BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 01 April 1980 vol 982 cc228-367 4.26 pm

The Secretary of State for Industry (Sir Keith Joseph)

One of the many notable features of my right hon. and learned Friend's Budget Statement was that throughout he drew a clear distinction between those aspects of economic life over which the Government have control and those aspects of economic life as to which the Government may have aspirations but over which they have no control. He distinguished, in that way, between spending, taxing and public borrowing, on the one hand—over which the Government and no one else have control—and other aspects of economic life, such as growth and the level of unemployment, over which the Government have no control. That was a realistic and, alas, novel way for a Chancellor to approach his task. Indeed, the performance of industry is not within the Government's power to control; nor is the rate of growth. Both are by-products of a wide range of matters. However, what is to some extent, though not entirely, within the Government's power is the climate within which industry operates.

For some time in this country the economic climate within which industry has had to operate has been hostile. There has been a surfeit of controls, too much legislation, too much regulation, excessive tax on individuals at all levels of income, and overspending and borrowing, with the resultant inflation. Industry has tended to be crowded out by Government and public sector spending.

The industrial relations climate within which industry has had to operate has also been hostile. There has been an imbalance in favour of union power. In many, though by no means all, work places there has been a lack of co-operation between the work force and management, which is by no means always explained by management weaknesses.

The intellectual climate has also been hostile to industry. I have an example culled from recent reading which is really startling. I want to give it to the House. The Institute of Economic Affairs has just published a report of a colloquium on entrepreneurs, which it held last November. One of the contributors to that colloquium was an economics professor who has been teaching economics for decades. In his contribution, which is published in the report, he said that the subject of the colloquium, entrepreneurship, was totally novel to him. It had never occurred to him in all his decades of teaching about the firm and the theory of the firm ever to refer to enterprise, entrepreneurs, risk or uncertainty. The idea of making such a reference had never crosssed his mind. The comment of another academic present at the colloquium was that that confession would have been the same from many other teachers at universities. [HON. MEMBERS: "Name him.")

Mr. Tam Dalyell (West Lothian)

Name him. This is ridiculous.

Sir K. Joseph

The evidence was contained in a booklet published last week.

I regard it as nothing short of marvellous that, despite the hostile economic, industrial relations and intellectual climate—of which I gave an example—British manufacturing business has done relatively well.

Mr. Dalyell

I am not being difficult. Who is this luminary?

Sir K. Joseph

I entirely accept the surprise of the hon. Gentleman. It was because I was so startled to see such evidence of indifference to a crucial subject that I thought it relevant to bring it before the House. Of course, I attribute no blame and make no accusation. It is just surprising that the intellectual indifference to business reality should have gone so far.

It is the Government's aim and purpose to change the economic climate in as many ways as are practicable to get rid of the present hostility towards industry. We have a far from ideal position from which to start. We inherited high public spending, with a great impetus to further increase. We inherited high borrowing requirements, to finance which high interest rates are required.

In the light of that background and purpose, the main aim for industry of my right hon. and learned Friend the Chancellor of the Exchequer, as expressed in his Budget speech, is to reduce the cost of financing the public sector and thus get interest rates down. Meanwhile, his reductions in tax at all levels in his 1979 Budget removed some of the worst obstacles to enterprise and effort.

There has been, throughout the 11 months of this Government's administration, a series of initiatives to remove controls and obstacles to enterprise and there is a continuing effort to reduce the unjustifiable administrative, fiscal and legal hindrances to enterprise and effort.

In his Budget speech the Chancellor of the Exchequer tackled as his central objective the worst obstacle of all—that is, inflation. His medium-term financial strategy creates a coherent framework for rational hope that inflation will be steadily abated. The gradual monetary contraction which he proposes as the method, with public spending, taxing and borrowing targets compatible with the programme, is based—and again this is a novel feature introduced by my right hon. and learned Friend as Chancellor—on a refusal to be over-optimistic. This is a very different approach from that of many of his predecessors. I believe that he is the first Chancellor and this is the first Government to set themselves, during the decades in which we have been afflicted by inflation, coherent stepping stones to the abatement of inflation. As a Government, we are giving overriding priority to the attainment of this aim, because we believe that abated inflation is the necessary, though not the sufficient, condition of prosperity, a nearer approach to full employment, better public services and better benefits.

But the programme of returning to monetary continence means, for the companies sector, a difficult year or more. Our present estimates suggest that the squeeze on liquidity could be broadly comparable in severity with that experienced in 1974 and 1975. Trading conditions in the short term will worsen; foreign competition will continue to be strong both at home and overseas; interest rates are unlikely to be substantially reduced for some time. The result will be that profit margins, already dangerously low in real terms, will be squeezed, and many firms will face serious cash-flow problems.

Because the average contains the relatively better profit performance of the North Sea oil industries, manufacturing companies may be even worse hit than the generality. Many such companies are already cutting back their investment and many will have to run down stocks. They will welcome the Chancellor's decision to allow part of the stock relief recovery following from stock reduction to be deferred for a year. The reduction in stocks will create difficulties for supplying companies. With real profits so low, manufacturing companies will have little, if any, fat to cushion them against this year's difficult conditions.

Against this forecast, there is very little the Government can do to help.

Mr. Michael Foot (Ebbw Vale)

Go.

Sir K. Joseph

The right hon. Member for Ebbw Vale (Mr. Foot) says that the Government should go, but, if by any ghastly chance we were to be succeeded by a Labour Government who carried out the rather incoherent prescriptions of the former Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey), the prospect would be catastrophic and, in his own words, terminal for the British economy.

We cannot—and I should have thought that the Opposition would accept this—simply reflate the economy. It was the Leader of the Opposition who, in memorable words at the 1976 Labour Party conference, explained why that old panacea is no longer believed in on either side of the House. We cannot simply reflate the economy, nor will interest rates come down until the steps we are taking to bring the money supply under control have had their full effect. Any policy other than the one we are following would defeat the very strategy which is essential for our recovery of economic vitality.

The remedy to the prospect that lies ahead is in the hands of companies. It is in their own interests that they should realise the situation facing them. In 1974–75 companies woke up to the problems far too late in the day. We believe that awareness is very much greater today, partly based on the experiences of 1974–75. But there are still, I fear, large numbers of companies which do not recognise the cash squeeze that lies ahead. Every board of directors ought, in its own interest, to be looking today at its cash-flow forecasts, which will often make distressing reading. But, once companies have grasped the problems they face, it will be open to them to seek remedies. They will look to their stocks; they will look to their level of investment.

We must hope that the cost of raw materials and fuel will not present the same problem in the coming year as it did in the last, when manufacturing business had to face a rise in the costs of raw materials and fuel of no less than 41 per cent. It was a hideous burden that British industry had to bear, and but for the strength of sterling it would have been much heavier. It is a relief that there appears to be some fall now in the pace of increase.

Mr. Denis Healey (Leeds, East)

I wish the right hon. Gentleman would enlighten us on his attitude to the sterling exchange rate. In a series of answers to questions a week ago he said the higher the better, because it would bring inflation down. Now he is welcoming the fact that the sterling exchange rate has fallen 13 cents in the past few weeks. Will the real Sir Keith Joseph please stand?

Sir K. Joseph

I think the right hon. Gentleman has got it wrong. I think the exchange rate fall to which he refers is sterling-dollar, and, of course, in Smithsonian terms it has not fallen. I recognise that the exchange rate, like interest rates, responds to the market, to supply and demand. We cannot predict it, and if we try to influence it we sacrifice all our other priorities.

So the lesson for companies is that they should—

Mr. Healey

The right hon. Gentleman has not answered the question.

Sir K. Joseph

It is idle for me to have a view about an optimium exchange rate since Governments should not try to control exchange rates. The exchange rate, to the extent that it is relatively high, places burdens on our competitiveness but reduces our inflation.

Mr. Healey

Every other Government in the world are trying successfully to influence their exchange rates. The Germans and the Swiss, for some reason which is beyond me, are trying to raise theirs, and so are the Americans. Others have from time to time tried to get theirs to fall. The right hon. Gentleman has not yet answered the question I put to him. A week ago he argued that the higher the exchange rate, the better. A moment ago he welcomed the fact that the exchange rate had fallen in dollar terms by about 20 cents in the past two months.

Sir K. Joseph

The right hon. Gentleman is inaccurate. I did not say in answer to a question that the higher the exchange rate, the better. I explained briefly that there were certain advantages and certain disadvantages in a higher exchange rate. As for the Government having a view and attempting to achieve an optimum exchange rate, we all remember the catastrophe for the country when the Chancellor in the previous Government tried to control the exchange rate and brought a monetary surge upon us from which we are still in part suffering today.

The task of companies, in their own interests, is to contain their costs. At the heart of containing costs is the task of managements to convince their work forces of the desperate need to contain unit labour costs. The survival of jobs and of whole firms will depend upon their being competitive in price terms and in non-price terms. No task will be more important during the coming months than increasing understanding by work forces, induced by constant management explanation, of the importance of being competitive and the lessons of that for wage bargaining and for the attempt to keep unit costs steady, if not reduced, by rising productivity at least as great as any rise in earnings.

Against this, I hope realistic, picture of the immediate future, I have to emphasise to the House that there are many firms which are, despite all the difficulties, doing very well; that there is much expansion, not as great as quite to balance the decline of other firms; that there are many new starts of businesses, and that there is a great deal of welcome vitality in the economy in firms of all sizes and in all industries.

I would not want, because I have to emphasise what lies ahead, to give a wrong impression, but we are achieving nearly as many new jobs as we are losing. The detail of the monthly employment and unemployment statistics shows that the flow of people off the unemployment register is very nearly as great as the flow of people on to the unemployment register. It is the balance between these two great magnitudes each month that either increases or decreases the net number registered as unemployed. It is remarkable how many people are finding a job each month—nearly as many as those who are losing a job each month.

The performance of individual firms will depend upon management drive and enterprise and the co-operation management gets from its work force within the climate created by the Government. That performance will depend a great deal upon productivity. There can be much productivity gain without loss of jobs through the intelligent use by employers of wastage. There can be much productivity gain without loss of jobs where the increased competitiveness of a firm with higher productivity opens up a larger market. But, even where higher productivity can be achieved only by some degree of redundancy, the result will be to that extent a healthier economy with more firms surviving, with increased competitiveness, with higher taxable capacity from increased profits and earning, and, within a short distance in time, more jobs rather than fewer.

I come back to the distinction which my right hon. and learned Friend the Chancellor makes. Productivity is one aspect of the economy in which the Government can do, if not nothing, relatively little. What the Government can do is to create an economic climate which encourages increased effort and which at least rewards higher productivity; the Government can try to increase understanding of the need for higher productivity in the interests of all and, finally, not obstruct increased productivity in the public sector and within their own area of responsibility.

I wish to refer to one other aspect of higher productivity, and I shall say twice or three times in the rest of my speech that I am not romantic about small firms. Small firms have a part to play in the task of increasing productivity, not because they are more apt to have higher productivity than are large firms—I do not believe that to be true—but for a reason I shall try to explain.

Small firms, new businesses have many advantages. They are the yeomen of a modern economy. [Laughter.] What is wrong with the yeomen of England? We could learn much from their character, vitality and independence. Small firms represent decentralised ownership and decentralised decision-taking. Small firms are essential to political freedom. Small firms are the seed bed from which larger firms grow. In small firms there are generally good human relations. With specialised products and services, they serve a huge market directly and indirectly as contractors and subcontractors at home and abroad. But the sad fact is that, for reasons which one day the historians will fully elucidate, we in this country have a smaller cohort of small companies than do equivalent industrial countries overseas.

One factor in explaining why we have a smaller cohort is already known. We have discouraged the birth and encouraged the death of many small businesses by our no doubt well-intentioned policies over recent decades—by tax policies, by over-regulation, by town planning.

I repeat that I am not romantic about small businesses, but my right hon. and learned Friend the Chancellor has made an assumption—I hope a realistically modest assumption—about productivity growth during the period covered by his Budget. He has assumed that after the forecast decline this year we shall have 1 per cent. per annum growth until 1983–84. We must hope for more, but, to the extent that my right hon. and learned Friend is being pessimistic, to the extent to which productivity rises by more than 1 per cent. and is not achieved through wastage or through larger markets, we shall face higher unemployment.

One of the most healthy sources of new jobs will be from small businesses. At a time when we hope for rising productivity with a minimum rise in unemployment, it would be mad not to encourage small businesses, for all the reasons that make them advantageous to the country, not least that they will offer jobs to some of those who are released by the achievement of higher productivity.

I come now to the whole range of improvements in the economic climate for small businesses which my right hon. and learned Friend has introduced in his Budget as part of a sensible policy to reverse the uncomprehending hostility or indifference to small businesses which has dominated policies over the past years. [Interruption.] It is true that on the way towards achieving a better economic climate for business as a whole we pass through a transitional period of high interest rates which is, alas, inseparable from the strategy which we believe to be the only effective strategy for the country's good.

My right hon. and learned Friend introduced a whole battery of measures. He made a start—by his own admission, a deliberately modest Start because of the general shape of his Budget this year—on reforming capital gains tax and capital transfer tax. He has increased the VAT threshold. He has modified the subcontractors' section 714 certificate. He has introduced a venture capital scheme—which will be defined in the Finance Bill and by which investment in small companies can be offset against individual tax. He has improved the treatment of retirement annuity relief. He has modified the condition of life-long employment in a firm for which a loan was accompanied by tax relief on the interest, and he has declared his intention to remove a thicket of regulations about close companies. He has reduced the tax on small companies, and he has raised the threshold on which small companies start paying corporation tax. He has introduced a special batch of measures to meet and identify the needs of small businesses.

I turn to one aspect of the uncomprehending hostility which policy over recent years has shown to small businesses. When I was Minister of Housing nearly 20 years ago, I wielded the bulldozer enthusiastically, but, alas, the result probably did more harm than good.

Over recent years, the operations of town planning have destroyed the natural habitat of the start-up of small businesses. The arches have now either been sanitised or refused as accommodation. The twilight areas of towns have been subjected to zoning laws. The result is that the supply of small premises in which new businesses can start is far below demand all over the country. Even in areas which are dogged by high unemployment, any small workshop premises which are made available immediately evoke a queue of would-be tenants. Surely the House will find that encouraging.

A few months ago the Department of Industry commissioned a report by Coopers and Lybrand, accountants and management consultants. The report has now been published and it shows that there is an excess of demand over supply for small workshop premises, defined as less than 2,500 sq. ft. My right hon. and learned Friend the Chancellor of the Exchequer has reacted to that demonstrated scope for increased business activity and jobs in a number of imaginative ways. He has doubled the industrial building allowance from 50 per cent. to 100 per cent. for a period of three years where the buildings to be erected are of 2,500 sq. ft. or less. He has reduced the demands of the conditions for receiving the industrial building allowance. My right hon. Friend the Secretary of State for the Environment has declared his intention to consult about relaxations in town planning to encourage the provision of more smaller workshop units.

My right hon. Friends and I believe that there will be widespread interest in the private sector in taking advantage of these new encouragements. Four days after my right hon. and learned Friend the Chancellor spoke, there is already strong anecdotal evidence of such increased interest. We expect the changes proposed by the Chancellor to result in thousands of workshop factories all over the non-assisted areas of the country. But because there will not be the same private sector readiness to go into assisted areas, we are taking action which will help it also.

In some of the most—for this purpose—difficult parts of the assisted areas, the English Industrial Estates Commission will be increasing the provision of small workshop units. But in the rest of the assisted areas we believe that there can be private sector investment and interest. In order to encourage that, we are making available £5 million of taxpayers' money from the Department of Industry, and within our cash limits, to carry out a partnership scheme with the private sector. We are seeking at least that amount of money from the private sector, and with the combined total we shall enter into partnership to provide workshop units within the assisted areas. We expect those initiatives to result in at least 1,000 workshop units within the assisted areas in the next three years, as well as thousands outside the assisted areas.

Mr. Nick Budgen (Wolverhampton, South-West)

Will my right hon. Friend explain why it is necessary for the taxpayer to make a contribution? If there is such a demand for those premises, why cannot private industry provide the money?

Sir K. Joseph

My hon. Friend asks a valid question. I distinguished between the non-assisted areas where there is an application of an existing tax allowance—namely, the industrial building allowance—at an enhanced rate, and a special sector that has not been much patronised by the private sector because it did not realise the demand. We believe that it is the function of the tax system to encourage healthy trends in the national interest, and that is an example of a clear need for such an encouragement.

Mrs. Elaine Kellett-Bowman (Lancaster)

Is my right hon. Friend aware that the North British Housing Association is branching out and is about to build small factories in my constituency? We hope that the idea will spread.

Sir K. Joseph

I did not realise that, and I am interested to know of it.

My right hon. and learned Friend the Chancellor has helped not only small firms in his Budget. He has also made some provision, in a Budget filled with innovations, for medium and larger companies. He has proposed to remove tax obstacles to the demerging of companies if they wish to follow that course. He has introduced stock relief proposals, to which I have referred. He has offered some improvement in profit-sharing and share option schemes. He has introduced his own brainchild—the enterprise zone.

In about six areas of up to approximately 500 acres each, which we shall seek to locate, with the agreement of the local authorities—areas which have been blighted and which, despite all efforts, have not shown the extra economic vitality that is needed—we shall introduce a range of reduced fiscal and administrative demands. With the agreement of the local authorities, there will be a pruned system of town planning, a low development land tax, no IDC control, no commercial rating, no industrial training board levies and 100 per cent. capital allowance on business buildings.

We hope that this regime will encourage a greater vitality in those areas—to their benefit—and we expect to learn whether the expansion of some of those modifications may be a way forward.

The Budget is a massive recognition of reality. It contains a strategy for creating a stable currency and a climate that will encourage enterprise and effort, thus sustaining prosperity and offering the prospect of more jobs and better public services and benefits. The Government have never offered instant solutions. Difficult conditions are on the way, but the Budget offers a coherent framework for rational hope.

4.59 pm

Mr. John Silkin (Deptford)

If I have understood the Secretary of State correctly, his policy is one of Government by dissociation. Like the eccentric professor whom he told us about, he wishes to be faceless and nameless in our industrial policy. However, he did at least talk about the policy. That is important. To discuss the Budget merely in terms of short-term accounts and day-to-day management is to miss the point.

Budgets are not just catalogues of tax changes, although the public have become accustomed to look upon them in that way. Our duty is to examine the philosophy that lies behind them or, as my right hon. Friend the Leader of the Opposition said last Wednesday, "the theme". To that extent, it is right to relate this Budget to the Budget of last June and to put both in the context of the Government's objectives over the next few years.

Those objectives are now out in the open, as they were not during the run-up to the election last May. The present Prime Minister then attacked high interest rates and the cost of mortgages. Our prophecies that prescription charges would increase and that VAT would double were dismissed as Labour fabrications. The Government have now revealed their philosophy. Thus, they have made clear once and for all the gulf that lies between us. For us, as democratic Socialists, the first priority is the quality of life and human values. However, for the Government it is the quantity of profit and financial gain.

Every item in this Budget and in the Government's expenditure plans reveals that basic difference. The Budget paves the way for a massive and inexorable growth in unemployment. We believe that of all social ills unemployment is among the worst. Unemployment robs a man not only of his livelihood—although that is important enough—but of his dignity and aspirations. As Browning said, Ah, but a man's reach should exceed his grasp, Or what's heaven for? The question is not of prime importance to this Government. They are complacent about the destruction of Britain's basic industries. They boast of the 50.000 redundancies in the steel industry this year which their policies will create. They greet redundancies in textiles, in the motor industry and in shipbuilding with equal enthusiasm. It is here that the real Tory philosophy can be measured.

