with the same income are up to 96p a week better off. The hon. Member for St. Ives said that the Budget had been badly received by the British people. It was clear when he said that that he meant by the Stock Exchange or the financial journalists.

The fact is that the British people are much wiser than the pundits. It is interesting to compare two of the Sunday newspapers. One of them—which looked at the reactions only of people who write City columns and who speak on television—said that it was a Budget which no one liked. Another newspaper troubled to find out what the people actually thought and carried out a poll for that purpose. It found that the Budget was the most popular since the war. Sixty-eight per cent. of those who replied to the poll said they thought that it was good for them and 69 per cent. thought that it was good for Britain. They proved their point at Garscadden last week.

The real trouble with the Conservative Party—

Mr. Ridley

In view of the reaction of the financial markets to the Chancellor's Budget, will he, in order to reassure the public at large, confirm that he is now definitely not going to have another Budget in July?

Mr. Healey

I have made my position on that repeatedly clear, and I made it clear again in the House tonight. Obviously if there is agreement at the summit on a major increase in world growth beyond what is currently expected, and every aspect of the economy performs as well as I predicted it would last week—the money supply, the balance of payments and the outlook for the next pay round—it may be possible to consider some further stimulus later in the year. More or less than that I cannot and will not say.

Mr. Sedgemore

Earlier in his speech my right hon. Friend made an important remark. He said that the PSBR might be less than the £8.5 billion which he had agreed with the IMF. If it looks clear that there will be a shortfall in public expenditure by July, will he put some more money into the economy?

Mr. Healey

I have said all that I am going to say on this matter. My hon. Friend will know—because I think he once had some experience as a civil servant—that it is quite impossible to make a forecast for the outturn of the PSBR three or four months after the financial year begins.

I now come to the position of the Conservative Party, which has been criticising this Budget. It has been implying—the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) did so in his question a moment ago—that what it is really concerned about is the size of the PSBR as forecast.

Yet only a few days ago, and again this afternoon, the hon. Member for Blaby was threatening to increase the PSBR by at least £1 billion this year through amendments to the Finance Bill, whatever the effect of this on share values, on the pound and on inflation. When the hon. Gentleman realised what he was saying, on the basis of his own argument, was that he plans to wreck market confidence in this country, he went on to say that it is not the responsibility of the Opposition to deal with the consequences. That really was an extraordinary remark. I believe that the British people will take a very different view. If the hon. Gentleman and his party were so ill-advised as to take the step which they have mentioned. I think the Conservative Party would soon discover the consequences in its own popularity in the country and its future record at the ballot box.

I say this quite seriously to the hon. Member for Blaby. If he expects us to take seriously what he said to us today, he cannot conceivably threaten to increase the PSBR by £1,000 million or more by action in this year's Finance Bill. What the hon. Member said today and what his right hon. and learned Friend the Member for Surrey, East said last week is nothing to what they promised the country if the people were ever so misguided as to return them to power.

The Conservatives have firmly committed themselves in promises in this House to tax cuts worth more than £5,000 million if they come to power. So far they have told us only that they are prepared to claw back £600 million by a proposal to increase the rate of VAT. They say that they would find the difference by making cuts in public expenditure. If there are to be cuts, where will they come from? All we know about the Conservatives is that they are committed to massive increases of public expenditure on defence, agricultural subsidies, industrial training, house purchase, law and order and Northern Ireland.

On top of that they intend to abolish the rates. All they have told us about the cuts is that they have committed themselves to offsetting half of these billions of pounds of increases by massive cuts in subsidies on housing, industry and school meals and by an increase in health charges. I ask the Tories what increase in the cost of living will result from ending these subsidies and increasing charges.

