HC Deb 18 June 1979 vol 968 cc922-1050F
Mr. Speaker

Before I call the Secretary of State for Trade, I should tell the House that I have an exceptionally long list of hon. Members who have indicated to me that they hope to catch my eye during the course of the debate. I fear that many are bound to be unlucky at the end of the day, but much depends on the length of speeches.

4.7 p.m.

The Secretary of State for Trade (Mr. Nott)

It is a pleasant duty to resume the debate today in what I hope will be the calmer political atmosphere which follows the Shadow Cabinet election. For several weeks, it has been noticeable that members of the previous Government, many of whom I have never seen before—imprisoned, no doubt, in their Whitehall offices—have been stumbling into the parliamentary limelight in a desperate effort to get on either the Tribune or manifesto lists. Having read the list of those elected to the Shadow Cabinet, I wonder why it was necessary for the activity. Most of the previous Administration have been elected en bloc to the Opposition Front Bench.

While the Parliamentary Labour Party insists on the practice of electing the whole of its parliamentary leadership, there is sufficient explanation for the wilder exaggerations in the speech of the right hon. Member for Leeds, East (Mr. Healey). The Shadow Chancellor need not have worried about making such a speech—he came out top in the Shadow Cabinet. Evidently, it is the case that, having doubled unemployment, nearly doubled the national debt and halved the value of the pound during his period in office, he was thought to have done exceptionally well by Labour Party standards.

We still seem to be in a spirit of mutual congratulations at this stage in the Parliament and so I should like to congratulate the previous Chancellor of the Exchequer on having come, with the previous Minister of Agriculture, top of the list.

The House will recognise that in the past I would have been tempted to comment on the tremendous national interest which surrounds elections to the Liberal Shadow Cabinet, but as there are not many Liberal representatives in the Chamber I shall leave that behind. I intend, for that reason, to come to the Budget.

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

Get on with it.

Mr. Nott

As far as I could see, and I read the Shadow Chancellor's speech on the Budget with considerable interest, the right hon. Gentleman had a number of criticisms, but his erstwhile lieutenant, the right hon. Member for Heywood and Royton (Mr. Barnett), had only one. He said: one of the troubles about right hon. and hon. Members in Government today is that they believe what they have been saying."—[Official Report, 13 June 1979; Vol. 968, c. 561.] I can understand that Socialist Ministers would find such a criticism deeply wounding, but the fact is that the Government do believe what they are saying. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) muttered at that point in his right hon. Friend's speech that he wished that the previous Government had believed what they were saying. It may be that we shall find that that is the difference between us.

What surprised me most about the Shadow Chancellor's speech was his positive obsession with the statistics in the Red Book. I have not met anyone in the past few years, except, conceivably, the hon. Member for Motherwell and Wishaw (Dr. Bray), who is the Labour Party's answer to the micro-chip, who has very much faith in the national income forecasts. Indeed, it is the Shadow Chancellor, by his own statements and his incapacity to keep the outturn within a small margin of statistical error of less than about £2,000 million on each of his forecasts, who eventually convinced me and much of the country that Government forecasts are not necessarily relevant to the real world.

One of the ex-Chancellor's real triumphs must have been to have convinced even the forecasters themselves of that point, because there appears in the Red Book the phrase: there is no clear presumption that past errors are a good guide to future errors. In undoing the credibility of the national income forecasts, no one has been more successful than the right hon. Member for Leeds, East.

Mr. Denzil Davies (Llanelli)

The right hon. Gentleman is casting scorn on the forecasts in the Red Book. He will know that one of the forecasts is that the money supply will be kept to 9 per cent. Does what he has just said mean that he is not serious about that either?

Mr. Nott

We are perfectly serious about that. That was a statement of the Chancellor's intentions and is not a matter of national income forecasting. The right hon. Member for Leeds, East has already spoken in the debate, but perhaps he could enlighten us at some time in the future precisely how the monetary forecasts were dealt with within the national income forecasts. That was a matter of great difficulty in the technicalities of producing the forecasts.

I found the picture of an ex-Chancellor reduced to thumbing through the Red Book for things to say a rather sad commentary on the human condition. What did he find when he looked through the figures? I do not think that he found anything very different from what he had forecast in a speech in January this year when he still held responsibility for these matters. He said: I think that the only way that I can demonstrate the dangers is by making a gloomy and, so far, unjustified assumption for wholly illustrative purposes … Let us assume … that the increase in the nation's earnings in the current pay round is as high as 15 per cent. It now looks as though the figure will come at near that. The most obvious and inevitable consequence of this assumption coming true would be that the year-on-year increase in the rate of inflation would move into double figures in the summer of this year and would probably reach about 13 per cent. by the end of the year. … A 15 per cent. earnings increase would also create formidable problems for the Government's fiscal and monetary policy … If we take the new public expenditure White Paper as a base, the effect of the pay and price increases following from a 15 per cent. earnings outturn would be to increase the cost of the services which central Government are planning to provide by over £1,000 million in the next fiscal year, to raise the cost of local authority service by another £1,000 million and to raise the costs of the nationalised industries by only a little less—about £3 billion in all … Faced with such increases in expenditure and in the public sector borrowing requirement, the Government would be compelled to seek reductions in the volume of public expenditure."—[Official Report, 25 January 1979; Vol. 961, c. 754–756.]

Mr. Denis Healey (Leeds, East)

The right hon. Gentleman has quoted me accurately and I repeated those remarks in my speech on the caretaker Budget in April and again during the debate on the Gracious Speech a fortnight ago. The right hon. Gentleman has not explained why, in that situation, the Government are deliberately, by their own action, increasing the retail price index from 12 per cent. or 13 per cent. to the 20 per cent. which is expected at the end of the year. How on earth can the right hon. Gentleman justify that? Can he deny that it is the inevitable consequence of the actions that the Chancellor of the Exchequer took last week?

Mr. Nott

I am coming to that point because it is central to the Opposition's criticism and I intend to deal with it. I must say that it comes strangely from the right hon. Member for Leeds, East when, in his first Budget, he increased the RPI by 3¾ per cent. and increased income tax by 5 per cent. and in his second Budget he increased the RPI by 2½ per cent. and increased income tax by 2p. His criticism of my right hon. and learned Friend the Chancellor of the Exchequer for having added to the RPI comes strangely from a Chancellor who did that not only on the RPI but on income tax in his first two Budgets. I shall go into that more thoroughly in a moment.

When the right hon. Gentleman put those illustrative figures before the House, he was speaking about the consequences of a pay explosion. When he described a 13 per cent. increase in prices as the inevitable consequence of what would arise from the pay explosion, he could not have been including the whole of the rise in world oil prices which has taken place since that time.

The right hon. Gentleman said that the increase in oil prices would add another 2 per cent. to the cost of living in Britain by Christmas. I think that he was exaggerating. Let us take an increase of 1 per cent. since January. The fact is that on the right hon. Gentleman's own figures we are talking about an increase in the RPI far into double figures. In his illustrative example he took 13 per cent.—and we have had the rise in oil prices since then. Out of the right hon. Gentleman's own mouth he has explained part of our inheritance on prices.

The right hon. Gentleman said last week that my right hon. and learned Friend threw away the reults of five years' painful work by the previous Government and the people of this country in bringing down the rate of inflation."—[Official Report, 13 June 1979; Vol. 968, c. 464.] That was the most ridiculous statement that I have ever heard. Down from what?

The right hon. Gentleman will remember that in the October 1974 general election he quoted the figure of 8.4 per cent. as being the rate of inflation on a three-month annualised basis. In so far as the RPI has come down, it has come down from a figure on an annual basis of 25 per cent. which the right hon. Gentleman took it up to. No one has denied in any press comment that I have seen that we inherited strongly rising prices which were in the pipeline in a substantial way.

I will go into the question of inherited prices rather more deeply if the right hon. Gentleman wishes to hear about it. I have already given the House his own prediction for inflation when he held responsibility for these matters. Having created an irresistible force by the wide extension of the immunities and privileges of trade unions, which was the responsibility of the right hon. Member for Ebbw Vale (Mr. Foot), the right hon. Member for Leeds, East then chose a 5 per cent. rigid norm, with sanctions on the employers, and set against the irresistible forces of the trade unions an immovable object. Of course, a pay explosion resulted.

Surely it is not suggested that that situation is the responsibility of this Government. As the right hon. Gentleman himself pointed out, it meant an inevitable inflation in the pipeline of 12 per cent. The situation was superimposed on an economy where a pre-election boom had allowed consumption to rise at seven times the percentage rate of production—the figures were quoted by my right hon. and learned Friend the Chancellor of the Exchequer in his Budget Statement—and where manufacturing output was lower than when the Conservatives left office in 1974. That is what the pay explosion was superimposed upon.

Within the economy, for which the right hon. Member for Leeds, East held responsibility, factory gate prices have been rising by 1 per cent. to 1½per cent. a month all this year and at the retail level inflation was already back in double figures when we took office. I must say to the right hon. Member for Leeds, East that I think he has great difficulty if he wants to show that massive price rises were not in the pipeline when we took office.

Mr. Rooker

That being the case, considering that it was not our policy to abolish the Price Commission, why was it abolished in the first few days of this Government?

Mr. Nott

The hon. Gentleman has been very active in the Budget debate—I have read the interruptions he made last week. We share his deep personal sense of loss at being separated from Mrs. Audrey Wise, but I do not think that we on these Benches really want her back very much.

I am glad to see the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) in the Chamber. I have provided myself with a number of quotations of what he said on the subject. He said—and I think that he will accept this—that he never claimed that the Price Commission was able to influence the general level of prices. He said that the Price Commission was not an agency for keeping the retail price index down. He made many other such comments. He wisely admitted, and it is true, that the Price Commission was only in a position to defer price increases, and, of course, in the period leading up to the general election it deferred a great many.

When we came to office we were naturally confronted with a whole series of deferred price increases which had been held up prior to the general election. They all, quite naturally, have had to come through. The policy that the Government are advocating—I do not think that it is a policy that the right hon. Gentleman will oppose—is that we need a stiffer and tougher competition policy, so that we have an arrangement whereby anti-competitive practices can be properly investigated. Indeed, I have heard remarks—which I have looked up—from the right hon. Gentleman indicating that he agrees that the powers over anti-competition practices in the hands of the Monopolies Commission and the Office of Fair Trading need strengthening.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

The right hon. Gentleman and other Ministers have developed the habit of describing the Price Commission's activities during the six weeks before the general election as if the Price Commission was influenced by political considerations. Will he tell us clearly whether he is saying or has said that what the Price Commission did in those six weeks was as a result of its political motivation?

Mr. Nott

No, it was not as a result of political motivation, but the right hon. Member for Leeds, East, in the speech which I described as wildly exaggerated, listed a whole series of commodities which had gone up in price—for example, milk—which were never in the province of the Price Commission anyway. That was a perfect example of a price increase held back by the then Government, although it was needed in order to meet the wage rise in the milk distribution trade, which had to be financed. A whole series of increases of that kind were held up by the Labour Government pending the general election. I am certainly not charging the individual members of the Price Commission, and I would not do so. My criticism is of the policy of the right hon. Member for Sparkbrook and of the very great problems of bureaucracy that it created for the country and for British industry.

Mr. J. Enoch Powell (Down, South)

If the right hon. Gentleman is associating himself, as I think he was, with the assertion that the Price Commission cannot raise the retail price index or keep it down, how can he assert that competition can keep the RPI down?

Mr. Nott

Clearly, if there is a monopoly position and competition is not properly operating, producers are likely to take advantage of it and are in a position to exploit the consumer. The right hon. Gentleman may not be aware that the Price Commission had power only to defer prices; it never had the power, unlike the powers which flow from the Monopolies Commission, of going beyond deferment and ordering prices down.

Mr. Powell

It is the right hon. Gentleman's contention that the operations of the Price Commission raise or lower some prices relative to others. That is exactly what competition, or the restoration of competition, does. It can have no effect upon the general level of prices.

Mr. Nott

I was saying—and agreeing with the right hon. Gentleman—that, because some prices may come down as a result of the deferment and some may go up, this cannot have any general effect on the general level of prices. I do not accept that that argument applies to monopolies—it is not the same at all. The right hon. Gentleman's tortuous logic defeats me and the House. I am prepared to go on debating the matter with him, but I want to come now to the central point raised by the right hon. Member for Leeds, East.

It is apparent that what we are really being asked to defend is a switch in the burden of taxation, which has increased real take-home pay, widened people's personal choice and encouraged earnings and savings rather than spending. That is what the right hon. Gentleman's criticism is all about. This switch has increased the disposable income of many low-wage earners for expenditure on many of the necessities of life which are zero-rated for value added tax. That is quite apart from the fact that a million income taxpayers have been taken out of the tax net altogether.

I find it very ripe indeed to be criticised for this achievement by someone who increased taxes on earnings and savings in his first two Budgets, and increased the tax on spending as well, and who, in successive Budgets, added to the overall burden of taxation, whereas what my right hon. and learned Friend has done is to make a switch in the burden of taxation.

Mr. Alexander W. Lyon (York)

Is not the net effect of the Budget, even on the figures published by the Treasury, that, in a full year, the Government are taking £500 million more in taxation, albeit in indirect taxation, and are therefore taking more money out of people's pockets?

Mr. Nott

We have made a switch in the burden of taxation which has increased people's real take-home pay, widened people's personal choice and encouraged earning rather than spending. The right hon. Member for Leeds, East, left us with a prospective borrowing requirement, before the Budget changes, of £11.2 billion. Anyone would assume that we had inherited a situation in which there was no problem in the economy. We inherited a borrowing requirement of £11.2 billion. We had to deal with it. That is an obvious fact and one which the ex-Chancellor recognised in his own speech.

The real difference between the two parties came out clearly during the election campaign. The Labour Party, or the Social Democrats in the Labour Party, are resigned to the fact that we have become a nation in economic decline with ever-dwindling levels of affluence and influence. We on this side do not accept that. We were elected by millions of people, who had traditionally supported the Labour Party, in the knowledge and expectation that we would attempt to reverse Britain's post-war economic decline.

We do not expect any help from the Opposition, not least because many right hon. and hon. Members opposite do not want a society where work, risk and excellence are better rewarded than indifference, caution and mediocrity. To suggest that we should be diverted from commencing on this task because the retail price index measures changes in prices but not improvements in real living standards is absurd. To believe that we would be diverted because such action adds to the retail price index but does not affect real take-home pay is a demonstration of the bankruptcy of imagination and purpose that has characterised the series of temporary expedients and party manoeuvrings familiar to all of us in the last two Labour Administrations.

If there is to be any economic statistic on which we shall measure our performance at the end of the first five years, it will be the change that has taken place in the real personal disposable income of the British people.

Mr. Rooker

It is going down.

Mr. Nott

We hear criticism of the previous period of Conservative Government. On an average basis, the real personal disposable income of the British people rose by 1.6 per cent. a year during the period of office of the recent Government and rose at 4 per cent.—double that rate—in the previous period of Conservative Government. If, in five years, we can begin the process of narrowing the ever-widening gap between real personal income of British families and those of the Germans and the French, we will be on the right road to recovery. That is the figure we wish to look at and take into account.

The hon. Member for Perry Barr commented from a sedentary position. I would inform him that we do not intend to fuel imports by the kind of pre-election boom which led consumer spending last year to rise by seven times the rate of production. That is not the way we intend to achieve an improvement in these figures.

I now turn quickly to our overseas trade position on which much depends. The right hon. Member for Leeds, East was correct to warn the House of the difficult outlook we face in world trade. Although it is true that we are protected increasingly from the direct trade effects of higher oil prices, which are already 30 per cent. higher than a year ago, the impact of higher oil prices on the demand for our goods in overseas markets is bound to be severe. It is not fully understood by the people of this country that the export of goods and services accounts for nearly one-third of our gross domestic product. Overall, rising oil prices will harm us unless we can increase our share of world trade. That has to be our objective.

The trade figures for the first four months of this year involved a deficit on current account of about £1 billion. The precise figure is difficult to interpret due to the distortions caused by last winter's events. Leaving aside what was said in the election, it is ironic to note that in the Queen's Speech debate on 22 May the right hon. Member for Leeds, East said of my right hon. and learned Friend the Chancellor of the Exchequer: He inherited a surplus on the balance of payments, despite the soaring deficit which we inherited from his Government in 1974."—[Official Report, 22 May 1979; Vol. 967, c. 877.] The current account trade figures show that we inherited a deficit of £1 billion in the first four months of this year. It is instructive to compare the cumulative deficit on the balance of trade of the two previous Governments. Between July 1970 and March 1974, during the period of the last Conservative Government, the cumulative trade deficit was minus £200 million, with a very small contribution from the North Sea. During the period of the last Labour Government, the cumulative deficit was not £200 million but £5,000 million after a cumulative North Sea contribution of £9,000 million.

Mr. Peter Shore (Stepney and Poplar)

The right hon. Gentleman owes it to the House to make some serious presentation. He must know that on Christmas Eve 1973 the price of oil was quadrupled and that the deficit in the first year of Labour Government, due largely to that oil deficit and the cumulative deficit we inherited from the previous Government, was £3,700 million. No British Government could have dealt with that situation. The circumstances at that time were out of our control. That did not only affect Britain but everyone else. Why does the right hon. Gentleman make these fatuous comparisons?

Mr. Nott

Is the right hon. Gentleman denying that a cumulative surplus of between £9 billion and £10 billion arose from the North Sea during the previous Government's period of office? I am not suggesting that without the North Sea the figure for the balance of payments would have been the same. It would not have been so. But the previous Government had unique advantages. They had a vast sum of balance of payments revenue coming in across the exchanges from the North Sea.

The importance of overseas trade and its vital contribution to jobs and incomes means that the correct trade policies are vital. Contrary to the belief of the right hon. Member for Bristol, South-East (Mr. Benn) and his friends at Cambridge, it would be a tragedy for this country, which is more dependent on growing world trade than practically any other country, if we were to be the instrument for placing the open trading system in jeopardy. The multilateral trade negotiations represent an important step away from the threat of growing protectionism. We are already playing our part to see that the findings of those negotiations are fully and accurately implemented.

Mr. Douglas Jay (Battersea, North)

The right hon. Gentleman says that he is opposed to placing the open trading system in jeopardy. Does that apply to food and agricultural produce?

Mr. Nott

If I had had greater influence on these affairs—the right hon. Gentleman, as a Labour Back-Bencher, should have had more—I would have liked to see the European Community make greater agricultural concessions to Australia, New Zealand and the United States. But the fact is that I was not in charge of these matters at the time. We have inherited the multilateral trade negotiations as they exist. It is important for the open trading system that they are brought to a conclusion as soon as possible. I am sure that the right hon. Gentleman agrees.

We recognise the necessity for effective anti-dumping procedures. We shall negotiate for selective safeguards. We believe that the maintenance of the existing multi-fibre arrangement is important. We shall not be able to protest against import penetration in every sub-sector—nor would it be right to do so. The open trading system is vital to jobs and real incomes and we shall have to adapt and specialise, particularly in a world of rapidly changing technology.

The Chancellor of the Exchequer made an important start in his Budget Statement on removing some of the supply side constraints which inhibit British industry in its overseas trade. I refer in particular to the lifting of constraints on overseas direct investments.

The Labour Party will disagree with that, but there are a host of reasons why lifting these controls will increase prosperity and jobs at home. Transport costs often make exports uneconomic. Host Governments may insist on local production. Import restrictions may shut out United Kingdom exports. Investment in key raw materials normally has to be made abroad. In overseas marketing, a distribution base abroad promotes British exports and employment. We cannot continue to impose costs and distortions on the activities of industry only for the opportunities to be grasped by our German and Japanese competitors.

At the weekend I asked myself why, when a Conservative Government are in power, they always plant trees for future generations. When the Socialists come to power they cut the saplings down and sell them for firewood to buy votes. That is what happened in the post-war period. That is what happened to overseas direct investment. We intend to plant trees for future generations so that we can reap the benefits of overseas earnings.

Mr. Donald Anderson (Swansea, East)

Is not part of the problem that these trees may be planted in property in Brussels? Although there may be a case—and probably is—for distribution, does the right hon. Gentleman accept the argument that there is a need to be more selective and to prevent investment in property overseas which is of no direct benefit to us?

Mr. Nott

The NEDC sector working parties were asked to examine the question of overseas investment. Of the 31 sector working parties, 11 said that in practice there was no genuine choice between home and overseas investment. More answered in the same vein. Half of them thought that overseas investment stimulated exports. None thought that it reduced exports. Of the five sector working parties, on which trade unions are represented, which commented upon employment effects, three thought that overseas investment promoted employment in the United Kingdom. Only one feared that it might endanger employment.

There is no simple choice between investment at home and investment abroad. There may be great opportunities for investment in commercial properties overseas which simply do not exist in the United Kingdom. If that is so, why should we deny the balance of payments and invisible earnings the benefit of that?

The great proportion of overseas property investment is financed in foreign currency with a guarantee of the kind given in the last five years under the Labour Government. I doubt whether there will be any radical change in the way in which property companies go about their business.

The right hon. Member for Bristol, South-East, who is not in the House today and for whom I have always had much sympathy, started life with a great disadvantage—he was born into the peerage. He has been struggling manfully to worsen his condition and that of all his fellow citizens ever since. But at least he and his right hon. Friends, including the right hon. Member for Lanark (Dame Judith Hart)—whom I never expected to become a Dame Commander of the British Empire—have an alternative strategy.

It involves a planned economy within a closed society with power residing centrally with politicians rather than being spread through the community. I have never been able to understand why that prescription should be able to improve the lot or the freedom of the ordinary British family when clearly it has worsened the lot of ordinary people when used everywhere else. At least the right hon. Gentleman has a coherent position which we can discuss.

It will be stimulating for us to debate this view with the Opposition in the next 10 years. I hope to take part in many debates on whether the Cambridge school type approach is relevant. But I do not know what is the strategy of the Leader of the Oppositon and the Shadow Chancellor. I came to realise that their desire was to keep in government at any cost. For what purpose, I and the electorate failed to discover.

My right hon. and learned Friend's Budget strategy has been described as a high risk strategy. So be it. It may require some risks to arrest our ever-accelerating rate of decline. However, our determination as a party was never in doubt and was never hidden during the election campaign.

In a debate before the election I said: The British people will have to decide whether they seek a new Government that actually will change, to try to bring it about and perhaps fail, or whether they prefer to face another five years of sermons from a suffragan bishop pussyfooting around the problems, while things increasingly run out of control."—[Official Report, 25 January 1979; Vol 961, c. 810.] The choice was offered to the electorate. They decided what they wanted. Now the Government will meet their manifesto commitments and do their best to put things right.

4.47 p.m.

Mr. Eric G. Varley (Chesterfield)

We are told by reliable journalistic commentators that the new Government are divided into thin men and fat men. The thin men are more fanatical and more frightening. Apparently, for these purposes, the Chancellor of the Exchequer, who is comfortably built, is a thin man. The Prime Minister, who is undoubtedly slim, counts as a man for the purposes of the definition. For the Secretary of State for Trade, no qualification of any kind is necessary. He is the thin man in person. Usually, when he comes to the Dispatch Box, he tries to put forward his party's ideology with conviction and zeal. However, I am afraid that he has not done that today. Today's was one of the right hon. Gentleman's not so good performances. Usually we look forward to listening to the right hon. Gentleman, but today he even resorted to quoting his own jokes.

The Secretary of State said that my right hon. Friend the Member for Hey-wood and Royton (Mr. Barnett) was worried because the Government believed what they said. The Secretary of State says that he believes what the Government say. I am not sure that in a year's time he will believe it when he reads some of the things that he has said today.

It does not worry me in the least that the Tories should have wagered their future on the biggest political gamble the country has seen for a generation. What is worrying is that the future of the country for many years depends upon the success of that gamble. Like all my right hon. and hon. Friends, I profoundly disagree with the analysis behind that gamble. All the same, I honestly wish that it would succeed. If the policies of the Budget, for example, could really galvanise the economy, at any rate the next Labour Government would have a going concern to take over, even though they would have to put right some of the unfairness, the inequity and the meanness that motivate Tory philosophy.

What I find exceptionally disturbing is that this Budget, pretty well against everything else, really does confirm that unfairness, that inequity and that meanness. What is even worse is that the Government are bound to fail, in my judgment. They are bound to fail in their own terms, because what the Chancellor of the Exchequer said last week is a recipe for soaring inflation, rising unemployment and industrial decline. At the end of what already promises to be a very negative, depressing Parliament, a Labour Government—for the third time in 20 years—will have to come to power again and rescue the country from the mess.