Sir Keith Joseph

rose—

Mr. Silkin

I shall give way shortly. For the first time since the war, a Tory Government are expressing what Tories have always instinctively believed—that poverty and unemployment are a small price to pay provided that the few can profit.

Sir K. Joseph

I would not raise this issue if the right hon. Gentleman were not making such a disingenuous speech. Was he not a member of the Government under whom unemployment doubled?

Mr. Silkin

The doubling of unemployment is not a thing to be proud of, no matter which Government are in power. However, therein lies the difference between us. The right hon. Gentleman and his Government welcome that increase. Conservative Members should listen to the facts. They have given us those facts. By the summer of next year unemployment in the United Kingdom will have passed the 2 million mark. Those 2 million will be unemployed not just for a few days or weeks but for years. As long as a Tory Government last, the number will continue to rise.

There is an old adage that lightning never strikes twice in the same place. However, to the people who live in Scotland, in the valleys of South Wales, in the North and in the North-West it is an old story. Most of them have seen it before and they did not believe that it would happen again. These are the areas that the Government have written off. They are the areas where there are few Tory votes to be picked up, and to a Tory Government they count for little. However, an undercurrent of frustration and anger is growing up in those areas that any Government neglect at their peril.

We are a great nation and our greatness rests upon our stability, our tolerance and our preservation of the social fabric. The Government's policy is now putting all those at risk. They think that they can afford to ignore these areas, but they have also ignored the increasing interlocking and dependency of industries upon one another. It is not only in the traditional areas that we shall see the effect of that unemployment. Even in areas such as the West and East Midlands, which somehow survived the cataclysm of the 1930s, the decay of British industry is well under way.

It has always been part of Tory dogma to try to separate one group of workers from another. The talk of scroungers and of shirkers is nothing new. Those same words were applied during the 1930s. They deserve the same answer that Clem Attlee gave in 1935. He said: the only real test possible, in order to find out the tiny percentage of shirkers from the vast majority of willing workers, is the offer of work under fair conditions. That offer is not forthcoming. All we have been offered instead is a blinkered refusal to apply the resources of the Government to the real needs of the nation. If the quality of life is to be improved, there must be more people at work, not less. Industry must be used to provide the work and the manufactured goods necessary for that development. We all know that to thrive, this country must export more manufactured goods than it imports. The unhappy truth is that we have now become a net importer.

Mr. John Townend (Bridlington)

To what extent does the right hon. Gentleman agree that our unemployment is partly the result of industrial strife, low productivity and the restrictive practices of trade unions?

Mr. Silkin

I hope to deal with that point shortly. Perhaps the hon. Gentleman will be patient.

The Secretary of State for Trade spoke on television the other day and, despite the evidence, dismissed my arguments for a ceiling on imports. He said: All we have to do is to increase our exports. And our exports are doing very well. Given that we have a cripplingly overvalued currency, boosted by the highest interest rates in our history, it is remarkable that they have held up at all. The real problem is the balance between exports and imports. The Secretary of State's complacency will not change that balance. Last year, while our exports of manufactured goods remained at the same level, our imports of manufactured goods rose by 18 per cent.

What is the Government's answer? The Secretary of State gave that answer this afternoon—namely, deflation, more deflation, always deflation. However, history —even recent history—teaches us the opposite lesson. The higher the level of domestic demand, the higher our manufacturing output and industrial investment. During the decade 1968–78 there were five years when the annual growth of GDP exceeded 2 per cent. and five years when it did not. In the five growth years, manufacturing output rose by an annual average of 3 per cent. In the other years it fell by an annual average of 1 per cent. In the growth years manufacturing investment rose by an annual average of 7 per cent. In the other five years it fell by an annual average of 5 per cent. Increased demand is the key to increased investment, provided that it is not met by the excessive import of foreign goods.

Sir K. Joseph

It is not "deflation" but disinflation.

Mr. Silkin

Deflation, more deflation, ever more deflation.

Mr. Healey

There has been a 2½ per cent. fall in output. What is that if not deflation?

Mr. Silkin

Faced with this, what are the Government's plans? They are slashing home demand. They plan to cut aids to industry by 50 per cent. between now and 1984. Their figures show a nil growth in the economy. What will that mean for industrial output, investment and jobs? The truth is much worse. The Government are deliberately masking the reality by including the effects of North Sea oil.

In addition, regional aid to industry is, after all, dependent on provision by the industrialist of his own money. The amount he can afford is governed by the high rate of interest that he will have to pay.

For all the Government's talk about helping small firms—and we heard it from the Secretary of State this afternoon—the reverse is true. First, there are record interest rates, which are the direct result of Government policies.

Secondly, the Government have specifically aimed some public spending cuts at the small firm. The small firms employment subsidy has gone completely. It disappeared yesterday. The minimum size for projects eligible for regional development grants has been raised substantially. The reality of Tory plans for small firms is beginning to show through. In the final quarter of 1979, company liquidations rose by over two-thirds. How many more bankruptcies can we expect as the full impact of the Government's policies takes effect?

We need new investment to modernise our industry, and we need that investment to be used effectively. The key lies in good industrial relations, which is the point that the hon. Member for Bridlington (Mr. Townend) asked me a moment ago, and it is that key that the Government are so wilfully throwing away.

We all know that industrial relations need to be improved, yet the Government are going out of their way to alienate the unions instead of working with them. I fully accept, as, incidentally, would most trade union leaders, that there is a great deal of rigidity in our working practices and that productivity would benefit from a more flexible approach.

However, instead of going all out to obtain the co-operation of workers, the Government are intent on destroying their power. How on earth can we expect union leaders to respond other than defensively when their hard-won rights are being deliberately jettisioned by the so-called Employment Bill? How can we expect workers on the shop floor to respond other than defensively when their families are deliberately penalised if they go on strike?

The Government are always talking about reality, as did the Secretary of State this afternoon. Let them face reality. At a time of mass unemployment, with a savagely deflated economy, buttressed by anti-union legislation, it is the logic of bedlam to expect co-operation from the workers. What will inevitably happen is that every trade union leader will be forced to protect his own members at all costs. Each union will become a little fortress, since all will be aware of the penalties of letting down the drawbridge.

The Government want a return to the hire-and-fire mentality of earlier days, when what is needed in the 1980s is the harnessing of the skill, expertise and ideas of the shop floor to the industrial decision-making process. Industrial democracy, not economic tryanny, is the only answer today.

A real national strategy for industry is vital, but instead of such a strategy the Chancellor has come up with his idea. In the face of disaster he gives us one little joke—his so-called enterprise zones. Among his many qualities—and I have always been the first to pay tribute to them—the Secretary of State for Industry is not especially renowned for his sense of humour. He has taken the idea seriously. He was lamenting a moment ago the disappearance of the railway arches workshop, which is a perfect illustration of the Tory quality of life, as exemplified by the bucket shop and the bucket toilet.

We can perhaps get some satisfaction from the fact that the Cabinet clearly did not wish to go all the way with the implications of the Chancellor's Isle of Dogs speech. I have never made much distinction between wet Tories and desiccated Tories, but I suppose that it was the "wets" who, at least for the moment, stopped the Chancellor from waiving the health and safety regulations and thus completing his Hong Kong analogy.

However, it wills be bad enough. The jobs will be at the expense of surrounding areas. The profits will be at the expense of the country. For a few profits will grow like pirate gold, but in each zone the quality of life, so long protected by planning and by the zeal of the inhabitants, will be fatally eroded.

In the last resort, what is so appalling about this Budget is the assumptions that it makes. It is the utter poverty of vision and vulgarity that is so depressing.

Mr. John Patten (Oxford)

As I am sure the right hon. Gentleman appreciates, any business values stability as much as anything. Perhaps he will give us some guidance on the Labour Party's intentions with regard to enterprise zones should he and his right hon. and hon. Friends ever get back into power.

Mr. Silkin

We had better see where enterprise zones go first. [HoN. MEMBERS: "Ah !"] The hon. Gentleman will be grateful for what I am about to say. When these enterprise zones come about, I hope that every hon. Member in whose constituency they are—and this will more than include my own—will show them to be what they are—a vulgar, tinsel method of taking shops and workshops—mainly service industries—out of the surrounding areas and creaming off the profit to the Tories' friends.

It is the vulgarity and poverty of vision that is depressing. It is to be condemned mostly because it undermines the self-confidence of a great country.

This Budget is dangerous and divisive. It is symbolic of the voyage charted for us under our Tory masters—a rudderless ship heading for the rocks and still defiantly flying the "Jolly Roger". The Budget merely reinforces our fears for our country, and accordingly we reject it.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. Mr. Speaker has asked me to tell the House that the list of right hon. and hon. Members wishing to speak is even longer today than yesterday. Short contributions, perhaps of about 10 minutes, will enable the Chair to call a great many more right hon. and hon. Members, which may be popular with the House in this important debate.

5.16 pm

Sir John Eden (Bournemouth, West)

I acquit the right hon. Member for Deptford (Mr. Silkin) of believing half of what he says.

Unfortunately, the right hon. Gentleman advanced a false premise and so came up with a wrong solution. He said that the real problem was that our balance of exports and imports is wrong. That is not the real problem. The real problem for manufacturing industry is the unique combination of a strong pound and high inflation. With that understanding, I believe that the Budget is hopeful and most important. It is important because, for the first time, we are offered a clear strategy for the medium term. It is hopeful because in the Chancellor's determination to keep the Government's demand for credit in line with their monetary objectives, we see evidence that inflation is at long last being tackled at its roots. Thanks to the courage and determination of my right hon. and learned Friend the Chancellor and his colleagues in the Government, in this country we can now feel confident that we are on the road to recovery.

Apart from defence and law and order, it is absolutely right that no heading of expenditure should be exempt from careful examination. Everything has been examined, including, as we heard yesterday, the social security programme. It is right that that should be so when it is costing as much as £1,000 a year for every household in the country and when, as we were told, it increased by 50 per cent. since 1970–71—a time during which the national wealth increased by only 15 per cent.

I shall not cover the ground covered by my right hon. Friend the Secretary of State for Social Services yesterday, but I wish to make one point in passing. I applaud the most sensitive and humane way in which my right hon. Friend tackled the enormous responsibilities that he shoulders and introduced cuts and savings, but I hope that he will carefully consider the long-term sick in regard to steps being taken over short-term benefits.

We must reduce the burden that we place upon the shoulders of those at work and upon those whose responsibility it is to create the wealth of this country.

My right hon. Friend the Secretary of State for Trade made it clear that manufacturing industry is going through a difficult time, and that that will continue for the next 18 months or more. Much of manufacturing industry has lost the competitive advantages that it once enjoyed. That is due, in part, to the nature and persistence of the strike action to which it has been subjected, to restrictive labour practices and to over-manning.

The difficulties currently faced by manufacturing industry are by no means due entirely to the mistakes and the mismanagement of those who work in it. We should not underrate the deep damage caused to the corporate sector by the previous Labour Administration's interventionist policies. I am thankful that at long last we have a reversal of that trend. The decline in competitiveness needs to be seen, and is seen, especially in our export performance. I underline a point that I made earlier, that the combination of high inflation and the strength of sterling is having a serious adverse impact on our ability to retain markets overseas.

My right hon. Friend the Secretary of State for Trade yesterday rightly reminded us that Britain has nearly one-third of its GDP represented in exports. He urged industry to concentrate on export penetration. I shall give one illustration of the difficulties faced. I heard recently of a company whose exports in 1975 amounted to 40 per cent. of its sales. Currently they are only 25 per cent. That trend is likely to continue. Reference to that trend was made in the March issue of the news bulletin issued by the Engineering Employers' Federation, which said: Export orders are also likely to drop. The strength of sterling and rising domestic cost pressures will inhibit competitiveness while overall growth of overseas markets will be slow. In the face of this unique combination, no amount of quality, service, engineering support and delivery performance can possibly offset the advantages gained by our competitors. Action is needed to tackle that combination, and action is being taken in the Budget.

We must recognise that many companies in the manufacturing sector will have to make difficult decisions in the coming months. They are not asking the Government to make those decisions for them. No one whom I meet, or have met recently, has asked for subsidised aid or for import restrictions. They are not asking for any artificial measures designed to protect industry from the economic reality in which it operates. They are asking for the understanding of their problems by those who work in their companies. They are asking for understanding from my colleagues in the Government. My right hon. and learned Friend the Chancellor of the Exchequer has shown his understanding of the needs of industry in his tax concessions for firms forced to reduce stocks. He has also shown considerable imagination. We shall need the deployment of imagination in the months ahead. I hope that he will use any opportunities that come his way to demonstrate his understanding.

Most important of all, we need to recognise that, in the short term, many in manufacturing industry will be engaged in a struggle to survive. The help that the Government can give in those circumstances is limited, but they should at least press ahead with their determined action against inflation and the steps that they have announced to bring down interest rates.

We must accept that for both public and private industry to make the changes necessary to become more competitive they must be given the clearest possible view of the future. They need to be able to see the way ahead, and should be given encouragement and hope as they travel along it. In the Budget Statement, and in Ministers' determination to stay on course, that is exactly what is now being provided.

5.27 pm

Mr. Douglas Jay (Battersea, North)

We have listened to two extremely gloomy speeches. The speech of the Minister, who has now left the Chamber, was the most gloomy piece of doctrinairism that I have heard in the House. I hope that his future reading will not be wholly confined to mad and anonymous professors. Perhaps there is something to be said for doctrinaires if they are right, but doctrinaires who are wrong are a national menace.

I shall list the chief fallacies afflicting the present bunch of theorists on the Treasury Bench. First, throughout all their policy they mistake what is really cost inflation for demand inflation. The Secretary of State for Industry made that extremely clear when he interrupted my right hon. Friend the Member for Deptford (Mr. Silkin) and said that we were suffering simply from inflation. We are, in fact, suffering from cost inflation, but also from demand deflation brought about by the Government at the same time. That is at the root of the trouble. If we cannot distinguish between the two, it is no wonder that we are in our present industrial position.

Secondly, the Government have confused the stock of money with the flow of spending. Thirdly, they have not grasped the fact that it is largely private borrowing from the banks and not Government borrowing that has led to credit inflation in recent years. From their latest Green Paper about methods of credit control, I gained the impression that they were likely to let go rather than to tighten up. and to permit further credit inflation of the order seen in 1972 and 1973. Fourthly, contrary to all the evidence, the Government believe that in present-day conditions they can restrain the inflation of pay rates by squeezing demand.

As a result of all those fallacies compounded together, we have an almost ritual mumbo-jumbo about the money supply and the public sector borrowing requirement, which the Chancellor repeated about seven times during his speech. On top of that, we now have the Chancellor's money supply targets, which I rather suspect will go the way of all flesh, like some of the other targets that we have seen in recent years.

A new fallacy has now sprung up—the belief that the public sector borrowing requirement is the same thing as the current Budget deficit, and that the public sector is borrowing to pay for its current spending. The Red Book shows that that is not true. The PSBR arises largely from the capital expenditure of the Government, local authorities and public corporations. Table 14 of the Red Book, on page 32, indicates that last year, and in prospect for 1980–81, central Government and local government together show a surplus of current receipts over current expenditure that is estimated at £1 billion in 1980–81. The capital expenditure of central and local government amounts to £7.6 billion. Capital expenditure by public corporations is another £7.3 billion. Therefore, the total capital expenditure of the public sector greatly exceeds the so-called public sector borrowing requirement. That is not to be guessed from a great deal of the talk that we have from Conservative Members and Ministers.

The Government are borrowing for the creation of capital assets and the public sector is covering a major part of such capital expenditure out of a surplus of current receipts. That is exactly what private enterprise would do. For example, if the electricity supply industry were still privately owned, firms would borrow to build new power stations. It is now in public ownership, but the economic realities are exactly the same. However, the borrowing requirement becomes vested with all sorts of mystical nonsense by these anonymous and less anonymous professors. It is said that it is the cause of inflation.

Mr. J. Enoch Powell (Down, South)

The right hon. Gentleman said that private companies and the public sector are in the same position in borrowing for capital expenditure. Surely there is a difference. It is not within the power of private corporations to create money, but it is within the power of the State.

Mr. Jay

I hope that the right hon. Gentleman will agree that the creation of money is in the power of the banks rather than in the power of the State.

Mr. Powell

No.

Mr. Jay

The banks can do that by lending either to private borrowers or to the State. The right hon. Gentleman says "No". He thinks that credit can be created only by the banks when they are lending to the State. That is entirely untrue.

I was about to be rather more charitable towards the Chancellor of the Exchequer. It seems that there is more than merely a glimmer in the Budget Statement to indicate that he is beginning to appreciate one major economic truth, namely, that a deflationary Budget in a world of falling demand does not alleviate but accentuates the Budget problem in the year that follows, in purely financial terms.

Deflation is cumulative, but that is left out of account in the Government's calculations. Each time the Government close a steelworks, a factory or a shipyard, or reduce the public house-building programme, the Secretary of State for Industry cheers. The right hon. Gentleman always seems pleased to find anything closing down. But that is only a detail. When closures take place, income tax receipts and corporation tax revenue are reduced. That is because people have been displaced from work. At the same time, unemployment benefit increases. The financial deficit widens. In the second round taxes have to be increased again in an attempt to overcome the gap that the Government's policies have largely created.

I am not sure that Conservative Members realise that this year the Chancellor has again increased total taxation. The increase in the present year is £235 million. That figure is to be found on page 10 of the Red Book. The Government have done that without imposing any special tax on the banks, which I think would have been abundantly justified in present circumstances, bearing in mind that their profits have been developed to such an extraordinary degree. There is the further reason that the right hon. Member for Down, South (Mr. Powell) mentioned, namely, their power to create credit just as much as the Bank of England itself.

I detected one other trace of understanding in the Chancellor's speech, namely, that it is now rising costs and not rising demand that is the cause of price inflation. The Government's policy is based on the assumption that rising demand is the culprit. At a time when everyone in industry knows—it applies to, for example, the steel industry, British Leyland, ICI or Courtaulds—that it is not pressure of demand but rising pay rates that are now pushing up prices, squeezing profits and squeezing investment, it is strange that many hon. Members on both sides of the Chamber pretend that that is not so and that we are suffering from demand inflation or that rising pay rates have nothing to do with it.

Mr. John Bruce-Gardyne (Knutsford)

Will the right hon. Gentleman point to the place in my right hon. and learned Friend's Budget Statement where he indicated that rising demand was creating inflation?

Mr. Jay

The assumption that we shall stop inflation by reducing Government expenditure rests on the premise that it is demand that is causing price inflation. If the hon. Gentleman has not grasped that, I give him up altogether, although I still have some hope for the Chancellor.

We now come up against another of the Government's major illusions—the belief that by squeezing demand we shall stop the inflation of pay rates. There is no evidence for that in the contemporary world. Pay rates are still rising by 15 per cent. a year. That will have the effect of pushing up the RPI by about the same extent, or more. We shall subsequently have demands for further increases in pay rates to make up for the increase in prices that has occurred.