Only the other day, the right hon. and learned Gentleman, speaking on a well-known radio programme, said that £3,000 million was paid in subsidies and grants to industry. He claimed that a lot of them were not doing the job that they should be doing and that this was one area where cuts should be made. Will he tell us what the Opposition intend to cut? That £3,000 million is represented mainly by regional development grants, which were introduced by the Conservatives. Do they intend to abolish them? Will they abandon support for Rolls-Royce and British Leyland? Will they abandon support for research and development, all forms of industrial training and redundancy payments? Will they abolish the Manpower Services Commission or all support for employment which the right hon. Member for Lowestoft (Mr. Prior) said would take 400,000 people off the unemployment register?

Sir Geoffrey Howe (Surrey, East)

The Chancellor made exactly the same speech two years ago. Immediately afterwards his own Government cut public expenditure by £4,000 million. His statement tonight is a grotesque travesty of the position of the Conservative Party.

Mr. Healey

It is true I have repeated the question that I asked two years ago because for two years the Conservatives have refused to give me any hint of an answer. They have refused again tonight. The plain fact is that the whole case of the Conservative Party is a transparent tissue of opportunism, evasion and irresponsibility. Every speech from the Opposition Front Bench in this debate has reinforced that conclusion. Their only clear policy is to help the wealthy at the expense of ordinary families, at whatever cost in honesty and integrity.

I ask the House, in the light of the Conservatives' total refusal to present a consistent critique of this Budget and any alternative in the form of a Conservative economic policy for this country, to support the Budget resolutions and to vote overwhelmingly against the Conservatives when they are put in a moment's time.

9.59 p.m.

Mr. Ian Stewart (Hitchin)

The House has rarely been treated to such—

The Parliamentary Secretary to the Treasury (Mr. Michael Cocks)

rose in his place and claimed to move, That the Question he now put.

Question, That the Question be now put, put and agreed to.

Question, That the amendment be made, put accordingly and negatived.

Main Question put.

The House proceeded to a Division—

Mr. Speaker

I wish to make it clear to the House that I have asked for the Lobby to be cleared on the main Question relating to amendment of the law.

The House haring divided: Ayes 292, Noes 255.