The Tories are obsessed with the idea that to get the British economy moving again they must make room for what they call private enterprise to invest by reducing the activities of State industry. I understand that they call this process "rolling back the frontiers of the State". I accept that this is very sincere Conservative ideology: it is their ideological belief. But where would British industry be today if that belief had been translated into reality over the past few years? The biggest industrial investor in the country is the Post Office, in telecommunications, as hon. Gentlemen know. Do the Tories really want to cut that investment down? If they do, I warn them that the howls they receive from some of their friends in Plessey, Standard Telephones and Cables, and GEC will be worth listening to.

Under private enterprise, for example, the steel industry lamentably failed to invest and left us with one of the most backward and primitive steel industries in the developed world. The publicly owned British Steel Corporation has had the biggest investment programme in the whole of the Community and is now on the way to becoming one of the best-equipped steel industries in the world. Do the Tories really want to cut that investment down? Again, if they do, the howls they will receive from the privately owned steel plant manufacturers will be worth listening to. I expect that some of them contribute to Conservative Party funds.

Our coal industry is in the middle of a major investment programme. Are the Tories really going to cut that back as well? If so, when this Budget is deliberately seeking to cut back oil consumption by imposing a swingeing inflationary penalty, this Government would be insane to handicap our most reliable source of indigenous fuel.

After years of neglect in some of those industries, we come to some of the manufacturing industries which have always inspired the enthusiasm and attention of the Tory Party. There has been almost criminal neglect of investment in the motor car industry, particularly in British Leyland. Are the Tories going to cut back investment in British Leyland? If so, I can tell the right hon. Gentleman and his friends that the car workers of the Midlands, who swung to the Tories last month, will have something to say about that. I assure the new hon. Members for some of the Birmingham constituencies and Oxford that their constituents are notoriously fickle, and that they will be ready to punish them if they do that.

If the Chancellor is not going to cut investment in Post Office telecommunications, in steel, in coal and in British Leyland—I see that he is not taking much interest in the debate—how will he make room for the massive increase in private investment by rolling back the frontiers of the State? He certainly will not do it, from what I can make out from the documents I have read, by cuts in the Department of Industry's expenditure on industrial support. That cut of £210 million will certainly be damaging to industry and will be a vexing interference with the work of the National Enterprise Board. However, £210 million is but a drop in the ocean of public expenditure of over £70 billion. It will not come from the Department of Industry; not on the basis of £210 million. Nor will it come from the plans to raise £1 billion by selling off State holdings to make room for massive additional private investment.

Of course, this selling off of assets, this ideologically motivated looting, is utterly deplorable. The handing over of the rich pickings of British Petroleum, Ferranti and ICL to the Tory Party's friends in the City will not generate an extra penny of industrial investment. So this grandiose rolling back of the frontiers of the State will certainly create a gap which will not be filled by the generation of massive investment at home. Far from it. By relaxing the restraints on capital investment abroad—the right hon. and learned Gentleman has just approved this and given it a great boost—the Government are making sure that the domestic investment gap will be widened absolutely. The Budget will ensure that the one booming British export will be the export of investment.

That, of course, will be the export of jobs. There will be more unemployment to add to the extra unemployment that can be expected to be created by the Government's public expenditure cuts. Where is the increased domestic investment to come from? The Chancellor and the Prime Minister showed a touching faith that industrial activity will be galvanised by income tax cuts. That is the thesis on which this Budget has been proposed. Those who benefit most have already got pretty excited about these taxation cuts.

Hon. Members will, no doubt, have seen in this weekend's financial press an advertisement by a unit trust which says: Budget makes high income more attractive than ever. One can certainly say that again. The Chancellor and the Secretary of State for Trade hope that tax exiles will come streaming back to Britain to set up new enterprises which will outstrip the Japanese. On television last Tuesday the Chancellor waxed eloquent about the prospect of pop stars returning to Britain—pop stars, returning group by group I suppose. The Chancellor's vision is of a new dynamic Britain with Tom Jones and Rod Stewart and Engelbert Humper-dinck all coming back to Britain to set up a silicon chip factory on Merseyside. That is the vision of the Conservative Party. One is almost moved to tears by the sheer idealism of it all. I ask hon. Members to listen to the words of the Chancellor of the Exchequer: Government Departments and other bodies have spread their activities too widely, drawing in resources and skilled manpower which ought to be more productively engaged in private industry and commerce. Our object is to lessen Government interference and reduce Government subsidies; to extend the opportunities for profitable enterprise; to widen the area within which industry rather than Government will take decisions."—[Official Report, 27 October 1970; Vol. 805, c. 38.] Will they get a cheer? It is getting a cheer, is it? They are not the words of the present Chancellor of the Exchequer. The Chancellor whose words I am quoting is the right hon. and now the noble Lord Barber. In that statement he told us of all the wonders that would be performed by a cut of six old pence in the standard rate of income tax. What a cut in the standard rate of 3p.—7.2 old pence—is forecast to achieve in this Budget, a cut in the standard rate of 6 old pence—2½p—was designed to achieve eight and a half years ago.

The Secretary of State at some stage in his career went into the Treasury and saw all of that happen. After the Budget a Conservative Back Bench Member saw me in the corridor and said "We ought not to get too euphoric. We have seen it all before." Of course we have. We saw an investment famine so dire that the right hon. Member for Sidcup (Mr. Heath) promenaded from one business men's forum to another fruitlessly begging private industry to invest. The result of all of that was stagnation and 1 million unemployed.

This was not during a world recession but during an international boom. The remedy to that was the Industry Act of 1972, to which the Tories were forced to resort. That was the most interventionist industrial Act of Parliament that has ever been passed. Incidentally, it was an Act which was bitterly fought tooth and nail by the present Chief Secretary to the Treasury, who is not on the Government Front Bench at the moment, although I do not make anything of that. Several other Tory members also opposed that Act, including the hon. Member who now represents Knutsford (Mr. Bruce-Gardyne).

The Chief Secretary has certainly seen all of this before. I have the feeling that within a couple of years the right hon. Gentleman will have returned to his natural and comfortable position on the Back Benches, from where he will be criticising the inevitable panic U-turn which lies ahead. We await that time with great interest. Even Lord Barber did not add to his package the most negative of all the announcements made by the Chancellor last week, an increase in minimum lending rate. What pandemonium there would have been from the Tory Party if, in his Budget, my right hon. Friend the Member for Leeds, East (Mr. Healey) had announced an increase in minimum lending rate—had the Labour Party been returned at the last general election. What pandemonium there was from the Tories when MLR was increased during the period of the last Labour Government. The House ought to hear some of the more choice morsels.

The right hon. Member for Henley (Mr. Heseltine), now the Secretary of State for the Environment, when MLR went up in October 1976 by 2 per cent., told the bewildered ladies at the Tory Party conference: How much harder it will be to find opportunities for profitable investment after today's announcement that a record crisis rate of interest is now to pervade the whole of the domestic economy. … It will destroy jobs and savings, investment and profit. "Maggie the Milk Snatcher" was not prepared to allow "Michael the Mace Snatcher" to upstage her. The right hon. Lady, then the Leader of the Opposition, told the Tory Party conference on the Saturday following her right hon. Friend's speech: The Government have chopped and changed … they have created confusion and uncertainty. They have raised the cost of borrowing to intolerable heights … no wonder investment in industry has slowed to a crawl. The right hon. Lady always feels passionately about increases in the minimum lending rate. When it was raised from 10 per cent. to 12½ per cent. in November last year, she said from the Opposition Front Bench: those who will bear the increase to 12½ per cent. are the home owners and the small businesses—the very businesses that are trying to expand and make more jobs"—[Official Report, 9 November 1978; Vol. 957, c. 1181.] The right hon. Lady had particularly strong feelings about a rate of 14 per cent., the very rate announced by the Chancellor last Tuesday. She told the House in February: an increase in interest rates to 14 per cent. is a potential disaster for home buyers. Is it not the case that it is the home buyer and the small business who are having to pay the price".—[Official Report, 8 February 1979; Vol. 962, c. 550.] That was what the Prime Minister said from the Opposition Front Bench four months ago. Now she is "Mrs.14 per cent."

Everything is stated quite clearly in what will surely be the longest surviving piece of writing by that noted Sunday Telegraph and Spectator journalist, the present Financial Secretary to the Treasury. He is not on the Front Bench although we are supposed to be debating the Budget. On the title page of the Financial Statement and Budget Report the hon. Gentleman is revealed as the author. It states: Treasury Chambers, 12 June 1979—Nigel Lawson. The Financial Statement and Budget Report states that investment by manufacturing industry rose by 6¾ per cent. in 1977 and by 8 per cent. in 1978. It goes on to say on page 4 that Total investment for use by manufacturing industry, including capital expenditure by non-manufacturing companies on assets for leasing to manufacturers, probably rose by about 9 per cent. last year. The report goes on to tell us that consumer spending continued to rise between the two halves of 1978.

As to the prospects for the coming year, the Financial Secretary tells us on page 9 of the Financial Statement and Budget report: The prospect is for a small fall in the level of total output over the next year … Domestic demand is weak because of the effects of the Budget and because private sector investment—both in fixed assets and stocks—is passing a peak. The Financial Statement also tells us that under the Labour Government investment and consumption were rising. Under the Conservative Government investment will fall and demand will be weak. This will be as a direct result of the Budget we are now debating.

Less than seven weeks ago millions of voters were deluded and misled into electing a Conservative Government on a manifesto which gave this promise: Lower taxes on earnings and savings will encourage economic growth. It looks as though the Government are set to break many records.

Mr. Nott

Perhaps the voters looked at the figures rather more carefully than the right hon. Gentleman and saw, and felt deeply, that their real personal disposable incomes rose by only 4 per cent. during a full five years of Labour Government whereas they rose by 17 per cent. during the years of the previous Conservative Government.

Mr. Varley

What the right hon. Gentleman always fails to understand in these arguments is the nature of the world economic crisis. What he avoids, what he skates over, is the fact that in 1978 not only was inflation coming down but interest rates were much more favourable. Investment was rising, as was personal consumption. Month after month the unemployment figures were coming down. I doubt whether this year, or even next year, the Government will be able to claim that kind of record. The point about this Financial Statement is that part of the decline which will take place is due to the effects of the Chancellor's Budget. I do not think that he will deny that this evening.

The Government are set to break many records. They will break records on inflation and unemployment and they might even break records on provoking industrial disputes. They have already created an all-time record for the speed with which they have broken their key election promise. It was Aneurin Bevan who asked "Why look into the crystal when you can read the book?" We are fortunate in having two books. We have the bound volume of Hansard for 1970, covering the Barber period and the same sort of Budget and tax reductions which took place then, and we have the Financial Statement and Budget Report which will certainly go down as one of the best "Lawson" sellers for centuries.

This Government are practising the old familiar journalistic deception. The headline says one thing—"Tax cuts will boost investment"—and buried away at the bottom of the story is the admission that investment is on the downward trend and that the Budget will depress demand. The Chancellor and his team need have no worries about their future because, when they lose office on the basis of what we have seen, they will immediately be signed up by the Daily Mail or The Sun.

It has been said that history repeats itself twice, first as tragedy and then as farce, but this Budget is no joke. It is planting the seeds of a grave economic crisis which will cause hardship and suffering to the whole country, and for that reason we shall be voting against the Government tonight.

Mr. Deputy Speaker (Mr. Bernard Weatherill)

May I make a plea for short speeches in this important debate, since there are many hon. Members wishing to catch the eye of the Chair.

5.10 p.m.

Mr. William Clark (Croydon, South)

We have listened with interest to the right hon. Member for Chesterfield (Mr. Varley), but I am sure that the House will deplore the personalities and attacks of that kind to which he descended.

I think that the right hon. Gentleman, misses the point in his references to tax exiles. It may be that some tax exiles will not come back, but now that we have reduced taxation it is possible that more people who are here and who are thinking of emigrating will not emigrate. This process has been going on certainly during the past four or five years.

The right hon. Gentleman tried to pour cold water on the Budget, but I congratulate the Chancellor on it. It is an exciting Budget. For too long we have lived in an air of lethargy, under the illusion that high taxation was inevitable and that nothing could be done. In this Budget we have a change of direction, and that change of direction is what the voters wanted. On 3 May, by an overwhelming majority, they put the Conservative Government into office. I know that the Opposition do not care to be reminded of it, but they returned a Conservative Government on the simple premise that in relation to direct and indirect taxation we had to change course.

We know that there are still wreckers in our society, and I am sure that everyone deplores the recent statements of some trade union leaders that they will present united opposition to the Budget. I think that all credit should go to Mr. Gormley for dissociating himself from that sort of attack, and I say the same also about the Leader of the Opposition, who has said that if there is to be a fight against this Budget, let it be through the ballot box and not through trade union action.

This is an incentive Budget. A lot of hon. Members on the Opposition Benches do not understand the difference between direct and indirect taxation. Direct taxation is a compulsory tax. Indirect taxation is not in the same way. In the first place, it does not apply to necessities, to food, children's clothing, heating, lighting and so on. In fact, it is a voluntary tax and there is an element of choice in it.

Under this Budget, direct taxation will be bringing in 45.4 per cent. of total tax revenue and indirect taxation will be bringing in 54.6 per cent. Income tax is lower and indirect taxation is higher than under the Labour Government, but I am convinced that the high direct taxation regime which we have had has not worked and will not work. We must try something different, and I believe that the shift from direct to indirect taxation which the ordinary person in the street understands is a step in the right direction.

If I have a criticism—I say this constructively—I think that we might have taken an even higher proportion through indirect taxation if we had been more ready to increase the tax on tobacco and alcohol. However, there will be other Budgets, and I suppose that one of the reasons for what my right hon. and learned Friend did on this occasion is that alcohol and tobacco figure in the cost of living index. I am not sure that this is right, and I say that as a user of both, so I am not trying to be pious. In my view, both those items are really luxuries and should not figure in the cost of living index. Nevertheless, we can come back to that in a subsequent Budget.

I am sure that everyone is delighted with what has been done for the investment income surcharge. It means without doubt that, with the higher threshold of £5,000, saving will be encouraged, and I am sure that both sides of the House agree that we must do everything possible in our economy to encourage saving.

Because the reduction in income tax will leave more money in the hands of workers and earners, there will be a psychological effect on men and women when they consider whether to increase their income. What they do with their money is their own choice, and I believe that the change which the Chancellor has made will be successful.

Admittedly, some prices will rise because of the imposition of a higher rate of VAT but, frankly, I do not think that we should overplay this. In the first place, VAT does not apply to essentials. Hon. Members opposite may smile at that, but let them read the VAT regulations. On non-essentials the maximum price rise will be 6½ per cent. and on a lot of non-essentials the rise will be 26½ per cent.

Our rate of VAT is still one of the lowest in the EEC. Other countries realise that indirect taxation is a much better way of raising most of the taxation necessary, so that there is an incentive for a person at work to take home more in his pocket and spend as he and his family wish.

I have one other regret about the Budget, and I believe that this problem must be dealt with soon. In some cases it is better for a person not to work than to be in work, and we certainly must come back to this anomaly. I appreciate that in six weeks my right hon. and learned Friend cannot cover the whole gamut of what we want to do, but there remains this anomaly in our social security system. No one would deny to pensioners an increase in income, but it must be remembered that their pensions are taxed and all other social security benefits are not taxed. Beveridge did not think that that was right at the start—he thought that they ought to be taxed when the system was first brought in—and I hope that my right hon. and learned Friend will come back to the matter. No doubt, we shall be able to resuscitate something on the lines of the tax credit system.

Small businesses have been helped. I shall not go through the various ways in which they have been helped through the exemption limit on small profits and so on, but we must help them to achieve more expansion. Help to small businesses is not only a Budget matter, since we have to take other legislation into account, namely, the Employment Protection Act, though I shall not go into that now.

Again on the subject of VAT, I think that it would not be a bad idea if we were a little more flexible in its imposition. It might be a good idea to apply some thought to giving a VAT tax holiday expecially to companies with new inventions and so on. I believe that this would help to get them off the ground and be of considerable value.

As matters stand, we must do more to encourage self-help. It is both better and cheaper for the country to have more done through voluntary effort. For too long we have thought that the State should provide all the social services and the rest, and I should like to see an extension of public service on a voluntary basis. I am thinking here not just of the Territorial Army, the lifeboat men, the WRVS and so on but of the whole gamut. We should encourage this kind of service.

I have always felt that one of the meannesses of the Inland Revenue is the way in which it treats certain voluntary work. For example, lifeboat men receive a small bounty each time they go out, and it is taxed. How mean can one be? But that is a minor point, and I leave it at that for the moment.

This is a bold and imaginative Budget. We have tried all the alternatives. We have tried all the Left-wing ideas. We have tried the Tribunite ideas, and we have tried an amalgam of ideas between the Tribunites and the moderates in the Labour Party. It has not worked. But now we have the first of, I hope, many Budgets introduced by my right hon. and learned Friend the Chancellor of the Exchequer—though I must add that I hope that they will not come round with the same monotonous regularity of three a year as they did under the previous Chancellor.

The Budget has helped managers. It has helped the low-paid. Let the Opposition remember that 1.3 million people have been taken out of the tax bracket. Of course, one could do more, but one can only do in one Budget what is possible in relation to the available financial resources.

Sterling is stronger, partly because of the MLR and partly because of the lifting of the exchange control restrictions. If sterling remains strong, imports will be cheaper. We must concentrate on exports. In many instances exports are lost not because of uncompetitive prices but because of deficiencies in delivery, quality and after-sales service. My right hon. and learned Friend realises that price plays an important part in exports, but that it is not the only part.

I hope that before the end of this Parliament—and that is another five years—the Government will cut the top rate and the basic rate of income tax. That will eventually mean that the Government may abolish the surcharge.

One understands why the Chancellor had to increase the minimum lending rate. I hope, as many others do, that that will be temporary. However, cuts in Government and local authority expenditure are all important. Let us make no mistake. When these cuts come, as they will in the future, everybody will pay lip service to cutting Government and local authority expenditure until it hits their own hobbyhorse, when they will say "No". Their response will be "Cut expenditure, but do not cut mine". We must move away from that attitude. We must cut bureacracy. The action taken on the cash limits and money supply will help in that direction.

I congratulate my right hon. and learned Friend on introducing a Budget that is a step in the right direction to prosperity.

5.21 p.m.

Mr. J. Enoch Powell (Down, South)

All Budgets are to some extent mythical creatures comprising a considerable admixture of illusion. That is probably the reason why they appear so different after the lapse of several days from their first introduction. However, this is a rather more mythical Budget than most. The student of what the Chancellor of the Exchequer has done finds himself constantly trying to wrestle with these myths rather like the figure in Greek mythology who attempted to embrace a cloud.

One of the myths was implicit in much that was said by the hon. Member for Croydon, South (Mr. Clark). The Chancellor of the Exchequper referred in his speech to rolling back the boundaries of the public sector".—[Official Report, 12 June 1979; Vol. 968, c. 246.] The right hon. and learned Gentleman was extremely careful in the phraseology of the sentence in which he embedded that phrase. He did not say that in the Budget he was doing that. However, it has passed into common belief that it is a Budget that has "rolled back the boundaries of the public sector." That is a myth which is worth brief examination.

The most natural criterion to take in judging where the boundary lies is to consider what has happened to Supply and Consolidated Fund expenditure—the current demand of the Government upon goods and services.

On the surface there has been a reduction in the Budget of about £1,700 million in the Government's Supply and Consolidated Fund expenditure. However, an examination of the contents of that £1,700 million discloses something very different. There is included not only the £35 million yield of additional charges—which is an increase in taxation and not a reduction in expenditure—but the £250 million reduction in the contingency allowance, a mere presentational change which has nothing to do with the reduction of expenditure. But the great majority—£1 billion out of £1¾ billion—has not yet been secured and belongs to a long historical series of disappointed hopes of Chancellors of the Exchequer. This £1 billion saving is to be generated by the imposition of cost limits less than the expected going rate of inflation. That is anticipated to generate a friction which will produce cuts of 3 per cent. overall. Sir, this is only a very old friend in a relatively new guise—an old friend, that is, beloved initially by all Chancellors through the ages, namely, a level cut "across the board", in this case 3 per cent. The Chancellor has decreed his 3 per cent.; he has taken credit for it in his Budget; but it remains to be seen whether that will be the result of the intended friction between the lower cost limits and the higher rate of inflation.

So the £1,700 million worth of reduction in public expenditure, in Government claims upon goods and services, belongs rather to the future in so far as it is not purely presentational. It would not be true to say that the Government have tried to have their cake and eat it. They are are trying to have their cake before they have baked it.

Let us, then, consider another criterion for fixing the boundary of the public sector—the level of taxation, the amount raised from the public by way of taxation. That sum has been diminished by slightly over £1 billion net in the Budget. That is, again, partly presentational, because the contribution towards the cost of the increases in benefits in the autumn is deferred conveniently just beyond the threshold of the next financial year. The Budget contains no allowance for the increases in contributions which will match the increases in benefit. However, in any case, a given reduction of net taxation does not in itself necessarily connote either that particular readjustment of the boundary between the public and private sectors or even any readjustment at all. That depends upon whether the Government are increasing or decreasing their sources of finance from elsewhere.

So we come, as I suppose we are bound to come in a Budget debate, to the public sector borrowing requirement, one of the oldest of our old friends. At first sight, the Government may claim something substantial. In appearance £2½ billion has been struck from the public sector borrowing requirement, or from what the PSBR would otherwise have been; but it is worth considering the composition of that total of £2½ billion. Rather less than £600 million is due to the excess of reduced current expenditure over net remission of taxation—only £600 million of the £2½ billion is in any way earned, even in a budgetary sense. It is to be noted that a further £500 million is from "other funds and accounts "which may be found in table 15 if hon. Members can overcome their distaste of examining that table in the Red Book. The Secretary of State for Trade, who is an old Treasury hand, will bear me out that this is a sum that fluctuates wildly and even unpredictably from one year to another, but of which the variations do not represent any lasting or intended readjustment of the boundary between private and public sectors. Of the remainder of the £2½ billion, £300 million is represented by reduction in loans to public corporations and £1,000 million is the cash proceeds—not yet, of course, accrued—of the sale of public assets, especially BP shares.

So there are the net contents of the £2½billion retrenchment of the exorbitant net borrowing requirement, which there would otherwise have been, down to the level current last year: the public sector borrowing requirement is kept at the level budgeted last year. In other words, there has been no shift, no traceable shift, between the public and private sectors. In fact, the Chancellor is so anxious—and rightly anxious—about the size of the public sector borrowing requirement that he has put up the minimum lending rate to 14 per cent., so that those faced with issues of gilt edged in the coming months will conclude that in the near future the movement of interest rates is more likely to be downwards than upwards.

Mr. Nott

The right hon. Gentleman has forgotten that the gross national product is rather higher this year than it was last year. Therefore, even if the borrowing requirement were precisely the same, there would have been a shift. In fact, it is lower.

Mr. Powell

Yes, it is a lower proportion. That is why I mentioned the evidence given by the Budget itself. I assume that the right hon. and learned Gentleman did not increase the MLR out of the gaiety of his heart. It shows the anxiety felt by the Chancellor at the size of the borrowing requirement.

The right hon. Gentleman the Secretary of State for Trade has much deterred me from resorting to quotations from the Financial Statement and Budget Report. I have been greatly upset this afternoon by hearing a fellow former Treasury Minister treat with such levity, even contempt, the contents of this document, to which hitherto a certain amount of respect had attached. One had assumed that Treasury Ministers had read it and that they would have removed those items, even if they did not actually alter them, with which they were in disagreement or which they found embarrassing. Nevertheless, the test of the matter as to the boundary of the public and private sectors is to be found at the bottom of table 4. It will be noted that these are percentages, for the benefit of the right hon. Gentleman— Second half 1978 to first half 1980 That spans the effects of the Budget. There we find "gross domestic product" at minus 1 per cent., and General Government expenditure on goods and services at minus ½ per cent. So on the evidence—admittedly much scorned this after-noon by its own producers—of the Financial Statement and Budget Report we may take it that the caution of the Chancellor of the Exchequer in referring to rolling back the boundary of the public sector was well justified. He, at any rate, knew that that part of his Budget was, as are so many parts of so many Budgets—I hope I cause no offence to former Treasury Ministers who may be listening—all done by mirrors.

There was another part, however, which was not illusionary but was reality. The myth in this case attaches to the interpretation. For there has indeed been an actual and major shift in the incidence of taxation: Inland Revenue minus £3½ billion; Customs and Excise plus £2½ billion. There is no doubt about the factuality of that shift. There has been a net shift. Two and a half billion pounds has been taken from one form of taxation and is now borne by another form of taxation. The trouble comes in the interpretation.