We heard from the Secretary of State for Industry about creating conditions in which private enterprise will operate profitably. It is ironic that the Government are doing exactly the opposite. They are making it extremely difficult for private industry to continue by deflating demand and allowing interest rates and labour costs to rise. Even the source of inspiration of the Government's policy, our friend Professor Friedman, admitted only recently on television that to stop the pay spiral by deflating demand in the way that he advocates would take between 18 months and five years. That is the presupposition of the whole policy. That means five years of falling or stagnant output, during which Britain would fall still further behind its competitors and rivals in the real world of production, employment and exports, as opposed to all these money illusions.

It is the fall in real national production and employment—the Chancellor's estimate is 2½ per cent. this year—that makes the superficial financial problems insoluble. If production, productivity, employment and exports were all rising, the money problem would be manageable. If they are not rising, it will never be manageable.

The Chancellor said that real national output rose by 3 per cent. a year up to 1973 and has risen by only 1 per cent. a year since. He never mentioned that we suffered the oil price inflation of 1973 and that Britain, on his recommendation, entered the EEC in the same year, the latter being a fact that no one seems to mention.

It is a remarkable comment on the incentive argument that justified the huge reduction in income tax in last year's Budget that the result is now to be a 2½ per cent. fall in the real output of the economy this year—the highest in any year since the war. The prospect of real output going down seems to me to be a counsel of despair. Political and military influence in the world depend on industrial strength and on real growth, as can be seen if one looks at almost any other country in the world. If this mere 1 per cent. rise predicted by the Chancellor up to 1983–84, actually occurs, the prospect for this country when oil revenues run out, not many years ahead, will be absolutely catastrophic.

We must admit the truth and tackle the real problem of uncontrolled pay inflation at the present time. The three most successful countries in Western Europe at the moment—Norway, West Germany, and Austria—are all basing their success on effective incomes policies.

Mr. Bruce-Gardyne

Rubbish.

Mr. Jay

The hon. Gentleman should study what those countries are doing. In Germany, the central bank every year declares a norm that is agreed with both sides of industry. I advise the hon. Gentleman to study the matter more carefully. In contrast to that situation, we have here the regrettable story of the steel strike—a classic example, I would have thought, of the way in which industrial relations should not be conducted by either side of industry.

As soon as we return to a more rational system, not unlike those that operate in the countries that I have mentioned, and provided that we also extricate ourselves from the present unbearable burdens of the EEC, I believe that our whole problem will be soluble. Without those changes, I do not think, whatever else is done, that it will be soluble. Both these changes will have to be made before long. Why should not a start be made now?

5.42 pm

Mr. Teddy Taylor (Southend, East)

I welcome the opportunity to speak in the debate and to make my first speech as the hon. Member for Southend, East—a constituency well known to the House because, for 30 years, it was represented by a tireless champion of the borough and its interests, in the person of the late Sir Stephen McAdden. Not only did he ensure that the interests of Southend were regularly brought to the attention of the House; he gave the constituents of Southend a standard of personal service that it would be difficult for any new Member to emulate. While serving Southend well, he also served the House of Commons well. He was one of the most respected and popular Chairmen of Committees. As a Committee Chairman he had the responsibility of supervising discussions on a number of controversial and complex Bills. It is a tribute to the man that, even in these special circumstances, his reputation for fairness and objectivity was never challenged.

On a personal basis, Mr. Deputy Speaker, I know that you will be aware that there were few more kindly and considerate Members of the House. Sir Stephen went out of his way to offer advice and the hand of friendship to new Members of all parties. He will be sadly missed in the House of Commons and in Southend. I am proud to have the opportunity of placing this on record.

Our electoral system offers no second prizes in by-elections. Although it is not usual, I hope that you, Mr. Deputy Speaker, will permit me to pay a short tribute to my Labour opponent, Mr. Colin George, who so nearly won the by-election and who conducted a straight, an honourable and a sincere campaign on the issues, in a way that was a credit to our democratic system and to the Labour Party.

The various Budget measures set out by my right hon. and learned Friend the Chancellor were intended not as a means of achieving short-term miracles but at the basis for laying the foundations of national recovery in the longer term. If recovery is to be achieved and the economy revived, it is essential for two challenges to be met. The first is to ensure that capital will be readily available to finance risk ventures. The second is that all possible steps should be taken to ensure that energy use is restrained and the price of energy contained within reasonable limits.

It worries me that various actions by this Chancellor and previous Chancellors, for what may at the time have been good reasons, have tended to steer available savings and investment funds into the pension funds, insurance companies and related institutions and not into industrial projects that could provide jobs and longterm wealth for the nation. These institutions, with the security of their investors at heart, appear to invest almost all their funds in Government stock and loans and in the existing equity market. The incentive for the average saver to put his cash into the institutions is immense, because the tax advantages are considerable and the security more than sound.

The incentive for the institutions to lend almost all their money to the Government or the equity market is immense, because the interest rates provided by the Government, particularly in an inflationary period, tend to be high. How does it help the nation or its prospects if available funds are simply lent back to the Government to finance the Government's public sector borrowing requirement? If we are serious about reducing the PBSR and serious in seeking to revive the economy, there is an overwhelming case for at least making comparable incentives for savers and investors to put their money into industrial risk ventures, as opposed to insurance companies and pension funds.

The Chancellor has made a contribution in the scheme that he has announced. I wonder, however, bearing in mind the potential attractions of investment in an institution and direct investment in an industry, or a potential industry, whether the Chancellor feels that he should go further on the next occasion.

On energy, so vital to the recovery programme, I hope that the Chancellor will turn his fertile mind, which produced the enterprise zones, to the scope for energy saving that can come from the increased use and reglamorisation of public transport. As the House knows, travel to work in London is one of the keenly felt and long-standing problems in Southend. The problems of commuter travel are a financial nightmare. The roads are unreasonably choked with single-passenger cars at rush hours and the train service, which has been the stepbairn of railway investment, exists on the basis of antiquated rolling stock that, on present estimates, is unlikely to be replaced before the end of the century. What is basically a constituency grouse has substantial implications for the Chancellor in his Budget judgment and for the future. On energy grounds alone, it would be more in the national interest to encourage greater use of public transport and to steer capital towards its improvement.

On the financial side, hon. Members will he well aware of the obvious anomaly that it is a regular practice for firms and businesses to provide company cars, together with the cost of petrol and maintenance, to employees but to make no concession whatever for using public transport. One is largely tax allowable, while the other is not. Travel to work—

Mr. Dennis Canavan (West Stirlingshire)

On a point of order, Mr. Deputy Speaker. Is it in order for an hon. Member, even a retread Member, to read a speech in the House?

Mr. Deputy Speaker

I did not notice that the hon. Gentleman was reading a speech. As the hon. Member for West Stirlingshire (Mr. Canavan) rightly says, the hon. Gentleman who is speaking has only recently returned to the House anyway.

Mr. Taylor

I would inform the hon. Member for West Stirlingshire (Mr. Canavan) that the only reason why I was tending to pay more attention to my notes than usual is that I realised that many hon. Members wish to speak. If one tended to be distracted by such interventions as the hon. Gentleman made, one could continue speaking for half an hour. I can only assure him that if I were to respond to his points and non-constructive comments he would have to listen to me for much longer.

Travel to work is an expense incurred directly, exclusively and necessarily in connection with employment. I cannot see the logic of not including the cost of travel to work by public transport as an allowable cost for income tax purposes. In a recent parliamentary answer the Chancellor of the Exchequer pointed out that full compensation for this expenditure would amount to less than 1p on income tax. I hope that the Chancellor will be able to say tonight that even if he cannot go the whole way he will give consideration to the need for a serious study of the logical, logistic, financial and energy implications of making some move in this direction.

One of the most encouraging features of the Budget Statement is the absence of any reckless measures or forecasts. Not only has the Chancellor declined to spend money before it is earned; he has indicated his prudence and caution by providing for a substantial contingency reserve and by making no provision for a reduction in our EEC contributions until they have been agreed.

Prudence is a welcome, agreeable and unusual virtue in a Chancellor of the Exchequer. It is all the more welcome because the Chancellor has made it clear that there is no lack of determination to obtain a substantial reduction in the horrendous net contribution that Britain makes to the EEC.

The greatest change that I have noticed since my return to the House after an absence of about a year is the change that has occurred throughout the House in attitudes to the EEC. There was a time when to voice even a minor doubt about the glorious horizon for Britain in the EEC was treated in the same way as one would treat somebody who inadvertently lit a cigarette in church. The healthy wave of agnosticism and doubt that has swept throughout the Commons provides a more constructive atmosphere in which to plan for the changes that must come.

Further assistance is provided by the near-unanimous view that substantial structural changes require to be made in our contributions and to the CAP. What worries me is that the excellent sentiments appear to lack specification. For example, almost everybody agrees that we need to reform the CAP to achieve what the Chancellor wants. That reminds me of the useful debates that we had on de- volution. For a long time everybody agreed that something had to be done. However, when the Labour Government eventually produced a scheme, the House rejected it because it realised the implications.

I suggest that, faced with an ever-worsening crisis in which agricultural production in Europe is expanding, when there is immense scope for further expansion and when demand is not rising and might be declining, we must be courageous enough to spell out our remedies. That is essential if we are to give the Chancellor the bonus that he seeks of reducing our enormous contributions.

There is not a shred of evidence that a price freeze will achieve, in the short term, the necessary reduction in production. There is not a shred of evidence that the nations of Europe will agree to a physical curb on production appropriate to the need, as we saw clearly from the Commission's plans for wheat. There is not a shred of evidence that British farmers, who, despite their efficiency, still produce less than our nation needs, will be willing to contemplate substantial curbs in production. There is no evidence that the nations of Europe will be willing to finance the consequences of production restraints or the alternative of ever-increasing surpluses.

I welcome and applaud the Government's determination to seek changes in the EEC, to reduce our contributions and to change the CAP. However, I hope that some contingency planning has been done to cover the possibility of the changes that we seek being politically unacceptable on either side of the Channel. In planning for the future, as the Chancellor is with his projections for the next five years, I hope that he will not exclude the possibility that Britain will eventually initiate discussions in the EEC, in a spirit of legality and comradeship, about a new relationship other than full membership.

I welcome the realism of the Budget. The most interesting feature of recent times is the revelation that those who claim to speak for sections of the community do not necessarily represent the mass of the people. We have seen that in labour relations, when the violent and aggressive stances adopted by certain trade union leaders have been overturned by secret ballots of union members. There has been strident criticism of the Budget and of the Government's economic problems, but the public is aware that we cannot carry on as we are. We must strengthen the Chancellor in his endeavours, since no practical alternative has been suggested.

The Chancellor's Budget has made a further contribution to that sense of realism. There is no way of making 2 and 2 add up to 5. I am glad that the Budget Statement, while it is haunted by some complex jargon, at least has regard to that fundamental economic fact. I welcome the Budget. It is a contribution towards preparing the ground for the revival of the economy, on a sound basis.

5.55 pm

Mr. J. Enoch Powell (Down, South)

I consider it a piece of singular personal good fortune that it should fall to me to welcome back to the House, after a brief absence, one with whom some years ago I was associated in opposition to what more and more people are coming to see as the mistake of Britain's entrance into the EEC in its present form or nature.

Those of us who have, in the absence of the hon. Member for Southend, East (Mr. Taylor), continued in that cause have noticed what he has quickly picked up—that we have by no means been losing ground: the tide and the wind appear to be much more favourable than even when the hon. Gentleman left.

The hon. Gentleman and I have, for different reasons, found new homes in the later part of our parliamentary lives. I hope that he will enjoy and be as proud of his as I am of mine and that they will both long sustain us to fight the common cause which we have shared these many years.

There is an innovation in the Budget which I hope will form a precedent for the future. It is the first occasion for many years when, deliberately and intentionally, the Government's proposals on expenditure and taxation have been placed simultaneously before Parliament. The logic of doing so, whatever the inconveniences and whatever the tradition, is inescapable. It cannot be right that the Government—departmentally or in the Cabinet—or this House or the public should be tempted to consider expenditure in detachment from its natural consequence, taxation. Of old, in the procedures of the House, Supply and Ways and Means were closely linked, and if any hon. Member has a curiosity to learn something of the historical reasons why the two came apart and why we fell into the strange custom of dealing with expenditure in the first quarter of the year and taxation in the second, the Library will probably be able to produce the April 1959 issue of the Lloyds Bank Review, in which an ex-Financial Secretary to the Treasury offered what seemed to him important arguments for reuniting the two functions of fixing expenditure and fixing taxation.

Of course, we cannot leave it as it is after the first essay in this year's Budget. If we are to adopt what I believe is the fundamentally logical and rational approach, we have to accept that our whole financial calendar and the whole procedure of financial control and debate by the House will have to accommodate itself to that joint consideration. The Select Committee on procedure, many recommendations of which have been implemented in the present Session, has not resumed its existence. Indeed, the House still has no Select Committee on procedure at all. If my words can reach the Leader of the House, I seriously commend to him, as implicit in the decision that his right hon. and learned Friend the Chancellor of the Exchequer has taken, that the House should now have the opportunity to review, not just in the abstract but with the degree of urgency that this year's Budget has created, the whole structure and method of our financial control and the manner in which we utilise our parliamentary time for considering both expenditure and taxation.

By modern standards it was an unusually long Budget speech—taken at a gallop, but still a long speech. Normally in any long work of art the denouement tends to come, if not actually at the end, at any rate well towards the end. That is commonly the case and follows the well-known rules of Greek tragedy. But that was not the formula followed by the Chancellor of the Exchequer on this occasion. He had let fall only some eight to nine columns of the 52 columns that his speech occupied in Hansard before we had the answer—before we knew that the battle was over. He was barely one-sixth of the way through his speech before some of us at any rate said "He has lost".

To lose is not a new experience for Chancellors of the Exchequer. I can recall Chancellors of the Exchequer who lost the same battle as that which we learnt, at so early a stage in his Budget speech, that the right hon. and learned Gentleman had lost. It was the passage where he announced that the estimated public sector borrowing requirement for the coming year was £8½ billion, compared with £8¼. billion estimated and £9 billion outturn last year.

That is not the Budget that the right hon. and learned Gentleman wanted. That is not what he perfectly well knew was required by the firm belief that not only this Government profess and hold as to the nature and causation of inflation, but the belief that has been held, when in office, by Chancellors of the Exchequer from the Labour Party. It is a belief for which one need not go as far as Brussels to find an exemplar. We have one sitting on the Opposition Front Bench; for I well remember the denunciations of the right hon. Member for Leeds, East (Mr. Healey)—and how well founded they were—in the outgoing years of the 1970–74 Government, of the huge and increasing public sector borrowing requirement. The right hon. Gentleman correctly predicted then effects which indeed flowed from it.

Yet here was the Chancellor of the Exchequer saying that total expenditure would be virtually unchanged in the coming year from the past year, that taxation was virtually at a standstill and that, in consequence, the estimated public sector borrowing requirement would be a slightly higher money figure next year than this year.

Upon that word "money" the Chancellor of the Exchequer hangs some of his hopes. He says, the Government say, the apologists say, that as inflation goes on so we are whittling away the public sector borrowing requirement. They say that £8 billion or £9 billion now is not what it was a year ago. They say "Cheer up. Do not worry. We are doing what we know we ought to do."

I quite confess that if we bash on at 20 per cent. compound inflation per annum we shall come in due course to a time when indeed £8 billion or £10 billion will not matter. But that was not much reassurance or comfort to the right hon. and learned Gentleman. He knew perfectly well that last year's figure of £8 billion to £9 billion to be borrowed by the Goernment from the public, at peril of expanding the money supply, was already grossly excessive and that he urgently needed to reduce it. He knew that the reduction of about 17 per cent. obtained by applying the coefficient of inflation in no way corresponded with the requirements of his and the Government's analysis of the situation. So he had lost.

Still, he wore his defeat well. At least, he wore his defeat as Chancellors of the Exchequer are assisted by the Treasury to wear their defeats. He had resources available—mirrors as usual—whereby the nature and magnitude of the defeat could, for the time being, be palliated.

The right hon. and learned Gentleman resorted, in a word, to Plowdenism. That is not a new sect recently arrived in this country whose apostles might well be excluded by the immigration officers. Plowdenism is the notion that every year the Government should publish purported programmes, projections and targets not for 12 months or so—it is difficult enough to do that—but for five years ahead. It was Plowdenism that offered the right hon. and learned Gentleman the salve after his defeat.

First of all he turned to money supply. He could not do in the present—he was disabled from doing it—what his own beliefs and theories required him to do in order to gain control of the money supply. But there was always the future—that land whose margin fades For ever and for ever when I move. The right hon. and learned Gentleman had lost in the present, but fancy was free for the future. His first work of art hon. Members will find in table 5 in the Financial Statement.

It is a beautiful and symmetrical presentation of sterling M3 as projected in the coming years. If hon. Members examine the table, they will find a beautiful gradation: the ranges are set out, and in each year, as one goes through it, the upper and the lower figure in the range are just lower by 1 than the year before.

It must have given the right hon. and learned Gentleman some satisfaction. It must have been some compensation to him, knowing that he had lost the battle which he had to win, to be able to set out in such a picture of the future how he would like to imagine the behaviour of sterling M3 money supply, that most inapprehensible ultimate consequential of the crucial dimension in any Budget—the public sector borrowing requirement. Crucial it is despite its imperfections. Despite the fact that it excludes many cash requirements which fall upon the Government in the course of a financial year, it is inevitably the only instrument in the Government's hands for controlling the money supply.

In the very moment when it had broken in his hand for 1980–81, the Chancellor of the Exchequer was able to set out, print and lay before the House a picture of what the future might have been. But that was not enough. The right hon. and learned Gentleman—one can almost visualise it—reached for another sheet of paper and on it he drew two projections. Those projections were for the years over which he had not yet lost control. They were projections for the years in which the decisions were yet to be taken and the battles still to be fought.

That is table 9, to which the Secretary of State for Social Services last Thursday so emphatically and laudatorily drew the attention of the House, urging us to look at table 9 as the chef d'oeuvre, the masterpiece, of the Chancellor of the Exchequer. He was right. The right hon. Gentleman the Secretary of State for Social Services knows a thing or two.

Look at table 9. Take first the projection of expenditure. It does not come down this year; but, strangely enough, after this year it begins to fall. With a beautiful smooth downward movement, the total of expenditure falls in each of the succeeding years of the quinquennium.

When he had filled in that part of his pools, the right hon. and learned Gentleman turned to revenue. That was stable this year, compared with last year; but in the table we see how year by year it is planned to rise.

One can imagine the expression—as near as is possible for the right hon. and learned Gentleman, beatific—which must have come upon his countenance when he had finished his work upon that table. Yet, just in the moment of his triumph, he saw opening before his very feet a dark and dangerous chasm. This table does not merely show those fateful lines "expenditure" and "revenue" as asymptotic. It does not even show them as convergent. It shows them as intersecting. The thought struck the right hon. and learned Gentleman "Bless my soul, I have actually got a negative public sector borrowing requirement in the last year of this Parliament. This will never do. Not that I do not think that it would be a very good thing. Not that I would not like to emulate the achievement of the present head of the Brussels bureaucracy. The trouble is that these figures are all right for the public, but, if my colleagues get hold of them, farewell to all hope of the Treasury ever exercising any control over departmental expenditure. Every spending Minister will come back to me and say 'But, Geoffrey, we see that by the end of this Parliament there will be a net overall surplus. Are you really telling us that next year and the year after we have to continue with these ghastly, grisly, dreary cuts?'" Those figures and that intersection were sufficient to destroy his position in the Cabinet and in the Government.