Division No. 170]	AYES	10.00 p.m.
Abse, Leo	Davis, Clinton (Hackney C)	Hughes, Roy (Newport)
Allaun, Frank	Deakins, Eric	Hunter, Adam
Anderson, Donald	Dean, Joseph (Leeds West)	Irvine, Rt Hon Sir A. (Edge Hill)
Archer, Rt Hon Peter	Dell, Rt Hon Edmund	Irving, Rt Hon S. (Dartford)
Armstrong, Ernest	Dempsey, James	Jackson, Miss Margaret (Lincoln)
Ashley, Jack	Dewar, Donald	Janner, Greville
Ashton, Joe	Doig, Peter	Jay, Rt Hon Douglas
Atkins, Ronald (Preston N)	Dormand, J. D.	Jeger, Mrs Lena
Atkinson, Norman	Douglas-Mann, Bruce	Jenkins, Hugh (Putney)
Barnett, Guy (Greenwich)	Duffy, A. E. P.	Johnson, James (Hull West)
Barnett, Rt Hon Joel (Heywood)	Dunnett, Jack	Johnson, Walter (Derby S)
Bates, Alf	Eadie, Alex	Johnston, Russell (Inverness)
Bean, R. E.	Edge, Geoff	Jones, Alec (Rhondda)
Beith, A. J.	Ellis, John (Brigg & Scun)	Jones, Barry (East Flint)
Benn, Rt Hon Anthony Wedgwood	English, Michael	Jones, Dan (Burnley)
Bennett, Andrew (Stockport N)	Ennals, Rt Hon David	Judd, Frank
Bishop, Rt Hon Edward	Evans, Fred (Caerphilly)	Kaufman, Gerald
Blenkinsop, Arthur	Evans, Gwynfor (Carmarthen)	Kelley, Richard
Boardman, H.	Evans, Ioan (Aberdare)	Kerr, Russell
Booth, Rt Hon Albert	Evans, John (Newton)	Kilroy-Silk, Robert
Boothroyd, Miss Betty	Ewing, Harry (Stirling)	Kinnock, Neil
Bottomley, Rt Hon Arthur	Faulds, Andrew	Lambie, David
Boyden, James (Bish Auck)	Fernyhough, Rt Hon E.	Lamborn, Harry
Bradley, Tom	Fitch, Alan (Wigan)	Lamond, James
Bray, Dr Jeremy	Flannery, Martin	Leadbitter, Ted
Broughton, Sir Alfred	Fletcher, Ted (Darlington)	Lee, John
Brown, Hugh D. (Provan)	Foot, Rt Hon Michael	Lestor, Miss Joan (Eton & Slough)
Brown, Robert C. (Newcastle W)	Ford, Ben	Lever, Rt Hon Harold
Buchan, Norman	Forrester, John	Lewis, Ron (Carlisle)
Buchanan, Richard	Fowler, Gerald (The Wrekin)	Litterick, Tom
Butler, Mrs Joyce (Wood Green)	Fraser, John (Lambeth, N'w'd)	Lomas, Kenneth
Callaghan, Rt Hon J. (Cardiff SE)	Freeson, Rt Hon Reginald	Loyden, Eddie
Callaghan, Jim (Middleton & P)	Freud, Clement	Luard, Evan
Campbell, Ian	Garrett, John (Norwich S)	Lyon, Alexander (York)
Canavan, Dennis	Garrett, W. E. (Wallsend)	Lyons, Edward (Badford W)
Cant, R. B.	George, Bruce	Mabon, Rt Hon Dr J. Dickson
Carmichael, Neil	Gilbert, Dr John	McCartney, Hugh
Carter, Ray	Ginsburg, David	McDonald, Dr Oonagh
Carter-Jones, Lewis	Gould, Bryan	McElhone, Frank
Cartwright, John	Gourlay, Harry	MacFarquhar, Roderick
Castle, Rt Hon Barbara	Graham, Ted	McGuire, Michael (Ince)
Clemitson, Ivor	Grant, George (Morpeth)	MacKenzie, Rt Hon Gregor
Cocks, Rt Hon Michael (Bristol S)	Grant, John (Islington C)	Mackintosh, John P.
Cohen, Stanley	Grimond, Rt Hon J.	Maclennan, Robert
Coleman, Donald	Grocott, Bruce	McMillan, Tom (Glasgow C)
Colquhoun, Ms Maureen	Hamilton, W. W. (Central Fife)	McNamara, Kevin
Concannon, J. D.	Hardy, Peter	Madden, Max
Cook, Robin F. (Edin C)	Harrison, Rt Hon Walter	Magee, Bryan