Here I must take issue with many on both sides of the House who have hailed this or denounced it—mostly denounced it—as self-evidently inflationary. It is nothing of the kind. Suppose that a Government could contrive to put a uniform tax on everything—a tax where no tax had previously existed. "Oh", thinks everybody, "that would put prices up." But it would not put up prices in itself. It could not do so, because there would not be the additional money in circulation to sustain an increase in all prices. With that in mind, let us consider therefore the actual effect of what has been done in the Budget.

There was a useful triangular exchange on this subject earlier this afternoon involving the Secretary of State for Trade, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and myself, which cast a preliminary gleam on the point that I am making. What happens when indirect taxation is increased on one article, on several articles, or on a group of articles? It is not that all prices are increased to that extent. It is that there is a shift in the general pattern of prices. The effect is on relative prices, but not on the general level of prices or value of money.

The retail price index is too often taken simultaneously in two distinct senses—two senses which it is fatal to confuse. We use the RPI as a rough and ready measure of inflation, of the rate of fall in the value of money. Of course, it is not perfect for that purpose; but, by definition, there can be no perfect index of the fall in the value of money—the attempt to produce a perfect index is necessarily self-defeating. But the RPI is not a bad means, over a short run of years, of giving a rough impression of the magnitude of the fall in the value of money or of the general rise in prices.

The RPI is, however, composed of individual items, and things begin to go wrong when people get hold of an individual item in the RPI—one, for example, on which a new or increased tax has been imposed—and find that it will increase by such and such per cent. Then, having applied that to the percentage weight of the item in the RPI as a whole, they announce "This tax change will increase the RPI by such-and-such per cent."

This is a vulgar delusion. It is part of the greater delusion of supposing that inflation is the sum total of individual price increases, when it is nothing of the sort but the evidence of something quite different that is taking place—something that is happening to money in relation to production.

It is fallacious to calculate the effect of the increase in VAT and, having worked it out at 4 per cent. on the RPI, to say "That is why the Government are expecting the rate of inflation, RPI-measured, in the autumn of this year to be 17 per cent. and not 13 per cent." If they are expecting 17 per cent. by the autumn, it is because they know that 17 per cent. inflation is going to be financed in the autumn. A slightly different element in the pattern of the RPI, come the autumn, will be represented by the items which carry VAT; but it is not the increase in VAT, nor can it be any other price increase, which will cause the 17 per cent. inflation which the Government anticipate by the end of the year—indeed, even more than that figure.

The consequence of this massive shift from Inland Revenue to Customs and Excise is not that it is inflationary—it cannot be inflationary; that is nonsense—but that it will take £2½ billion out of a different set of pockets than those from which that sum would otherwise have been taken. That is the consequence and the intention of the tax shift. Therefore, we are beholden to consider what sort of pockets they are in the two cases.

There was an interesting remark this afternoon that fell from the Secretary of State, I think almost unawares. When he was hard pressed at a certain point in his speech he said "Well, you see, as VAT does not fall on certain essentials, this will make those essentials cheaper and all other items which carry VAT dearer".

Mr. Nott

Relative to other things.

Mr. Powell

Relatively, yes—that is what we are talking about. I do not disagree with that; but it does not alter the fact that the pockets from which the £2½ billion will be extracted by an increased tax upon purchases, upon purchases to which VAT applies, are substantially different from the pockets from which that £ 2½ billion would otherwise have been extracted. There may be exceptions here and there, but, taken generally, the pockets from which that £2½ billion will now be extracted are the pockets of those on lower incomes than those from which it would have been drawn if that transfer had not happened. This is essentially a regressive redistribution of the tax burden. It is not inflationary; it is regressive.

I am terribly disappointed to see the right hon. Gentleman shaking his head there, because I thought that was the one proposition I was putting forward which the Government would not only accept but to which they would retort "But did you not listen to the Chancellor's speech? That is exactly what he intends to do. There would have been no point in the Budget if the nature of the pockets from which the £2½ billion is to be drawn in future were exactly the same as it otherwise would have been."

Mr. Nott

Of course they are different pockets. I was disagreeing only with the right hon. Gentleman's statement that the switch is regressive. That is what I was disagreeing with. That was certainly not the view of the previous Government. Without going much deeper into a whole host of surveys, such as the family expenditure survey, the right hon. Gentleman really cannot make a bald statement which is quite contrary to what this Government think and what the previous Government said.

Mr. Powell

Certainly it would not be regressive if the two pockets were the right and left pockets of the same individual. But here once again the Government are in this difficulty: if they are to argue that this is only a transfer from one pocket to another of the same individual, the whole dynamic effect which the Budget is intended to have, of rewarding and encouraging certain activities, certain kinds of people and certain elements in the economy, is destroyed.

That brings me to the third and most prominent myth which has gone into the composition of this Budget, namely, the incentive effect that is supposed to attach to the reduction in the level of direct taxation. In order to explode that myth it is not necessary to argue that people enjoy being taxed; but it is necessary not to treat people of any walk of life as automata, nor the economy as a kind of marionette, which Governments and Chancellors of the Exchequer can operate by lifting a leg here and depressing an arm there, through alterations in the tax system.

That a remission, be it 3p or 10p in the standard rate, produces an incentive is not only, of course, by its nature not directly proven but runs counter to the deeper and subtler true motivation of the behaviour of individuals, groups and classes. The proposition that people will work harder or longer for 3p off the standard rate of income tax, let alone that they will work more effectively—which is what we are talking about— betrays a crass misunderstanding of human nature, individual and social.

The reasons why people address themselves collectively and individually to their activities, and the reasons why at one phase of a nation's history they direct them in one way rather than another, are far deeper, more complex and more subtle than can be reached by a remission of income tax in a single Budget or even in a series of Budgets.

This heresy of the Government, the heresy of motivation through variation in the difference between net and gross income, is only a part of the Government's fundamental error, an error which featured early in the Chancellor's speech where he said that the hard Fact of our relative decline has become increasingly plain, and the threat of absolute decline has gradually become very real".—[Official Report, 12 June 1979; Vol. 968, c. 237.] I profoundly reject that conception and the modes of thought which assert that there has been either a relative—if we be compared with our Continental neighbours—or an absolute decline in the quality of life in this country. If it has occurred—and a case could be made that in certain aspects of our life there has been a deterioration—it would be in aspects which are not measured or measurable by GNP, and still less by international comparisons of percentage variations of GNP.

It is a rank absurdity to suppose that the growth in well-being of respective nations can be read off on a sort of league table of the international GNP scales. There is not, admittedly, any other scale from which we can read them off; for they are incommensurable as between one nation and another, one society and another.

If we are failing, if the sum total of our pride and satisfaction and achievement is diminishing, I do not believe that it is in the power of Governments, through Budgets, to alter that course of events. Some say that this is a secular decline which has been going on for a century. If it has been going on for a century, so much the more profound, so much the more fated, must be the causes that lie behind it. What certainly will not turn a nation again is to be told to measure itself, to measure what it achieves, against an objective, mechanical, material standard by which its neighbours are also measured; nor to inform it that it will be given opportunity for renewed and wider achievement by a minor adjustment of the relationship between gross and net income. If a Government were to tell a nation that and the nation were indeed in a state of moral and physical decline, it would only encourage it upon that course.

I do not believe that the nation reacts to the sort of stimuli in which the Government apparently believe; and if the Government address the nation in the terms in which this Budget speaks, so much the less will the nation listen.

5.49 p.m.

Mr. John Bruce Gardyne (Knutsford)

The right hon. Member for Down, South (Mr. Powell) accused my right hon. and hon. Friends of seeking to eat their cake before they had baked it. One of the things that I have always admired the right hon. Gentleman for is his unlimited capacity to believe, apparently, two totally self-negating propositions at one and the same time. I always think that he is reminiscent of the late Dick Crossman in that respect. Those of us who recall Dick Crossman remember how frequently one proposition managed to destroy the validity of the one that immediately preceded it.

This afternoon the right hon. Gentleman asked the House to believe that the increase in VAT which my right hon. and learned Friend announced last week must be regressive because it was the counterpart of a regime of incentives. He immediately went on to say that there was no regime of incentives, which destroyed the whole validity and the logic of his proposition that the increase in VAT was regressive.

There were some elements in the right hon. Gentleman's analysis of the Budget with which I had some sympathy. I shall turn to those shortly. But I was astonished to hear the right hon. Gentleman apparently avowing—I apologise to him if I misunderstood him—that if we were to have a rate of inflation this autumn of 17½ per cent.—as my right hon. Friend the Secretary of State for Social Services suggested last week—this would be apparently because of the course of monetary policies which my right hon. Friends might be pursuing at that time in the autumn.

Mr. J. Enoch Powell


Mr. Bruce-Gardyne

I am grateful to the right hon. Gentleman for denying that, although I am bound to tell him that I think that that was the implication of what he said. Clearly, if we are to face 17½ per cent. inflation this autumn, it can be only as a consequence of the monetary incontinence—to use an old phrase—of the right hon. Member for Leeds, East (Mr. Healey).

Mr. Powell

I certainly accept—the hon. Member will not be surprised—that although one cannot precisely quantify it, there is a time lag between the beginning and the end of a cycle of monetary changes. But the Government themselves do not seem to believe this, otherwise they would not be adding their own 4 per cent. on to a previous 13 per cent., as though that difference in the rate of inflation under their own Administration was something which they were themselves causing. So the hon. Member is in fact with me against his hon. Friends.

Mr. Bruce-Gardyne

I think not, because the right hon. Gentleman seems to have overlooked something. The 13 per cent. forecast was the former Chancellor's forecast. It is now many months out of date. That is the 13 per cent. to which the right hon. Gentleman is now saying that 4 per cent. was added. I would be inclined to agree with the right hon. Gentleman that there are some grounds for scepticism about that inflation forecast based on the background of monetary growth which it should reflect. But then, as the right hon. Gentleman seemed to indicate—and I would agree with him—the authorship of the Red Book and the Budget Statement seems perhaps to be rather different. I am led to speculate sometimes whether Sir Douglas Wass, who must have had a large hand in the preparation of the Red Book, might not more profitably be supported in the boardroom of the Midland Bank or somewhere else where one or other of his predecessors has gone before.

Mr. Powell

I should like to remind the hon. Member and to put on record that it is the Government themselves, in their Financial Statement, who say: The Budget itself is estimated to add about 4 per cent. to the RPI". So they do not agree with the beliefs which the hon. Member and I share as to the necessary causation of a given rate of inflation in the autumn of this year.

Mr. Bruce-Gardyne

As I say, I think that one can detect in the Red Book a certain amount of influence of what I would call the neo-Keynesian thinking which still holds a strong grasp on the affections of the knights of Great George Street.

However, I must revert to what I wanted to be my principal purpose this afternoon, which was to congratulate my right hon. and learned Friend on a remarkably courageous Budget. Bearing in mind the legacy which he inherited, a legacy of soaring inflation, Government expenditure rising rapidly out of control, consumption going entirely on imported goods, a loss of competitiveness which was daily becoming more acute, inflation accelerating rapidly and unemployment soon to follow, and monetary controls which had slipped way beyond the previous Chancellor's own targets, it was a prospect to make strong men blench.

My right hon. and learned Friend did not blench. He stuck to his intentions, and he is to be congratulated enormously upon that.

The other day I encountered a friend of many years' acquaintance who now holds a relatively senior executive position in industry. He has always been totally sceptical about the works of politicians of all parties. He said to me "Do you know, I nearly wrote to the Chancellor after the Budget". I thought "My God, what will come next?" But I was wrong. He said "I nearly wrote to the Chancellor because in all the years I have watched you politicians at work, this is the first occasion I can recall on which a Government have come into office and said what they intended to do and then proceeded to do it." [Interruption.] Opposition Members do not like it. They were beaten on this programme and they will have to learn to live with their discomfiture.

I think that we as politicians, of all parties, tend sometimes to underestimate the damage which is done to the political system by a failure to honour the undertakings on which a party has sought the endorsement of the electorate. We have done that.

Mr. Robert Sheldon (Ashton-under-Lyne)

Will the hon. Gentleman give way?

Mr. Bruce-Gardyne

Mr. Deputy Speaker has asked us not to take too much time.

Mr. Rooker

We are still having a debate.

Mr. Bruce-Gardyne

All right.

Mr. Sheldon

The hon. Gentleman is quite right. This is a Budget which is not liked much on the Opposition Benches. But I fail to see how the hon. Gentleman can deny, as he did earlier, the regressive nature of this Budget, bearing in mind that according to the Red Book the changes in the higher special rates are calculated to cost £662 million in a full year. This has got to come from somewhere. This is the very basis of the regressive nature of the Budget. Surely the hon. Gentleman will accept that, and even be rather proud of it, I should have thought.

Mr. Bruce-Gardyne

The right hon. Gentleman must argue this matter out with his right hon. Friend the previous Chancellor, who made it quite clear that he did not accept the view that VAT was a regressive tax, and with his noble Friend the former Chancellor of the Duchy of Lancaster who made it clear that the first of his priorities was to achieve a reduction in taxation at the higher margins—which my right hon. and learned Friend has now performed. I personally welcome that entirely. The right hon. Gentleman will not be surprised at that.

Shortly before the election I wrote a newspaper article, to which I am led to understand a number of Opposition Members devoted a great deal of attention. A fat lot of good it did them—looking at their denuded numbers today.

Mr. Bob Cryer (Keighley)

It did me a lot of good.

Mr. Bruce-Gardyne

The hon. Gentleman must be an exception, because the ranks of the Tribune group are sorely denuded after the experience of the general election.

However, the proposition I was seeking to advance in that article and to which I wish to return briefly now is simply this. I am very much in favour of the fundamental proposition on which we fought the election and to which this Budget is devoted. That is that there is a need for a drastic improvement in the incentives to effort, enterprise and individual industry.

If this Government are to renew their mandate, as they must at the end of this Parliament, it is also vital that we conquer and eliminate finally the scourge of inflation. The only way to combine those two objectives is by reducing substantially the proportion of our resources that is pre-empted by public expenditure. As the last Government demonstrated, the rate of inflation in the domestic economy can be controlled by rigorous control of monetary growth. But if at the same time public expenditure is allowed to soar out of control—as happened under the last Government—the private sector which is the wealth-creating sector is squeezed and shrunk until ultimately the tax base is not there. We need to pursue both those vital objectives.

In that context, I return to one or two points made by the right hon. Member for Down, South in the earlier part of his speech. My right hon. Friend the Chief Secretary the other day told the House that the public expenditure part of the Budget Statement was "only a preliminary package". That is right. The right hon. Member for Chesterfield (Mr. Varley) said earlier that the curtailments to the programme, for example, of the Department of Industry, were almost insignificant, and that is true. It takes time and great determination to carry through a substantial curtailment of public expenditure programmes, and this Government have inevitably started late in the year.

The right hon. Member for Chesterfield seemed to assume that public expenditure economies inevitably apply to the capital programmes. They did under the last Government, but we need to apply them to the current programmes. It is here that speed of execution is perhaps most difficult to achieve.

Nevertheless, I wonder whether we have not rested a rather heavy proportion of the economies that we have in mind for the year ahead on the system of cash limits. Last week at a meeting of the Chartered Institute of Public Finance and Accountancy, at Eastbourne, Sir Anthony Rawlinson, the Second Permanent Secretary to the Treasury spoke of two developments in the history of cash limits. I shall not bore the House with the first, but he said this of the second: the extent to which they are being operated so as to effect from the start a deliberate generalised squeeze on volume plans". The former Chief Secretary inaugurated that principle, and my right hon. Friend is only building on it. It will need great determination and vigilance to carry it through. Where economies are agreed on a departmental basis, it is relatively easy to make them stick. Where individual Departments state that they are up against their cash limits and ask whether to abandon a programme that is no doubt carefully selected for the nature of the political embarrassment that it might cause, it will require much more determination by my right hon. Friends to see that through.

That brings me to the area where right hon. and hon. Members on this side of the House and also those with the responsibility for management and direction in private industry will have a great duty to perform in the months ahead. There has been comment from critics of the Budget that when it comes to the point management will take the easy path and concede substantial wage increases way beyond the capacity of their firms to pay, in the expectation that if they run into difficulties my right hon. Friends will bail them out. That has happened all too often in the past. On Tuesday my right hon. and learned Friend made it crystal clear that it would not happen this time. It is essential if we are to bring inflation under control and keep it there that we persevere in that contention.

It would be a tragedy if those responsible for negotiating in the private sector should base their settlements on the assumption that my right hon. Friends could be persuaded to change their minds in that respect. The only consequence would be that we would be faced with unemployment over and above the horror story that the previous Government have bequeathed us.

The second respect in which nerves will be tested and determination tried is when it comes to the application of cash limits. Inevitably in many respects these will fall on the local authorities. I have no doubt that we shall all hear hard luck stories from our local authorities about the impossibility of achieving the economies that the Government's cash limits oblige them to make. Many of us will be pressurised to achieve relaxation in those limits, but I hope that the Conservative Party will recognise that every relaxation will be fed back into an acceleration in the long-term rate of inflation. That is where our objectives must lie.

I share to a small extent the anxiety of the right hon. Member for Down, South about the increase in the minimum lending rate. It will have a dramatic effect on the competitiveness of British industry abroad. If we take at face value the objectives of the PSBR, the money supply, and the fiscal balance that this Government have struck, we should not need a 14 per cent. minimum lending rate to achieve the sales in gilts required to make sure that monetary policy is once again brought under control.

If we can preserve our nerve and ensure that cash limits perform the purposes selected for them, and in the next Budget and the Budget after that build on what my right hon. Friend the Chief Secretary called the preliminary package of public expenditure restraints, then in that case, during the lifetime of this Parliament, the rewards of the Budget will be earned and reaped in terms of a stable currency and rising prosperity for all.

6.10 p.m.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

Until the hon. Member for Knutsford (Mr. Bruce-Gardyne) spoke, every speaker in today's debate has been either a Treasury Minister, an Industry Minister or a Trade Minister. The hon. Member for Knutsford might have been one—he was widely tipped to be one—but although he missed out he sounded like one, if that is any consolation.

I do not propose to follow him or the right hon. Member for Down, South (Mr. Powell) into economic theories of delusions and heresies, and so on. The hon. Member for Knutsford talked about the future hard luck stories of the local authorities. One of the features of the public expenditure cuts of this Government is that they fall disproportionately on the local authorities. It is as if the Government are afraid to do the dirty work themselves and have passed the responsibility on to the local authorities.

We cannot expect the local authorities to cut back on their programmes when we in this House, under successive Governments, have laid more and more responsibility upon them. Any attempt to do so will result only in the increased staffs, which we have seen in local authorities, being frustrated by being unable to have the cash to go ahead with the work with which they have been charged. I do not take lightly the prospect of the so-called hard luck stories, because I believe that will be very real difficulties facing local authorities in attempting to achieve Government targets.

I return to the opening words of the Chancellor of the Exchequer in his Budget speech. Unlike the right hon. Member for Down, South, I accept that his basic analysis is correct. Although I believe that it is very difficult to find precise comparative figures to draw up a league table of our standard of living compared with that of our European neighbours 15 years ago or 30 years ago, I can see with my own eyes that our standard of living in terms of our public services and individual affluence is not relatively as good as it was in the 1950s compared with the average Frenchman or German. My only quarrel with the Chancellor is that he chose the arbitrary period of 15 years because it happened to suit his case to go on to say that we have had Labour Governments for 11 of those years. This kind of superficial analysis demeans the Chancellor. The truth is that this has been a long-term decline in the economy in the post-war period.

It is no use blaming one Government or another. The fact that the decline has occurred is beyond doubt. The Chancellor's analysis of the lack of output per individual and the lack of money invested per employee is fairly familiar. But having made the right analysis the Chancellor then attempts to apply the earlier philosophy that was applied in 1970 and was found wanting. He starts the whole process again.

The shift in the burden of taxation is in the right direction. My party campaigned for it during the general election, as did the Conservatives. However, there are two or three major differences between us. It has never been part of our campaign that a shift in the burden of taxation itself would galvanise the economy. We saw this as part of an overall package of reforms. For example, the Government will have no form of pay policy at all. The argument they use against it is that any control over incomes is arbitrary and unfair. Yet the one form of pay policy which they refuse to rule out is a total pay freeze, which is the most arbitrary and unfair of all. That does not make any sense.

We, on the other hand, have argued that the successful management of the economy must include the Government dealing with the issue of pay and not dodging it. Related to pay policy we argued that there should be a greater development of policies of industrial partnership, industrial relations structures and profit-sharing schemes. We believe that these should play a greater part in the pay policy in the private sector.

Mr. Bruce-Gardyne

I totally and fundamentally disagree with the right hon. Member over pay and wage controls. I always have done. How on earth does he imagine that Government pay control in any shape or form can act as a stimulant to initiative and expansion of the economy?

Mr. Steel

On another occasion I hope that we shall have the opportunity to debate the contribution which profit-sharing schemes, for example, can make to the economy. The hon. Member has been a financial writer and he will know that several of his colleagues have remarked upon the success of the very modest scheme that was introduced in the Finance Bill last year. Liberals believe that we should build on that kind of thing. Our main thesis on pay policy is not that it has a galvanising effect but that it is an essential part of the Government's armoury in the battle against inflation.

My basic point is that the Government have relied wholly on the shift in the burden of taxation without any reference to any other matters. There is no doubt that the change of direction—which has been described by several Members as bold—is far too narrow in scope and far too sudden. It takes no account, for example, of the need to create an acceptable social and political climate throughout the country. We put forward our package of proposals for a four-year tax reform including a tax credit scheme to deal with the problems of the lower paid and the less well off in society. There is none of that in the Budget. The emphasis of this Government is on getting down the top rates, and that has been done in one fell swoop rather than in a series of gradual steps.

To justify that, the Government have produced some extraordinary statements. In his Budget speech the Chancellor said that many skilled workers were now over the £8,000 level of taxable income. That may be so in East Surrey but it is certainly not so in Roxburgh, Selkirk and Peebles. Indeed, I invite the Chancellor to call a public meeting in my constituency to address the many skilled workers whose taxable income is more than £8,000. I would be very surprised if he had an audience of more than one or two.

This is one of the elements in the Budget which the Government have chosen to ignore—the extraordinary regional variations in income in this country. These variations have occurred over a long period and no Government have done anything much to counteract them. Must we accept these variations? Perhaps we must, but the Government should be aware that such variations in income do not correspond with regional variations in prices. If one produces a Budget giving tax concessions which are of value to some parts of the country but not to others, but which have a uniform effect on price increases, then one is hitting the standard of living of some parts of the country much more than others.

Indeed, it is worse than that. As we all know, prices generally are not uniform. The price increases which the Government propose may be uniform, but the sad fact is that the cost of living and the price of the goods and services, particularly of transport, are often highest in those very areas in which the income levels are lower than average. This has been a very regressive Budget for those areas. The price increases will hit hardest in the areas where transport costs are already high and where income tax benefits will be marginal.

I do not see how I can possibly defend to my constituents a 10p increase in the price of petrol, which is an essential commodity in my part of he country. This increase is more than indexing the excise duty on petrol. This is particularly hard to justify when there has been no similar indexing of the taxes on drink and tobacco. The Government may shrug their shoulders and say that it is too bad that these distortions occur in some parts of the country, but it is my duty, representing one of those areas, to point out these facts of life to them. If they are not aware of these facts, they should be, and it is their responsibility to take note. It should not be impossible to reduce regional variations in the excise duty on petrol to take account of the fact that while we want to conserve our stocks of fossil fuels and lower consumption this can best be done by reducing the number of cars used in central London and not by hitting the private car in areas of the country where that vehicle is essential because of lack of public transport.

I turn to the swingeing increase to 15 per cent. in VAT. Towards the end of his speech the Secretary of State for Trade referred to the manifesto commitments. There was no manifesto commitment to increase VAT to 15 per cent. In fact it was quite the reverse. During the election, at a press conference the present Chancellor was asked about a suggestion that the Conservative Party would double the 8 per cent. VAT. He said That is a shameless lie. It was not increased by 10 per cent. but by 15 per cent. I do not call that a shameless lie—I call that a minor inaccuracy in the forecast.

The Government said that prescription charges had not been raised for eight years and that it was time they did something about it. That may have been a perfectly good case. However, why, during the election campaign, did the leader of the Conservative Party say specifically that the party had no plans to increase prescription charges? The Conservatives did not need to wait to come into office to look at the books—we all knew that prescription charges had not been raised for eight years.

Those sorts of statements, made during an election campaign and followed by contrary action so shortly afterwards, only diminish the already large gulf of credulity which exists between politicians and the public. There is too large a gap between promise and performance in politics.

The Chancellor was challenged about the effect of the VAT increase on pensioners. The Liberal Party's tax proposals involved some increase in VAT. First, we stated clearly that it was necessary to review social security benefits in order that the level of the pension should take account of increases in VAT. However, that will not happen. The pension increase will not be until November, but the purchase tax increase starts today. The Chancellor says that it does not apply to essentials like children's clothes. It is extraordinary that pensioners should be thought to buy vast quantities of children's clothes.