It was at this moment that the right hon. and learned Gentleman had a stroke of genius. The Secretary of State for Industry used the phrase "his own brainchild" in a slightly different context, but I am sure that he will not mind if I adopt it. It was the right hon. and learned Gentleman's own brainchild. If his Budget is remembered for nothing else, it will be remembered for the invention of the fiscal adjustment—

Mr. Joel Barnett (Heywood and Royton)

Implied fiscal adjustment.

Mr. Powell

I am looking at page 18, which in paragraph 12 refers to "fiscal adjustment" tout nu—just like that, in inverted commas. I shall stick to the simple term by which this Budget will be known in future years—the Budget of the "fiscal adjustment".

The Chancellor saw that if he could create an apparent deficit in the last two years of this Parliament, all would be well: his public sector borrowing requirement would then be falling at a decent rate and he would still have an answer to his colleagues. He would still be able to remain in control—if he could regain it. When a colleague pointed to the "fiscal adjustment" and asked "What is that?" he could reply"That, my dear fellow, is our nest egg for winning the next election. That is what I will be able to give away in the last Budget and the last Budget but one. So don't you touch it".

It was a really splendid performance. For a long time, I do not think that there has been a Financial Statement from which so much enjoyment can be obtained by the political student as from this one. Yet in the end it is only concealment by future romancing of a reverse that has been sustained in the present. I believe that it was at one of his Italian battles that, towards the end of the day, Napoleon's chief of staff said to him "I think, Sire, it is a battle lost".

Mr. Jay

Marengo.

Mr. Powell

I thought that it was, but I did not dare to say so because I had it at the back of my mind that it could possibly have been the bridge at Lodi. Therefore, with the same care as the Secretary of State for Industry, I thought it better not to risk specifying the battle. However, on the authority of the right hon. Member for Battersea, North (Mr. Jay), and without hesitation, I retrace my steps and say that as the day of Marengo drew to a close, Napoleon's chief of staff said to him "I think, Sire, it is a battle lost", and Napoleon, launching his reserve into the final and victorious attack, replied "It is a battle won".

It is like that now, only the other way round. Surrounding the Chancellor, and on the Benches behind him, some of them waving Order Papers, were hon Members saying "I think, Sir"—or Ma'am?—"that it is a battle won." It is not. We have lost.

6.16 pm

Sir William Clark (Croydon, South)

It is always a pleasure to listen to the right hon. Member for Down, South (Mr. Powell). From his great experience of Treasury matters, it is rather revealing to us humble Back Benchers to realise from the voice of authority what goes on in the Treasury before the Budget appears.

One thing that I like about this Chancellor is that he presents a Budget only once a year, which I think is a boon, particularly when one remembers that his predecessor presented about three each year and that they appeared with monotonous regularity.

I agree with the right hon. Member for Deptford (Mr. Silkin) that one must take my right hon. and learned Friend's two Budgets together. There is no point in singling out only one of those Budgets. The Government's financial and economic strategy was started in the Budget of June last year and is continued in this Budget. We should remind ourselves that in the previous Budget there was a definite and deliberate switch from direct to indirect taxation. As my right hon. and learned Friend the Chancellor then pointed out, that will take some time to bear its real economic fruits. Last year, about £4,500 million was relieved from direct taxation and a similar figure was put on to indirect taxation, mainly VAT. Therefore, there was a big switch from direct to indirect taxation.

We want to nail the lie and the accusation that all these tax reductions went to the so-called rich. They did not. About 19 per cent. of that £4,500 million went to the top layer. Even now, the top bracket of taxation in this country does not compare all that favourably with our competitors overseas. Therefore, 19 per cent. of the total was devoted to relieving the top bracket. I would have thought that all hon. Members would realise that we had to do something about that penal taxation. Indeed, last year, about 81 per cent. of the total went to the lower income tax brackets.

I therefore hope that we shall not be subjected to the lie that in the previous Budget everything was given to the rich and nothing was given to the poor. Likewise, I hope that we shall not hear the accusation that the Conservative Government do not care. I remind Opposition Members that the Conservative Government do care, and that one only has to look at the history of this country to see what social legislation has been put on to the statute book by successive Conservative Governments.

Labour Members say that this Budget is a mean one. But they should get one of the basic economic facts of life firmly implanted in their heads. Governments are not mean or generous. It is the taxpayer who is responsible for every halfpenny or penny which is produced in the country.

The Government, being the custodian of the taxpayers' money, must exercise prudence in spending it. In this respect I welcome the fact that at last the Government are to do what Beveridge wanted to do when the Beveridge scheme was introduced and that they have promised to make a start on taxing short-term welfare benefits. It is ludicrous—I am not criticising either—to tax the worker and give the non-worker tax-free benefit. I wish that the Government had brought a provision to this effect forward and had not said that they would wait two years.

In this context, index-proofing of welfare benefits is unfair. We are creating two nations. The man in work is not always able to obtain an inflation-proof wage, simply because of the lack of the firm's profitability. It is wrong to take the person who is not working and give him or her an inflation-proof benefit. Here again I am delighted that at last my right hon. and learned Friend has grasped the nettle and has said that trade union funds should bear some of the cost of a strike by workers on the instructions of trade union leaders. That is perfectly just and fair. Some Opposition Members may say that that is union bashing. That is not so; it is fairness for the taxpayer. After all, the taxpayer provides the strike benefits at present. It was completely ludicrous that during the steel strike the unions paid no strike pay yet at the same time there was about £11 million in their coffers which belonged to trade union members.

More and more people realise that as a country we have to live within our means. I agree with the right hon. Member for Down, South about the public sector borrowing requirement. It is true that it is coming down, but many of us believe that it is still extremely high; it is far too high. Our national debt is approaching £90,000 million and the servicing of such a debt is, in itself, a millstone round our necks. We should not be increasing the national debt; we should be doing everything that we can to reduce it. I hope that my right hon. and learned Friend will persevere with ruthless disregard of the faint-hearted who do not want to cut the PSBR. Only by living within our means will we ever return to economic reality. I agree with the right hon. Member for Down, South; it is good to have an income and expenditure account so that we can see what our expenditure is and how the money for it will be raised.

Mr. David Ginsburg (Dewsbury)

Does not the hon. Member for Croydon, South (Sir W. Clark) agree that apart from cutting the PSBR it was open to the Government to raise taxation rather than reduce it? That surely would have been a move in the right direction.

Sir W. Clark

As I said earlier—I do not know whether the hon. Member for Dewsbury (Mr. Ginsburg) was present—even at today's rates taxation is still higher when compared with our competitors. I would be against any increase in taxation. We must look at this matter the other way. There are only two ways in which we can make money: one is to increase our income and the other is to reduce our expenditure. The only one of those two factors over which we have any control is expenditure. We do not have much control over the revenue, in normal circumstances.

I impress upon my right hon. and learned Friend my concern about how the various spending Departments work. In each spending Department—certainly the main Departments—there should be a Minister responsible for the financial implications of that Department. There is not sufficient control by the Chancellor over the spending Departments. This is in contrast to what happens in business. In the head office of a company there is a group financial director and all the subsidiary companies—after all, the Departments are only subsidiaries of the Government—have a financial director. We could copy this in the Government.

As regards indirect taxation, many of us were sorry that tobacco and liquor were not more heavily taxed; it would have been in accordance with the Government's strategy in switching from direct to indirect taxes. It is no good putting 2p on a pint of beer and 8p on a bottle of wine. We have to be realistic and sensible. I have a vested interest because I smoke and drink, but nobody, by any stretch of the imagination, can justly say that a cigarette or a drink is a necessity of life. We should take these two items out of the retail price index. I am absolutely convinced that the Chancellor was prevented from increasing the duty on beer, whisky and tobacco simply because of the bogy of the RPI. Let us take these non-necessities of life out of the RPI.

Like many other speakers I welcome the caution in the Budget. For too long—especially with the previous Government—projections have been made on false premises, in that it has been said "Oh, we'll have a 3 per cent. to 4 per cent. growth" and we have finished up with a growth of 1 per cent. The budgetary policy has gone out of balance because budgeting for, say, a 3 per cent. growth has been reflected in public sector expenditure. That happened under the previous Government. The right hon. Member for Leeds, East (Mr. Healey) knows that as well as anyone. We should be realistic about the rate of growth and stop kidding ourselves that we are pessimistic simply because we do not attach some silly figure to our projected rate of growth.

I welcome the scope for wealth creation. For too long, Governments have spent money before it has been earned. Wealth creation will come about presumably through the new enterprise zones. I cannot understand some of the hilarity by some Opposition Members about this. Whether it is sour grapes I know not, but no Government setting up enterprise zones whereby the individual and the self-employed are encouraged to show some initiative should be considered to be giving cause for amusement. I applaud this move. It will help small companies, which have also been helped by lower corporation tax and so on.

One of the fears I have about capital taxes is that one is taxing the wealth of the nation and dissipating it as petty cash because it all goes into the revenue of the country. In itself that is wrong. Secondly, with the proliferation of taxes such as capital transfer tax, capital gains tax and the investment surcharge, to say nothing of stamp duty, there will be an impact on the wealth creators. My fear is that if we are not careful we shall kill the goose that lays the golden egg. Now that the Government have completed their review of capital taxes, I hope that they will come forward with a few more cuts in or alterations to capital taxes.

Mr. Tim Eggar (Enfield, North)

Will not my hon. Friend confirm that capital taxation as a percentage of GDP has steadily decreased over the past few years?

Sir W. Clark

That may be so. Nevertheless, whether or not capital taxation is decreasing or increasing as a proportion of the GDP, capital gains tax is a direct tax on inflation and nothing else. Also, it is unjust to have this tax. No doubt my hon. Friend will catch your eye, Mr. Speaker, and develop his own argument at greater length later.

The right hon. Member for Battersea, North (Mr. Jay) said that the speech of my right hon. Friend the Secretary of State was gloomy. He has a bit of a nerve to say that. I was much more depressed after he sat down than I was after my right hon. Friend sat down.

Over the years we have suffered from the reluctance of trade union leaders to accept that the profit motive is in the interests of their members. Indeed, it is much better for trade union members if they work for a company which makes a profit. Obviously, the Government cannot legislate for prosperity. All they can do is to set the scene in which the economy can grow, initiatives can be taken and rewarded and more wealth can be created for the future of everyone in this country. Until we succeed in that task, we can have all the great ideas in the world but they will come to nothing.

It has been suggested today that there should be tax relief on travel-to-work expenses. Personally, I would not go along with that. I believe that this Government should get the rate of income tax down to such a low level that we do not need fringe benefits, whether they are travel allowances or the free use of motor cars.

The first Budget of my right hon. and learned Friend the Chancellor of the Exchequer started the Government's strategy. The second has consolidated it. The strategy is right. I plead with the Chancellor not to lose his nerve. The Opposition may howl and groan about our strategy, but my right hon. and learned Friend should not be too worried about that. We must not lose our nerve. We must keep going. That is the only way in which we will achieve prosperity.

Several Hon. Members

rose—

Mr. Speaker

Order. I must explain to the House that I am following the precedent set by my predecessor in not calling two Privy Councillors from the same party one after the other. I propose to call next a Back Bencher who is not a Privy Councillor.

6.34 pm

Mr. R. C. Mitchell (Southampton, Itchen)

A few minutes ago we heard a witty and devastating attack on the Budget by the right hon. Member for Down, South (Mr. Powell). A number of my hon. Friends cheered. I do not know whether they realised what the right hon. Member had said, because I found nothing in his remarks to cheer about. In fact, I thanked God that he is not the present Chancellor of the Exchequer. The right hon. Member is probably the most logical speaker in the House. However, the trouble with a logical speaker is that, if he starts from a false premise, he must inevitably arrive at a false conclusion. The right hon. Gentleman always starts from a false premise in that he believes that all one has to do in order to get the economy right is in some way to control and manipulate the money supply.

We must treat the Budget as part of the Government's overall strategy. All commentators and newspapers will agree that today we have the most Right-wing Conservative Government, certainly since the war and probably since the biginning of the century. We can detect four major trends in this Government's thinking in their short 10 months in office. First, there is a complete and fanatical belief in a monetarist policy. Secondly, there is a conscious and deliberate move in favour of more inequality in our society. Thirdly, there is a determination to destroy the trade union movement. Fourthly, and this is rather surprising for a Conservative Government, there is a rapid increase in what Lord Hailsham described as "the dictatorship of Parliament". I shall deal with each of these aspects in turn.

On the question of a monetarist policy, there is a belief that the only way to control the economy is to control tightly the money supply. The Government feel that if this is done, all else will fall into place. This has led to major cuts in public expenditure, with more forecast, a heavy increase in unemployment, the highest rate of interest for many years and inflation running at 20 per cent. The Government tend to listen to the theories of Milton Friedman. The best comment that I have heard about Milton Fried-man's theories came from Lord Robens on television the other night. He said that Milton Friedman understood all the factors of production except one—the human factor. That is what is wrong with this Government. They do not understand the human factor.

The Government believe that man acts as a rational economic being. For example, they believed that the tax cuts last year, particularly those at the top end of the scale, would immediately induce people to work harder and to put more effort into their work. That will work with some people. But many others, including some at the top end of the scale, will not work harder. Instead, they will increase their consumption. They will buy larger cars and perhaps a yacht. There is no economic theory that automatically says that because there are cuts in direct taxation people will automatically work harder. That may happen, but then again it may not. There is very little evidence that it has happened so far.

The most important part of the Budget is not the Budget itself but the Public Expenditure White Paper. I welcome the publication of the two together, as it enables us to see the overall strategy. There are three aspects of this White Paper which I find most alarming. The first is the quite devastating cut in the housing programme over the next two years. About £2,600 million will be eliminated from the housing budget by 1982–83. A leading Conservative local government councillor has said that this will inevitably bring public sector house-building in this country to a stop. I suspect that it will also mean heavy increases in rents. My estimate is that council rents will increase by about £10 a week over the next three to four years.

The second major reduction is in education, which will lose £1,000 million over the next few years. This must mean cutting the very fabric of the education service, particularly the number of teachers. I suspect that the Government will find that it is impossible to cut back as much as they wish on the number of teachers, and I would not mind betting that at some time in the next three years a proposal will be put forward to levy a charge of £10 or £15 a term on all children in school. If the money cannot be saved by cutbacks, it will have to be raised by charges.

Mr. Douglas Hogg (Grantham)

Has the hon. Member, who deplores the cuts in education, taken account of the fact that the numbers on school rolls will fall by more than 1 million in the next five years?

Mr. Mitchell

I do not know whether the hon. Member has ever taught, but if he had he would know that his argument is specious. One cannot equate statistical figures of a fall in the school roll with the number of teachers required. If one has a school, as I have, with eight teachers and two classes in each of four years, and one cuts that number of teachers to seven because of the fall in the roll, one must do one of two things. One must either put two classes together in the one year, and teach 50 children, or one must arrange classes so that they are no longer in years. Purely statistical cuts cannot be made in the way that the hon. Member has suggested.

The third cut is a very mean reduction. It is the proposal for cuts in overseas aid.

I turn now to the second point on inequality. In the first Budget we saw tax concessions for those at the top end of the scale. In this Budget we see taxation of unemployment benefits and proposed taxation of sickness benefits at the bottom end of the scale. It is really rather more important than that.

The Government have a Victorian philosophy, which perhaps is signified in the Victorian music hall song: Its the poor wot gets the blame, Its the rich wot gets the pleasure". I suspect Ministers believe that someone who is unemployed or sick is blameworthy. That is reflected in a number of ways. One is the recent proposal and the constant attacks on social security scroungers, which prevent people from claiming benefits to which they are entitled. I shall not go into details. However, I can assure hon. Members that the Government philosophy is preventing people from claiming, as they do not wish to be regarded as scroungers.

At the other end of the scale, there is no provision for tackling tax evaders. In fact, I understand that people will be allowed to have bank deposit accounts of up to £1,500 without the bank having to inform the tax authorities. Someone could have 10 deposit accounts of £1,500 each—a considerable sum—without having to inform the tax authorities. That measure is to be introduced to reduce the number of staff. At one end of the scale the Government are doing one thing but at the other end they are doing another.

I now refer to the subject of the trade unions. The Government thought that the classical theory of the whip of unemployment would lead to reduced wage claims. That has not come about. Nor do I think that it will come about. The threat of unemployment will not lead to substantially reduced wage claims.

There has been an attempt to divide the leadership of the trade unions from the rank and file. We know of the proposals in the Employment Bill and the £12 a week measure proposed in the new Social Security (No. 2) Bill. In the short run the Government may have some temporary successes. However, in the long run the people will realise that without the strength of the trade union movement around them they will be a jolly sight worse off than they otherwise would have been. History will tell them that in the last resort they must combine. That is the psychology of the situation.

I had intended to refer to the concept of central direction. Under the Housing Bill every Conservative council, whether it wants to or not, will be compelled to sell council houses. The Conservative councillors in my constituency have complained to me and asked me to oppose various parts of the Local Government, Planning and Land (No. 2) Bill.

Finally, I give a warning to the Opposition. The country is in economic difficulties. Occasionally it is easy to get round them by means of a slogan. I keep hearing the slogan "Import controls".

Mr. Les Huckfield (Nuneaton)

Hear, hear.

Mr. Mitchell

I hear the words "Hear, hear" from the Opposition Front Bench —as if import controls will solve our economic problems. I could go into that in considerable detail, but I shall say what major import controls will do. They will transfer unemployment from one industry to another and from one part of the country to another, but they will do nothing to reduce the total amount of unemployment.

I represent a major sea port. It is a major commercial town which relies greatly for its prosperity on international trade. I shall certainly not support a policy of import controls, which would lead to retaliation and drastically restrict trade. There is no panacea for our economic problems. Our basic problem, which must be attacked, is that our productivity is not as good as that of our major world competitors. We could argue about whose fault that is. We shall not solve the problem by adopting a cheap slogan such as "Import controls", as the problem is more fundamental than that.

6.45 pm

Mr. Peter Emery (Honiton)

It is a tradition in the House that debates are debates. Therefore, in taking up the points made by a previous speaker, it gives me great pleasure to follow the hon. Member for Southampton, Itchen (Mr. Mitchell), whose views on import controls are impeccable. They should be expressed much more loudly by the Opposition than those other views heard in the previous few months.

I also wish to refer to a point raised by the right hon. Member for Down, South (Mr. Powell), my hon. Friend the Member for Croydon, South (Sir W. Clark) and the hon. Member for Itchen. I do not accept their view that it is to the benefit of the House that we should have published the Government's expenditure plan at the same time as the Budget. Publication should allow a much longer period prior to the Budget to enable us to understand what are the Government's expenditure plans. That is particularly true when one is in Opposition. Therefore, I speak in general as a House of Commons man—and not just in support of the Government. The proposals should be much better digested before we come to the Budget and the Budget debate. That would lead to a better understanding of what can and what cannot be achieved in the Budget. It would allow us to criticise—or not— the Government for the policies that they pursue.

Mr. Jay

Would it not be a more sensible plan to publish the expenditure Estimates earlier in the year, in January and February, plus the figures of what the taxation would be, calculated on the existing basis of taxation? We should then have time to meditate on those before the Government's tax proposals came forward in the Budget.

Mr. Emery

That is an elaboration of the past system. It has advantages and disadvantages. However, I do not wish to get into a debate on that point at this moment since I promised Mr. Speaker to be as concise as possible.