Corbett, Robin	Hart, Rt Hon Judith	Mahon, Simon
Cowans, Harry	Hattersley, Rt Hon Roy	Mallalieu, J. P. W.
Cox, Thomas (Tooting)	Hayman, Mrs Helene	Marks, Kenneth
Craigen, Jim (Maryhill)	Healey, Rt Hon Denis	Marshall, Dr Edmund (Goole)
Crawshaw, Richard	Heffer, Eric S.	Marshall, Jim (Leicester S)
Cronin, John	Hooley, Frank	Maynard, Miss Joan
Crowther, Stan (Rotherham)	Hooson, Emlyn	Meacher, Michael
Cryer, Bob	Horam,. John	Mellish, Rt Hon Robert
Cunningham, G. (Islington S)	Howell, Rt Hon Denis (B'ham, Sm H)	Mendelson, John
Cunningham, Dr J. (Whiteh)	Howells, Geraint (Cardigan)	Mikardo, Ian
Davidson, Arthur	Hoyle, Doug (Nelson)	Millan, Rt Hon Bruce
Davies, Bryan (Enfield N)	Huckfield, Les	Mitchell, Austin
Davies, Denzil (Llanelli)	Hughes, Rt Hon C. (Anglesey)	Molloy, William
Davies, Ifor (Gower)	Hughes, Robert (Aberdeen N)	Moonman, Eric
Morris, Alfred (Wythenshawe)	Rose, Paul B.	Tierney, Sydney
Morris, Charles R. (Openshaw)	Ross, Stephen (Isle of Wight)	Tinn, James
Morris, Rt Hon J. (Aberavon)	Ross, Rt Hon W. (Kilmarnock)	Tomlinson, John
Moyle, Roland	Rowlands, Ted	Torney, Tom
Murray, Rt Hon Ronald King	Ryman, John	Tuck, Raphael
Newens, Stanley	Sedgemore, Brian	Urwin, T. W.
Noble, Mike	Selby, Harry	Varley, Rt Hon Eric G.
Oakes, Gordon	Sever, John	Wainwright, Edwin (Dearne V)
Ogden, Eric	Shaw, Arnold (Ilford South)	Wainwright, Richard (Colne V)
O'Halloran, Michael	Sheldon, Rt Hon Robert	Walker, Harold (Doncaster)
Orbach, Maurice	Shore, Rt Hon Peter	Walker, Terry (Kingswood)
Orme, Rt Hon Stanley	Short, Mrs Renée (Wolv NE)	Ward, Michael
Ovenden, John	Silkin, Rt Hon John (Deptford)	Watkins, David
Padley, Walter	Silkin, Rt Hon S. C. (Dulwich)	Watkinson, John
Palmer, Arthur	Sillars, James	Weitzman, David
Pardoe, John	Silverman, Julius	Wellbeloved, James
Park, George	Skinner, Dennis	White, Frank R. (Bury)
Parker, John	Smith, John (N Lanarkshire)	White, James (Pollok)
Parry, Robert	Snape, Peter	Whitehead, Phillip
Pavitt, Laurie	Spearing, Nigel	Whitlock, William
Pendry, Tom	Spriggs, Leslie	Wigley, Dafydd
Penhaligon, David	Stallard, A. W.	Willey, Rt Hon Frederick
Perry, Ernest	Steel, Rt Hon David	Williams, Rt Hon Alan (Swansea W)
Prescott, John	Stewart, Rt Hon M. (Fulham)	Williams, Alan Lee (Hornch'ch)
Price, C. (Lewisham W)	Stoddart, David	Williams, Rt Hon Shirley (Hertford)
Price, William (Rugby)	Stott, Roger	Wilson, Rt Hon Sir Harold (Huyton)
Radice, Giles	Strang, Gavin	Wilson, William (Coventry SE)
Rees, Rt Hon Merlyn (Leeds S)	Strauss, Rt Hon G. R.	Wise, Mrs Audrey
Richardson, Miss Jo	Summerskill, Hon Dr Shirley	Woodall, Alec
Roberts, Albert (Normanton)	Swain, Thomas	Woof, Robert
Roberts, Gwilym (Cannock)	Taylor, Mrs Ann (Bolton W)	Wrigglesworth, Ian
Robertson, John (Paisley)	Thomas, Dafydd (Merioneth)	Young, David (Bolton E)
Robinson, Geoffrey	Thomas, Jeffrey (Abertillery)
Roderick, Caerwyn	Thomas, Mike (Newcastle E)	TELLERS FOR THE AYES:
Rodgers, George (Chorley)	Thomas, Ron (Bristol NW)	Mr. Joseph Harper and
Rogers, Rt Hon William (Stockton)	Thorne, Stan (Preston South)	Mr. James Hamilton
Rooker, J. W.	Thorpe, Rt Hon Jeremy (N Devon)
NOES
Adley, Robert	Costain, A. P.	Grist, Ian
Aitken, Jonathan	Critchley, Julian	Grylls, Michael
Alison, Michael	Crouch, David	Hall-Davis, A. G. F.
Amery, Rt Hon Julian	Crowder, F. P.	Hamilton, Michael (Salisbury)
Atkins, Rt Hon H. (Spelthorne)	Davies, Rt Hon J. (Knutsford)	Hampson, Dr Keith
Atkinson, David (Bournemouth, East)	Dean, Paul (N Somerset)	Hannam, John
Awdry, Daniel	Dodsworth, Geoffrey	Harvie Anderson, Rt Hon Miss
Baker, Kenneth	Douglas-Hamilton, Lord James	Haselhurst, Alan
Banks, Robert	Drayson, Burnaby	Hastings, Stephen
Bell, Ronald	du Cann, Rt Hon Edward	Havers, Rt Hon Sir Michael
Bendall, Vivian (Ilford North)	Durant, Tony	Hawkins, Paul
Bennett, Dr Reginald (Fareham)	Dykes, Hugh	Hayhoe, Barney
Benyon, W.	Eden, Rt Hon Sir John	Heath, Rt Hon Edward
Berry, Hon Anthony	Edwards Nicholas (Pembroke)	Heseltine, Michael
Biffen, John	Elliott, Sir William	Hicks, Robert
Biggs-Davison, John	Emery, Peter	Higgins, Terence L.
Body, Richard	Eyre, Reginald	Hodgson Robin
Boscawen, Hon Robert	Fairbairn, Nicholas	Holland, Philip
Bottomley, Peter	Fairgrieve, Russell	Mordern, Peter
Bowden, A. (Brighton, Kemptown)	Farr, John	Howe, Rt Hon Sir Geoffrey
Boyson, Dr Rhodes (Brent)	Fell, Anthony	Howell, David (Guildford)
Braine, Sir Bernard	Fisher, Sir Nigel	Hunt, David (Wirral)
Brittan, Leon	Fletcher, Alex (Edinburgh N)	Hunt, John (Ravensbourne)
Brocklebank-Fowler, C.	Fookes, Miss Janet	Hurd, Douglas
Brooke, Peter	Forman, Nigel	Irving, Charles (Cheltenham)
Brotherton, Michael	Fowler, Norman (Sutton C'f'd)	James, David
Brown, Sir Edward (Bath)	Fox, Marcus	Jenkin, Rt Hon P. (Wanst'd&W'df'd)
Bryan, Sir Paul	Fraser, Rt Hon H. (Stafford & St)	Johnson Smith, G. (E Grinstead)
Buchanan-Smith, Alick	Fry, Peter	Jones, Arthur (Daventry)
Buck, Antony	Galbraith, Hon T. G. D.	Jopling, Michael
Budgen, Nick	Gardiner, George (Reigate)	Joseph, Rt Hon Sir Keith
Bulmer, Esmond	Gardner, Edward (S Fylde)	Kaberry, Sir Donald
Burden, F. A.	Gilmour Rt Hon Ian (Chesham)	Kellett-Bowman, Mrs Elaine
Butler, Adam (Bosworth)	Gilmour, Sir John (East Fife)	King, Evelyn (South Dorset)
Carlisle, Mark	Glyn Dr Alan	King, Tom (Bridgwater)
Chalker, Mrs Lynda	Goodhart, Philip	Kitson, Sir Timothy
Channon, Paul	Goodhew, Victor	Knox, David
Churchill, W. S.	Goodlad, Alastair	Lamont, Norman
Clark, Alan (Plymouth, Sutton)	Gorst, John	Langford-Holt, Sir John
Clark, William (Croydon S)	Gow, Ian (Eastbourne)	Latham, Michael (Melton)
Clarke, Kenneth (Rushcliffe)	Gower, Sir Raymond (Barry)	Lawrence, Ivan
Clegg, Walter	Grant, Anthony (Harrow C)	Lawson, Nigel
Cooke, Robert (Bristol W)	Gray, Hamish	Lester, Jim (Beeston)
Cope, John	Grieve, Percy	Lewis, Kenneth (Rutland)
Cormack, Patrick	Griffiths, Eldon	Lloyd, Ian