The right hon. Member for Down, South comforts the pensioners with the thought that these are not real price increases but a sort of "vulgar delusion". I do not believe that they are a vulgar delusion for those who will go into the shops and buy essential commodities such as household goods, clothes and so on—not to mention the VAT added to the bills on services which pensioners, like everybody else, will have to pay. I agree with the right hon. Member for Down, South when he spoke of the sleight of hand or the mirrors which he accused the Government of using in selling off assets to help balance the books.

From time to time, Governments may wish rightly to alter the boundary between the public and private sectors. The Conservative Government did that when they nationalised Rolls-Royce and the Labour Government did so when they sold off BP shares. There should be nothing sancrosanct about it. Most hon. Members accept that we live in a mixed economy and that we want both sectors to be as fruitful and efficient as possible. Only a small minority wish to destroy the public and private sectors altogether. Yet, there is the constant ideological argument as though it was the main issue in our political life and debate.

We have heard only about the BP sales in detail. We do not know what other assets are to be sold off. However, I do not believe as a matter of political doctrine, that they are sound. They are a temporary way of fudging the books.

I should like to draw a simple analogy—I am not a future, still less an ex-Treasury Minister. A few years ago I served as a member on the House of Commons Services Committee. It did not attract economists in the House but we were, as, I am sure, are the present members, a bunch of good men and true. We were bemused by the regular deficits in our catering accounts. Therefore, we appointed, as Chairman of the Catering Sub-Committee a Member of the House noted not for his gastronomic expertise but for his reputation as an accountant.

Eventually, he laid before us simple lay members of the Services Committee new accounts of the catering department of the House which balanced. We all said "Mirabile dictu! This man is a genius. Why he is not running the Government we do not know." It was not until after three years of drinking Spanish plonk in the Members' Dining Room that we realised it had been achieved by the selling off of the wine cellars of the House of Commons. On the same basis, I believe that the Government are pursuing a sale of assets in order to make the books appear acceptable to innocent hon. Members like myself.

I do not doubt that we all have our pet hates among the public expenditure cuts. In this year of all years, it grieves me to see a cut of £50 million from the overseas aid budget—an extraordinary piece of meanness. We have a public expenditure programme of £7,000 million, we give away £600 million over that amount to those earning over £10,000 per year, and yet £50 million is taken from the overseas aid budget.

Two-thirds of the world's population consumes about one-fifth of the world's resources. The gap between rich and poor—not in this country—is one of the most agonising and long-term problems. We have been doing too little already to solve that, and how this cut is justified I do not understand.

It is not a compassionate Budget; it is a mean-spirited Budget. I question whether it will work. My hon. Friend the Member for Colne Valley (Mr. Wain-wright), speaking on the first day of the debate, said, in a memorable phrase: It is no good giving people in the Sahara desert an incentive to grow beans."—[Official Report, 13 June 1979; Vol. 968, c. 503.] Unless the background is right, the incentives will not work. A specific example of that was given to me by my hon. Friend the Member for Isle of Wight (Mr. Ross). There is a new firm in his constituency which was successful last year partly because of an 8 per cent. loan from COSIRA, the organisation which helps smaller businesses in rural areas. The firm was told that if it expanded successfully it could come back for more. It recently returned to COSIRA for a second loan. They said "Oh, no, we are not able to lend you the amount of money that you had hoped for. We are all suffering from these cut-backs. We are sorry, but you will have to go to the market." The firm went to the market and it was offered the loan but at a rate of 17 per cent. or 18 per cent. Of course, the Government would say "Ah, dear boy, if only you earned over £25,000, think of the incentives you would have".

The fact is that the Budget will undermine the basic prosperity of all but the richest in our industrial life. We are heading for an inflation rate of nearly 20 per cent. If the Liberal Party feels strongly about that, it is because that figure was the rate of inflation at the start of the Lib-Lab pact. When I think of what we went through and the abuse that was heaped upon us by the Conservative Party for assisting the Labour Government to reduce inflation to 8 per cent., it makes me angry to see the cavalier approach that it is taking to the rise in inflation.

We are heading towards 2 million unemployed and an unknown level of industrial strife. It is certainly a bold Budget, but I believe that it is a profoundly wrong one. With 33 per cent. of the electorate behind it and a limited social and educational background in the Cabinet, the Government rest on too narrow a base of support and experience to be likely to succeed.

6.28 p.m.

Sir Brandon Rhys Williams (Kensington)

I shall try to confine myself, Mr. Deputy Speaker, to your instruction and make a speech of Strasbourg rather than Westminster length. In doing so, I hope that I shall not be thought discourteous to my right hon. and learned Friend the Chancellor of the Exchequer if I do not cover all the reasons why I think he has introduced a courageous and admirable Budget. He knows that I believe that.

However, my right hon. and learned Friend has approached certain major questions of judgment in ways which I would have preferred to be slightly different. I should like to go through the points where I believe a slightly different aim would have been more advantageous.

I have always regarded income tax as one-half of a life-long relationship between the community and the individual in which social expenditure by the Government completes the cycle of payments. The Government, in choosing what rates of tax and benefits they plan for the year ahead, are thinking not only of the total picture of the Budget but of their policies relating to the redistribution of income taken together.

I accept the concept of earnings-related contributions and flat-rate benefits. However, even within that highly egalitarian and progressive maxim there is an enormous range of choices as to the rates of tax and of benefits. I am not entirely confident that the Government's thinking has been sufficiently mature and far-sighted.

When dealing with taxation, the Government are obviously principally obsessed by the question of incentives, and I join the right hon. Member for Down, South (Mr. Powell) in wondering whether the reduction to a 30 per cent. rate for the bulk of those paying income tax will make a significant difference in their incentive to work. I believe that the Government were carried away by the impetus of their arguments during the election campaign and that the reduction to 30 per cent. will not in fact show a significant difference in the incentive to work.

Of course, it is always a matter of argument as to the point at which incentive to work begins to flag as the marginal rate of tax increases. Field work carried out in the United States suggests that even at a 60 per cent. or 70 per cent. marginal rate, men will still strive to increase their income rather than decide that they would prefer leisure to work. I distrust those figures and would guess that the point at which incentives begin to fall away lies at a rate of between 40 per cent. and 50 per cent. of marginal earnings.

I cannot see any moral justification for a rate of tax in excess of 50 per cent. on any transaction. In the relationship between the individual and the community, how can the community ever claim that its contribution to the marginal creation of wealth has been greater than that of the individual?

Having delivered myself of the maxim that I believe in earnings-related contributions and flat-rate benefits, I should also like to claim that in no circumstances should anyone's rate of tax on any transaction exceed 50 per cent. I can see no moral basis for the community exacting more than half of the marginal proceeds of any transaction in which the individual has inevitably been the prime mover.

The relationship between the community and the individual must not only be satisfactory in terms of our beliefs about poverty, the relief of hardship, unemployment, and so on, but must be seen to be a moral one, both on the contributing and benefit sides.

Coming back to the question of incentives, the Chancellor obviously had to make a choice between reducing the rate of tax across the board and giving some other form of incentive to work. I should have preferred him to increase child benefit at once to the point where it would be the same for everyone, in sickness and in health and for richer and for poorer.

The poverty trap and all the problems that arise for those who are considering re-entering work are a much more dangerous area of disincentive than we see at the point where people are wondering whether to work overtime.

That is a matter of judgment, but, for political reasons as well as for reasons of humanity, it would have been better to increase child benefit now and, indeed, to have had in view the possibility that a further increase in the benefit might be necessary as inflation proceeds this year.

It places far less burden on the economy to increase child benefit, thereby selectively meeting the problems of those on low pay, than to allow increases across the board for all wage earners, whether or not they have dependants to feed at rising prices.

The Chancellor also had to consider the extent of the shift that he wanted to make from direct tax to indirect tax. An important judgment had to be made on the distance to go in increasing VAT and remitting the direct burden on taxpayers.

I would have preferred to see a once-and-for-all increase in VAT to 20 per cent., accompanied by an announcement that there would be no further changes in the foreseeable future. We could then have adjusted ourselves to a situation in which the Government would have a large income of money raised on the current account with which to sustain their expenditure on essentials.

We are seeing huge imports of unnecessary domestic gadgets. One has only to open any evening or national newspaper to see whole-page advertisements for music centres and quadrophonic and electronic equipment which are not essential. We know that, at the same time, there are elements in our society living below the poverty line as public opinion regards it.

I should have preferred the Government to provide themselves with the finance to sustain their expenditure on essentials. As I have already said, that must be seen to include social services.

I place just as much emphasis as do my hon. Friends on the necessity to increase expenditure on defence. The second Munich now taking place in Vienna between the representatives of the Western world and of the totalitarian States that are opposed to us will certainly place increased burdens on our defence budget, possibly even within the coming year.

The Government ought to be prepared to expand expenditure in certain other areas as well, particularly in retraining, where we are so badly behind other industrial societies and where we have so much further to go than they have. We need more training centres and fewer music centres.

I should like also to see the Government tackle the problem of the replacement of capital in the whole of the public sector. They should not be afraid to let British Rail and other nationalised industries go ahead with their capital expenditure programmes. The country needs more than anything a shift out of expenditure on current account into expenditure on fruitful capital account. Although the nationalised industries may be unglamorous, it is vital that they should have a reliable backbone of up-to-date capital equipment. The postponement of capital expenditure either in the private or the public sector would be a national setback.

Of course the Government need room for contingencies without having to resort to fresh borrowing on sales of real assets. We cannot be entirely deceived by the feeling that the money supply is being kept under control through, for example, the sale of shares in BP.

My right hon. and learned Friend the Chancellor also had to consider the overall economic balance between consumption and real investment, and the Government should give a lead here. We were all taken by surprise by my right hon. and learned Friend's announcement of an increase in MLR simultaneously with his Budget Statement. It may have been forced upon him by anticipation that there might be turbulence in the exchanges as a result of the announcement of liberalisation of capital movements. If that is the only reason, it is highly acceptable, though the increase was overdone.

However, if my right hon. and learned Friend is reverting to a Montagu Norman syndrome in which, when one has excessive expenditure on consumption, one operates on the economy through the capital account, he will repeat the mistakes of Montagu Norman and weaken British industry by comparison with our competitors.

We do not want industry in the private sector deciding to postpone capital expenditure in the hope that there will be lower interest rates later on, or to cancel expansion plans altogether because the economic climate has become so adverse to investment that it is not easy to see how money can be spent in the hopes of a real return.

I should have preferred my right hon. and learned Friend to lean more heavily on consumption and to give maximum encouragement to firms to get on with their capital investment programmes.

My right hon. and learned Friend obviously had to tackle the question of the exchange rate. What is the Government's policy in regard to the pound? It is perhaps a little early to ask them to make known their views, but a situation in which we are facing large imports and in which our exports are flagging suggests that the pound ought to fall in relation to other major currencies rather than to rise.

Of course, the increase in minimum lending rate has attracted a large amount of foreign money into London, and in so doing will have added to the outflow of funds in the service of debt. I do not like to see the acceleration of imports which comes with traders' expectations that in due course the exchange rate will turn against them, and it would have been better if the Government had made clear that they would welcome a steady and controlled reduction in the exchange rate of the pound so as to discourage imports and encourage exports, and also to assist our friends in the European monetary system who have been embarrassed by the sudden change in the interest rate levels in London.

The pound will have to fall in relation to other major currencies in the next 12 months because our rate of inflation is so much higher than theirs. It would have been better to have allowed that process to start now in an orderly way rather than move first in the wrong direction, as it seems, by this sharp increase in the minimum lending rate now. But that is a matter which can soon be put right, and I hope that it will.

I have had only a brief opportunity to read the Governor of the Bank of England's extremely important Henry Thornton lecture. The thoughts that he wished to stimulate have to be examined in considerable detail. But one suggestion, widely publicised in the press, was that there should be increased consultation, particularly on a regional basis, with other economies which march more or less with ours. I wonder whether there was consultation with other members of the Community or with Switzerland, Sweden and other countries which might well be concerned before the interest rate change was announced and before my right hon. and learned Friend announced the changes in the rules in regard to restrictions on capital movements.

If I have been critical, it was not intended, but there were points that I wanted to make. I end by congratulating my right hon. and learned Friend on a very courageous Budget, and in particular on making a beginning in our progress towards the total derestriction of capital movements in and out of London. This is the right moment to press ahead with that process, and the success of this first dip of the toe in the water should encourage the monetary authorities to go fast and furiously in that direction. The Budget will take us a step nearer to the point where we shall be able to join the European monetary system, or perhaps some wider regional monetary pact, with the confidence that unity will give us the strength that economic nationalism could never provide.

6.44 p.m.

Mr. Douglas Jay (Battersea, North)

This is the first Budget debate that I can remember in which Ministers and Government supporters have said that they did not really believe the figures in the Financial Statement, which, after all, was signed by the Financial Secretary to the Treasury. Ever since the Chancellor of the Exchequer made his Budget Statement, evidence has been growing that it is likely, as I see it, to be one of the most damaging Budgets we have had since the war. It will accelerate price inflation, increase unemployment and reduce production.

These three facts are admitted by the Chancellor himself. Yet I should have thought that they were precisely the opposite of what ought to be the chief aim of economic policy at any time. What are we to think of a Chancellor who starts his Budget Statement by deploring the low level of production compared with the levels of other countries and then introduces a Budget which, on his own admission in the Financial Statement, is going to reduce production in the foreseeable future?

The basic trouble with the Chancellor and the Prime Minister is that they are victims of two economic delusions which they have now elevated almost to the level of superstitions. First, the Prime Minister and the Chancellor cannot distinguish between cost inflation and price inflation, which is why they have got themselves into the absurd position of stoking up the retail price index to 17½ per cent. in order—this is what they say they are doing—to cure inflation. It is a cost inflation and not a price inflation which this country and most of the Western world are facing, and have faced in the last few years. That cost inflation has been generated partly by the oil cartel and partly, I believe, by unrestrained pay bargaining. If it were demand inflation that we were facing, we should have high profits and high production—the opposite of what we have in fact.

As I see it, therefore, the elevation of the so-called monetary supply—the volume of money and the public sector borrowing requirement—into superstistitions is largely irrelevant, because money supply affects prices only through demand, and that is not what is happening. It is a damaging irrelevance because, if one tries to remedy cost inflation by deflating demand, which is what the Government are doing, one inevitably causes unemployment, falling production, and falling productivity and investment.

The real need at this time—and Ministers had better learn it before too long—is to restrain directly the rise in costs and then gradually, after a time, reflate demand, production and employment when one has costs under control. Given an agreed incomes policy, I believe that we could still have the real full employment that we had not so long ago. Yet, just at the moment when understanding of these needs seemed to be growing, and the chance of co-operation with organised labour was real, the Government have thrown it all away by swinging the rate of price increases up to I7½ per cent. To do that at a time when we have no incomes policy for the private sector, and steep rises in the highest public salaries, seems to me to border on utter recklessness in economic policy.

The Chancellor, not content with that, elevated what seems to me to be another myth into a superstition—the doctrine that all this damage to production, prices and employment will be more than compensated by the galvanising effect of big income tax cuts for a small minority on very big incomes. That is really the thesis of the Budget. The right hon. and learned Gentleman admitted that the average wage earner will, on balance, be only about £1 a week better off as a result of the Budget.

I fully agree—I am sure that we all do—that it is absurd to create a situation in which anybody can actually be better off unemployed than working. But surely the moral of that is that we must not push the income tax too far down the income scale, as I think we have done in recent years, and it is right to rectify that situation.

Secondly, we need not doubt that there are sometimes some people perhaps who are spurred to greater effort by income tax cuts—I would not deny that. But there is no evidence from history, economics or common sense that income tax cuts on a few big incomes will have such a massive effect as to offset all the other cumulative deterrents in the Budget.

First, many people are not affected in effort one way or the other, and a lot more—of whom I am one—tend to work less hard when the tax comes down and they can pay their bills more easily, but to work harder when income tax goes up. I do not say how many such people exist, but there are some.

The right hon. and learned Gentleman is forgetting that the real effect of incentives was put to the test not of theory or political prejudice but of actual investigation by the Radcliffe Commission on income tax in a survey in the 1950s. In appendix 1 of its second report, published in 1954, the Commission said: There is no evidence from this inquiry of productive effort being inhibited by the income tax structure within its present limits. Of those who were asked questions in the survey, as many said that income tax was an incentive as said it was a deterrent.

That is the evidence of the only objective inquiry, so far as I am aware, that has been carried out—and if direct taxation has such a huge effect on productive effort, why is it that Sweden and Denmark, with the highest living standards in Europe, still obtain a very high proportion of Government revenue from direct taxation? The United Kingdom is far from being at the top of the table of countries which rely mainly on direct taxation. According to the OECD figures, the percentage of public revenue raised by direct taxation in 1976 was: Denmark, 62 per cent., the United States, 57 per cent., Australia, 57 per cent., the United Kingdom, 55 per cent., and Sweden, 52 per cent. There is not a great deal of difference. We do not come at the top of the scale.

If this incentive theory has much force, it also seems odd that this country had the fastest growth in production and exports since 1945 in the first six years after the war, when direct taxation all round was at a very high level. The successive cuts in income tax that have taken place since that time, some of which were no doubt justified, have had no visible effect on the level of production or the growth of real income.

Nor have the Government understood the dangers of switching so massively and so quickly to indirect taxation in a period of cost inflation. I agree with some hon. Members that there is a special case for three indirect taxes—those on tobacco, alcohol and petrol—for fairly obvious reasons, though I recall that the Conservative Party voted against an increase in petrol tax only a year ago. I do not know what the Liberal Party thinks about that today.

Of course VAT is regressive. The fact that it does not directly affect food does not mean that it is not a regressive tax It falls on clothes, shoes, household goods, furniture, and very many other necessities. Inevitably, those on the lowest incomes will spend a higher proportion of their income on VAT than the rich will spend. As long ago as the 1920s, the middle classes were shocked to discover from the Colwyn report that they were the most lightly taxed section of the community. The richer paid more heavily in direct taxation and the poor paid more heavily in indirect taxation. Now, in addition to the indirect taxes in the Budget, we have 100 per cent. EEC taxes in the form of import levies on many foods. Those levies are on top of VAT and other indirect taxes. It is always worth keeping that fact in the back, or indeed the front, of our minds in Budget debates.

If those levies, as well as VAT, are taken into account, many old-age pensioners will be paying a higher proportion of their incomes in taxation than some people with much larger money incomes. I agree, therefore, with the right hon. Member for Down, South (Mr. Powell) that this switch is a massive and regressive redistribution of income.

But it is worse than that. Almost every action of this Government since 3 May has pushed up the retail price index. No other Government since the war have raised the RPI by 5 points in five weeks—it may now be 6 points in six weeks— or done this so deliberately and so steeply. That will provoke not merely steep pay claims but steep pay increases. I do not know how much industrial conflict will occur. I can hardly imagine a more reckless and amateurish economic policy than to stoke up price inflation deliberately when one has no incomes policy and when cost inflation is the real problem.

Do not the Government realise that raising living costs by higher indirect taxation forces up pay rates and therefore raises industrial costs and export costs and worsens our competitive position? We should be doing precisely the opposite. Higher indirect taxation raises industrial costs. Higher direct personal taxation does not do so. That seems to be wholly forgotten on the Treasury Bench.

Indirect taxation nowadays has one other great disadvantage. If one raises indirect taxes, one automatically raises Government expenditure. Higher taxes raise the RPI. That cannot be denied by the Government. It is in the Red Book. Higher RPI automatically raises a whole range of public pensions and, in effect, a large range of public wages and salaries. It is time we realised that indirect taxation automatically raises public expenditure, whereas direct taxation does not.

I warn the Government, therefore, what is likely to happen as a result of these policies in the year ahead. We shall have price inflation accelerating towards 20 per cent. That is not denied. We shall have rising pay claims and rising unemployment, higher interest rates and falling production and investment. My fear is that last winter will look quite springlike when we get to next winter. We shall be told, of course, that this decline is just the prelude to some marvellous recovery that will result from the sacrifices made in this Budget.

We were told the same story about joining the EEC by the same people. We were told that it would be a terrible first year or two, but that wonderful, dynamic benefits would follow. I do not believe that we shall see that secondary miracle under these policies any more than we saw it following our entry into the EEC. On the contrary, my fear is that as long as we follow these policies we shall sink deeper and deeper into deflation of the whole economy. By this autumn the Government will regret this Budget, and by the end of the winter they will reverse it.

6.57 p.m.

Mr. Vivian Bendall (Ilford, North)

I start by congratulating my right hon. and learned Friend the Chancellor of the Exchequer on a Budget that I believe is trying to move to the open ground. There are areas that give me a little concern. I can perhaps talk about these. We were right to try, as we have done, to reduce the top tax rate. I am not sure that we were right to reduce it from 83 per cent. to 60 per cent. in one move. I would have preferred a reduction to 70 per cent. or 75 per cent. with a further reduction over the next one or two Budgets. We should have tried, perhaps, to reduce still further the standard rate of taxation from 33 per cent. down to 28 per cent. There could have been certain advantages.

However, in general, the Budget has tried to produce the incentives desperately needed by younger people. During my maiden speech in this House during the Budget debate a little over a year ago, I said: What gives me the greatest worry and concern is the fact that many of my generation and the generation following mine, great scientific and technical young people, have gone abroad rather than stay in this country. That is tragic for our nation, because those young people are our very future. Our very future is concerned with how and what will resolve our economic difficulties.—[Official Report, 12 April 1978; Vol. 947, c. 1458.] That is why I welcome generally the reductions that have been made in the Budget.

It is important for the future of our nation to keep our young people here. It is important that they should work for our betterment and our future rather than that they should go abroad and work for other nations in competition with us. However, I should have felt a little happier had the personal allowance thresholds been slightly higher. We could have experienced advantages in the long term had they been higher.

Some months ago I wrote to the previous Chancellor of the Exchequer and to my right hon. and learned Friend the new Chancellor about two items that caused me and many young people anxiety. For many years we have heard from the major political parties that they believe basically in a property-owning democracy and the right of the individual to purchase his own home. I declare an interest as a surveyor. Because of that, I understand the problems that face young people.

My speech would have been similar to the one that I am now making had my party still been in Opposition. Since the 1974 Budget, stamp duty has commenced at £15,000. This creates a problem for young people who are purchasing a property. They have to pay fairly high interest rates on mortgages. They are faced with other expenditure when they marry. Stamp duty creates a real problem. The duty has been at the same level since 1974. I ask my right hon. and learned Friend to examine the level closely when he prepares a future Budget or statement. Since 1974 the values of property have risen. Comparatively, stamp duty should now begin at between £30,000 to £35,000.

The problem is worse in the large conurbations than it is in country areas. Perhaps we should distinguish between geographical areas when imposing stamp duty. Prices are higher in the conurbations than in parts of the countryside. If we cannot change the level in one go, perhaps we can help first-time buyers.

We should also examine the £25,000 limit on tax relief for interest on mortgages. The value of properties in the conurbations has almost doubled since 1974. Perhaps the £25,000 limit should be reassessed.

I thank the House for listening to me. I hope that when my right hon. and learned Friend the Chancellor prepares his next Budget he will examine seriously my suggestions since we all believe in the right of home ownership.

7.3 p.m.

Mr. Roger Stott (Westhoughton)

I hope that the hon. Member for Ilford, North (Mr. Bendall) will forgive me if I do not follow his arguments.

I have listened to the maiden speeches of hon. Members from both sides of the House. I am now free of my previous parliamentary restraints and I know exactly how hon. Members feel. Unlike some hon. Members, I do not have to be uncontroversial. My intention is to be fairly controversial and, indeed, positively partisan.

My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, in a debate on education before the recess, that the differences between the two main parties had never been so great since 1945. If anyone was in any doubt about what my right hon. Friend referred to, this debate on the Budget and its consequences on industrial policy demonstrates how deep is that gulf.

In his Budget speech, the Chancellor said that he wanted to raise £1 billion by selling off the assets of publicly owned industries. As yet we do not know which industries he has in mind. He has intimated that one of them will be British Petroleum. On the rest we must speculate. I shall address my remarks to that narrow topic.

We live in a rapidly changing world where industries need to be modernised, where investment needs to be directed and challenged, and where certain co-operative ventures are essential for survival. We live in a world which is standing on the threshold of a second industrial revolution with the impending dawning of the micro-processing age. In such a world the arrival at the Dispatch Box of the right hon. Member for Leeds, North-East (Sir K. Joseph) and the right hon. and learned Member for Surrey, East (Sir G. Howe) fills me with horror. At this crucial time when British industry needs an industrial strategy and public money to preserve its capacity, and selective intervention by the National Enterprise Board, the Conservative Party seeks to commit an act of unparalleled industrial vandalism.