Basically, this is a realistic Budget. I accept the criticisms that the public sector borrowing requirement could have been reduced. I accept the criticisms about the money supply, with which I hope to deal at some length. However, the Government have set out a sensible medium-term strategy and adopted a sound fiscal stance. It is there to underline the primary policy, which is to get on top of inflation. The policy is realistic because it set out, sensibly, for the first time in many years, to estimate in a manner which is acceptable to Government supporters what will be the level of growth in the economy.

May I outline the errors that were made by the previous Government in their Budget estimates? In 1976 the growth rate was suggested to be 4 per cent. and it turned out to be 2.4 per cent.; in 1977 it was suggested to be 2.5 per cent. and it turned out to be just over 2 per cent.; and in 1973 it was suggested to be 3 per cent. and it turned out to be 2.4 per cent. The levels of inaccuracy have always been on the wrong side—always upwards of what actually was achieved—and led to some of the problems of increasing the public sector borrowing requirement, about which I am especially critical. The fact that my right hon. and learned Friend the Chancellor estimated a 1 per cent. level of growth means that there is a hidden light at the end of the tunnel. I suggest it is most likely that that is a major underestimate.

As there will he a growth of about 1½ per cent. as a result of North Sea oil, it is not expecting too much to say that in 1981–82 industry and commerce will be back to a level of a 1 per cent. growth and that in the succeeding year there will be 11 per cent. or 2 per cent. growth. That, with North Sea oil, will only bring, in those succeeding three years, a 9 per cent. growth, which is hardly an economic miracle, averaging 3 per cent. over the three years. That is probably worse than in most other countries of Europe, but if it could be achieved we should find that averaging the increased revenue level over those three years at present rates would be something in the region of £1½ billion to £1¼ billion in excess of the present estimate. That would be a very happy outcome, if it could be achieved. It would do much to respond to the Socialist criticisms about the foolishness of going forward with an estimate of only 1 per cent. growth rate.

I come now to two specific points. It is fashionable to say that anybody who is critical of the Government is "wet". The sooner that term is got rid of, the better for everybody, because any Government, before they have been in office for many weeks need the sensible advice and guidance of the Back Benchers. If they obtain that, they are likely to stay in office very much longer. Therefore, I hope that the two criticisms I make will be taken in a constructive manner.

I turn first to overseas aid. I shall not deal with this at great length, because if my right hon. and hon. Friends on the Front Bench, the Treasury Ministers, will look at the speech I made during the Brandt Commission debate they will find that I went into considerable detail. However, I did not get an answer from the Minister; I could not, because he had already spoken. I made the suggestion, in connection with the cuts in overseas aid, that the Government should look at the possibility of routing certain agreed assistance to industry—the motor industry, the engineering industry—via overseas orders so that at least a part of that money could go to the industries through production which helped overseas countries. This is something which I do not believe has ever been suggested before and might well be one of the ways in which, without increasing the estimates and cash limits set by the Government, we could increase the level of overseas aid to dependent countries.

The Government must realise that during this period of deflation in Europe and America we want increased demand, and the areas from which we can obtain the greatest demand must be those of the underdeveloped nations. I would have thought that the Government would have welcomed my idea.

Secondly, I turn to my very considerable concern at the fact that the Government have been absolutely inflexible in the manner in which they have pursued their monetary policy. The object of my criticism is to add to the speed with which the Government achieve their purpose. I believe that by ruling out any physical controls in the application of their monetary policy they are limiting the speed with which they can achieve their end. Nobody can argue that the money supply has decreased as quickly as the Government would have liked. Nobody can suggest that the public sector borrowing requirement has come down as much as the Government would like. Why, therefore, have the Government not looked at the use of special deposit factors within banking?

I have read the Command Paper carefully. We all know what criticism there is of the corset. We all realise that it has certain distortions. We certainly understand that the application of the corset by the banking system has meant that the growth of holdings of bank-accepted commercial bills outside the banking system has gone up, but it would be well within the ability of the Government to use the corset so that its application did not mean simply a decrease in the holdings of public sector debt as set out in paragraph 2.2 of the Command Paper. Therefore, I urge the Government to use the physical factor of an extra deposit in the banking sector. Perhaps a deposit of £700 million would be necessary to achieve a real decrease of £500 million, or something of that proportion, because we realise the discrepanciees that exist. The distortions that are obtained by that method of physical control are no worse, I would judge, than the distortions which result from the very high rates of interest which industry and commerce have to pay at the moment.

Equally, I want to refer to the very high and expanding factor of credit as a result of the use of credit cards by the people of this country. The amount of business last year, I understand, was something in the region of £3.5 billion turnover. I understand that it is estimated that the outstanding consumer indebtedness at any one time is in the region of £700 million to £750 million. It would be quite simple to reduce that by at least one-third by the Government requiring a much larger monthly repayment by those using these facilities.

Perhaps that is a distortion and some people would certainly find ways round it, but these distortions are nothing like as serious as the terrifying way in which we are affecting agriculture, mortgages and house purchase, the borrowing requirement of the young married couple setting up a home and so on. All the people involved are madly and unkindly affected by the high rate of interest that now exists.

What worries me is that, in addition to this, the high rates of interest are obviously stopping investment by industry and commerce. The argument that high interest rates can be used for a short time as a specific restraining financial instrument is well understood. But when they are continued for the length of time they have been, and when this looks like continuing, I believe that they are massively counter-productive, because we may well find that we are about to kill the goose whose egg we want for the economic recovery of the country and which our policy is intended to make better rather than to kill. I therefore urge the Government to pay the greatest attention to this continuance of high interest rates.

Having prepared my speech, I was most intrigued to see a headline in the Europa supplement to The Times today which read: Stop the interest rate machine—we want to get off. That about sums up what I feel about the high rate of interest at the present time, and it seems to me that the Government must look quickly at ways of bringing interest rates down.

7 pm

Mr. Joel Barnett (Heywood and Royton)

This has been one of the most remarkable debates that we have had for a long time, if only because of the fine and amusing speech made by the right hon. Member for Down, South (Mr. Powell), which was all the better because I disagreed with his central point about the public sector borrowing requirement.

I shall begin by referring to my points of agreement with the Chancellor of the Exchequer. I agree on the need to control public expenditure, including cash limits, the need to control the money supply and the need to have some control over the public sector borrowing requirement. Although I believe that all those three elements need to be controlled, that does not mean that I do not have fundamental disagreements with the Chancellor on all three of them, as I hope to show.

I also agree with the Chancellor's objectives of providing the right environment for improving our abysmal industrial performance, ensuring that we live within our means and bringing down the rate of inflation. The crucial question is whether the Chancellor's methods of bringing down the rate of inflation will produce the goods. In the proper context, I have no doubt that even if the Chancellor were a member of the Tribune group he would still need to concern himself with some degree of control over money supply and the PSBR. The real foolishness and the positive danger of what the Chancellor is doing is in his excessive reliance on those two measures as the sole way of controlling the economy.

On the question of money supply, the Chancellor is bound to concede—as anyone who has looked at the problem must concede—that neither he nor anyone else can adequately measure the money supply in terms of what it is we want to control. We have had a Green Paper—all very nice—but we still do not know which is the right measure and how to control it. Even if we could control it, we do not know the consequences of controlling a particular level of sterling M3. In the past five years, for example, the average growth of M3 in this country has been about 10 per cent.—similar to that in Germany and Switzerland. The average rate of inflation in the United Kingdom during the same period was about 15 per cent., in Switzerland it was 4 per cent., and in Germany it was 4¾ per cent. I just do not understand how anyone can place total reliance on money supply even if it could be measured.

One reason is that we cannot ignore the effect of prices on other measures. We have heard this from the lips of the Prime Minister, who told us that the Chancellor had not increased indirect taxes: my right hon. and learned Friend was careful not to increase the retail price index by very much in the Budget."—[Official Report, 27 March 1980; Vol. 981, c. 1648.] That is a strange argument to come from a monetarist. Why not increase the RPI in the short term if the sole cause of inflation is money supply which is under control? That is assuming that it is under control, which it is not, of course.

We all know what happened last year when the Chancellor increased VAT by 15 per cent. The indirect consequences of that, not least on incomes, made this monetarist Chancellor decide to step with greater trepidation this time and not increase the rate of indirect taxes. Indeed, the Prime Minister boasted about it.

The reason is obvious to anyone who looks at the problem. If indirect taxes are increased, the RPI is increased, and that, in turn, leads to a higher growth of incomes. That growth cannot be controlled just by money supply. There are too many other sources of credit available. Companies, if they can help it, will not allow themselves to be bankrupted. They will pay the extra incomes. That is the consequence, and that is why the monetarist Chancellor decided not to increase indirect taxes.

Perhaps the most serious consequence of an obsession with money supply, as was mentioned by the hon. Member for Honiton (Mr. Emery), is the present very high interest rates. High interest rates have not enabled the Chancellor to control money supply, which is still beyond the target that he set last year. It is coming down. We all know what will happen in the future, but I am talking about what has happened so far. High interest rates have not controlled the money supply. Much worse, they are keeping an absurdly high exchange rate and crippling industry, not least small businesses, and all Government supporters know it.

I only hope that small business men will not read or hear about the speech made today by the Secretary of State for Industry. They were gloomy before, and if they hear about it they will be even gloomier. They have been told to cut their stocks, to cut investment and to accelerate the recession. I do not mind people talking in a derogatory way about the Secretary of State for Industry, as long as no one listens to him.

Perhaps worst of all in what the Government are doing—a point made by the right hon. Member for Down, South—is to link the public sector borrowing requirement with money supply. We do not need to look at what the Keynesians are saying, or epen Left-wing Socialists. We can read Alan Budd, who said in The Guardian of 24 March: The actual figure for the PSBR will depend on what happens to output. The London Business School forecasts suggest that output will fall by 2 per cent. in 1980"— that is, by less than the Chancellor is forecasting— and that the consequential PSBR would be about £10½ billion. In a year of expected recession there is no need to tighten fiscal policy further. He went on to say: The Government has made life unnecessarily difficult for itself by making this a symbol of their firmity of purpose. It is even worse than that, because the Chancellor in his Budget Statement last year described the public sector borrowing requirement as a "fickle and elusive statistic". Of course it is. We are told in the Red Book that there is a 3 per cent. margin of error as a percentage of GDP—a large margin of error.

What astonished me about the remarks made by the right hon. Member for Down, South was that he wholly ignored the make-up of the PSBR. Is he arguing that we should get the PSBR down to nil, regardless of how that is done? Is he arguing that a reduction in the PSBR is fundamental, whichever way it is done? That cannot be so. As the Chancellor said, the PSBR is a fickle and elusive statistic. It can be changed almost at will by a whole series of fiddles. Perhaps on another occasion I will explain how that can be done. There are many fiddles possible to reduce the borrowing requirement that have either a substantial effect on real resources or no effect on real resources.

For example, in 1979–80 the Chancellor decided to sell some oil forward—£600 million worth. Next year, if he runs short of money, he could sell £2,000 million worth of oil forward. The effect of that on the economy is very different from a tax increase, a reduction in the PSBR, a public expenditure cut or increase, or a shortfall on nationalised industry borrowing. We have just heard that because of a mild winter the electricity industry has to borrow another £300 million. Is it argued that we have to crucify ourselves on a public sector borrowing requirement that can be varied almost at will by an assiduous Chief Secretary?

I am astonished that the right hon. Gentleman should have taken that as his sole criterion for disagreeing with the Chancellor, much as I enjoyed his speech. Not only those assumptions should be taken into account when making forecasts about the public sector borrowing requirement. The assumptions for forecasts in any given element in the programme are varied. In addition, the valid arguments of monetarists such as Alan Budd combine to make the PSBR, as a statistic, not only fickle but not to be used as the major and only guide to planning a complex economy, even if it is believed that money supply is the only way of controlling the economy.

Even if all the evidence against using PSBR and the money supply as the sole measures of running the economy is ignored, we still have to ask whether the economy needs to be put in as tight a straitjacket as the Chancellor of the Exchequer proposes. Should so many companies be bankrupted in the process? Should the incomes of low-income families be cut in order to meet this tight straightjacket about which the Chancellor spoke?

The right hon. Member for Down, South talked about what he amusingly called "the Chancellor's nest egg". Table 9 refers to it as the implied fiscal adjustment, which will be £2½ billion in 1982–83 and £3½ billion in 1983–84, at 1978–79 prices, and very much higher in later years, assuming that those assumptions are correct. Is it right to cripple the economy and industry over the next two years in economic, financial, industrial or social terms in order to achieve surpluses two years from now? It is not true, politically, that if we get through those two years in one piece it will be possible to recoup a situation that has deteriorated in both industrial and political terms.

The monetarists also recognise that there are other ways. It is said that there is no alternative to what the Chancellor is doing. The ready answer that members of the Cabinet and Conservative Back Benchers can give to a Chancellor who says that there is no alternative is that there is an alternative. There is an alternative to committing suicide. It is to stay alive.

7.13 pm

Mr. Peter Viggers (Gosport)

We are still close enough to the general election to relish the sight of right hon. and hon. Members speaking from different positions to that to which we became accustomed. For instance, the sight of the right hon. Member for Heywood and Royton (Mr. Barnett) speaking with a new relaxation and talking of fiddling the books was enjoyable. We enjoyed his speech and we respect his judgment. I also enjoyed listening to the right hon. Member for Leeds, East (Mr. Healey), the previous Chancellor of the Exchequer. I noticed how well his wit and his rumbustious manner suit him as the financial spokesman for the Opposition.

I have also learnt that my right hon. and learned Friend the Chancellor of the Exchequer has matured into a Chancellor whom we can respect and whose accuracy and wise judgment fit well—rather better perhaps than they fitted when he was financial spokesman for the Opposition. He has faced the major problem of inflation and the problem of a growth rate of only 1 per cent. projected through to 1983–84—which must be realistic when it is based on a growth rate of only 1 per cent. for the last six years.

It is significant that the growth rate of 1 per cent. only will take place at a time when the profile of the population is changing—we have more retired people—when there are massive receipts from oil and gas revenues, and when many of our traditional markets are being eroded by nations which have cheaper labour than Britain. Faced with the problems of high inflation and low growth, the Chancellor's judgment has been correct He has chosen a modest restriction on public spending, a broadly neutral fiscal posture, and a series of measures to encourage initiative and growth.

The Chancellor's Budget is one of a person who adopts an agricultural approach to the economy and the approach of a person who believes that the economy can grow best if it is left to mature by itself.

Two problems are linked to the low rate of growth. The first is protection and the second concerns oil and gas income. Protection is the subject of one of the great debates of our time. We are facing cheap labour competition and our traditional markets are being eroded in a manner which no one can ignore—for example, in footwear and electronics. Many people demand that there should be import controls and a change in exchange rates to make the pound sterling lower and exports more competitive. However, such people forget two facts. First, we are a trading nation. We export about one-third of our gross domestic product—more than any other comparable nation. Secondly, can we ever compete with the cheap labour from countries such as those in the Far East? In Korea, which I recently visited, the people work with a dedication and determination which result from their having recently escaped starvation and death from hypothermia on a mass basis.

People in Britain will not work and cannot be expected to work in that way. Why should they be expected to do so? Do we want a cheap labour economy? Do we want to compete with, and beat, those nations which operate on the basis of cheap labour, bearing in mind that nations such as South Korea are now worried about cheaper labour in countries such as China and Thailand? It is more important to leave the exchange rate as it stands and seek to compete and win on an international basis and on our national skills, using our educated work force, superior management and professional skills.

The next year or two will be extremely difficult. No one denies that. But I am encouraged in my view about the exchange rate by the suspicion I have that if the Government were to try to manipulate the exchange rate it would not be successful in the long run, and it might even rebound to their disadvantage.

I turn now to the Budget measures concerning oil and gas, notable for the fact that few people have commented on them, although their size is enormous. I declare an interest. I have a long-stand- ing connection with the oil and gas industry, and I defy anyone to say that that prompts me to comment. The taxes on oil and gas are controlled by the Treasury, not by the Department of Energy. But there must be an energy dimension in any energy tax planning.

I quote briefly the words of President Carter, who adopted a different approach to energy tax planning. In an address to the nation on 18 April 1977, he said: With the exception of preventing war, this is the greatest challenge our country will face during our lifetimes.…We must not be selfish or timid if we hope to have a decent world for our children and grandchildren. We simply must balance our demand for energy with our rapidly shrinking resources. By acting now we can control our future instead of letting the future control us.…This difficult effort will be the moral equivalent of war—except that we will be uniting our efforts to build and not destroy. How does a comparable British Minister approach a similar problem? The Secretary of State for Energy began a statement on 16 January 1980 with these less ringing words: With permission, Mr. Speaker, I should like to make a statement about financial targets for the British Gas Corporation and the electricity supply industry in England and Wales."—[Official Report, 16 January 1980; Vol. 976 c. 1644.] There is a danger that the unique opportunity provided by oil and gas will be wasted. We have an opportunity comparable with the Industrial Revolution. However, the Treasury controls energy prices through taxes. The Treasury's concern for longer-term oil and gas supply problems could be written on the back of a tally stick. My hon. Friend the Financial Secretary to the Treasury referred to a speech made by my hon. Friend the Member for Kensington (Sir B. Rhys Williams) last night. He said: He suggested a slowing down of oil production. I do not think that would be a sensible course at present."—[Official Report, 31 March 1980; Vol. 982 c. 160.] This subject is of such importance partly because it gives us an opportunity to expand the service and supply side of the oil and gas industries and partly because of the sheer size of the sums involved.

For 1984—on a basis even before the petroleum revenue tax increases that are proposed in the Budget—the Government's take from oil and gas taxation and royalties was esitmated at £14,700 million. Depletion rate and its effect on the pound sterling have not been discussed. There has been no general discussion of how to use the oil and gas revenues. We have taken the benefit of gas revenues for some years, without giving credit for them. We still await the Government's policy on depletion and the application of the oil funds. We cannot stumble on much longer without a firm and clear policy about how to apply our oil and gas revenues.

Finally I would like to say a word on a completely different subject. Little has been said about charities. Charitable giving is big business. In 1975 it amounted to about £1,717 million, which then compared with a figure of about £2,000 million for all company dividend distribution. The fact that I have quoted 1975 figures shows the extent to which statistics on this subject are out of date. Many of the figures are not clear. Many donations do not appear in national statistics on charities. The Charities Aid Foundation figures, which represent only about 10 per cent. of the total, show that the charities involved in medicine and health have a massive lead. Only a tiny amount of money is given to art and educational research. The Government have a strong interest in encouraging more donations to that sector.

In his first Budget, the Chancellor of the Exchequer actually cut charitable income. His cut in the standard rate of tax reduced the tax exemption benefit receivable by charities. However, the reduction of the period for tax relief on covenants from 7 years to 4 years will be of substantial benefit to charities. But why should we cut the period only from seven years to four years? Why should a ceiling exemption of £3,000 remain? The only satisfactory answer is that the Chancellor of the Exchequer is anxious to carry out his good works slowly. He does not wish to disrupt charitable giving too much at any one time.