Loveridge, John	Page, Rt Hon R. Graham (Crosby)	Speed, Keith
Luce, Richard	Page, Richard (Workington)	Spence, John
McAdden, Sir Stephen	Paisley, Rev Ian	Spicer, Jim (W Dorset)
McCrindle, Robert	Parkinson, Cecil	Spicer, Michael (S Worcester)
Macfarlane, Neil	Pattie, Geoffrey	Sproat, Iain
MacGregor, John	Percival, Ian	Stainton, Keith
MacKay, Andrew (Stechford)	Peyton, Rt Hon John	Stanbrook, Ivor
Macmillan, Rt Hon M. (Farnham)	Pink, R. Bonner	Stanley, John
McNair-Wilson, M. (Newbury)	Prentice, Rt Hon Reg	Steen, Anthony (Wavertree)
McNair-Wilson, p. (New Forest)	Price, David (Eastleigh)	Stewart, Ian (Hitchin)
Madel, David	Prior, Rt Hon James	Stokes, John
Marshall, Michael (Arundel)	Pym, Rt Hon Francis	Stradling Thomas, J.
Marten, Neil	Raison, Timothy	Tapsell, Peter
Mates, Michael	Rathbone, Tim	Taylor, R. (Croydon NW)
Mather, Carol	Rees, Peter (Dover & Deal)	Taylor, Teddy (Cathcart)
Maude, Angus	Rees-Davies, W. R.	Tebbit, Norman
Maudling, Rt Hon Reginald	Renton, Rt Hon Sir D. (Hunts)	Temple Morris, Peter
Mawby, Ray	Renton, Tim (Mid-Sussex)	Thatcher, Rt Hon Margaret
Maxwell-Hyslop, Robin	Rhodes, James R.	Thomas, Rt Hon P. (Hendon S)
Mayhew, Patrick	Rhys Williams, Sir Brandon	Townsend, Cyril D.
Miller, Hal (Bromsgrove)	Ridley, Hon Nicholas	Trotter, Neville
Mills, Peter	Ridsdale, Julian	van Straubenzee, W. R.
Miscampbell, Norman	Rifkind, Malcolm	Vaughan, Dr Gerald
Mitchell, David (Basingstoke)	Rippon, Rt Hon Geoffrey	Viggers, Peter
Moate, Roger	Roberts, Wyn (Conway)	Wakeham, John
Monro, Hector	Rodgers, Sir John (Sevenoaks)	Walder, David (Clitheroe)
Montgomery, Fergus	Rossi, Hugh (Hornsey)	Walker, Rt Hon P. (Worcester)
Moore, John (Croydon C)	Rost, Peter (SE Derbyshire)	Wall, Patrick
More, Jasper (Ludlow)	Royle, Sir Anthony	Walters, Dennis
Morgan, Geraint	Sainsbury, Tim	Weatherill, Bernard
Morgan-Giles, Rear-Admiral	Scott, Nicholas	Wells, John
Morris, Michael (Northampton S)	Shaw, Giles (Pudsey)	Whitelaw, Rt Hon William
Morrison, Hon Peter (Chester)	Shelton, William (Streatham)	Wiggin, Jerry
Mudd, David	Shepherd, Colin	Winterton, Nicholas
Neave, Airey	Shersby, Michael	Wood, Rt Hon Richard
Nelson, Anthony	Silvester, Fred	Young, Sir G. (Ealing, Acton)
Neubert, Michael	Sims, Roger	Younger, Hon George
Newton, Tony	Sinclair, Sir George
Nott, John	Skeet, T. H. H.	TELLERS FOR THE NOES:
Onslow, Cranley	Smith, Dudley (Warwick)	Mr. Spencer Le Marchant and
Oppenheim, Mrs Sally	Smith, Timothy John (Ashfield)	Mr. Michael Roberts