The Secretary of State's solution stems from a belief in a policy of unfettered free enterprise. He plans to stop State aid to industry, to hobble the National Enterprise Board, and to sell off parts of our nationalised industries. That policy is a recipe for industrial chaos. I shall give an example of why I am confirmed in that belief.

During the general election campaign the Conservatives indicated that if they were elected they would sell off parts of British Aerospace to private industry. I have more than a passing constituency interest in that industry. Hon. Members realise that the previous Labour Government had, to put it mildly, a little difficulty in getting the Royal Assent for the Aircraft and Shipbuilding Industries Act. I shall relate what took place during the passage of that legislation for the benefit of new hon. Members.

I was one of 28 hon. Members who spent a great deal of time in the Chamber in one of the most protracted and rancorous debates that the House has known. The 28 hon. Members were closeted in Standing Committee D day after day, week after week and month after month. There were 56 meetings of that Committee and we talked ourselves into the Guinness Book of Records. We experienced the longest Standing Committee on record.

Who can forget those scenes when the Bill returned to the Floor of the House? Who can forget how the right hon. Member for Henley (Mr. Heseltine) went berserk and, like a juvenile Viking, grabbed the Mace, swung it round his head as if it were a medieval battleaxe only to be restrained by his right hon. Friend the Member for Lowestoft (Mr. Prior)? That was the bitter climax of that debate. Since then, British Aerospace has enjoyed a period of stability, relative prosperity and considerable hope for the future.

The arguments that the Labour Government deployed at that time in the creation of British Aerospace are in no way diminished. They have been borne out by experience and are still relevant today. My right hon. Friend the Member for Chesterfield (Mr. Varley) deployed these arguments on the Third Reading of that Bill and I will not bother the House with them.

Prior to nationalisation, no major airframe development had been possible without massive amounts of Government launching aid. No single project since 1960 had been possible without that kind of money. In the military sphere the two main companies, the British Aircraft Corporation and Hawker Siddeley, were in receipt of millions of pounds through the procurement division of the MOD for research and development and for production. The case for the creation of a unified aerospace industry under public ownership was an entirely logical one not only on the ground of ideology—for ideology is often borne out on the ground of practical experience—but on the grounds of commercial viability, design continuity, corporate planning and job security. These measures were essential for an industry which was facing the enormity of the escalating design and production costs.

No aerospace company anywhere today can embark upon a new generation of airframe production on its own account. What is required, and what is now taking place, are international co-operative ventures. British Aerospace needs, above all, to operate in an atmosphere of stability and continuity. The Government's proposals are nothing more than an industrial rip off. Their proposals are not rooted in common sense or commercial viability. They seem to be based upon an unremitting conviction of the Tightness of the economic and industrial policy of a century ago. That is a policy of such crass stupidity that it will in the end prove to be disastrous.

The thousands of people who work in the British Aerospace factory at Lostock in my constituency are concerned about the commercial future of their industry and their own long-term job prospects. They are not concerned with the petulant, cranky idiosyncrasies of the Secretary of State for Industry. They are deeply resentful that this Government are causing needless uncertainly within that industry. Indeed, senior management has told me that change for the sake of change will be extremely damaging to what I believe to be one of the finest industries in this country. The work force at British Aerospace, Lostock and I do not believe that there is any conceivable justification for selling off any part of their industry. I warn the Government that if these proposals are acted upon they will be resisted legally by the work force and they will be resisted by myself and my colleagues who laboured long and hard and fought the parliamentary battle for the creation of British Aerospace.

My right hon. Friend the Leader of the Opposition, speaking in New York when he received the Hubert Humphrey memorial award last year, described Communism as practised by the Iron Curtain countries as a burnt-out idea whose time had been and gone. One can almost describe the economic and industrial policies of the Government in the same way, because they seem to be founded upon a political ideal of a century ago whose rotting corpse has been exhumed and dragged, stinking, into the second half of the twentieth century. The Government have an undoubted electoral right to pursue them, but we on the Opposition Benches have the same right vigorously to oppose them; and that we shall do.

7.14 p.m.

Mr. Jocelyn Cadbury (Birmingham, Northfield)

I am grateful to you, Mr. Deputy Speaker, for calling me. Like other hon. Members, I have experienced considerable difficulty in composing a maiden speech which avoids controversy in this Budget debate. However, my task would have been even harder had I spoken in the previous debate on the Kiribati Bill, since rather early in my parliamentary career—and perhaps a little recklessly—I chose to vote against the Government. I take this opportunity to reassure my Whips that this decision had more to do with my training as an anthropologist than with any inherent Bolshevik non-conformist tendencies.

I refer first to my predecessor Ray Carter, who represented Birmingham, Northfield for the past nine years. I know that he was highly regarded by Members on both sides of the House and that he enjoyed a good reputation in Northfield for hard work in the constituency. That is a reputation which it will be difficult for me to live up to. For the last three years of the previous Government Ray Carter served in a ministerial capacity in Northern Ireland. That was a most difficult job, which he carried out with distinction. I am sure that the House will join me in wishing him well.

The constituency of Northfield, which represent, is a partly industrial and partly residential suburb of South Birmingham. Much the largest employer in Northfield is the giant British Leyland works at Longbridge, which employs about 19,000 people. It is one of the largest car assembly plants in Europe. Many of my constituents also work at Cadbury's Bournville factory, which is situated in the neighbouring constituency of Birmingham, Selly Oak, where the House will not be surprised to learn I was, until recently, employed.

In recent times success in the Conservative Party seems to have been closely related to one's involvement in the grocery trade. I cannot claim to be a grocer or the son of a grocer, but I am the great grandson of a grocer. However, by the time I entered the grocery business of my great grandfather, John Cadbury, it had somewhat changed its scale of operations. I spent my first two years there as foreman in the "Crunchie" department. During that time I inflicted upon the British public a quarter of a billion of these most desirable articles of confection.

Birmingham, Northfield typifies much of Birmingham and the West Midlands in its dependence on the motor industry. It is not just the assembly of motor cars which is important to the West Midlands as a provider of employment. In addition, there is the production of motor components. The fortunes of such companies as Lucas, GKN, Dunlop and Birmetals are inextricably linked to British Leyland, Chrysler and Ford. In the West Midlands about 250,000 people are employed directly or indirectly in the vehicle industry.

Every time the car importers increase their share of the British market—and last month they accounted for 56 per cent. of it—jobs are threatened in 600 Midland firms. The life of this Parliament will probably decide whether or not a British-owned motor industry will survive. I welcome the Chancellor's courageous Budget for bringing back greater incentives for workers and managers in industry. He has pointed the economy in the right direction and it is now up to business men to respond by investing with confidence. But I ask Ministers to remember that the British motor industry needs to be given time to recover its strength. It is still the lifeblood of the Midlands. Its collapse would leave Birmingham an industrial desert and the effect on the nation's balance of payments would be catastrophic. The House will understand the immensity of the task facing people like Sir Michael Edwardes who are striving to rebuild our motor industry.

There are many internal reasons for our weakness in this area, including the low level of investment in the 1960s, two decades of poor industrial relations and failure to produce new models to the right design. These wounds were self-inflicted, but there is one major external obstacle in the path of Sir Michael for which successive Governments must take responsibility. That is regional policy.

Regional policy has done serious damage to the motor industry over the last 15 years. It induced managements of motor companies to disperse their new factories all over the country, against their better judgment. The result of this is, for example, that the door of a Mini starts its life in Swindon; from there it proceeds to Llanelli; it then goes to Casthle Bromwich; and it is finally installed on a finished car at Long-bridge. It takes four factories to make a car door.

By contrast, in the Volkswagen factory at Wolfsberg bits of metal go in one end of the factory and complete Volkswagens emerge from the other end. If we are to survive as an industrial nation we must allow firms to make their own decisions about where they build new plants, according to strictly commercial criteria. Otherwise we shall continue to kill off whole industries, to the detriment of our entire economy. That will do no region any good.

While I welcome the Budget, I ask Ministers to take a hard look at regional policy and to adjust it so as to prevent further damage to the British economy in general and to the motor industry and the West Midlands in particular. I thank hon. Members for being so tolerant of me in this, my first speech in this honourable House.

7.20 p.m.

Dr. Oonagh McDonald (Thurrock)

I take the opportunity first of thanking the hon. Member for Birmingham, North-field (Mr. Cadbury) for his kind remarks about his predecessor. I congratulate the hon. Gentleman on his competent and well-delivered speech. I am glad to know that his first step in this House was rebellious, and I should like to encourage him along that path, although selectively.

The Budget presented last week has been widely described as an opportunity Budget—designed to strengthen incentives by allowing people to keep more of what they earn, and rewarding hard work, talent and ability, leaving room, by cutting back the public sector, for commerce and industry to prosper. Yet, curiously enough, when we look at the Financial Statement and Budget Report accompanying the Budget Statement, we see that it contradicts entirely the aims of the Budget. Every indicator recorded in the tables shows a downturn in economic activity, a decline in real disposable income and a decline in manufacturing production. It is hardly surprising that the Budget Report refers to a decline in domestic demand arising from the Budget proposals. There are fears that the Chancellor has overestimated his generosity in terms of the tax cuts provided in the Budget and the impact of VAT on families.

A careful examination of the tables provided by the Chancellor reveals two things. First, the Chancellor has credited himself with the tax cuts introduced in the last Labour Budget of April. Second, the tax cuts are calculated over 10 months instead of the 12 months to which they normally apply. Therefore, on looking more closely we find that a family earning £60 a week, instead of getting the weekly tax cuts which the Chancellor claims, receives a tax cut amounting to just over £2 a week. A family on £100 gets a tax cut of £3.29 a week, and a family on £150 a week gets a tax cut of £4.80 a week. These are reductions in the amounts which the Chancellor seems to be suggesting in the tables accompanying his Budget.

If we look at the impact of VAT, we find that the family on £60 a week is just about 27p a week better off, while the family on £100 a week is 53p better off. A family on £150 a week is 83p better off. Tiny amounts go to families below average income, on average income and even to those well above average income. To benefit from this Budget a person has to be very well off indeed.

Another problem about the apparent generosity of the Chancellor is that when we examine the impact of the VAT increases on the family budget which the Chancellor suggested in his calculations accompanying the Budget, we are led to wonder what the basis of those calculations can be. It is important that the Chancellor should spell out the basis for his calculations. If we do our own calculations, based on the family expenditure survey for the appropriate income bands, it looks as though the impact of the VAT increases on families earning less than £150 a week will be greater than the Chancellor expects.

I want to know from the Chancellor the basis of his calculations. Will he spell this out so that we can check the figures carefully and discover whether he has underestimated the impact of the VAT increases? If his figures are wrong and if VAT will have a greater impact on families with average and below-average incomes than the Chancellor has suggested, the deflationary effects of the Budget could be even greater than the Treasury forecasts suggest and unemployment could rise by a greater amount and more quickly than the Government expect.

If most families are made worse off by this Budget, some families are much better off. All depends on what the families who are so much better off decide to do with the increases in income granted to them by the Chancellor's tax changes. If they decide to save the money, and the Treasury has correctly estimated that, perhaps the results will not be too disastrous. But if these families save less than the Treasury seems to estimate—if, for example, they save 2 per cent. less—that money will be spent on increased imports which will adversely affect the balance of payments at the end of the year and weaken yet again our manufacturing base, leading once more to further unemployment. If people save 2 per cent. less than the Treasury suggests, rather than just balancing at the end of the year we could record a deficit of £750 million, due entirely to increased imports.

Neither the tight control of money supply nor a wage freeze, which the Government may well introduce at some time in the next 18 months or so, will solve the underlying problem. We shall still continue to spend too much of our income on imported goods. None of the Chancellor's policies will deal with that problem. The only way in which such a problem can be dealt with and our manufacturing base preserved is by planning our trade. The VAT calculations, and the effects on income and expenditure, are extremely important for what will happen in the coming months. If, however, the estimates given in the Financial Statement are correct, we can expect an increase in unemployment. I do not believe that that increase will arise to any great extent over the next few months. We shall see that increase more clearly by the end of 1980, when, perhaps, we may expect unemployment to rise to 16 million.

The effects of the Budget will be slow because the VAT impact is only on 10 months of the year and the income tax impact is on 12 months. If these unemployment effects are slow to come forward, what will happen? It will mean that early next year, when the Government are about to publish their public expenditure White Paper, they will be able to say "You expected our Budget and our cuts in public expenditure greatly to increase unemployment. This has not happened. Therefore, there is scope for cutting public expenditure further, and that will happen in the financial year 1980–81." If these serious cuts take place, the cuts which the Government would really like to make—they have only been playing with them during the course of this financial year—we shall certainly see the unemployment effects that some have been talking about already.

The Chancellor has introduced along with his tax changes what most describe as a severe credit squeeze. However, the reduction in the money supply targets does not imply quite such a severe credit squeeze as might appear at first sight. This is the most incomplete part of the Budget. If his policies are to make any sense at all, the Chancellor should have announced medium-term money supply targets. These should be in line with the rate of growth in the economy, according to the Chancellor's election speeches and to the speeches of the Secretary of State for Industry when in Opposition.

When he was in Opposition—and one can see it reflected clearly in the Budget—the Secretary of State for Industry said that if there was to be a prospect of abating and then eliminating inflation, a steady gradual contraction in the rate of growth of money supply until it matched whatever rate of growth there was in the economy was indispensable.

Plainly, if the Chancellor is really proposing to squeeze inflation out of the system—whatever that might mean—he should announce these targets as soon as possible. Why has he not done so? Is he afraid to give us the medium-range predictions for the rate of growth on the basis of his opportunity Budget? After all, he expects a reduction in gross domestic product this year in spite of, or perhaps because of, his Budget. Does he expect the same next year? If so, the longer-term outlook for unemployment is bleak indeed.

The minimum lending rate went up last week, and interest rates shot up with it. If the Chancellor's policies are to make any kind of sense, interest rates must remain high for some time. They are likely to be both high and volatile—volatile if there is pressure from the financial institutions to force up interest rates still further before they consent to fund the necessary Government borrowing this year.

The financial institutions will play that sort of game, even though they have huge funds available. The financial institutions should have close to £10 billion to invest either in Government securities or elsewhere during this current year.

A policy of this kind will not lead to further investment in manufacturing industry. The financial institutions will turn to gilts, attracted by high interest rates. Also, because of the Government's pre-Budget action in reducing development land tax, as well as their action in the Budget, the financial institutions will turn to property in this country and we shall experience the sort of property boom that we had previously and for which we are all paying dearly. Some of us are still paying very dearly for that property boom under the last Tory Government.

Moreover, the relaxation of exchange controls means that investment will take place in property not only in this country but abroad as well. I fail to understand how investment in property in America, which seems to be the most attractive proposition for the financial institutions, can benefit industry and employment prospects in Britain.

All those considerations, no doubt, lie behind the expected fall in manufacturing industry investment this year, again according to the Financial Statement accompanying the Budget. I believe that, in addition, the high and volatile interest rates likely for the rest of this year will make it far more difficult for small and medium-size firms to invest. Large companies may well have access to funds. They may borrow overseas and in many cases may do so at lower interest rates.

The small or medium-size company cannot do that. Yet these are the smaller business men for whom the Tory heart is supposed to bleed. When it comes to action, we find that the Tory heart does no bleeed for them at all. Conservative policy makes life more difficult for them, making the prospects for expansion of small businesses bleak indeed, just as it makes bleak the prospects for jobs in that sector, which, according to the Tories when in Opposition, was supposed to be the great source of new jobs for the future.

The effects of the Budget on unemployment may well not be immediate. At the end of 1979 we may see a small increase, and the level may increase much more greatly at the end of 1980. But in our weekend newspapers we read of a Treasury estimate of unemployment rising to 2 million. In all the talk from Tory Front Bench spokesmen and others, there has been considerable coyness about what the prospects for unemployment will be after this great opportunity Budget.

Let us take that report in The Observer yesterday. I should be interested to know why that leak emerged. I can think of all manner of reasons, but perhaps that is neither here nor there. What we need to know is what the Chancellor thinks of that Treasury estimate. Does he believe it himself? Does he think that unemployment will rise to 2 million in the very near future? If so, does he care about it? What will he do about it?

If that estimate is correct, unemployment is due to rise on the basis of the Chancellor's own opportunity Budget. What further measures will he take to curb unemployment, or does he intend to take none at all? This coyness and secrecy on the Government's part must come to an end, and we must know the truth about what they really believe unemployment prospects in this country to be.

7.37 p.m.

Mr. Graham Bright (Luton, East)

In the short time during which I have been a Member of the House I have learned two things about maiden speeches—first, that by tradition they should be short and uncontroversial and, second, that it is customary to pay tribute to one's predecessors.

As the Member for Luton, East I am deeply conscious of the high standards of public service set by the Members of both parties who have represented the constituency. For many years, Luton, East formed part of the old constituency of Luton and my constituents were represented by Dr. Charles Hill, the "Radio Doctor", whose distinguished service to our country continues in another place. The devoted work of Mr. Charles Simeons is, I am sure, well known to right hon. and hon. Members.

I know, also, of the consistent efforts of my immediate predecessor, Mr. Ivor Clemitson, to ensure that the House was fully aware of the specific needs and problems of Luton, East. He was always prepared to take up the individual problems of constituents and to exercise his judgment on the wider issues of national life on their behalf.

It is my intention to follow the example of my predecessors—to speak for my constituents in the House and to exercise my judgment on the issues that affect them and the rest of Britain.

Luton, East is in many ways representative of the whole country. We have a great industrial centre in the giant Vauxhall works, on whose success in the car market thousands of families depend. The company's achievement in turning its former losses into profitable trading as a result of the support that the management has received from the moderate and responsible work force is, I believe, an example to the whole of British industry.

We have skilled technical firms, such as Kent Instruments, on whose expertise dozens of other enterprises depend. We have a highly successful, profitable and expanding airport. We have a wide range of small businesses, including our famous hat-making industry and the firms which service the larger companies. The Arndale shopping centre is one of the finest in the country. Many of my constituents have the pleasure of supporting Luton Town football club. I am privileged to represent just the sort of town upon which Britain's future prosperity will depend.

This country's economic position is one that must cause every citizen concern. Over the years, our industries have become less and less competitive and the gap between Britain and our more successful neighbours has widened. The number of people out of work has risen by 800,000 in the past five years and our industrial production has risen by less than 1 per cent. a year. Prices have more than doubled. My constituency, where unemployment has risen from 1,335 in 1974 to 3,981 in May this year, has suffered as much as any other part of Britain.

Our decline as an industrial Power cannot and must not continue. A sick man was never cured by bleeding him with leeches even in the Dark Ages. An ailing economy will not revive when it has to bear the burden of higher and higher taxation and more and more bureaucracy.

This burden has been borne on the shoulders of productive industry. The average worker paid £389 of his income directly in tax in 1974, and by May 1979 he was paying £939. There was no incentive for him or anyone else to work more productively, because the reward for his effort went directly into the State's bottomless pocket. The people who suffered for this were the weak, the sick, the elderly and the disabled, who rely upon the success of the rest of the country to help them. They are the real victims of this prolonged economic failure.

We have suffered from measures that actually discouraged employers from taking on new workers. I know from my own experience as a small business man how disheartening it is to spend time filling in an ever-increasing number of forms to satisfy civil servants when my aim is to produce more to enable us to achieve greater prosperity.

The measures taken by my right hon. and learned Friend the Chancellor of the Exchequer are the right ones to deal with this situation. It is essential to reduce the standard and higher rates of income tax and revise the personal allowances in order to provide not only the incentives but the rewards for harder work. The room for expansion in the economy can be found only by trimming wasteful and excessive public expenditure.

I am sure that the decision to raise the standard rate of retirement pensions in November will be welcomed on both sides of the House. The extra £1.30 per week for single persons and £2.10 for married couples, on top of the increases proposed by the previous Administration, will be a great help to many of my constituents.

However, I say to my right hon. and learned Friend the Chancellor that the long delay between the announcement and the payment of the increases is of considerable concern to many pensioners. I hope that it will be possible for him and his colleagues to investigate the possibility of shortening this gap in future, or of backdating increases in line with income tax rebates.

The shift in the balance of taxation from taxes on income to taxes on expenditure is certainly welcome on the Government Benches. The men and women of this country are better placed than anyone else to decide how their money should be spent. The increase in income tax allowances and the reduction in the standard and higher rates will more than offset the increase in VAT. This will certainly stimulate the small business sector.

The turnover threshold for VAT should be raised from £10,000 to £20,000. This would take approximately 500,000 businesses out of the system and would involve an estimated pre-Budget cost of approximately £40 million. As a small business man, I know the immense amount of time imposed by the burden of bookkeeping for VAT. The loss of revenue involved would be more than recouped by the costs that would be saved. Raising the threshold would be a simple and inexpensive way of stimulating this vital sector of the economy.

One reservation that I must express concerns the domestic rating system. Householders have to meet bills year after year that bear no relation to their ability to pay. People in identical houses living next door to one another have very different financial resources. There are innumerable instances of widows on fixed pensions paying exactly the same as their married neighbours with two children, all of whom are working. This is an issue on which the Conservative Party has campaigned since 1974. We have given public pledges in the past to abolish domestic rates in their present form. It is vital that we keep this pledge in the lifetime of this Parliament.

I accept that alternative proposals will have to be considered by the Government in the light of the Layfield report and subsequent discussions. I urge the Chancellor and my right hon. Friend the Secretary of State for the Environment to press ahead with the necessary studies. This antiquated form of local government taxation needs urgent reform. New proposals must be made. They must relate payment for local services to ability to pay. They must positively encourage greater efficiency in local authorities and they must give local authorities more discretion to determine their own priorities.

I welcome and support the measures in this Budget. They are an essential first step towards the economic recovery and renewed prosperity of Britain. All sections of the British people will be better off as a result. I look forward to supporting the further measures that will be necessary to secure our long-term revitalisation.

7.46 p.m.

Mr. Gregor MacKenzie (Rutherglen)

I have been privileged to be a Member of Parliament for rather more than 15 years. I have never yet had the opportunity to be called immediately following a maiden speaker. Over the years I have often wondered what I should say if perhaps I did not like the speech or did not agree with every word.

The hon. Member for Luton, East (Mr. Bright) will not expect me to echo all the sentiments he expressed about the Budget. I leave content to one side, and I offer the hon. Gentleman my sincere congratulations on his maiden speech. He delivered his speech very well and very sincerely. He spoke with considerable knowledge of the small business sector.

He also paid a kind tribute to his predecessor, Ivor Clemitson. I am bound to say, and the hon. Gentleman will expect me to say it, that I am very sorry that Ivor Clemitson is no longer with us. He was a genuine and sincere man. I had a high regard for him.

As I listened to the hon. Gentleman's speech, he read out a long list of Members of Parliament who served Luton in the past. It seems that Members of Parliament for Luton come and go with some regularity. Should that be the fate of the hon. Gentleman in the years ahead, I am bound to tell him that at least two Luton Members who served in the House with me are now safely ensconced in another place, albeit within this building.

We all look forward to hearing the hon. Gentleman in the House for the lifetime of this Parliament. He will not expect me to echo all his sentiments, as I represent a Scottish seat. He represents a great many Scotsmen who now find their livelihoods and well-being in Luton.

In Scotland we do not find much comfort, either in industrial or social terms, in the measures presented to us by the Chancellor. We are concerned about unemployment, and have been for many years. We find little comfort in the cuts which the Chancellor and his colleagues propose to make in industrial aid and employment aid.

There are 165,000 unemployed people in Scotland. That is far too many. The level of unemployment was far too high when I was a Minister a few weeks ago. I always conceded that. We sought a way to reduce that figure and to reduce it substantially. There is little comfort in tax reductions for those who are unemployed, especially for the young unemployed. They will read the Budget together with the speeches we have heard recently from the Secretary of State for Industry, and especially the economic dissertation a few weeks ago during the debate on the Gracious Speech.

I was particularly troubled, as were many of my colleagues—especially those who represent areas like Clydeside, Tyne-side and Merseyside—by the right hon. Gentleman's approach and attitude to older industries such as shipbuilding, steel-making and coal mining. These industries are often described as not older but declining industries. That is a great pity. It is true that there is a slackening demand for ships. It is true that there is a slackening demand for steel. It strikes me as being exactly the right time and the right opportunity to modernise our shipbuilding industry, to modernise our steel industry, and to do everything possible to keep the coal industry going. That was the policy of the Administration of which I was a part.