I commend the system governing charitable donations in the United States. In the United States charitable donations, with very few exceptions, are free from tax in the hands of the recipient. The donor is exempted from tax on the amounts that he gives. Many people keep two cheque books: one for normal expenditure and one for charitable expenditure. That makes taxation assessment easy. Tickets for museums, art galleries and so on are acceptable expenditure for such purposes. It may sound heretical in Britain, but we should consider the upsurge of private initiative and of individual choice that would follow if donations to charities were freed. The ability to follow up and support individual choice and freedom are the very things that the Conservative Party stands for. I recognise the need for gradual change. However, I hope that the Chancellor will keep this area in mind with a view to further concessions to charities at an appropriate time.

7.24 pm

Mr. K. J. Woolmer (Batley and Morley)

It is a pleasure to speak after the hon. Member for Gosport (Mr. Viggers). I wish to address my remarks almost entirely to the question of North Sea oil and gas revenues. That subject has been inadequately covered during the past few months. The Budget has overlooked an excellent and timely opportunity to consider these issues.

The reckless gamble with our social and economic fabric, which forms the characteristic of the Government's policies, would not have been attempted if it were not for the revenues of North Sea oil and gas. It would be extremely difficult to imagine how the Government would have faced the problems of high interest rates, growing unemployment and high inflation if that bonanza of £10 billion to £15 billion had not been forthcoming. The Government clearly hope to use those revenues to bring down interest rates and to finance tax cuts. The now infamous fiscal adjustment lies at the end of the rainbow.

The dangers to the real economy are clear. They have been spelt out by many commentators and by hon. Members of all parties. With a depressed industry and an overvalued exchange rate, the danger is that North Sea oil revenues will finance imports instead of home production and overseas investment instead of British jobs. That is not simply our dogma. It is a view that is widely held by financial commentators.

One of the main weaknesses of the Budget and of the Government's policy is a failure to spell out the revenues that are expected from North Sea oil. The Government have failed to set out the ways in which those revenues will be used to the benefit of the whole economy. The Chancellor's speech and the Financial Statement and Budget Report barely touch on those vital issues. That is remarkable. People will look back and wonder why no discussion has taken place. It is remarkable that those issues have scarcely been discussed. The Budget Report is hardly comprehensible. It is clouded by vague and gross underestimates. Those estimates are expressed not in November 1979 prices but in funny funny money of 1978–79 GDP deflator prices. I defy almost any hon. Member to fathom how that relates to the expected revenues quoted earlier. The Red Book estimates those revenues at an extra £2½ billion by the year 1983–84.

This evening I spoke to Mr. Budd on the telephone. Presumably he has some sympathy with the views of Conservative Members. His estimate—in the Government's own funny funny money prices—is that the increase is nearer £6½ billion. However, most reliable estimates, in terms of prices that we can understand today, put the figure by 1984 at nearer £14 billion to £15 billion in North Sea oil revenues. The hon. Member for Gosport quoted a similar figure.

In today's Financial Times another set of stockbrokers give a similar figure. The House and the nation should be told the truth about these figures and the options for spending those revenues. They are growing rapidly. Given proper depletion and pricing policies, they will remain substantial for a number of years, although clearly limited. There is widespread general agreement in the country that the benefits of North Sea oil and gas should not be frittered away on high consumer imports. Nor should they be frittered away in outflows of private capital abroad.

People want a coherent policy which will invest the benefits in this country and which will create a stronger economy and better living conditions. For example, net investment in the nation as a whole—the money spent by the whole of the public and private sectors on improving our stock of capital—is about £15 billion. The gross figure is £30 billion. That puts into perspective the significance of £15 billion a year North Sea oil revenues, leaving aside gas. Extraordinarily, the gas revenues are concealed as cuts in public expenditure. They are counted as gas surpluses that will help to reduce the PSBR.

Even if only two-thirds of the North Sea oil revenues were spent on investment, that would have a substantial impact and still leave plenty of revenue for tax cuts. For example, it would cost about £21 billion to knock 5p off income tax or 5 per cent. off VAT. The Government could do both if it were their determined intention and they did not wish to spend everything on investment. It would still leave over £10 billion of oil revenues for investment.

Neither the Government nor the private sector can turn £10 billion a year—twothirds—into extra physical investment overnight. It would require planning, imagination, drive and energy. The Government may need to spread that investment over a number of years to spread the peak build-up of revenue. The basic objective of the Government on behalf of the nation must be to invest and not to waste.

There are two main ways to consider investing North Sea oil revenues. We should consider direct, frequently joint, investment by the Government in the private sector in industry and commerce to translate oil revenues into physical investment. Where necessary, we should be prepared to buy in the best of foreign technology and know-how and possibly form partnerships with foreign companies. The National Enterprise Board or some strengthened public investment agency is needed to provide the resources and backing.

Some private enterprise supporters argue that it will be difficult to decide on profitable areas of investment and, as a consequence, North Sea oil revenues should be handed out in tax cuts and used to help reduce Government borrowing so that the market can decide. That is disingenuous. The record of pension funds and insurance companies, which are the institutions mainly involved in longterm financing of large volumes of industrial and commercial investment, is poor. I believe that the hon. Member for Southend, East (Mr. Taylor) made a similar comment in his latest maiden speech. Those institutions are happier dealing with property and securities rather than risk capital. It is known to be a problem. Additional boosts of money into major institutions will create a property boom and, in the absence of exchange controls, allow money to go abroad.

Mr. Bruce-Gardyne

The hon. Gentleman talked of large masses of long-term capital investment. Can he contemplate the choice which the public sector made with Concorde and which the private sector made with North Sea oil?

Mr. Woolmer

Concorde was another disaster perpetrated by a Conservative Government. The short answer is that there is no point in the hon. Gentleman supporting a Budget that includes in its forecast for four years ahead something called a fiscal adjustment, only to find in four years' time that there is £4 billion or £5 billion a year with a question mark over how to spend it. The time to consider how to use resources is now.

A problem with this Administration is that they are so determined not to plan, with their belief in laissez faire, that they are not prepared to look far enough ahead to decide how to use such resources. Left to their own resources to decide how to invest North Sea revenues, our private financial institutions will mainly bid up the price of shares and property on the Stock Exchange or invest the money abroad. That is the danger in the Government's approach. If the British people want—and I believe that they do—North Sea oil revenues invested in productive assets that benefit the nation, the Government and public sector must play a vital role in planning, investing and backing those resources.

The second use of the resources should be public investment in the infrastructure of the nation—in housing, education, the Health Service, our transport systems, alternative energy supplies and conservation. To take an example, hundreds of thousands of people still live in substandard accommodation, often without inside lavatories, having to share a lavatory at the end of the backyard with several other families. They often have no hot water or a bath in the house, with growing families or elderly folk bathing in a tub in the kitchen. Millions of houses which were built in the nineteenth century or early twentieth century are now crumbling faster than we are repairing them.

The Government's assumptions are that their proposals will lead to 2 million unemployed, and there are already 1½ million unemployed. With that level of unemployment and with the prospect of £15 billion revenue, the Government still propose to cut back spending. What sense is there in that? It is nonsense to say that those revenues cannot be converted into real investment for the private and public good. North Sea revenues are the United Kingdom's resources. The South, the Midlands, the North, Scotland, Wales and Northern Ireland do not belong to financial institutions in the City of London. Only by Government action will the investment of these resources take place fairly across the nation.

The Government's medium-term financial plan conceals and evades the issues facing the nation. The previous Government had the foresight to start discussions on the use of North Sea revenues before it was too late to take decisions. Decisions cannot wait until the Government see whether they have any change left at the end of four years. Decisions are needed urgently and should form the framework around which the Government's financial and monetary strategy is built.

We are able to innovate and to manage skills in a changing world, where other nations lead in various areas of industry and production. We must have the sense to learn from progressive technology and expertise. We must not believe the parrot cry that there is no alternative to the Government's policies of nonintervention, laissez faire, deflation and higher unemployment. The Labour Government promised an annual report on North Sea oil revenues and their use. The Government should respond and give the nation what it requires—an annual report on the state of our revenues and the uses to which they are to be put.

North Sea oil will last for only a limited number of years. It is too important to be used as a pawn in the Government's essentially bogus medium-term plan to aim at massive unemployment as a means of reducing inflation. If the Government are not yet able to face the need to rethink their policies, they should at least look again at the need to produce a coherent plan for the use of our oil and gas revenues. How will the Government's policies leave the nation when oil and gas and the resulting revenues begin to decline? We should ask that important question now, before it is too late. The next generation will not thank us for throwing away in a spendthrift manner that valuable opportunity because of the cry that there is no alternative.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr Richard Crawshaw)

Before I call the next hon. Member, I must point out that there are at least 13 hon. Members still wishing to speak in the one hour and 20 minutes that is left for debate. Many hon. Members have been waiting to speak for two or three days. I hope that hon. Members will use arithmetic and work out how we may fit in as many hon. Members as possible.

7.40 pm

Mr. Tristan Carel-Jones (Watford)

I apologise to the House, and especially to my right hon. Friend the Secretary of State for Industry, for not having been in the Chamber at the outset of the debate. I was in the Standing Committee debating the Housing Bill.

There is one overriding reason why I find myself able to give ecstatic support to the Budget. It is that the Government have laid down a four-year plan for monetary growth, public spending and tax policy. That gives the country the security for the future that it needs. Above all, it gives some assurance that at some time in the year 1983–84 inflation will be reduced to low, single figures and will remain at about that level.

I do not think that there was any moment more important in the Budget Statement than when my right hon. and learned Friend the Chancellor of the Exchequer said: Inflation sets worker against worker, employer against employee, and sometimes even Government against their own employees…They reflect the social disintegration caused by inflation. That is one of the reasons why the conquest of inflation is so important."—[Official Report, 26 March 1980; Vol. 980, c. 1443.] All who are concerned with the social health of the nation cannot doubt that nothing has done more to undermine it than the inflation that we have lived through during the past five years.

The basic strategy of the Government is continually caricatured by the other side of the House. Let us not forget that it would be possible to reduce monetary growth to nil in a matter of weeks or months. Indeed, a letter was published in The Times last Saturday from Professor Hayek, who advocated such a course. The fact that the Government are not acting in that way serves to illustrate that they are operating within the basic parameters that general social consent and concern impose upon any Conservative Government.

I recall a speech made by the chairman of the Conservative Party, Lord Thorneycroft, in another place on 2 November 1978, during the lifetime of the previous Administration. He spoke of the various systems open to the Government to control the economy, and said: but I discovered something. You can call it, if you like, the 'Thorneycroft principle'. It is that none of these systems works. It is a very great discovery once you have made it. I commend it to the Government because once you have made it you can sit back and get on with governing the country."—[Official Report, House of Lords, 2 November 1978; Vol. 396, c. 34.] The Government are operating within the sensible parameters to which Lord Thorneycroft referred. It is the recognition of those parameters that shines through the Budget. When my right hon. and learned Friend said that any change must recognise the need to protect the most vulnerable members of society, I believe that he was recognising that fact.

At the risk of raising the humidity level of the debate, I must say that I was disappointed at the level of child benefit that was announced. One of the reasons why many of my right hon. and hon. Friends are enthusiastic supporters of child benefit is that we regard it as being not only a way to help families in general but especially a way to help poor families.

It is all very well for my right hon. and learned Friend to argue that 75p will cover the 18 per cent. price rises for most taxpayers, but it does not do so for poor families. That argument has been widely accepted, not only in the national press but throughout the country.

I repeat the point made by my hon. Friend the Member for Bristol, West (Mr. Waldegrave) yesterday, when he said that we must ask for some assurance that child benefit will be held at least at this level over the next two or three years.

You have drawn my attention, Mr. Deputy Speaker, to the fact that many hon. Members wish to speak. Therefore, I shall omit a few of the remarks that I wished to make.

On industrial strategy, I draw the attention of the House to an excellent document entitled "Technological Change: Threats and Opportunities for the United Kingdom". It was published in December last year by the Advisory Council for Applied Research and Development. It highlights one of the most important areas of our industrial strategy—which was not sufficiently mentioned in the Budget—namely, that technical innovation is increasing world-wide and will continue to increase. The only way in which we can survive is by being one jump ahead of that innovation.

The report states that it is necessary for the Government to identify the areas of potential growth, for example, biotechnology, and makes a strong point that if we do not identify and nurture those areas we shall not only lose potential exports but, eventually, we shall have to import those technologies.

Those new industries will not appear in a vacuum. They will be found within existing industries. The process of identifying and stimulating them is one to which the Government should address their minds. A successful policy for identifying and nurturing new technologies will imply very heavy employment penalties in ocher areas. Because of the increased productivity that we hope to see, and because of the new technologies, many of our existing industries will be competing against industries in the developing countries. That will throw more and more people on to the labour market.

It is absolutely vital that the Government have the right training programmes. I do not have time to go into all the details—

Mr. John Garrett (Norwich, South)

Is the hon. Gentleman aware that the Government are cutting training programmes by about one-third over the coming three years?

Mr. Garel-Jones

I am suggesting that in this report there are a number of recommendations, some of which are not necessarily costly, which will surprise Opposition Members. It is not always a question of spending huge sums of money to provide facilities. If the industries that could be nurtured and brought forward were given the opportunity to do so, that in itself would suck many of these new people on to the labour market. I accept that there is a need to examine those areas, and I commend the report to the Government.

The sad part of the Budget debate has been the exaggerated reaction from the Opposition. To describe the Budget as mean, vicious, hateful, evil and a fundamental attack on the working people does not reflect either the content of the Budget—which has, among other things, increased by 50 per cent. the mobility allowance and the assistance to one-parent families in the lifetime of this Government—or what the people of this country think about it. The Opposition's rhetoric may lead not only to social disorder but may lead also to the Opposition being isolated from public opinion.

The Government have stated their objectives more clearly than any Government that I can remember since the war. The content of the Budget has made it clear that in proceeding towards those objectives they recognise the checks and constraints placed on any Government by the basic considerations of maintaining social cohesion and humanity.

7.49 pm

Mr. Robert Sheldon (Ashton-under Lyne)

One of the saddest aspects of the debate has been the despair with which it was opened, and which was exceeded, if possible, by the Secretary of State for Industry. What he told the House today was very sad news indeed. He said that interest rates would remain very high, that there would be low profit margins, that industry would face problems with cash flow, that manufacturers would be worse hit still, and that investment would be reduced.

Although many of us came to that conclusion some time ago, to hear it stated in forceful terms by the Secretary of State was sad news for British industry.

We miss very much the presence of Reginald Maudling, who gave us the benefit of his advice with the scepticism that he showed so frequently for these latest economic theories. These theories are put forward from time to time. We have had them in the past. They are presented to bamboozle the ordinary citizen about the way in which these matters are run. We had that with the gold standard in 1931. We had it again in the 1960s, with talk about the impossibility of altering the exchange rate. We are having it now, with monetarism. We are sacrificing our future on these man-made altars that in time will come to be disregarded.

The situation becomes absurd when it sets hold of the population. The Times, in a three-column leader, observed that the Cabinet should accept the superior understanding of those who comprehend monetarism and that the others, in effect, should shut up and accept their inferior status. That might have been the prevailing view until the public had the opportunity of seeing Professor Milton Friedman on television. That might have been regarded as a marvellous coincidence, designed to persuade the British people of the importance and relevance of monetarism. However, I am sure that the doubts started to creep in when the "wets" in the Cabinet saw the professor.

Professor Friedman started talking about the success of Japan being due to free trade. Those who understand the way in which Japanese products have been advanced by interventionist policies know full well that that was a piece of nonsense. The professor started talking about the crime rate in Britain. He spoke of it increasing since inflation had risen. That was bewildering, bearing in mind that it came from a professor from Chicago. There are those who are beginning to doubt some of the eternal truths that are being put before us.

As my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) said, the control of the money supply is difficult to achieve. Even if we are able to control sterling M3, how do we know that that will be the real measure of the money supply? There is Dr. Goodhart's law that credit creation will always find a way. That is a law that I find especially attractive.

We have some clever people in the City of London. What might be good for certain Latin American States, for controlling I heir money supply, may not be quite so efficient when we consider the high-paid expertise that is available not so very far from the House. At some stage I expected to see an increase in commercial bills. That increase has come already. I tabled a question to the Treasury. The answer has not yet appeared. The Treasury is fairly slow in answering questions these days. I was hoping that it would be available for my speech. Commercial bills now form a considerable amount of the money supply.

We can create money supply at will—for example, IOUs by individuals and commercial bills by reputable companies. There are many other avenues that are yet to be explored. If the Government are so certain about the practical consequences of their money supply theory, they should have had the temerity to increase bonds. They have not done so. It would be a way of reducing the borrowing requirement and avoiding absurd indexing rates. If the Government were confident that inflation will decrease, they would be selling at a much cheaper cost to the Exchequer. However, they are not doing that. Therefore, their enthusiasm for money supply has its limits.

Monetarism is the centrepiece of the Government's entire economic policy. Before that position is adopted, there should be an extremely high degree of certainty. We are operating a ridiculous exchange rate, which has consequences in high imports and export difficulties. Over the next few years we will operate with low growth rates. There will be a negative growth rate this year. We are operating ridiculous interest rates that will result in the ruination of many good companies that would otherwise have been able to survive. We are having to accept public expenditure cuts and all the problems that that will entail. We are having to face the consequence of social unrest. We are undergoing all that for the sake of a theory that is untested and unproven.

If anyone had told me that a party would be so dependent on an economic theory, I should have thought of the Communist Party, a Trotskyist party or some peculiar party on the Right wing. I should never have imagined that the Conservative Party would put itself in that position. Surely it is the last party to fall for economic theorising and to base Britain's economic future upon it. To do that requires some degree of certainty, and even predictability. Any party that accepts all the consequences to which I have referred for British industry and its future must have almost entire political certainty.

The other problem is the control of the money supply. At present the Government are controlling it by raising interest rates. Let us talk not about monetarism but about the consequences. By their fruits ye shall know them", and the fruits are high interest rates. We had deflation in the 1930s. What characterised that? It was high interest rates. We have had deflation in post-war years. What characterised that? It was high interest rates. When there is a crisis, we increase the bank rate, or the minimum lending rate as it is now. It is clear that monetarism—as now practised—and deflation are twins. They have many of the same characteristics. I understand that that does not apply to the theory. I am talking of the practice. The damage that is done to industry is the result of implementing the policy.

The danger of the present system, with high interest rates and high exchange rates, means that British industry is suffering, our importers are bringing in cheap goods and our exporters are finding it difficult to find markets abroad. We have seen the level of the pound rise and rise. The latest fall today took place only because of the strength of the dollar. We require an instruction to go out to the Governor of the Bank of England to reduce the exchange rate. The principle is simple. We instruct the Governor to sell pounds. There will be more pounds on the market than the market can absorb, and the pound will fall.

Mr. Ginsburg

Given that sterling is a petro-currency, and given the importance of oil in the constellation of sterling, how does my right hon. Friend think that such an instruction to the Governor would weaken the pound?

Mr. Sheldon

Of course it would. Surely no one in the theorist and monetarist camp doubts that the more pounds we have on the market, the lower the pound will fall. It is a matter of supply and demand. This is one of the instances where supply and demand really works. It works by more pounds being made available on the money markets. As foreign buyers take up those pounds, so the currency falls. That is what happens every time. It is one of the more immutable of economic theories. In that way one can produce the money, whatever is required, to bring down the pound.