Question accordingly agreed to.

Resolved, That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to—

1. (a) the making of any amendment with respect to value added tax so as to provide—
1. (i) for zero-rating or exempting any supply;
2. (ii) for refunding any amount of tax otherwise than by virtue of a provision relating to bad debts;
3. (iii) for reducing the rate at which tax is for the time being chargeable on any supply or importation otherwise than by reducing that rate in relation to all supplies and importations on which tax is for the time being chargeable at that rate; or
4. (iv) for any relief other than relief applicable to goods of whatever description or services of whatever description; or
2. (b) the making of any amendment relating to the surcharge imposed by the National Insurance Surcharge Act 1976 and applying to some only of the persons by or in respect of whom the surcharge is payable; or
3. (c) the making, except in relation to farming or market gardening, of any provision for affording relief from tax by the adjustment of fluctuating income.

Mr. Speaker

I am now required under Standing Order No. 94(2) to put successively without further debate the Question on each of the remaining motions on which the Finance Bill is to be brought in. Instead of reading in extenso every motion—there are 26—I propose to give the title of the motion and, by leave of the House—and only by leave—I shall not follow the previous custom of putting each one. I shall put them in blocks.

If I read the titles loudly and clearly and anyone wishes to vote on any motion, I shall stop there. If the House gives me leave, I shall put them in blocks of five.

c170
1. 2. CIGARETTES WITH HIGHER TAR YIELD 48 words
cc171-2
2. 3. GAMING LICENCE DUTY IN SCOTLAND 556 words
c172
3. 4. ANTI-DUMPING MEASURES ON ECSC PRODUCTS 85 words
c172
4. 5. SURCHARGES AND REBATES IN RESPECT OF REVENUE DUTIES 51 words
cc172-3
5. 6. VALUE ADDED TAX 231 words
c173
6. 7. VALUE ADDED TAX (CANCELLATION OF REGISTRATION) 92 words
cc173-4
7. 8. INCOME TAX (CHARGES AND RATES FOR 1978–79) 353 words
cc174-5
8. 9. INCOME TAX (LOWER RATE) 348 words
c175
9. 10. INCOME TAX (PERSONAL RELIEFS) 194 words
cc175-6
10. 11. CHILD TAX ALLOWANCES AND BENEFITS IN RESPECT OF CHILDREN (INCOME TAX) 326 words
c176
11. 12. RELIEF FOR INTEREST (LIMIT FOR 1978–79) 52 words
c176
12. 13. DIVERS AND DIVING SUPERVISORS (INCOME TAX) 39 words
c177
13. 14. CORPORATION TAX (CHARGES AND RATE FOR FINANCIAL YEAR 1977) 38 words
c177
14. 15. ADVANCE CORPORATION TAX (RATE FOR FINANCIAL YEAR 1978) 36 words
c177
15. 16. CORPORATION TAX (SMALL COMPANIES) 66 words
c177
16. 17. COMMODITY FUTURES (INCOME TAX AND CORPORATION TAX) 46 words
c177
17. 18. SALE OF LAND WITH RIGHT TO REPURCHASE (INCOME TAX AND CORPORATION TAX) 52 words
c178
18. 19. COMMUNITY LAND AUTHORITIES (CORPORATION TAX) 56 words
c178
19. 20. CAPITAL GAINS TAX 65 words
c178
20. 21. CAPITAL TRANSFER TAX 87 words
c178
21. 22. DISPOSALS ON TRUST FOR EMPLOYEES (CORPORATION TAX AND CAPITAL TRANSFER TAX) 44 words
c179
22. 23. RELIEF FROM TAX (INCIDENTAL AND CONSEQUENTIAL CHARGES 54 words
c179
23. PROCEDURE (DISCLOSURE OF INFORMATION BETWEEN TAX AUTHORITIES OF MEMBER STATES) 71 words
c179
24. PROCEDURE (LOANS BY PUBLIC WORKS LOAN COMMISSIONERS) 74 words
cc179-80
25. PROCEDURE (FUTURE TAXATION) 129 words