The Labour Government did not think only in terms of jobs, although they are of crucial importance. It would be ridiculous to think of a country such as Britain without major shipbuilding, coal and steel industries. I hope that when the Secretary of State for Industry considers all these matters, he will not regard them as "lame ducks". I saw the right hon. Gentleman on television soon after he visited Clydeside, and I found his comments depressing. He offered little hope for an expanding shipbuilding or coal industry.

My right hon. Friend the Member for Chesterfield (Mr. Varley) and others of us concerned to ensure a place for British shipbuilding introduced the shipbuilding intervention fund. That was worth a great deal of money to our shipbuilders and kept thousands of workers in jobs. Indeed, without that fund we would never have won the Polish shipbuilding order. We are worried that that advance will be reversed by the present Chancellor of the Exchequer and the present Secretary of State for Industry.

Having dealt with older industries, I wish now to turn to some of the newer industries. When the Chancellor opened his Budget Statement, I though that he was concerned about our newer industries because he spoke at length about productivity and a new approach by our industrialists. At the outset of his remarks, many of us felt that he was about to announce proposals to help newer industries. However, we soon learnt that he proposed to reduce industrial aids by £210 million. That struck many of us as a great contradiction. How do the Secretary of State for Industry and the Chancellor propose to modernise British industry if they intend to rob it of valuable aids, especially those of a regional nature?

I have detected in speeches made from the Conservative Benches, especially today, a bias against regional policy. Regional policy in this House was almost a bipartisan matter until the advent of this Tory Government. Regional development grants as we now know them have now been in existence since the Chataway Act, if I may so refer to it, passed in 1972. Both political parties used that legislation to ease the industrial problems of Scotland, Wales, Merseyside and similar areas. It will be sad if there is a movement away from the policy which has been with us almost constantly since 1972.

I understand that there has been a deferment in the payment of regional development grants, which is bad both from a regional and a business man's point of view. What the business man requires is some degree of certainty in planning investment programmes. This will not happen if there are ups and downs in the provision of financial aid. This argument is especially true of the newer industries.

I hope that areas such as mine, which have a small share of the microelectronics industry, will be given further Government assistance. This is important, particularly if the Government are to embark upon a new economic strategy. However, at present the effects of the Budget will offer little hope in modernising our older industries, and certainly little assistance to the newer industries on which we shall depend so heavily. Above all, we on the Labour Benches are most concerned about the Government's plans for regional aids.

I wish to make a short but important reference to the assistance offered through the Manpower Services Commission. I am sorry to learn from the Budget Statement that the youth opportunities programme is to be cut by a figure of £25 million, and that the temporary employment programme is to be cut by £42 million. Furthermore, the small firms employment subsidy, which has given valuable assistance to many small companies, is to be cut in many parts of the country.

I do not pretend that the short-term jobs provided by the youth opportunities programme and such schemes are a substitute for a real good job, but in the present circumstances when so many thousands of people, including many of our younger citizens are unemployed, the programme gave them hope and the training that was invaluable to them when they took jobs. The cuts are mean, petty and short-sighted. They will certainly give no assistance to young unemployed people.

We have heard a great deal from the Government in the past few weeks about the assistance which is now to be afforded to small companies. But we have been told by a number of Ministers "If only each small firm could take on just one extra employee, it would make a massive dent in the unemployment figure." Of course, that is true. I should like to have made that comment to one of the Scottish Ministers, but throughout these Budget debates they have been strangely absent, though no doubt the Minister of State is recording the words of Scottish Members of Parliament and will pass them on to the right quarter. However, I find little comfort in the Budget for small firms. A small company will now face VAT rising to 15 per cent. and will have to cope with the 2 per cent. increase in minimum lending rate. It will also suffer from the effects of the reduction in the small firms subsidy and will have to meet larger petrol and diesel bills. This is a matter of great regret.

I agree with my right hon. Friend the Member for Chesterfield that those of us who have been in the House for some years have seen all this before. We well remember the Barber Budget, the panic that then arose and the reshuffle of 1972. More moderate elements were then introduced into the Department of Trade and Industry, and the Industry Act 1972 was introduced by the then Conservative Government, supported in the main by Labour Members, though opposed by many Tory Members, some of whose speeches we have heard today. I believe that a similar situation will recur in two years' time, if not earlier. If the level of unemployment increases, as we feel it will, it will be disastrous for ordinary working people. All we can hope is that the Chancellor will have quick, second thoughts about his industrial and economic strategy.

7.57 p.m.

Mr. Nicholas Baker: (Dorset, North)

I wish to thank the Chair for allowing me to participate in this debate. I intrude into this debate as a maiden speaker with great diffidence, in view of the illustrious speakers who have contributed so far. I wish to add my thanks to the Chair and to the staff of the House for their welcome and helpfulness to all new Members.

It is a signal honour to represent so varied and large a constituency as North Dorset—a rectangle 40 miles across from each corner, which encompasses the incomparable beauty of Dorset downland, villages once wandered by Tess of the d'Urbervilles and hills stalked by the Mayor of Casterbridge. More recently they became the haunt of BBC2 producers and a dozen bare bodies covered with nothing but woad belonging to those who last year were searching for the Anglo-Saxon way of life by living in the past.

It gives me great pleasure to pay tribute to my predecessor David James, an independent and patriotic character respected on both sides of the House. He was a tireless constituency Member, particularly concerned for the individual when confronted by the monolith of the State. For a man who, resolutely and by the standards of this parliamentary generation, wrongly refused to advertise himself, he had an extraordinary career. No episode of his career as naval officer, publisher, author, explorer, naturalist, adventurer and touristic entrepreneur is more fascinating than his escape from a prisoner of war camp disguised as the Bulgarian army officer, Lieutenant Bugarov. It would be unparliamentary, and unbecoming of a maiden speaker, to repeat the name of the fictitious Bulgarian town his forged passport gave as his birthplace. I know that the House will wish him well in his new career. The work that he and Quetta James did in North Dorset will not be forgotten.

Men of Dorset are not, by reputation, "afear'd", and it was one of my earlier predecessors, Bob Crouch, who was responsible for the resignation of a Government Minister over the Crichel Down case. He believed it to be an important part of a Member of Parliament's duty to protect the individual against the State, I share that belief.

For many years farming has been the major industry in North Dorset and has employed the overwhelming majority of people. Efficient and productive as it is, it now directly employs only 15 per cent. of the population. Dairy farming, which is our area speciality, is second to none in the Common Market, and the Sturminster Newton calf market has the highest turnover in England. If British industry generally was as efficient as our farming industry, instead of achieving the classification of a less prosperous country we would be the leading industrial country in Europe.

Much employment in my constituency is provided by a host of small businesses. Some are connected with agriculture, but many are high technology, light engineering companies. The largest employer in my constituency, Flight Refuelling, employs about 900 people and specialises, as do many other similar companies, in high-quality aeronautical products. Companies such as this are competing in world markets for sales of computer products, building systems and electronic equipment. They are the pacesetters of today and the major employers of tomorrow. They look to this Government to prohibit some of the unacceptable industrial relations practices experienced during last winter.

These small companies need to be encouraged to create wealth and new jobs and they wait anxiously for some easing of the burden of employment legislation in its present form. They expect capital taxation which is, at worst, no more burdensome than that in other EEC countries. They do not expect, or deserve, heavily increased obligations as a result of forthcoming company law legislation. They are giving a loud welcome to my right hon. and learned Friend's proposals for the reduction of direct taxation, as, I believe, do all who are engaged directly in industry. The welcome will be particularly loud in the entertainment industry, for which I have acted as an adviser and in which it has been inelegantly said by many of my constituents that we in the House all play a part.

There is no known measure of the incentive effect of reduced direct taxation, but it cannot be right to penalise the talent on which our country depends by the totalitarian rates of tax which applied until the bold and far-sighted proposals were made. It is not just people such as certain friends of mine from Merseyside who have been hounded out of this country by our taxation system, although others depend on such people for their jobs. Skilled workers and middle managers, as a result of high taxation and poor economic performance, have found, in ever-increasing numbers, that they will achieve a better standard of living elsewhere in Europe. They have been voting with their feet in their one-way exodus. Far from costing the Exchequer lost revenue, the proposal to reduce the top rates of income tax may well prove to be self-financing.

The elderly and retired, of whom I have a good number in my constituency, will also welcome my right hon. and learned Friend's proposal to increase the pension and alleviate the application of the investment income rule, a tax on savings which I should like to see reduced still further when economic circumstances permit.

There is a good deal of talk about the poor in our society. I believe that pensioners have the greatest claim on our attention. They have seen their fixed incomes eroded and their individual economies destroyed as inflation, the great ravager, has made nonsense of the arrangements they made for their old age. I submit that this is a proper area for our concern.

However, pensioners recognise that the future of this country depends upon increasing productivity and they accept the arguments that we put forward during the election campaign for the necessity of shifting taxation which have been outlined in the Budget. But the spectre of inflation, given impetus by last winter, looms again, notwithstanding the neutral effect of the Budget. The Government must, for the sake of pensioners, as for us all, continue to squeeze inflation ruthlessly out of the system.

This Budget is not, and was not, presented as a complete mechanism for transforming the economy overnight, but it represents an essential and bold step in the direction of removing some of the inhibitions which snag our progress and delay our economic success. I believe that there are more steps to be taken in this direction and there are risks attached. My right hon. and learned Friend is to be congratulated on his courage.

8.6 p.m.

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

During the five years that I have been a Member of this House I have never had the privilege of speaking immediately after a maiden speaker. I sincerely congratulate the hon. Member for Dorset, North (Mr. Baker) on his maiden speech. He obviously has a feel for his constituency. It is a part of the world to which I have never been, but from the way in which he described it, with all those unclad people dancing around, I am not too sure what the make-up of North Dorset might be. He said that he was at one time an adviser to the entertainment industry.

I have never quite understood the distinction between show business and the entertainment industry. Many hon. Members think that they are in show business, though I am not too sure about that. I look forward to further speeches from the hon. Member so that I might find out a little more about the advisory work that he did for the entertainment industry. I confess that I did not know David James, but I have no doubt that there are hon. Members on both sides of the House who did and who will be very pleased with the great tribute paid to him.

We are now coming to the conclusion of our debate on the Budget, which has covered the last four and a half days. One thing is now abundantly clear. I listened to many speeches in this debate, many today and every one during last Wednesday's debate, and it is clear to me that there has been a shift, certainly on the Government Benches. The speech to which we have just listened is, if I am correct, the first one that we have heard from the Government side which embraced the Budget wholeheartedly and without qualification. All the hon. Members who have spoken from the Tory Benches so far today have, at some time, in their pleasure and the praises they have heaped on the Chancellor, started to qualify and edge back, reserving their position for the winter or next year, so that in their constituencies they can quote from Hansard and say "Well I didn't quite give it wholehearted support. I mentioned that the emphasis here was not to my liking, and that the Chancellor should have done a little more there." We had one hon. Member this afternoon who said that he thought that VAT should have been raised to 20 per cent. I hope that the Hansard reporters have recorded that.

Certainly, members of the Tory Party are moving back from the euphoria with which they greeted the Chancellor last week when they were waving their Order Papers. They have moved away. [HON. MEMBERS: "Nonsense."] Time will tell. Those hon. Members who interrupt from a sedentary position might like to know that I have heard more of the speeches than some of them. That is my impression, and I invite them to read the record when it is printed tomorrow.

This is not a Budget that will help or encourage the working poor of this country. I have a few good things to say about some aspects of it and I shall do that later, but in the main it is not a Budget that will help working persons. It will have the same effect on them as the weather of this month has probably had. It is pretty miserable. It is making people feel edgy and irritable, making them ask "Where is the sun, where is the summer?" They are asking the same thing about the Budget—"Where are the golden days that we were promised? This is not what we voted for." This is a Budget for Tories, but it is not a Budget for the millions who voted Tory, because they voted Tory on a false prospectus.

I want to say something about some of the figures that the Chancellor quoted last week in his statement. One has to be careful what one says in this place, because of convention and the rules. However, some of the figures are pretty crooked. The Chancellor has not told any untruths, but the figures have been doctored. They have been doctored in the way in which the Budget has been presented to the public, the trade unions and the working poor. Likewise, they have been doctored a bit as regards the higher rates, as I shall show.

On his own admission, the Chancellor said that a man receiving £60 a week—not a princely sum, but a sum which many workers do not actually get, anyway—would be better off by 75p. He said that that was a real gain. But there is not much there to buy a share in British Petroleum or British Aerospace. Three more prescriptions in one week and one is sunk. That is the measure of the gain to such a person. That is based on the Chancellor's false figures.

As my hon. Friend the Member for Thurrock (Dr. McDonald) said, the figures that the Chancellor quoted for tax cuts—no one took him up on them at the time—were spread out over the rest of the financial year. They were not on a steady state basis, which is how they ought to be looked at in terms of what happens after the initial surge has come through. No, the tax cuts were concertina'd into nine months, and six months in some cases, so the average per week by which one is better off looks better if the sum is not averaged out over 52 weeks. That is obvious. Therefore, we are on a false prospectus to start with in terms of a person such as the Chancellor. Treasury Ministers know that.

For years the Tories have challenged the Labour Benches about statements in the Red Book. They have based many of their arguments attacking the Budgets of the previous Chancellor, my right hon. Friend the Member for Leeds, East (Mr. Healey), on the evidence that has been in the Red Book and not in the Budget Statement. Therefore, it is no good the Tories moaning about it and whining to the House and complaining when my right hon. and hon. Friends do exactly the same thing, because it is all that we have to work on. We do not have access to the information that the Treasury Front Bench has. The Red Book and parliamentary questions are our only source of information to try to find out the thinking behind the Budget Statement.

It is no good complaining when we question the Government. The Government say "Business men, we shall set the nation free, with a bonfire of controls, to get the economy working." But then we see, in their own Budget and Financial Statement, statements such as a decline in economic activity next year. They are forecasting a decline in economic activity. Then there is the statement: no change in real disposable income. It is no good the Secretary of State for Trade saying today "We had only a 4 per cent. increase under Labour and 17 per cent. under the Tories, and we shall get it back to what it was. We shall reverse that." The evidence in the Red Book is that the Government will not even be making a start in the first year.

The Red Book says that there will be no change in real disposable income, and that domestic demand is weak because of the effects of the Budget. It does not say that domestic demand is weak because of the inheritance, the rise in oil prices, or Bolshie trade unionists. It talks of the effects of the Budget. That is quite selfimposed and deliberate. The Government know exactly what they are doing. They have made it clear for all to see.

We also have the admission about the retail price index, made with gay abandon. It astonished me to see the gay abandon with which this motley collection of moth-eaten former members of the Opposition Front Bench have treated this matter. Many of them have climbed their way up the greasy pole from the Front Bench below the Gangway when in opposition and have pushed out many of their right hon. and hon. Friends to grab their little red boxes and black limousines. Their gall astonishes me. They mention 16 per cent. inflation one day and 17½ per cent. the next. We have not had so much as a flicker of an apology for the massive damage that they will be causing to this country.

It is no good the Tories or the press complaining that I and the majority of my hon. Friends are drawing attention to the reality of life in Britain and saying that the majority of people will not stand for it. That is the reality of life. People will attempt to do something about it, irrespective of all the fine speeches that might be made by people in this place. People will see their living standards eroded. As from today, pensioners will see their living standards eroded, and they will not stand for it. Some people will complain. It will be no good the Government Benches saying to us "You must help us. You are the loyal Opposition. You must not cause this ferment outside, with all these people marching and demonstrating in the streets." This is self-inflicted, and it is quite deliberate naked class politics on the part of the Tory Party. [HON. MEMBERS: "Rubbish."] Of course it is not rubbish. Hon. Members will see that later this year.

Before I come to some of the tax changes, I want to talk briefly about some aspects of the public expenditure cuts. We shall all talk ad nauseam about the changes in taxation that are to take place. Many of us will serve on the Finance Bill Committee, on the Floor of the House and in Standing Committee. In terms of the public expenditure cuts that are being planned by the Government, it is not possible to debate them in detail in the same way now. Those to which I want to draw attention are very minor in terms of the money saved.

The cut in the expenditure on energy is very worrying. It is £2 million on the non-nuclear research side. That is very significant. It is not £2 million on the research of the Department. It is on the non-nuclear side. By common consent—certainly on the part of those on the Opposition Benches behind me—we have an extremely weak Secretary of State for Energy and an extremely weak Secretary of State for the Environment, coupled with a Prime Minister who is fanatically pro-nuclear. Given that fact, there will not be much problem about siting nuclear power stations and dumps for nuclear waste in Britain in the foreseeable future with that troika in charge of our nuclear policy, because whatever No. 10 says will go, whatever the planning and environmental consequences.

That has permeated through to the cuts. Why is it only non-nuclear research that is being cut back? It is only £2 million, after all.

I come to export promotion and tourism. Tourism makes a massive contribution to the British economy, as does export promotion. They are chopped by £5 million—at a stroke. It is not a large sum of money. However, in view of the benefit to the country from export promotion and tourism, I cannot see why these were not exempted areas. Perhaps it is because the Tories' own forecasts are so ingrained and we are seeing such a rapid decline in manufacturing activity that it is not worth trying to promote any exports any longer and, therefore, it does not really matter.

Road maintenance is to be cut by £10 million, after the massive damage caused by our very harsh winter. Road maintenance is labour-intensive and contributes to road safety, and through that it could reduce public spending on the National Health Service. But not on your life. It is to be £10 million off road maintenance.

The last item to which I draw attention is education. Very deep in the cuts in education is £1.5 million in nursery provision and £3 million in primary and secondary school improvements—a total of £4.5 million. That is £4½ million taken away from the seed corn of the future.

The Tory Party in Opposition, day after day, belly-ached about any attempt to cut back the growth of planned expenditure. Given the nature of the Budget, I would make the same speeches if the Labour Party were in power.

I shall not make many friends with this point. It is still planned to subsidise to the tune of £55 million free school meals for adults and cut the provision for nursery schools and primary and secondary school building by £4. million. I wonder where the priorities of the Treasury Front Bench lie? I am not saying that teachers on dinner duty should not get compensation, although it can be argued that we should look at all perks and abolish them, given the nature of the Budget. On the other hand, if the teachers got the right rate for the job there would be no need for free school meals.

I am prepared to stand up in public and say that I would rather lop £5 million off the £55 million for free school meals for adults than £4½ million off nursery school provision and primary and secondary school improvements. That can be defended even to those who would be affected by the cuts in free school meals for adults, but that is not high on the agenda of this Government.

I said that education was my last point, but this concerns Birmingham and trade. It is on grants to consumer advice centres where £½ million has been wiped away. It is always said—and it was said in answer to a parliamentary question by the Minister for Consumer Affairs—that the voluntary sector, the citizens advice bureaux, will deal with these problems, but 400 cases a week are presently taken by the Birmingham citizens advice bureaux consumer centre, and they will not be dealt with. There is no scope for those cases to be catered for by the ordinary workings of the citizens advice bureaux. The employees paid by the grant will be dismissed and employed elsewhere, probably outside the advisory area. The volunteers will not be of use. There will not be the space because the buildings cannot be rented because there is no money.

The Birmingham consumer advice centre will disappear. The complaints taken to that centre come mainly from people who cannot pay for specialist advice and who cannot afford tax silks to get round the Inland Revenue.

The Minister of State has been described as a tax silk looking after the Inland Revenue for the Treasury. Many of my constituents would not recognise that term. I have great respect for him. He is a witty debater. He wants to crack down on the scroungers in the tax system. We lose around £1 billion a year by income tax and corporation tax evasion. I have the transcript of the programme in which we took part a couple of years ago. He admitted that, given the opportunity, the Tory Party would crack down on that area of the Welfare State, where there is massive abuse. I look forward to the small print in this Finance Bill and the following one for the promises that were made when the hon. and learned Gentleman was official spokesman to be made good. He was not just a Back Bencher.

I sincerely congratulate the Government on not just indexing personal allowances but doubling them. I shall not go too far. The previous Government put into operation section 22 of the 1977 Finance Act in the caretaker Budget, which would have taken 700,000 people out of the income tax bracket. This Government have doubled that, and 1.3 million people are being taken out. They are spending £1¼ billion on knocking 3p off the basic rate, and I wish they had spent that on the thresholds. At a stroke, in a more meaningful way than anything they can do via the right hon. Member for Daventry (Mr. Prentice), that would have solved the poverty trap. As they see it, it would have made work desirable to those not in work.

I do not accept all the arguments, but that is part and parcel of the same thing. There is the interaction between social security and the tax system. Nothing in the Budget seeks to change that. The rise in the personal allowance is welcome. It is being paid for by the increase in VAT.

That is the point that I want to make. When one looks at the Red Book, one sees that the 15 per cent. increase in VAT brings in this year about £2 billion. In a full year it would be £4 billion. The Chancellor said that that meant another £2 billion for next year's income tax cuts—some more to spare for next year.

Having raised the personal allowances as he has, when next year he indexes them in line with section 2 of the 1977 Finance Act—colloquially known as the Rooker-Wise amendment—he is on a hiding to nothing. Inflation and the retail price index will be running at 17 per cent. to 18 per cent. by the end of the year. Next April it will cost about £1.9 billion to index the personal allowance and the age allowance alone.

The Government cannot claim that by raising personal allowances in line with inflation they are producing a tax cut. I have never claimed that this is a tax cut and it is not. It is simply maintaining the status quo in real terms. Therefore, the Government cannot say that they are taking an extra £2 billion in VAT to give people a tax cut by raising personal allowances. That will not wash at all. They are condemned out of their own mouths.

What are the Government left with? Will we have VAT at a rate of 20 per cent.? They will need to get more money from somewhere to make more real tax cuts. As we have heard one hon. Member advocating VAT at 20 per cent., I suspect it will not be too long before we hear a few others doing the same.

The one thing that really annoys me is the question of the investment income surcharge. Such a false impression is created outside this House. Anyone would think that this surcharge is a tax on savings which is affecting millions of people. In fact, in order to pay the investment income surcharge I reckon that a person would have to have capital of around £60,000. That is no help to any pensioner in my constituency or any of those in the majority of the constituencies represented by my hon. Friends. That lie must be nailed once and for all.

My last point relates to the higher-rate taxpayers. If it were in my power as a Back Bencher I would seek to divide the House on this part of the Budget resolution, but because of the way in which the resolutions are set out that is not possible. However, I want to put on record one example of the effect of these tax cuts. I take as an example someone who in the last financial year, 1978–79, received £20,000 a year gross and who, in this tax year, 1979–80, will receive £25,000 a year gross—in other words, someone getting a pay rise of £5,000, which is not unusual according to what we have heard recently. For that £5,000 pay rise, given the changes in the Budget, that person would pay only an extra £700 in tax. So much for the higher-rate taxpayers. Someone who is getting a pay rise of £100 per week will take home £86 a week of that.

That is a true measure of this Budget. Because of that and other changes, and because of the dishonest nature of the Chancellor's figures, most of my hon. Friends and I will oppose this Budget hook, line and sinker at every stage.

8.23 p.m

Mr. Richard Needham (Chippenham)

I begin with some trepidation. It will never be easy to follow the hon. Member for Birmingham, Perry Barr (Mr. Rooker), least of all in a maiden speech. Also, and I am terrified to think about it, he may be able to discover something in my speech which he may feel is unfavourable to my Government and their Budget.

With great respect to the hon. Member, it is with much greater trepidation that I follow in the footsteps of my predecessor, Dan Awdry. He was the Member for Chippenham for nearly 17 years, and Chippenham could not have had a more conscientious and effective constituency Member. He is a Christian, a civilised and charming man and I am sure that the House will miss him. There is a piece from Edmund Burke that seems to sum up Dan Awdry and his approach to politics. It is that in order to perform the part of a citizen wisely and well, it is necessary To bring the dispositions that are lovely in private life into the service and conduct of the commonwealth, so to be patriots and not to forget we are gentlemen. I believe that Dan Awdry in his public life certainly lived up to that.

I am the fifth of my line out of the last seven to sit in this House. However, the last four were Members for Down, South. I thought that I might be enlightened by reading the maiden speeches of my predecessors. Unfortunately, I did not get very far. The first, apparently, said nothing, the second said nothing, the third—in the 10 years that he spent in this place—managed to get in a sentence, and the last made his maiden speech about three weeks before the electors of Down, South kicked him out. However, there is one consolation—the omissions of my ancestors have been more than made up for by the present right hon. Member for Down, South (Mr. Powell).

My constituency of Chippenham is wide, varied and beautiful. It would take the whole of the debate to describe even a small part of it adequately. Therefore, I should like to touch briefly on three issues. The first is the development of our towns and villages, particularly Swindon Much of the development is subject to a public inquiry which is now before the Minister. It is obviously controversial and, as the matter is sub judice, I will say very little about it.

There has to be a correct balance, however, between the expansion of towns such as Swindon that have not grown as fast as was expected and Wootton Bassett which has grown much faster than anticipated. There are also small villages which are in danger of losing their community identities as schools close and many of the inhabitants become commuters.