The difficulty lies in controlling the level to which it falls. However, that is not an impossibility. It is a policy that should be adopted in the interests of foreign trade. The monetarist's main argument against it is that the money supply increases. That is true. As pounds are sold, it is necessary to create pounds. The result is that the money supply is increased. It is that to which monetarists object. However, increasing the money supply to create a surplus of pounds to sell abroad is different from increasing the money supply to finance expenditure at home. The amount of dollars and deutschemarks that will flood into Britain is limited; so, too, is limited the amount of money to be created. This is an operation that can be implemented in a short period.

The Secretary of State for Industry argued about the disadvantages of inflation. The right hon. Gentleman argued that if the pound drops our imports will rise in price and that will have a consequence on inflation. Surely that is a small consideration by comparison with the damage that is being done to British industry by competition with under-priced imports. The IMF believed in 1976 that the level of the pound should drop to about $1.60 or $1½70. I shall not guess what is the true level of the pound or what it ought to be. It should be very much less than it is now.

The problem at the end of this agonising period is that a weakened industry will be faced by an economy that is to receive an injection of fiscal manna. I have strong doubts whether it will have the strength to deal with the money that is to be made available. I repeat what was said by my hon. Friend the Member for Batley and Morley (Mr. Woolmer): that the advantages of North Sea oil should not be dissipated.

At present, North Sea oil is largely financing our imports of manufactured products. Imports of finished manufactures have been increasing compared with our exports of finished manufactures. Last year, there were two months in which our imports of finished manfactures were greater than our exports of finished manufactures. For a country like Britain, with its agricultural deficiencies and its need to import food and raw materials, this situation is so dangerous that we must start to reconsider our imports of these articles.

I suppose that all of us are protectionists at some stage along the road. I am somewhere near the end of it. We are now reaching such a critical stage that at some point it is very likely that a majority in this House would be in favour of protection, opposed to it though we normally are, simply to save British industry. We should be aware of this problem and try to resolve it before we reach that situation.

Like people who have won a large amount on the football pools, we are squandering North Sea oil to the extent that it may have been a disadvantage ever to have received that money. We have to convert that money into investment in industry. The mechanism is not easy. There is some advantage in getting investment incentives. That is nothing like as good as a manufacturer himself deciding how to invest his company's own money. At the same time, if the choice is put to me whether North Sea oil money should go into manufactured imports or be used in a less efficient way in producing investment at home, I would prefer it to go in this kind of way, either through the National Enterprise Board or some sort of investment incentive. Some of it will stick. That will be an advantage to us as a nation. We have a rare opportunity to find some means of converting this benefit from North Sea oil into our industrial superstructure and into industrial investment. We should not lose it.

8.2 pm

Mr. Tim Eggar (Enfield North)

It gives me great pleasure to follow the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). His was an interesting speech. He tried to put forward an alternative economic strategy. That has not been heard from most Opposition Members. I was, however, slightly surprised at the alacrity with which he leapt upon a reduction of the exchange rate to a level of $1.60 to the pound. I doubt whether he had the same pleasure at the time he served on the Front Bench on the Government side of the House when the exchange rate was at that same level.

In the short time available, I should like to comment on several aspects of my right hon. and learned Friend's Budget. I am confident that the publication and the commitment to the medium-term financial strategy outlined in part II of the Red Book will be seen as a radical and important step. The Opposition may question the judgment. None the less, it would be churlish of them not to recognise the considerable political courage shown by the Treasury team and the significant step forward taken in a commitment to medium-term economic planning.

It would, however, have been helpful if the Government had been prepared to explain why they believe that the interrelationship between the PSBR, the money supply, and interest rates actually works. Such an explanation would have lead to far better understanding of the Government's economic policies. After all, there is a powerful school of economic thought, represented in part by the Government's chief economic adviser, which believes that the level of the PSBR is not a determinatant either of the level of interest rates or, more importantly, of the level of the money supply. With that considerable caveat, I welcome the medium-term strategy.

I now wish to outline certain reservations. I had hoped that following my right hon. and learned Friend's speech to the Engineering Employers' Federation he would have announced further steps designed to strengthen the NEDC or, alternatively, to create a smaller body to consist of leading representatives of all the major economic interests—a body similar to that which has operated so effectively for many years in Germany. I should have hoped that, over a period of time, such a body could come to some broad agreement on the economic variables that matter so much to the community. I refer to the level of pay settlements, public expenditure, balance of payments and exchange rates.

I know that many of my hon. Friends disagree fundamentally with such an approach. They make two criticisms. The first is that there is a wide difference between the representatives of the economic interests and that nothing will ever be agreed. That may be true. It is possible. I do not believe that this, in itself, is a reason for not attempting the task. Secondly, there is the criticism that such a body is merely a backdoor way to an incomes policy. I do not take that view. Nor did my right hon. Friends when they wrote "The Right Approach to the Economy". There is no inevitability that the establishment of such a body leads to the development of an incomes policy. I feel that a public initiative by the Government in this direction should be a high priority.

I had intended to talk about the importance that I place on the level of child benefit. Enough was said yesterday on this subject. I feel that the Chancellor's judgment erred slightly. I should like to have seen him repeal the Rooker-Wise amendment with a clear statement that it was part of this Government's policy to transfer resources in a time of austerity and a neutral Budget towards the family.

I turn briefly to the increase in PRT, which has largely escaped notice over the four-day debate. Politically, the increase in PRT has many advantages. Even if we believe the oil companies' threats and predictions of doom as a result of the PRT increase, we shall not see a reduction in the level of oil brought ashore until well after 1984. But the Red Book states that any hope of economic regeneration in our country depends upon the breathing space offered to us by North Sea oil.

If the Government, in their wisdom, feel that a marginal rate of tax for oil companies operating offshore in the United Kingdom should be 87 per cent., compared with the 83 per cent. suggested by President Carter for onshore production in the United States, so be it. That is their decision. But my right hon. and learned Friend must not continue using PRT as some form of old-fashioned economic regulator. The Chancellor seems to have adapted PRT and used it in preference to fiddling with excise duty. I do not doubt that that is politically appealing. However, the oil companies need certainty and stability in Government policies. They do not have geological certainty. As we have seen so tragically, they cannot have technical certainty. They can and should be able to accept political certainty.

I note with interest that a sizable percentage of future public expenditure savings is coming from reducing the amount lent to the nationalised industries. I hope that the Chancellor recognises that in order to make such a reduction there must be significant increases in the charges of nationalised industries and that that will work through to the retail price index. From the published documents, it is difficult to see which of the nationalised industries will make the savings. It is fair to assume that the largest contribution will come from the BNOC and the BGC.

I hope that the reliance on nationalised industries for a reduction in public expenditure will not preclude the Government from considering the possibility, within the next year or two, of enabling ordinary working people to benefit directly from the North Sea by giving them free shares in the BGC and the BNOC. That suggestion was first made publicly by Mr. Sam Brittan. A more simplified scheme was carried out last September by the Government of British Columbia when they denationalised their resources corporation. Many of the criticisms against the scheme in Britain were made against the scheme in British Columbia. The criticisms were overcome and the scheme was a significant success in economic and political terms. I shall not pursue that because time is runing out. I shall return to it at a future date.

In spite of my reservations, I maintain that the Budget is responsible, fair and caring. I may cavil a little at some aspects, but generally the package must be admired.

8.12 pm

Mr. Robin F. Cook (Edinburgh, Central)

One of the most interesting features for those of us who have sat through most of the last two days of debates is the number of times Government Back Benchers have found it necessary to distance themselves from the central parts of the Budget strategy. I do not go as far as to say that they have criticised those parts, because they have spoken with elegance. They have taken care to distance themselves from certain elements of the Budget.

The hon. Member for Enfield, North (Mr. Eggar) expresed some confusion about whether the cut in the PSBR would have the effect that the Chancellor said that it would have and added that, if it did have that effect, he did not understand why. Yesterday the hon. Member for Chelsea (Mr. Scott), echoed by the hon. Member for Honiton (Mr. Emery), said that he was not satisfied with the Chancellor's policy for interest rates. The hon. hon. Member for Loughborough (Mr. Don-ell) questioned the Government's exchange rate policy. The hon. Member for Bath (Mr. Patten) said that we could run a higher PSBR target to finance cuts in the national insurance surcharge. Remarkably, the hon. Member for Southend, East (Mr. Taylor), in his new incarnation, suggested that there should be a modest expansion in public expenditure to assist rail commuters in the South-East of England.

All those arguments were expressed politely and courteously. I include the hon. Member for Southend, East in that, and I suspect that the arguments will prove to be ineffective as a result. Perhaps Government Back Benchers need advice from the Opposition on how to form effective Back Bench groups, because Opposition Members are acquiring an alarming and unrivalled expertise in that.

I understand why so many Tory Members feel obliged to put down a marker and distance themselves from their Front Bench. It is plain from the Red Book that the Chancellor expects that the decline in manufacturing industry will accelerate. It is remarkable that the Budget does not include a single attempt to arrest that decline.

There has been much talk about small businesses and further brave talk about bringing the enterprising spirits of Kowloon to Clydebank and to the free enterprise zones. That has gone down well with the Government Back Benches, which was the intention. However, the Chancellor knows that none of that scratches the problems of manufacturing industry. The only time that the right hon. and learned Gentleman addresed himself to that problem during his Budget speech was when he referred to cuts in the PSBR which, he claimed, were necessary because the size of the PSBR was crowding out private investment.

There is barely a shred of empirical evidence that the PSBR rate has had the effect of crowding out private investment. Indeed, the decline in private investment in the past 18 months is not related to the size of the PSBR. For the Government to proceed on a hypothesis for which there is scant empirical evidence is curious, since they are led by somebody who is fond of reminding the press and the public that she has a degree in chemistry.

The real reason why the Government are bent on cutting public expenditure is not that they believe the odd hypothesis that it is crowding out private investment. As my hon. Friend the Member for Batley and Morley (Mr. Woolmer) said, they will receive record amounts of money from the oil revenues that will pour ashore whatever they do to petroleum revenue tax in the interim. With that money they will be able to run the PSBR down to a level which is acceptable to everybody, with the possible exception of the right hon. Member for Down, South (Mr. Powell).

The Government will also be able to maintain public services at their present levels. The only reason why the Government are obliged to run down public services is that, in the medium term, they have become fixated on a target of reducing income tax to a standard rate of 25p. That is why they feel obliged to impose the cuts outlined in the Blue Book. That is why the Government are cutting benefit when there is more long-term unemployment than in any year during the 1930s. That is why they are cutting overseas aid at a time when the Brandt report says that the economies of the Northern and Southern Hemispheres are diverging.

One of the sadder statements that I heard in the past few days was that by the Minister for Overseas Development, for whom I developed a high regard in view of the independent way in which he was prepared to distance himself from his Front Bench. Last Friday the Minister lamely admitted that none of the cuts in the overseas aid budget could be put on to Britain's multilateral contributions because they were programmed too far ahead. He said that they would have to fall on Britain's bilateral aid. He said that they would have fall on aid which is already tied to orders from British industry and would feed back in an impact on British manufacturing industry output. The same consequence can be applied to the cuts in trade, energy and employment. The figures provide for a cut which is half the level of general industrial support. They provide for a cut in support for the aerospace, shipbuilding and steel industries from £200 million to a mere £30 million.

I have had to sit through frequent debates since the Government came to power in which the Government have restated their commitment to a strong defence posture and a strong defence force to back it up. There has never been a militarily successful or strong nation in the last 150 years which has not had a significant steel industry. The Government are halving the projected output of the steel industry which they inherited from the last Government.

I make that point because those cuts are allied to the Government strategy of achieving a cut in the standard rate of taxation which will benefit most those who pay most tax. The saddest question is what will happen to a consumer boom three years from now which has been financed by tax cuts. The boom will go in imports, because there is nowhere else for it to go. There is no conceivable way in which British industry, after three years of this Government's strategy, will be able to meet a consumer boom.

I belong to a group in the House which has got into hot water in the past for advocating some restraint on imports. From time to time we have been accused of wanting to cut imports. I do not know a single member of our group who has ever suggested that. We have suggested that we should plan the rate at which imports increase—for which modest suggestion we have invited upon our heads scorn from groups as diverse as the Militant Tendency and the Secretary of State for Industry. That is a conjunction of critics which makes me suspect that there must be something in the idea after all.

It is no longer necessary for us to argue the case. We merely need to point out what has happened to the figures in the past decade in which our advice has been ignored. Here are some figures on import penetration between 1970 and 1979. They show that in construction equipment import penetration went up from 40 per cent to 73 per cent. In office machinery it went up from 51 per cent. to 99 per cent. In clocks and watches it rose from 51 per cent. to 79 per cent. In electronic computers the increase was from 51 per cent. to 90 per cent.

We are not merely witnessing the decline in competitiveness of British manufacturing industry; we are witnessing the wiping out of whole sections of our manufacturing capacity. I am not surprised that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) felt obligated to put down markers to the effect that import protection may be necessary in future. I suspect that, inevitably, we shall be driven to a policy of import controls. My only anxiety is that such a policy will come too late.

I do not believe that there is an hon. Member in the House who argues that there is no case for restraint on imports. However, we already have a device for constraining imports. But we do not call it import control; we call it unemployment. We are controlling the rate of our imports through unemployment, and that is one of the reasons why this Budget provides for a substantial increase in unemployment.

The Government have tried to claim that that additional unemployment is also necessary in the fight against inflation. I would not dissent from the need to bring down inflation from the level to which the Government have raised it. But it is important to remember why we want to bring down inflation. We dislike inflation because it causes unemployment and harms people on low incomes. There is not much to be said for the remedy advocated by the Government Front Bench which creates more unemployment and poses a further threat to the living standards of those on low incomes. That remedy causes more problems than the disease it is supposed to cure.

During the last two days I have heard hon. Members on both sides of the House speculating on whether the Government's strategy will work. That speculation is fruitless because those very hon. Members say that such a strategy can work only in the medium term. I do not see any way in which that strategy can be reconciled, in the short term, with an open and democratic society.

What we are planning is an increase in unemployment while simultaneously cutting unemployment benefit. One does not need to be a Marxist to speculate on the explosive pressures that that will generate in our society. I rather wonder whether Conservative Members do not also speculate about that. When we examine the public expenditure plans, it is interesting to see the areas where increases are planned. We find proposed public expenditure increases most noticeably in the police, the courts, and the prisons.

I believe that that is a highly provident area for Government increases when the Government plan substantially to increase youth unemployment while cutting back on the job opportunities and temporary employment schemes which provided one means of employment for youth. It is perhaps coincidence—but it is difficult not to notice—that the tools of repression are being sharpened at a time when the Government must be conscious of the pressures that their policies are generating. Ultimately the enormity of the strategy they are following is measured not simply by the fact that the Budget will cut the standard of living of the most vulnerable of groups. We are also placing at risk our survival as a manufacturing industrial economy. We shall, unless these policies are moderated in the near future, place intolerable stress on that tolerance and openness in our society which we perhaps take too much for granted.

8.25 pm

Mr. John Patten (Oxford)

I do not think that it is reasonable to suggest that those of my hon. Friends who from time to time have put forward helpful and constructive critical comments to the Chancellor of the Exchequer—who welcomes those comments—should be characterised as people who are distancing themselves from Government policy.

Like the hon. Member for Edinburgh, Central (Mr. Cook), I shall be indulging in some helpful criticism shortly. However, before I reach that point I hope that I may enter the lists in defence of my right hon. and learned Friend—not that the Chancellor needs any defence—against one or two of the remarks by the right hon. Member for Down, South (Mr. Powell) in a splendid and amusing speech.

I must declare an interest, because I am a great fan of the right hon. Gentleman in respect of his speaking. I admit that I once left a meeting of the 1922 Committee when I saw his name flash up on the board, and I came down to hear him speak.

However, I believe that in the right hon. Member's fascinating construction of a speech today his likening of the Chancellor's policy on the public sector borrowing requirement to a kind of reverse of Napoleon's last dash at the battle of Marengo was most inapposite. The right hon. Member for Battersea, South (Mr. Jay) is not here to correct me if I am wrong, but I am reminded that the dish chicken Marengo was cooked up by Napoleon's chef immediately after the battle. The chef had no food, so he looked around the countryside and got a very old fowl, an egg, two tomatoes and a certain amount of wine and threw the lot together. I do not know whether the right hon. Member for Down, South has ever tasted chicken Marengo. It is superficially an attractive dish to look at, just as his speech was superficially most attractive and elegantly presented.

The one great fault was that the underlying taste of the old fowl was extremely inapposite to the dish itself. In his attack on the Chancellor, the right hon. Gentleman claimed that we had put control of the public sector borrowing requirement above all else but that we had finally shirked the task and run away from it. I believe that that was most unfair to my right hon. and learned Friend.

After all, the right hon. Gentleman cannot have listened to the Chancellor's Budget Statement last year when he said that the reductions in the public sector borrowing requirement would take a long time. The problem had grown up over many years and the solution would be found only over a great many years. Last year my right hon. and learned Friend said that the three great problems that faced the British economy were inflation, poor productivity and low levels of economic growth. He clearly said that the attack on inflation would be a long-run attack and that it would take a considerable time to succeed. Indeed, one of the reasons why my right hon. and learned Friend—who, as a compassionate man, is devoted to social cohesion—is not pursuing a policy of lowering the public sector borrowing requirement at an overfast rate is that he knows the social tension that such a policy would produce were it to be carried out in the "big bang" way in which the right hon. Member for Down, South suggested.

We can judge the success or failure of my right hon. and learned Friend's policy in two or three years when we see, as I expect we shall, that we have defeated inflation as an endemic state of the British nation, as a result of which it will become a vague epidemic threat which may arise if we forget the hard lessons that we have learnt over the last 20 years. In the meantime, it is critically important to evaluate the measures in the Budget—here I come to my qualified and helpful criticisms—that are designed to help industry.

The Chancellor has made it quite clear that he sets a lot of store by the smaller business sector. He has taken a view on the smaller business sector. Rather than intervening, he is trying to design a framework within which he feels that the smaller business sector can find some measure of success. By contrast, there is very little this year for the corporate sector. There was very little indeed for the corporate sector last year. Other right hon. and hon. Members have referred to that. There has been a little bit on stock relief and on one or two other minor issues, such as taxation relief on demerging, but basically there is nothing for big business, which, it should be remembered, employs the vast majority of those in productive industry. We should remember that it is the top 50 companies that provide the greater part of our exports. We must look to the health of those companies in the next year or so and ensure that they do not suffer too greatly in the recession that we all know we shall face.

In suggesting that the Government should take possibly more of a view this year, next year or the year after on the needs of big business, I am not for a minute suggesting anything so theologically impure as intervention. I would not dream of disturbing the peace on the Opposition Front Bench by suggesting the use of such a word in this context. What I am suggesting is the vital necessity for the Government to take a view on larger businesses in the future, in exactly the same way as they have already done in relation to smaller businesses.

I looked for a number of measures in the Budget Statement this year which were designed to help the potential plight of the corporate sector. I was looking for some alleviation on the surcharge on success which the right hon. Member for Leeds, East (Mr. Healey) introduced via the employer's national insurance surcharge. It may well be time for that surcharge. It may well be time for that surcharge to be relieved. There are many other ways—such as relief on advanced corporation tax and perhaps some sort of help along the lines of the French mixed credit system—in which we can help exporters. For example, there could be a mixture of softer Government loans and harder market loans. A range of other options is open to the Government.

In suggesting these and other techniques to provide a framework to help larger corporations, I am not suggesting intervention. It is incumbent on the Government to take a view and to provide a framework. The suggestions that I have put forward are really the mirror image, at least in style if not in content, of the suggestions that my right hon. and learned Friend has put forward to help the smaller business sector.