Secondly, I should like to draw the attention of the House to the level of poverty in rural areas. Listening to Labour Members, one could be forgiven for imagining that some of them believe that Wiltshire is populated almost exclusively by retired colonels living on inflation-proof pensions and by wealthy land-owners. Unfortunately, nothing is further from the truth.

Many elderly people living in country areas have great trouble travelling. Transport is expensive and in some instances non-existent. Many such people are widowed and live in their own homes. They find it increasingly difficult to keep their homes in good repair and to pay the rates. For many of these old people, the most important contact with the outside world is their television, the licence for which they find increasingly hard to budget for. I hope that the Government will bear those points in mind when the rate support grant is altered. I hope that they will stop penalising country areas at the expense of others, which is what happened under the previous Administration.

Thirdly, I wish to refer to the pig industry. Forty-five thousand people are directly employed in the pig industry in this country—44,900 now because the slaughterhouse of Harris's in Calne has been closed down recently. I appreciate that the Minister of Agriculture, Fisheries and Food is negotiating hard for a 5 per cent. reduction in the value of the green pound and that he is making strenuous efforts to help the pig industry. However, the French, as usual, have already protected their industry. We must take urgent action to restore fair competition and to recover from the past three years when the influx of Dutch, Danish and Irish bacon caused so much harm. Even if the Minister succeeds in his endeavours, we still have to face the restructuring and recapitalisation of the industry. I am sure that the Government do not wish to add a lame-pig policy to a lame-duck policy.

I believe that the Chancellor has spelt out the dangers of our position in his Budget. There can be no doubt that Britain hovers on the edge of an abyss of absolute decline. It is not for me, in my maiden speech, to be controversial or to take issue with the right hon. Member for Down, South. Nevertheless, a country that is in danger of growing at less than 1 per cent. of its gross national product is not producing sufficient wealth to replace its capital stock. Surely, if capital stock is not replaced, that country is on the verge of economic decline.

The Chancellor of the Exchequer has set out the four principles behind his strategy and he has bravely tried to alter the course followed by the economy under the previous Government. I agree with those principles, but I hope that during this Parliament it will be possible to add another principle—greater participation by people at work. That is an area of industrial practice which we ignore at our peril.

Even now, I have the feeling that the impetus towards greater participation at work is beginning to falter. It is sad that the trade unions have never had a concerted voice on the matter. Although they have contributed much to the rights, freedoms and privileges of working people, they have become stuck in then-contribution to industrial development over the past 30 years. Whatever else one may say about free collective bargaining, the dialectic behind it has hardly led to a new industrial synthesis. Management has also done too little to introduce the techniques of Macgregor and Herzberg.

Money and the fear of the sack are too often used, even today, as the major motivators behind people at work. The psychology of work has not been fully understood in the boardrooms of Britain. I cannot honestly say that Governments of either party, or, indeed, the House itself, have distinguished themselves in promoting wider employee participation. Perhaps that will change next week when we debate the plans for Select Committees.

There is a small precedent. I know that the right hon. Member for Leeds, East (Mr. Healey) does not often get praise from Conservative Benches, but he introduced a measure on financial participation which won the approval of the whole House—though I am not sure how keen the right hon. Gentleman was on it at the time.

I should like to see the Government take a much more active role in promoting all forms of participation. My right hon. Friend the Secretary of State for Employment, when he was in Opposition, talked about a code of practice, and I hope that he has not forgotten that. I hope that managements will do more about disclosure of information and industrial relations training and will put more stress on the importance of human relations. I hope that the trade unions will use their undoubted powers and privileges to take up the right of their members to be more involved in their work, both personally and financially.

I hope that we shall see in this Parliament the start of a movement in which the British people will at last start to work together in the face of ever-increasing economic uncertainty. The future of political democracy will not remain secure for ever unless the British people find a common purpose in their place of work. There is nothing in the present structure of our society to stop that happening.

One of the ways that the Government won the votes of the people at the last election was by appealing to their pockets. The next election must be won by making sure that we retain the people's confidence and that we have started to establish at work the freedoms that they have long enjoyed in their private lives.

8.39 p.m.

Mr. Ron Leighton (Newham, North-East)

I am extremely glad to have caught your eye, Mr. Deputy Speaker, and been given the opportunity of addressing the House. I congratulate the hon. Member for Chippenham (Mr. Needham) on his maiden speech. I am in an invidious position, because in my maiden speech I shall not be able to compete with the hon. Gentleman's eloquence.

I represent Newham, North-East. I do not like the new terms that have resulted from local government reorganisation, so I shall say that my constituency is in what in the old days we called the county borough of East Ham.

Despite what I read in the press, I found after my selection that the Labour Party in my constituency was in very good morale and spirit. We fought a good election campaign—I am told that it was the best in living memory—and as a result I can claim to come to the House as a Labour gain. Certainly, the constituency remained loyal to Labour, and we—note that I do not say "I"—got well over 600 more Labour votes than at the previous election in 1974.

My constituency is an area of East London. In many ways its prosperity is linked with the general prosperity of the country. It has a large Asian population. I was there over the weekend and attended two Asian temples. Community relations are good—that is splendid—and I see it as one of my principal tasks to maintain that situation.

I was brought up and went to school in the neighbouring borough of Barking. In those days we looked at East Ham as a very desirable area. It was rather up-market; in many ways it still is. But I have discovered that there is a growing feeling in the area that it is not getting the attention that it deserves.

People there see a great contrast between the East End and the West End. Constituents of mine who venture into the West End tell me that they see people spending more money on one meal in a restaurant there than they themselves earn in a whole week working in East London. They also tell me that industry is moving out of East London.

There are two other constituencies in the London borough of Newham. The employment opportunities in the borough are diminishing—in the last 15 years at an alarming degree. Since 1966 the number of local jobs has fallen by 24 per cent. and 120 local firms have shut down. These are net figures and discount new jobs which have been created. Since 1966 the size of the resident labour force has declined by 16½ per cent.

As a result there is now increasing commuting outside the borough, and half of Newham's working residents are employed outside the borough. One financial symptom of this situation is that the industrial component of the borough's rateable value has fallen in 10 years from 26 per cent. to only 16 per cent.

It was an area in which the docks played a very great role. In Newham manufacturing and commercial activities associated with the docks once constituted the traditional basis of employment, and in 1966 more than half the local jobs were provided in that way. But the decline of the docks has had inevitably serious consequences. The London docks, once perhaps the busiest in the world, are so no longer, but their site presents an exciting challenge. London's dockland, probably one of the largest areas of vacant urban land in Europe, offers a challenge and opportunity. Attractive housing, particularly suitable industry, adequate transport facilities and the provision of recreational and cultural facilities are all necessary, and, if we provide the money and if we have the will, dockland provides an opportunity to regenerate East London. That is what my constituents want. That is one of the messages I bring here.

However, they see little tangible sign of it at the moment. I mention only one tangible thing to illustrate the situation. It concerns what some people consider to be the decline of what is known as the Barking to Kentish Town railway. I have seen the correspondence. On this line, trains are quite often cut out—for example, the 1805 is cut out regularly. That means that commuters have to wait for 14 hours. They wait in vandalised waiting rooms. When they complain to the managers, they are told "The rolling stock is old-fashioned; it is out of date and does not work, and we cannot get guards"—presumably because they cannot pay the money. "All this is because of the national economic situation." So that is one way in which the national economic situation affects the people of Newham.

I now come to the Budget and our economic decline. How are we to arrest and reverse the decline of British industry and its lack of competition? This is a complex and intractable question. The decline has been happening over a long period.

I take the view that Britain was exhausted during the war. We carried an unfair defence burden after the war by seeing it as our duty to police the Indian Ocean, the China Sea, the Persian Gulf and the Caribbean and to keep bases in Aden, Singapore and Cyprus. We also put our research and development, which is important for industry, into defence. We created Blue Streak, TSR2 and nuclear weapons and told the Germans and Japanese that we would not allow them to do the same. The Germans and Japanese, therefore, put their research and development into other projects.

We were the first industrial nation in the world, and a lot of our equipment is old-fashioned. There are many complex reasons why British industry is less competitive. The question is how to remedy the situation. That is how we must look at the right hon. and learned Gentleman's Budget. The right hon. and learned Gentleman seems to think that the answer is tax reductions. To my constituents, they are tax switches. There is no real tax reduction. Most will go to those who are well off.

The right hon. and learned Gentleman seems to believe that this act of putting more money into the pockets of the well-off will galvanise and dynamise them. Somehow, they are expected to act differently. I am not sure how. Are the Government saying that they will get up earlier in the morning, that they will shave quicker, that they will have brighter eyes, get to their offices earlier and work harder? I do not believe it. The Chief Secretary to the Treasury, who is not present, does not believe it. He believes that tax cuts are good in themselves. He thinks that their recipients may go on the golf course.

When taxation in this country was at its lowest in the 1920s and the 1930s, unemployment was at its highest. In my living memory, the right hon. Member for Sidcup (Mr. Heath) tried the same medicine. Those were the days of the Selsdon Park policies when the noble Lord, Lord Barber, put money into the pockets of these people. What did they do with it? They put it into land. They put it into housing. They shovelled it abroad where it helped our competitors. If they want to put it into housing now, they need not put it into British housing. They can spend £100,000 putting it into houses in Spain.

We gave the money to the entrepreneurs but the entrepreneurs did not do any entrepreneuring. Our entrepreneurs have let us down. The trouble with British private enterprise is that it is not very private. It keeps coming to the Government for money. It is also not very enterprising.

I am sorry to say that the Budget will not work. It is a triumph of hope over experience. It has been called a gamble. The policies have been tried before.

In what other way can we galvanise the British economy? We have tried incomes policies. There might be a wages policy again soon. We have experienced more wages and incomes policies than any other country in the West. They do not seem to have helped us much. The TUC agreed to wage restraint for years under the last Government. The trade unions were patriotic and altruistic. However, a permanent, rigid Government control of wages in our society cannot be a permanent way of industrial life. It gave a breathing space out of patriotism. What was done with it?

The problem cannot be solved by incomes policies alone. How are we to solve our problems? There was another answer years ago about which we hear little today. It was called the Common Market.

This is a maiden speech, and I must not be controversial. I shall be completely uncontroversial. Our membership of the Common Market has been a complete failure. When I went round my constituency knocking on doors, I found not one person who showed any love, affection or enthusiasm for the Common Market. Perhaps Conservative candidates found numerous people cheering in the streets for the Common Market. But the number of people who voted in the European election shows that there was not antipathy but hostility. We have not benefited from the EEC. It has proved highly disadvantageous.

On prices, jobs, the trade balance and democratic self-government, the Common Market is bad news. It has exacerbated our difficulties. The crazy farm policy is costing us more than £1 billion a year. I understand that the Conservatives are opposed to subsidies to British men and women. But because of what we pay in support for dairy products, we are subsidising every cow in the Common Market by £100 a year. Most of those cows are German or French.

The Common Market is making us pay more to eat less, lowering our living standards and burdening our balance of payments. It is absurd that the largest food importer in the world should link its purchases to the highest cost market. We have been trying to reform the Common Market for five or six years, but we have achieved not a single reform. Surely we should impose a time limit. We should say that unless changes are made, we shall impose a ceiling on the taxes that we pay. Without Britain, without the second stomach to the Common Market taking their surpluses, and without our taxes, the common agricultural policy would collapse tomorrow.

The method of financing the Community budget is hopelessly tilted against us, with our payments spiralling out of control. Official figures say that in 1982 we shall be paying 32 per cent. of the budget with only 16 per cent. GDP. That is intolerable. No Government will be able to afford that. The Chancellor knows that unless the rules are changed by 1982, we shall be subsidising the rich nations of Western Europe by more money than we receive from North Sea oil.

Who will be prepared to support that? Certainly not the Prime Minister. Whichever Government we have will disagree with that. But it is not only that. We knew that there would be increased costs on food, though we did not know they would be so high. We knew that there would be costs incolved in the Community budget. My right hon. Friend the Member for Battersea, North (Mr. Jay) used to give figures. He always had it wrong because he underestimated the figures.

Though we knew that there would be costs, we were told that the whole case for entry was that the huge, dynamic benefits to British industry from the "larger market" would outweigh those costs. We were told that the large surplus of trade would compensate us for these other burdens. The opposite has happened. From being in rough balance, we now have a deficit of some £2½ billion every year. The simple truth is that since 1973 the Common Market has inflicted upon us a staggering trade deficit of over £12 billion.

This trade deficit has been reflected in unemployment. Surely it is clear that if one switches purchases from British factories to Continental factories it must mean a loss of jobs in this country. So, we are paying the price of being in the EEC not only in higher food prices but in lengthening dole queues. Our unemployment rate is now twice as high as when we joined the EEC. Instead of the investment boom which we were promised, for every £1 that is coming into this country from the Continent £8 is flowing out.

Britain's future as an industrial nation is being jeopardised under this arrangement and, if this trend continues, we shall become an impoverished offshore dependency of the Continent. Our people will, increasingly, be put on the dole or driven abroad to the Continent to seek work. That is already happening. Our manufactured goods will be supplied from abroad, and they will all be paid for by North Sea oil. What happens when that oil has run out after two decades? I am not claiming that all our problems have been caused by the Common Market and nobody else would claim that. I am saying that it has not been the miracle cure it was claimed to be and that it is preventing us taking many of the steps we should have been taking to cure our malaise.

The Common Market is the opposite of what this country needs. It gives us rigid protection for food, and it gives us unrestricted free trade for manufactured goods. What British interests need is the complete opposite. In that sense the Common Market is anti-British, and I do not believe that there is anyone in this House who believes any longer, that our problems of unemployment, balance of payments, low investment, low growth and the export of capital are to be found in the dated texts of the Treaty of Rome. We need new policies of public investment and the planning of trade.

I have taken too long to come to my last remark, but this is my message tonight. We must control excessive imports. At the moment, the heart of British industry is being ripped out. There is no time to examine why British industry is less efficient, but every day we read in the press the depressing news of factory closure after factory closure and shipyard closures as well. Most of our cars, motor cycles, radio sets, tape recorders, television sets and even cutlery are imported. There is increasing import penetration right across British industry, and this process has been speeded up dramatically. How long can we stand by idly and allow that to happen?

I look at the Red Book from which everyone has been quoting, and I see that in page four it states: … much of the sharp increase in domestic demand was met by higher imports … There was a particularly large increase in imports of manufactures which were 13½ per cent. higher in 1978 than in 1977. How long are we to tolerate that? How can we solve the problem of unemployment? If we used the old Keynesian method of increasing demand, it would not increase the supply but merely suck in a surge of imports, thereby wrecking the balance of payments. We have to do something different.

I must close my speech shortly. If I am allowed to carry on, I shall do so until someone tells me to sit down. I believe that we shall have growing unemployment. What is a deflated economy but a holding back of the economy? What is 2 million unemployed apart from an import control? Is it not an import control of the worst kind? Does the international community want that? I believe that there is a better way.

We need the Government to stimulate the economy. I end on this note. I hope that it is not blasphemy to say that policy must be accompanied by import controls. The opposition on the part of the Treasury, economic journalists, Government advisers and everyone else to import controls I find increasingly incomprehensible. If Mr. Speaker ever invites me to speak again. I shall continue with this subject. I predict that we shall never get out of our difficulties until we get selective and imaginative import controls. I do not have the time to explain how we can do that now. We would not have to put them on food and raw materials. We would exercise them in a way which would not invote retaliation but meet with the sympathy and understanding of the international community.

Mr. Gordon Wilson (Dundee, East)


Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

Mr. Peter Shore.

Mr. Peter Shore (Stepney and Poplar)


Mr. Wilson

On a point of order, Mr. Deputy Speaker. May I draw to your attention the fact that as a member of the Scottish National Party I have not had a chance to speak in this four-day debate? I think it is quite wrong that a party representing half a million votes in Scotland should be excluded in this fashion.

9.2 p.m.

Mr. Shore

It is my pleasant duty to begin by congratulating the five hon. Members who have made their maiden speeches in our debate today. Maiden speeches are generally said not to be easy, although I have some doubts about that, having heard my hon. Friend the Member for Newham, North-East (Mr. Leighton).

I have a particular regard for those who choose to make a maiden speech during the course of a Budget debate, which, by general agreement, is one which is highly charged politically and often contains many difficult technical issues. The hon. Members for Birmingham, Northfield (Mr. Cadbury), for Luton, East (Mr. Bright), Dorset, North (Mr. Baker) and Chippenham (Mr. Needham), who represent Conservative constituencies, have all paid tribute—and we appreciate it—to their predecessors. They said what we expected them to say about the problems of their constituencies.

On behalf of my right hon. and hon. Friends, I would particularly like to say to the hon. Members for Northfield and Luton, East that we greatly appreciated their tributes to the former Labour Members, Ray Carter and Ivor Clemitson, who, I believe rightly, enjoyed the affection and respect of both sides of the House and who we certainly hope will be colleagues with us again before long.

I say to the hon. Member for North-field that I thought that his words about the needs of Longbridge and the fact that British Leyland as a whole would need time to recover its strength if it is to succeed were most wise. I very much hope that the Government Front Bench will pay proper heed to them. As for my hon. Friend the Member for Newham, North-East, we particularly rejoice in the fact that his was a Labour gain. I have a shared concern with my hon. Friend for the problems of East London and the effects of the decline of the port industry there. I hope very much, as he does, that the inner city initiatives that we took in Government will be sustained, in spite of the threats that we have heard from various sources on the Government Benches.

As for my hon. Friend's remarks about the Common Market, I think that those, too, will have been heard with great interest and considerable understanding, at least on these Opposition Benches.

We look forward, therefore, to hearing all those hon. Members again when next they catch the eye of the Chair.

We are approaching the end of our four-day debate. It has been long enough for the rather prescient remarks of my right hon. Friend the Leader of the Opposition about how quickly the garlands of praise fade and wither to be demonstrated as true, but not long enough, I believe, for the House to explore, not merely from the Scottish National Party point of view but from the point of view of the nation, the full horrors which I believe to be contained within the Budget.

This is a Budget of exceptional importance. It is not simply the usual major annual occasion for determining and discussing the Government's economic policy. It also sets the pattern for the whole of this Parliament and more. On the Chancellor's affirmation, it is designed to achieve a historic change in the direction of our economic policies and in the fortunes of our country.

Here, of course, is one point upon which we can agree. The success of our economy, the prevention of its absolute decline and a rapid improvement in our performance relative to that of our competitors are and should be the main aim of all our policies in the years ahead. We need success. We need it to end the underlying defeatism and loss of morale which has sapped our effort increasingly over the past 20 years. We need it to secure the future for our children. We need it for the health of our democracy. Indeed, we need it for the very survival of an independent United Kingdom.

I would add one qualification to what the Chancellor of the Exchequer said about that. To me, a key indicator, perhaps the key indicator, of success for an island trading nation is its share of world trade in manufactured goods. This fell every year from 1959 to 1974, from 18 per cent. of the total in the former year down to a miserable 8.8 per cent. in 1974, and only in the past five years of Labour Government has that decline been halted and, indeed, at roughly 9 per cent. to 9½ per cent. of world trade, slightly improved.

So let the right hon. and learned Gentleman reflect a good deal more deeply than he did last Tuesday on the great defensive struggle, in the midst of unprecedented oil price increases and in the teeth of the first world recession since the 1930s, that his predecessors waged.

I turn now to the Budget itself and, first, to what the Chancellor himself describes as its keystone, the substantial cuts in income tax. The essential point which the Chancellor has sought to establish, and must establish, is that by a radical reduction in income tax the whole working population will be advantaged. He admits, of course, that indirect taxes have had to go up sharply, too, but for both political and wider philosophical reasons it is essential to his case that a noticeable balance of tax advantage will ensue from his measures.

As the House will recall, the right hon. and learned Gentleman summed this up in his Budget speech with three illustrations: the married couple on £100 a week who are to benefit, setting reduced income tax against increased VAT and petrol duties, by some £1.30 a week; the lower-paid couple on £60 a week who, we are told, will benefit by some 75p a week; and the couple on £150 a week who will benefit, so the right hon. and learned Gentleman says, by nearly £2 a week.

I was troubled at the time by the Chancellor's illustrations, and I still am. I wish now to put certain questions to him. As my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) said a few minutes ago, is not the more accurate calculation in respect of the married couple on £100 a week a gain not of £1.30 but of some 50p a week, and will not this be obvious by April 1980 when the £4 a week tax reduction which has been increased by the 10 weeks' delay in payment returns to its 52-week average of £3.20?

If that is true of the £100 per week married couple, surely similar reductions must be made for both the £60 a week and the £150 a week couple, whose examples the Chancellor also cited.

Secondly, why has the Chancellor chosen to make his lead illustration the childless married couple? People have children. The typical family has, I understand, two children—and those more pedantic than myself would say 2.4 children.

The Chancellor of the Exchequer's illustrations, and those that accompany the Budget papers, indicate that on the right hon. and learned Gentleman's calculations the £60 a week lower-paid family is to gain 82p a week as a result of tax changes. At the same time the Chancellor cancelled the 50p a week increase in child benefit that the previous Labour Government had already announced. Such a family is not advantaged at all. On the Chancellor's own calculations, it must be 18p a week worse off.

The £100 a week—near-average—family is in a slightly different position, but basically, if we deduct the £1 a week it would have received in child benefit from the £2.02 a week it is to gain from the tax concessions, there is an advantage of £1.02 a week. I believe that the Chancellor will concede that his arithmetic of loss and gain has been narrowly confined to changes in direct and indirect taxes. He knows perfectly well that a whole spate of price increases has been announced, and many more will be announced covering such essentials as gas, coal, electricity and fares. The increases flow from the Conservative Government's decision to raise prices, not to mention the devaluation of the green pound.

There is no doubt about the gain for the higher income groups. The extent and progression that the Chancellor's tax tables illustrate are enormous. They are far greater than that asked for by the British Institute of Management in its submission to the Chancellor last month. Middle management has relatively modest help. Beyond £10,000 a year the benefits rise rapidly. The £20,000 a year married couple have a tax cut, according to the Chancellor's tables, of nearly £2,000 a year. The cuts increase still more sharply as incomes rise.

I labour these arguments not merely to demonstrate the manifest unfairness of the Chancellor's proposals but to question the major premise on which his Budget is built. If the weight of taxation is too great, if incentives are being crushed by taxation, clearly that must matter at all levels of income. The truth is that those effects are either non-existent or only trivial for the vast majority of the working population.

It is not a national effort that the Chancellor of the Exchequer is looking for but an effort, in income terms, by the existing elite of British industry, commerce and administration. For several reasons, I believe that is a nonsensical expectation. Of course, the recipients of his largesse will be pleased. However, will they work harder and more productively than at present? Will they be galvanised, to use that new and fashionable word? Will they be encouraged to invest more? In Britain there is probably a more generous system of investment incentive—it has been maintained for more than a decade—than is available in any other country in the Western world. Previous experience, when Tory Chancellors cut surtax and income tax, reveals no correlation in the United Kingdom between the performance of the economy and the levels of personal taxation.

Many references have been made in this debate to Lord Barber's Budget Statement in 1971 when the same sentiments were expressed. We know the result of all that. The experience of other countries is not helpful to the Tory case. My right hon. Friend the Member for Battersea, North (Mr. Jay) mentioned the known fact that Sweden and Denmark, which have the highest per capita income in Western Europe—higher than both Germany and France—have top marginal tax rates which are at least equal to those which have hitherto prevailed in this country. The connection is thin and I find the whole approach unconvincing.

The Chancellor seems to have in his mind some curious textbook view of economic man—a cardboard, two-dimensional creature, looking a little like the Secretary of State for Trade, who somehow is twitched, jerked and galvanised into vast new efforts by the effect on monetary incentives. But in the real world men and women are impelled by many different motives in their work behaviour. They include the exercise of power, prestige, job satisfaction, service to others, loyalty to their enterprise and concern for the fortunes of their own country.

Nevertheless, it is the Chancellor's obsession with income tax and incentives that has shaped the main and, to us, the odious and damaging features of his Budget. In order to finance them he has had to make savage cuts in public expenditure—which for other reasons he favours—and savage damaging increases in VAT. He has done all this in the teeth of his own party's recent election pledges.

I turn to these pledges. Having heard the speeches of so many Tory Members and their congratulations to themselves on having supported a Government who immediately upon taking power put into practice that which they put before the electorate, I remind them of some of the things which they told the electorate they did not intend to do and which they have now done.

Let me deal first with Health Service resources: We shall not reduce the resources devoted to the Health Services. That was said by the then Leader of the Opposition, the present Prime Minister, on 18 April this year. The Conservatives also said: The Government have recently issued firm cash allocations to regional health authorities for 1979–80. The Conservative Shadow Cabinet has no plans to cut these figures. What was said about prescription charges? I doubt very much whether any responsible Government could say that over a period of five years, regardless of what happened to the value of money, they would not put up prescription charges. But we have no intention to raise these charges. We have no intention whatsoever of the kind attributed to us. Who said that? The Prime Minister made that statement on 18 April. That was only the beginning, because they made all kinds of statements and pledges which they must now regret.

I have a little document in my hand issued by the Conservative Central Office under the heading "Labour's Lies" carrying the name and the authority of the Paymaster-General, the then deputy chairman of the Conservative Party.

The first "lie" was as follows: The Conservatives have promised to sell off the Government's majority holding in one of our most priceless national assets, British Petroleum. The document goes on to list a few more and ends with these words: Each of these statements is a flat lie". Under the heading of "Lies, Damned Lies and Statistics" bearing the imprint of the right hon. Gentleman now the Secretary of State for Defence, "lie" number two was as follows: there is the unemployment scare by Mr. Callaghan. He said: 'The Conservatives would stand aside and watch firms collapse and fall. Their way is a sure way to put unemployment well over the 2 million mark.' That comment is false. We are committed to helping to create new jobs in growth industries as well as helping tide companies over temporary difficulties. In that case, perhaps we shall hear a good deal more about what we read in the press over the weekend regarding the forecast of 2 million unemployed which was not circulated and was kept, no doubt, in the cellars of the Treasury under lock and key.

I turn to almost the last, most outrageous and audacious of all the pledges that were given by the Tory Party when in Opposition, concerning value added tax. The present Prime Minister said: The increase in value added tax will be comparatively small On 21 April the Chancellor of the Exchequer said: We have absolutely no intention of doubling VAT so all the claims made about the price of household goods shoes, cars etcetera, are utterly false. We then had this, following the Labour Party press conference: The figures Shirley Williams gave at this week's Labour Press Conference have no basis in reality … she was assuming that VAT goes up to 15 per cent. The Chancellor of the Exchequer was the author of that.

For people to pose as men and women presenting the truth to the nation and then getting on with their pledges in the first few weeks of Parliament, the like of what has been said is singularly unimpressive.

Mr. William Hamilton (Fife, Central)

Very moderate words.

Mr Shore

I turn again to one of the major consequences of what I describe as the Chancellor's obsession with cutting direct taxation—the magnitude of the public expenditure cuts of £2,750 million this year. They are as impressive in size as they are depressing in effect. I most certainly am not going to list them all. Indeed, I cannot list them all, because £1,250 million of that total cut will be squeezed out of public expenditure through the operation of cash limits and the other £250 million out of cutting the contingency reserve. Regarding the know £1,500 million cuts, I want to mention two or three points which seem of great importance.

First, there is the impact on the construction industry. If we add together £300 million on housing, £55 million in capital expenditure on water and sewerage, £28 million on educational building, and a further £10 million on roads, that constitutes a major problem, if not crisis, for the building and construction industry. How many bankruptcies, I wonder, will flow from this.

Mr. Bruce-Gardyne

Will the right hon. Gentleman remind the House of the dimension of the cuts in public expenditure which his Government imposed on the construction industry in 1976, before he proceeds to comment on very modest reductions in the present Budget?

Mr. Shore

We are very well aware of it and quite determined to avoid that situation again. We were quite determined to do what we did, which was to reinstitute public expenditure in a serious, methodical, growing and responsible way.

The second point to which I draw attention—I agree very much with the Leader of the Liberal Party and those who have made this point—is that the decision to lop overseas aid by £50 million is surely wrong.

Mr. Nick Budgen (Wolverhampton, South-West)

Not enough.

Mr. Shore

Anyone who has looked at what has happened through the impact of increased oil prices on developing Third world countries and at the failure of the UNCTAD conference, and anyone who is concerned about the consequences for the stability, let alone political stability, as well as the economic conditions of those countries, cannot find it in himself to justify that particular cut. Of course, it is not crucial in itself, but as an example to other developed countries it is surely deplorable.

Then we have the cut of £172 million in the Manpower Services Commission. That means fewer jobs. At the margin, it means the collapse of many small and medium firms. If that does not impress the Government and some of their more vociferous supporters—we all know their views about so-called phoney jobs—how can they possibly justify the cuts in training programmes which are also involved on that side?

All this, and then there is the £1,000 million more from public and local government services through the cash limits.

I said at the beginning that the Budget set the pattern for the future. If we are to believe what the Financial Secretary told us the other night—I suppose that we have to believe the Financial Secretary, even if we are asked not to believe the Red Book—at least VAT is to be held at the 15 per cent. level. But with public expenditure, as we know very well, it is only a beginning. The Government just have not had time since 3 May really to set to. The mad axeman of Great George Street is a familiar figure in our political and economic post-war debates. But never before have we had at the same time a mad Mace-waver at Marsham Street and a mad monk at the Department of Industry, curtailing their vast budgets and only too eager to compete with the Chancellor in the cuts and savagery which they are prepared to employ.

I predict now massive cuts next year in local government services, in housing, a reduced rate support grant, a massive increase in rates and large cuts in both regional and industrial aid.

Therefore, I turn to the major consequences for the economy. I must be brief. [HON. MEMBERS: "Oh."] I thought that a lot of it would have been of interest to right hon. and hon. Members. After all, their own words are surely worthy of study. However, the fact is that we are now faced—I do not dismiss the Red Book at all—with a dismal picture of the future. We face a fall in the gross domestic product of 1 per cent., a similar fall in consumer expenditure, cuts in public investment of 4½ per cent., and a fall in manufacturing output of 2½ per cent. The only element of growth in the Red Book is exports.

I was not particularly convinced by the bit of paper which the Department of Trade put out, on the basis of which that bit of optimism is calculated, particularly when I take account of the effect of a 14 per cent. minimum lending rate and an accompanying rise in minimum lending rate, not to mention the oil-boosted exchange rate which we now have. I find this very difficult to believe.

That is the very moment when the Chancellor chooses, with the obvious support of the Secretary of State for Trade, to unleash direct investment overseas from this country. The right hon. and learned Gentleman maintains that it is only a minor matter. I do not have the time to try to explain to him now why that is not so. But I invite him to have a look at the last time this was done, when Lord Barber, in 1972, relaxed the rule on direct investment at only £1 million per project per year, whereas the new rule is for £5 million per project per year. The outflow from this country in the first full year that followed, 1973, reached £520 million of direct investment in subsidiary companies in manufacturing on the Continent of Europe, where our main competition is now stemming from. That is not sensible.

My last point concerns inflation. The right hon. and learned Gentleman seems to think that he has a miracle cure by controlling the money supply. I have never accepted the exaggerated claims for monetarism. They are technically unconvincing and politically naive. In the public sector, cash limits can be of some assistance, but only if they are used flexibly and with common sense. If cash limits are used rigidly and mechanically and employed as a substitute for the necessary restraint that comes from an agreed incomes policy, if they have any success the consequences for employment, the standards of public service and the strength of our industry will be appalling.

The economic strategy of this Government has a brutal simplicity about it, but I fear that it will not do other than seriously weaken the patient—this British economy that they claim it is designed to assist.

I come, finally, to the philosophy that underlies this Government's approach. According to the Chancellor and his leader, the power of the State has in any event to be reduced. They want to roll back the boundaries of the public sector."—[Official Report, 12 June 1979; Vol. 968, c. 246.] According to the Chief Secretary, the State can do nothing in the economy to stimulate demand. According to one right hon. Gentleman, the State cannot even if it would. According to the other, it should not even if it could. Here lies a mixture of intellectual confusion and intellectual despair.

In conclusion I state the opposite, contrary view. It is only through the further extension of democratic power from the political into the economic and industrial arena that we can hope to overcome the problems that we face.

Up to the great failure to respond to the Arab oil price increases in 1974, in the last 30 years the people of the industrialised world have enjoyed an unprecedented improvement in their standard of living, almost uninterrupted full employment and great advances towards more socially just conditions. Consequently, political democracy has deepened its roots and achieved far greater strength throughout the Western world. That applies not only in Britain but almost throughout the entire Western industrialised world. It was done not by rolling back the boundaries of the State but, on the contrary, by extending the protective and helpful role of the State to assist the people of the country that they serve.

The people of Britain wish to see a parliamentary and democratic power used in the future and not abandoned. Our efforts must be to meet that demand more effectively in the future than we have been able to do in the past. I greatly hope that my right hon. and hon. Friends will join with me in rejecting the utter folly of the Budget.

9.35 pm
The Chancellor of the Exchequer (Sir Geoffrey Howe)

I begin by joining the right hon. Gentleman at least on common ground to the extent of welcoming the contributions that we have had to the four-day debate from no less than 26 maiden speakers. Twelve of those speakers were from the Labour Party and 14 from my own party, including five who made their own notable contributions today. The last speaker to whom we had the pleasure of listening, the hon. Member for Newham, North-East (Mr. Leighton), displayed a certain self-confidence. I suppose that he is entitled to do so, since his seat is the only Labour gain represented today.

I also welcome the speeches of my hon. Friends the Members for Birmingham, Northfield (Mr. Cadbury) and for Luton, East (Mr. Bright), representing the industrial areas of our country, and my hon. Friends the Members for Dorset, North (Mr. Baker) and Chippenham (Mr. Needham), representing the broader county areas of our country. That indicates the well-founded national support of the Conservative Party. The House will look forward to hearing from them all again.

We have also heard with some interest speeches from the Labour Front Bench, as the struggle begins for the succession to the uneasy throne of the Leader of the Opposition. At the beginning of the debate we had a contribution from the right hon. Member for Leeds, East (Mr. Healey), and this evening a closing contribution, and a first bid for power, from the right hon. Member for Stepney and Poplar (Mr. Shore). I suppose that it might be said in favour of the right hon. Member for Stepney and Poplar that at least he has youth on his side. Judging by his past performances, he is better in opposition than in office. He made his most notable strides towards the head of his party when he was last in opposition. In fact, he achieved most notoriety during his leadership of the campaign against the Common Market. On the basis that the right hon. Member performs a great deal better in opposition than in office, we must give him a fair wind by ensuring that he remains in opposition for a long time. There are other contenders, and we look forward to hearing from them.

We also look forward with interest to the resolution of the dispute within the Labour Party about who will achieve control of the £165,000 voted in support of the Opposition. Will it be the official Leader of the Opposition, or will it be the hon. Members for Liverpool, Walton (Mr. Heffer) and Tottenham (Mr. Atkinson)?

Mr. Rooker

On a point of order, Mr. Speaker—[Interruption.]

Mr. Speaker

Order. The sooner we hear the point of order, the sooner we can return to the Chancellor's speech.

Mr. Rooker

Is it in order, Mr. Speaker, for the Chancellor to demean his office by spending time on this mocking rag-bag of quotes instead of telling the British people the truth about—

Mr. Speaker

Order. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) is making a point of argument, I think.

Sir G. Howe

I am not surprised that the Labour Party is acutely embarrassed by any references to this matter.

I return to what is common ground in this debate on both sides of the House. There is common understanding about the extent to which our economy is close to turning into absolute decline. I believe that there is an increasing understanding of the seriousness of the situation. The trade figures for the last four months, however they are examined, show a marked worsening in our position. The world outlook as the right hon. Member for Leeds, East said, indicates the prospect of declining growth in other economies. He claimed that the Red Book was too optimistic in this respect. He pointed out the extent to which the economy was likely to decline when he said: … there is bound to be an increase in inflationary pressure and some loss of jobs. … Both these factors … are likely to increase the rate of inflation and to reduce the number of jobs in the coming year."—[Official Report, 13 June 1979; Vol. 968, c. 461–2.] It is common ground that that outlook underlines why the difficult prospect in the Red Book is not itself a consequence of the Budget but, in the first place, of the inhospitable world economy to which the right hon. Member for Leeds, East referred. Secondly, it is a consequence of the steadily weakening condition of our own economy. For that reason, we believe that a decisive change is needed in the way in which the economy is allowed to work and an entire change is needed in the national understanding of the problem.

Because of the understanding of the problem—this is common ground to this extent—Labour Members, for example the hon. Member for Newham, North-East, clamour, as they have done for a number of years, for Socialism, red in tooth and claw. That is why they clamour for import control, further State direction of investment and State planning.

We reject those alternatives, first, on political grounds, because they are incompatible with the maintenance of a free society. Secondly, we reject them on the profoundly practical grounds that they are not characteristic of any other successful economy in the rest of the Western world. In the areas of our economy where those policies have been put into practice, they have not been conspicuously successful—judged by any standard.

The right hon. Member for Stepney and Poplar said hi his closing remarks that we needed to move onwards further and further to the involvement of the State in the conduct of our affairs. What has happened to the Labour Government's attempts to put that proposition into practice? In 11 of the last 15 years a Labour Government have been in office and have tried to turn our economy round by applying their prescriptions. Has not that experience proved itself to be a total and lamentable failure?

That is why we believe that it is necessary to develop a different approach. It must be understood that, just as the symptoms and causes of our decline are long-term, so must the measures that we have to take be long-term. It is no good pretending—as the right hon. Member for Chesterfield (Mr. Varley) was implying—that there are some short-term palliatives available to any Government to solve the problems. As I understood his speech, he was suggesting that until the general election and the change of Government all was going splendidly, smoothly and well ahead and that it was only the perverse determination of the electorate that caused a change. That was the picture he painted. Nothing is further from the truth.

Labour Members know—last year's experience shows this all too clearly—that even with North Sea oil adding to our strength, last year's improvement in real personal disposable income, the only year in which there was an improvement under the last Government, could not have been sustained because inflation was taking off and imports were flooding in.

Any Chancellor bringing in a Budget at this time would have had to take action to correct that state of affairs. The figures quoted by the right hon. Member for Leeds, East show clearly that the Labour Government had already lost financial control. The public sector borrowing requirement for last year was already £1 billion higher than their last published forecast. Their public sector borrowing requirement for the current year—on the policies to which they were committed—was running at more than £11 billion.

The money supply since last October has been increasing at a rate of about 13 per cent. and bank lending has been growing at a disturbing rate. Immediate measures and not just words were needed to reverse that trend to restore the balance of the economy. Is the right hon. Member for Leeds, East suggesting that he, I or any Chancellor could have responsibly left that state of affairs alone? Of course not. Does he suggest that I should have relaxed the monetary targets which he left behind him instead of making the changes that I did? Of course not.

Does he suggest that I should have aimed for a higher public sector borrowing requirement? He suggests none of those things. In those circumstances, the steps that I have taken were necessary, first, to check the runaway growth from the money supply.

The right hon. Member for Chesterfield attacked at great length the increase in MLR, but that was a necessary consequence of the monetary growth that I inherited and the right hon. Gentleman should have addressed those words not to me but to his right hon. Friend the Member for Leeds, East.

In the same sense, urgent steps were necessary to reduce the size of the public sector and the burden of financing it. The public spending plans that I inherited were based on an annual growth rate in excess of the sustainable growth rate of the economy. My measures make a start in correcting that by containing spending in the current year to the same level as last year. Even so, their effect should not be underestimated.

The reduction in the public sector borrowing requirement is from 5½ per cent. to 4½ per cent. of GDP. The public sector financial deficit had risen from 4.6 per cent. of GDP in 1973–74 to 7.6 per cent. in 1975–76. Last year it was running at 4.6 per cent. and this year it will come down to 3.8 percent.—the lowest figure for seven years.

There is no sign that the previous Government could, or would, have trimmed spending to the extent that the economy desperately needed, but some such action on their part would have been inescapable. Whatever the Opposition may say, if they had won the election their Chancellor of the Exchequer would have found it essential immediately to make reductions in public spending or increases in indirect taxation or both. That is the background to the changes that I have had to announce simply to restore balance to the foundations of the economy.

Mr. Harry Ewing (Stirling, Falkirk and Grangemouth)

With the Chancellor talking about the winning and losing of the election, can he explain why, since the Tory Party spent £2½ million through Saatchi & Saatchi telling the people exactly the opposite to what the right hon. and learned Gentleman is now telling the House, we should now trust him to spend the people's money?

Sir G. Howe

I regret that I gave way to such an intervention. One-half of the speeches by Labour Members have complained that we are doing things other than those that we promised to do and the other half are saying that we are doing wicked things because we are doing exactly what we promised to do. I prefer to take the second view.

The fact is that the measures that I have taken were essential to restore the fundamental balance of the economy. By themselves they were not enough, and action clearly was necessary, as far as it could possibly be taken, to begin restoring dynamic to our economy and to make it more likely, and not less likely, to respond to the changing pattern of world, and even home, demand.

Clearly there is a choice of methods offered from both sides of the House. The Labour Party emphasises its belief in more intervention, more direction and more control, but that belief has had a fair run. We have seen it running for 11 of the past 15 years and it has not had much success. That approach has been far more successful in delaying necessary changes than in promoting the vitality and changes that are necessary if we are to restore the successful dynamic to our economy.

Of course, not every change that we need is encompassed within the Budget. Of course, we need to tackle the way in which planning procedures and restrictions inhibit the success of our economy. We need to tackle the way in which regional policies inhibit the success of our economy.

Within this Budget we have identified clearly the need to change the balance of our tax system so as to give much bigger incentives to skill, risk-taking, enterprise, and willingness to work. That is the major premise on which we rest our case, and we regard it as essential. Of course, there are varying views about the effectiveness of the change, but it ill lies in the mouth of any Opposition Member to complain when the Opposition have put forward no workable alternative policy.

Indeed, more than that, many Opposition Members have acknowledged the strength of the case that we make. The right hon. Member for Stepney and Poplar talked about "cardboard man" as though it was a creature of our imagination—that people wanted to see more of their income to spend for themselves, to have greater choice and control of their income and that this change was likely to motivate them more effectively. But that was not imagination; it was conviction brought to this House in a Conservative Government by the majority of the electorate.

But the case rests on more than that. Opposition Members know perfectly well that among their own colleagues there has been a conviction of the importance of this case. Mr. Harold Lever, the former Chancellor of the Duchy of Lancaster, had this to say: there has to be a move to make our tax rates, especially on earnings, comparable with what our rivals or our friendly partners on the continent have in the way of tax rates. Of course that has to be done. Otherwise, as I said candidly, the consequences will be damaging to our economy. We have made our change in response to that case. The right hon. Member for Heywood and Royton (Mr. Barnett) made the same point, saying that he was in favour of reducing the level of tax. That is the change that we are making, a change that the right hon. Gentleman fully understands as being necessary but that the right hon. Member for Chesterfield began resisting, in a curiously characteristic way, when he denounced me for having taken as an example the likely performance of pop stars. I would like to deal with that rather patronising observation directly.

The right hon. Gentleman suggested that in my broadcast last week I was saying that pop stars would be motivated to work better by the tax cuts. I will quote the full text of what I said, to put the matter in perspective. I said that the reason for making the income tax cuts was To give everybody some real incentive again, to show those people, managers, doctors, skilled workers and even pop stars who have been going to work abroad that it's worth while coming back to Britain to stay here. It is entirely characteristic of Opposition Members that when they deal with a subject of this kind they are at their most patronising and puritanical. Why should it be irrelevant to point out that the entertainment industry is just one of many which are potentially among Britain's best, creating earnings, jobs and influence, when we see them being badly damaged by the emigration of people to other parts of the world, when we find, for example, the committee presided over by the right hon. Member for Huyton (Sir H. Wilson) drawing express attention to the fact that our film industry is being gravely damaged by heavy tax rates on those who used to work in it in this country, and when the same case is repeated by their trade union, the Association of Cinematograph and Television Technicians?

It is sad and regrettable that hon. Members on the Opposition Benches are unable to see the gravity of that case and of its impact not just on the entertainment industry but on the tremendous outflow of talent. Five per cent. of our population in the last 10 years has emigrated—people whose brains and skills this country can ill afford to lose. It is surely necessary to recognise the fundamental need to make that kind of change in the tax system if we are to reverse that outflow of talent.

One of the other charges made by the Labour Party is that our changes have been heedless of those in real need in our society. The right hon. Member for Chesterfield talked about a Budget of unfairness, meanness and inequity. Why does he overlook the important changes contained in the Budget which mean that age allowances have been substantially increased, tax on the investment income of retired people has been substantially reduced, the war widows have had their pensions freed from tax for the first time, and retirement pensions are going up by more than £6 to over £37 a week for married couples? These are the biggest cash increases ever given and take the pension to a record level in real terms.

I have also been criticised for raising the prescription charge, but do the Opposition not recognise that the level of prescription charge is still less in real terms than it was in 1971? What is more, the exemptions are so generous and substantial that three out of five prescriptions are provided free of charge. Short-term benefits will go up by 17½ per cent. We are paying a Christmas bonus of £10. We are putting up the lone parent premium and increasing the mobility allowance. Those measures are worth substantial sums of money. It is ludicrous to characterise them as mean or inequitable. They are the most generous of the social part of this Budget.

It was suggested that we were doing insufficient to help the low paid. No Budget has done more to help the low paid. [HON. MEMBERS: "Oh."] In the first place, we have increased the numbers being taken out of the tax system to 1¼ million. The numbers remaining inside the tax system are paying substantially lower rates of tax and the low paid have been helped as much as anyone.

I close my remarks on the illusion that had the Labour Party been in power it would have had a Budget of exhilarating comfort to set alongside this one. I invite the House to follow what I have to say. The right hon. Member for Leeds, East, had he come into office, would have been faced with a borrowing requirement of £10 billion. Had he fulfilled the promise he made during the election campaign to let 1 million people out of the tax net, he would have had to find £11.3 billion. He would have come into office having made 57 different promises to increase spending by a Labour Government. Almost none of those was taken account of in his spending plans, but their total cost would have been about £2½ billion more. One must assume that he might have made a token attempt to carry through those promises.

The right hon. Gentleman would have come into power facing a borrowing requirement of £11½ billion, which he was pledged to get down to £8½ billion. How would he have set about finding that £3 billion? He has given some indication of what he would have done. He says that he would have squeezed public spending by holding tight to cash limits and that he would have deferred regional development grants, as we would have done. That would have got him £500 million. He would have introduced a duty on betting—[HON. MEMBERS: "A wealth tax."] A wealth tax would have been miles down the road and would have produced no revenue at all. The right hon. Gentleman has not mentioned it. But he would have introduced petroleum revenue tax increases and a betting duty and raised £700 million. He would have made £1,200 million and have another £1,800 million to go. How would he have got that? He would have doubled the tax package that we have introduced on oil and petrol to produce £400 million. He would have put up excise duties on tobacco, beer and alcohol.

The right hon. Gentleman may laugh. This is what he has already told the House. He would have raised those taxes by £400 million, which would have left him another £1,200 million to go. He would have increased the national insurance surcharge by 1 per cent., which would have left another £750 million to go. He would have introduced a highersingle rate of VAT of at least 10 per cent. The right hon. Gentleman would have needed to do that to bridge the gap that he had left himself. He would have ended up by adding 3½ per cent. to the retail price index but doing absolutely nothing to reduce the burden of personal taxation on people's incomes, leaving us as fed up with his Budgets after the sixteenth as after every other.

This Budget makes the real change for which the British people voted and which we are pledged to carry through. Two most astonishing suggestions were made in the debate. One was that we were doing what we said we would do. So we do. It was also said that we actually believed in what we were doing. So we do. So do the British people. We are keeping faith with them. I invite the House to support this Budget.

Question put and agreed to.

Resolved, That it is expedient to amend the law with respect to the National Debt and public revenue and to make further provision in connection with finance; but, without prejudice to any authorisation by virtue of any other Resolution, this Resolution does not extend to the making of—

  1. (a) 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;
    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) 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.

Mr. Speaker

I am required under Standing Order No. 94(2) to put successively without further debate the Question on each of the Ways and Means motions Nos. 2 to 16. Instead of reading out each motion I shall give the title to the House and put the simple question. That the motion be agreed to.

  1. 2. VALUE ADDED TAX 2,502 words, 1 division
  2. cc1049-C
  3. 3. HYDROCARBON OIL ETC. 2,300 words, 1 division
  4. c1049C
  5. 4. TOBACCO PRODUCTS 72 words
  6. c1049C
  8. cc1049C-50C
  9. >6. INCOME TAX (CHARGE AND RATES FOR 1979–80) 255 words
  10. cc1050C-49D
  11. 7. INCOME TAX (PERSONAL RELIEFS) 217 words
  12. cc1049D-50D
  14. cc1050D-49E
  16. c1049E
  18. c1049E
  20. c1049E
  22. c1050E
  24. c1050E
  26. c1050E
  27. 15. PETROLEUM REVENUE TAX 132 words
  28. cc1049F-50F
  30. c1050F
  31. FINANCE 56 words