My right hon. Friend the Chief Secretary set out the budgetary position towards industry when he said: In the Department of Industry's programme too, we are greatly reducing the extent of State intervention. Expenditure will be halved over the survey period—falling from just over £1,000 million to about £500 million in 1983ߝ84. We intend to restrict industrial and regional assistance … We shall not be putting the taxpayers' money into the promoting of public ownership, and we have made substantial reductions in the provisions for expenditure by the National Enterprize Board."—[Official Report, 27 March 1980; Vol. 981, c. 1701.] I do not dissent one whit from any of those provisions, as set out so clearly by the Chief Secretary. However, I ask him and my right hon. and learned Friend constantly to bear in mind that in our election manifesto, in the build-up to the general election and in our first year of offce, we set great store by rolling back the frontiers of the State from productive industry and by getting rid as quickly as we could of direct State intervention in industry.

I would not wish us to become hoist on our own rhetoric. I would not wish us to fog ourselves by having stated time after time that we cannot intervene, thus preventing ourselves from taking a view at any stage about the general framework within which the corporate sector must develop.

In looking at the Red Book and my right hon. and learned Friend's Budget Statement, I was unclear whether it was his or the Government's policy that we should take no view of the framework within which the corporate sector should develop other than that it would one day show in the declining rate of inflation. I look to my right hon. and learned Friend to shed some light on that in his winding-up remarks.

8.35 pm

Mr. Michael Meacher (Oldham, West)

In my view, the most important statement in the Budget speech was the reaffirmation by the Chancellor of the Exchequer of the Government's unflinching commitment to their current outright brand of monetarism and his statement that he was not yet ready to contemplate any modification whatever of that doctrine. What is so extraordinary is that, though the policies of the Government are increasingly seen to have extremely dangerous political and economic consequences in terms of a deepening slump, rising unemployment, escalating inflation, rampant industrial unrest, a worsening trade balance and so on, there has been remarkably little political debate about the foundations of the economic policy from which this catalogue of items springs. I think that the essence of this is contained in almost the opening words of part I of the Financial Statement and Budget Report where it says: The central feature of the anti-inflation policy is the gradual reduction of monetary growth. To achieve this reduction without intolerably high interest rates public sector borrowing will be reduced over the medium term. There it is. Indeed, over the last few months several Government Ministers have had the cheek to suggest that there is no alternative.

The Chancellor of the Exchequer added to this in his Budget Statement when he said: The relationship between the Budget deficit and the growth of the money supply is … of importance … there can be no doubt … that Government borrowing has made a major contribution to the excessive growth of the money supply in recent years."—[Official Report, 26 March 1980; Vol. 981, c. 1446] This idée fixe—I believe that is the way to describe it—simply repeats the nub of the argument as contained in the Government's first White Paper on public expenditure last November where the issue is stated in extremely bald but very clear terms. It says: To reduce the rate of inflation it is essential to contain and reduce progressively the growth of the money supply. This means that Government borrowing must, in turn, be firmly controlled. It is a main determinant of monetary growth. I submit that it is on the basis of this premise that the Chancellor has argued that it is necessary to make further expenditure cuts of 1 per cent. per year over the next four years to make way for income tax cuts. Treasury Ministers have indicated that Treasury projections apparently show that on current spending policies there would be scarcely any room in the next few years for income tax cuts if the level of borrowing were also to be held down to a level consistent with a steady reduction—which the Chancellor has made clear he wants—in the rate of monetary growth.

It is fair to say that that is the edifice of the Government's economic policies. Does it hold good? Does it make sense in the real world? Does this theory stand up? I believe that it is very clear that it does not.

There are four matters which I believe are fundamentally wrong with the Government's whole approach. The first fundamental flaw lies in the assumption, which underpins all current Government economic pronouncements, that the reduction of monetary growth is the key to the control of inflation. It cannot be emphasised too strongly that simple international comparisons clearly demonstrate that that cannot be so.

According to IMF publications, the rate of growth of the money supply in its broad and agreed definition, M3, centred around 10 per cent. a year at an almost identical rate over the five-year period up to 1978 in four countries. These were West Germany, Switzerland, Belgium and the United Kingdom. Although all these countries had a virtually identical rate of growth in their money supply, their rates of inflation were dramatically different. In West Germany the rate of inflation was 4¾ per cent., in Switzerland it was 4½ per cent. and in Belgium it was 9 per cent., but in the United Kingdom it was as high as 15 per cent. over the same period. Not only that, but the countries which had markedly lower rates of inflation also had a markedly higher money supply in relation to gross national income. The United Kingdom money supply amounted to only 34 per cent. of our gross national income, but in West Germany it was twice as high at 67 per cent. and in Switzerland, with the lowest inflation rate, it was four times as high at 125 per cent.

If the Government have made the link between monetary growth and inflation the cornerstone of all their economic policies—and clearly they have—how do they explain, on their own chosen principles, the fact that inflation due to excessive liquidity is much lower in West Germany and Switzerland than in the United Kingdom? I do not see how anyone can give any credibility to Government economic policies until that question is answered. I hope that the Chancellor will answer this question in his speech.

Apart from this fundamental flaw in the Government's case, there is another major part of it which is equally fallacious. This is the assumption that Government borrowing is the main determinant of monetary growth. The Chancellor and the right hon. Member for Down, South (Mr. Powell) stated this with a kind of self-evident certitude of biblical prophecy, but it is nothing of the sort. The monitoring of what actually happens in the real world shows that the correlation between the change in money stock in the United Kingdom and the borrowing requirement is absolutely zero. Ironically, this is precisely because the previous Conservative Government relinquished control of credit by credit ceilings and introduced instead an alternative and wholly effective system for regulating credit in 1971.

If it is true that neither the rate of inflation correlates closely with the rate of growth of the money supply nor the rate of growth of the money supply correlates at all with the borrowing requirement, it is very difficult to avoid the conclusion that the main constructs of Government economic policy entirely collapse—at least in the form in which that policy has been rigidly applied at present.

There are two other flaws in the Government's monetarist approach which are highly relevant to the existing and proposed public expenditure cuts. One concerns the whole meaning of money supply control. It is extremely difficult to take this idea seriously unless the policy embraces all the main factors which make up the money supply. One major factor—bank borrowing by the private sector—is virtually exempted from any real controls. This has been more so since the Government abolished exchange controls and thus wholly undermined the corset. Indeed, a number of Government spokesmen have come very close to admitting that this is so, and certainly bank lending has been expanding enormously over the past year. I accept that it now appears to be levelling out, but it is doing so at a particularly high rate. Therefore, in practice, the Government's monetarist policies come down not so much to curbing the money supply as to curbing the public sector. Purely on monetarist grounds, in terms of their theory, the Government should be doing the reverse. As the Government's financial reports reveal, for every year since 1972 except one, bank lending to the private sector formed the majority of domestic credit expansion.

There is one other serious flaw in the Government's argument. I refer to the assumption that, if domestic credit expansion is to be restrained without restraining private borrowing—the Chancellor made clear that he wants that—the public sector borrowing requirement must be cut. That argument is false. In so far as the PSBR is financed by borrowing from individuals, pension funds and such sources, even on monetarist grounds it is entirely harmless and non-inflationary, as such borrowing does not increase the domestic credit expansion. A major and increasing proportion of the PSBR—no less than three-quarters in 1978, according to the Government's figures—is financed by such borrowing and is therefore entirely irrelevant to the money supply.

It is difficult to avoid the conclusion that the Government have embarked on a massive programme of public expenditure cuts not because economic logic dictates that that is necessary but because the Prime Minister decided on this for political reasons. The economic arguments adduced are rationalisations on behalf of preconceived political goals. Those goals certainly include the steady dismemberment of the Welfare State in the interests of the Conservative Party's view of private enterprise. The cash limits and cuts are being used as a device to erode trade union power and discipline workers. A political motivation is required to explain Government policy.

I do not believe that the Government do not understand the arguments that are used. It is utterly irresponsible for the Government to proceed along this course, when the economic rationale for the success of these policies is so patently questionable and when their political and economic consequences will clearly be so painful for the people and destructive of our industrial future.

This is a brutal lesson—the counterrevolution of property and privilege under the guise of new-fangled Friedman economics—which will inevitably hasten the massive political and industrial backlash that will certainly come. Perhaps, for the sake of our people, it cannot come too soon.

8.48 pm

Mr. William Shelton (Streatham)

I always listen with great attention when the lion. Member for Oldham, West (Mr. Meacher) quotes figures. It is of great interest to me to know that over four or five years the countries that he mentioned had a monetary supply growth rate of 10 per cent. If he said that, I find it extraordinarily difficult to believe. I shall certainly check the facts tomorrow. I think that he also mentioned the source. But if the hon. Gentleman checks the monetary supply—taking this country alone—and inflation over the past 10 years, but leaving a time lag of a year or 18 months, he will find that the correlation is extraordinarily exact.

I wish to refer to the speech made by the right hon. Member for Heywood and Royton (Mr. Barnett), who is sitting beside the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). Both right hon. Gentlemen made much the same points in their speeches, unless I misunderstood them. I am delighted to see the right hon. Gentleman sitting there. So far as I could understand, he criticised the monetarist stance, whatever that may be, because, he said, there were too many sources of credit.

The right hon. Gentleman was saying that it is very difficult to control sources of credit. I entirely accept that and I agree. He was saying that it is very difficult to define M3. I accept that and I agree. He was saying that the Financial Secretary can change the PSBR at will. That I do not know, but I accept his statement, given his experience of the previous Government.

The right hon. Gentleman seemed to conclude—and this I find quite extraordinary—that either monetarism does not exist or no attention should be paid to it. If he really was reaching that conclusion, it is like saying that because a household does not know exactly how it is overspending, it should not bother, or that because we cannot entirely control the crime rate we should not have laws to control criminals. I suggest that the right hon. Gentleman should read his speech. If I have misunderstood him, I apologise, but he seemed to be saying that because we cannot hold the money supply directly in check we might as well give up, and both he and his right hon. Friend seem to be recommending that more or less as the alternative stategy.

In support of my cause, I should like to read the following quotation: the major cause of the inflation now racking Britain is the excessive increase in the money supply which took place in the last year of the previous Conservative Government"—[Official Report, 27 March 1975; Vol. 889, c. 672.] I entirely agree with that. That remark was made by the right hon. Member for Leeds, East (Mr. Healey), then Chancellor of the Exchequer, in March 1975, 13 months after his Government were formed.

The right hon. Gentleman was right, and in exactly the same way the inflation that is racking this country at the moment is caused by the right hon. Gentleman—not by him specifically but by the Government of whom he was a member. There is absolutely no doubt that the increase in the monetary supply—and here I come back to the point I was making to the hon. Member for Oldham, West—which was engineered either unintentionally or deliberately, no doubt the former, in the hope of winning the election expected at the end of 1978 but which came at the beginning of 1979, is affecting the rate of inflation we have at the moment.

It seems to me—this is not the first time that this has been said; I do not claim authorship—that the sequence is the following. First, when there is a rapid growth in, let us say, M3,—however difficult it is to define—in the first six months or so there is indeed increased spending, there is indeed more employment, and there may well be some kind of increase in growth in the short term. But all three turn sour after 18 months or two years. There is then the sort of inflation, nearly 20 per cent., from which we are now suffering, as, indeed, the previous Government suffered from the increase in monetary supply in 1973. I entirely accept that. We then get the increase in inflation, lowered output and increase in unemployment. We get, in fact, stagflation, which is what we have had over the last six months.

What is happening now is quite different. It is the reverse, because when the increase in monetary supply is reduced—and it is reducing fairly fast—the opposite situation arises. First, in the first six months there is reduced spending, and there is also reduced output and there is increasing unemployment. That is in the first six or eight months, and this is the phase in which we are at present. But after 18 months or two years—it may be four years, but I trust and hope it will not be more than 18 months or two years—we get a return to a healthy economy, reduced inflation, increased output, increased growth and increased employment.

It is true that the time lag is extremely difficult to forecast; it may be 18 months, it may be two years. But this is the only way to achieve our aim. Unless we do it this way, it will not be two years or four years or 10 years; it will never happen at all. There is no doubt at all that, unless we go through this period we are in at the moment, we cannot achieve what everybody in this House wants, including hon. Gentlemen opposite—a return to prosperity.

While the rate of increase in the monetary supply is slowing down, which will lead to the rate of inflation slowing down, there are two damaging side effects. The first is the redistribution of real income from those who are unprotected by strong trade union representation to those who have the benefit of that protection. Too often there is a redistribution of real wealth from those who are least able to protect themselves.

The other damaging side-effect is that if, in the expectation of continued inflation, very large wage bargains are achieved through monopoly bargaining power, bad management or whatever it may be, and if the Government are not prepared to finance those wage bargains, there will be increasing unemployment. That is the phase we are in at present.

The right hon. Member for Heywood and Royston asked how the Government could be monetarist if they worried about an increase in the RPI because of increased VAT. The answer is simply that in the long run an increase in the RPI, because of increased VAT, does not affect inflation. But in the short run it does affect people's expectations and, therefore, their wage demands. So the Government have to take account of that even though it may not be inflationary.

Returning to the damage that large wage demands do by increasing unemployment in the sequence of the cycle in which we are at present, it is precisely for that reason that I used to argue for a prices and incomes policy, not to fight inflation but to control those damaging side effects of inflation. I cannot believe that any hon. Member would disagree with the Liberal suggestion of a voluntary incomes policy if it were successful, but very few people believe that it would be successful. I remember discussing this matter some years ago with my right hon. Friend the Chief Secretary. He said that what had to be done was for the Government to tell people that they would not finance excessive wage demands. That is precisely what the Government are doing, and it is beginning to work. The settlement of the steel strike today is an indication of what will happen if the Government, through cash limits, refuse to finance extravagant wage demands. The damage that would be caused by the kind of incomes policy that could possibly work would far outweigh the damaging side effects of a slowing down in the increase in the rate of monetary supply.

The Opposition have said that there is an alternative and some of us have said that there is no alternative. Of course, there is an alternative to what the Government are doing, and it is that alternative that we have heard from right hon. and hon. Gentlemen on the Opposition Benches, which sounds and smells very much like what has been happening in this country over the past 10 or even 15 years with the consequences that we have seen for employment, prosperity, growth and wealth. How those prospects have changed in the past 10 or 15 years in comparison with those of our competitors in Europe! Should we march down that path again or continue to walk along that path, our prospects can only deteriorate. That is why I strongly support my right hon. and learned Friend's Budget.

9 pm

Mr. Denzil Davies (Llanelli)

The Budget resolutions that will be put to the House at the end of the debate do not this year—perhaps less this year than in other years—reflect fully all the Budget changes. For example, they do not reflect the public expenditure changes or the social security items contained in the Budget. We shall have the opportunity later—no doubt after the Easter Recess—to discuss and vote against the public expenditure White Paper. There will also be an opportunity to vote against the separate items of social security changes that will be contained in separate legislation.

Tonight we wish to vote on one of the Budget resolutions—resolution No. 18. On the face of it, that resolution deals with personal tax allowances. Those allowances are increased in the Budget by the rate of inflation—about 18 per cent. However, the Chancellor said in his Budget Statement that they can be increased only by 18 per cent. because the reduced rate band is being abolished. If the reduced rate band is not abolished, it will not be possible to increase personal allowances by 18 per cent. If we take into account the personal allowance increases and the abolition of the reduced rate band, the effect of the Budget is to increase tax relief by 11 per cent. Since that is well below the rate of inflation, in effect there is an increase in taxation.

We were told time and again when we were in power about the doctrine—invented by the Conservative Party—of truth in taxation. We were told that we must make it clear that an increase in allowances which did not fully reflect inflation was an increase in taxation. We have here an increase in taxation. Although the personal allowances are increased by 18 per cent., the effective increase in tax relief—I believe that that was the phrase used by the Chancellor in his Budget Statement—is about 11 per cent. Implicit in resolution No. 18 is the abolition of the reduced rate band, although technically it may be said that it is affected by resolution No. 17.

We shall vote against resolution No. 18, partly because it will result in an increase in taxation because the tax reliefs are not increased fully by 18 per cent. and partly because we wish to register our disapproval of the abolition of the reduced rate band. I shall not go into detail why we believe that there should be a reduced rate band. We can discuss that during the Committee stage of the Finance Bill. There are arguments for and against it. It is not an easy matter on which to decide.

I have always believed that there is room in a tax system for an intermediate rate band, so that people who come into the tax net because their income exceeds the personal allowances by a small amount should not be taxed at the full basic rate. There should be marginal relief. There is marginal relief in other areas of the tax system, for example, in corporation tax. A reduced rate band is a marginal relief. It is absurd that a person whose income exceeds the personal allowances by a small amount should immediately have to pay the full basic rate of income tax—especially when it stands at 36 per cent.

Tucked away in resolution No. 18 there is a limited and temporary concession which we welcome, for widows in the year of bereavement. We shall examine the details of that proposal in Committee, but we do not oppose it in principle.

We shall oppose other tax proposals in other resolutions when the Finance Bill is debated on the Floor of the House. It would not be appropriate to vote on each separate item in each resolution tonight.

My hon. Friend the Member for West Lothian (Mr. Dalyell) spoke yesterday, and my hon. Friend the Member for Southampton, Itchen (Mr. Mitchell) spoke today about the system of tax evasion and tax fraud. There has been an increase in Civil Service manpower of 1,000 extra snoopers—or whatever one calls them—to try to catch what are known as social security scroungers.

The Budget also stated that more tax inspectors or officers would be recruited to tax unemployment benefit. The Government have increased Civil Service manpower for that purpose, but not the number of tax inspectors and tax officers needed to combat tax fraud. Indeed, the point raised by my hon. Friend the Member for West Lothian has not yet been answered. A massive amount of income tax and VAT fraud takes place. It is obvious that the Government have double standards. Those standards go right through the Budget.

Those on social security, who can least look after themselves, will be hounded by extra civil servants. However, those who defraud the Inland Revenue will not be hounded in the same way. No doubt the Government are paying their debts to the National Federation of Self-Employed Ltd and to others.

The hon. Member for Southend, East (Mr. Taylor) made what was perhaps a technical maiden speech. He paid tribute to his predecessor, Sir Stephen McAdden. I shall also pay tribute to his predecessor. For years he was Chairman of the Finance Bill Committee. I am sure that I speak for all hon. Members who took part in those sittings when I say how excellent a Chairman he was. He was patient and kind. He was also kind to me personally. I considered him a lovely man and a very good Member of the House.

We have been debating the Budget for the best part of four days. We could perhaps reach agreement on one point—that it is a Tory Budget.

Mr. Alan Clark (Plymouth, Sutton)

Not Tory enough.

Mr. Davies

Perhaps it is not Tory enough, but it remains a Tory Budget. It reflects all the myths, prejudices and hatreds that simmer below the surface of the Tory Party. Those prejudices have generally stayed below the surface since the last war. They have now surfaced clearly in the Budget. They reflect an attitude towards people and towards society that can only be described as Victorian or Dickensian.

The Government say that public spending—except spending on arms and armaments—is bad and that it must be cut. The unemployed are workshy and lazy. Their benefits must be reduced. Poor, large families have only themselves to blame when we cut their child benefit. The workers are irresponsible. They must be disciplined, not just by medium-term monetary targets, but—much worse—by the fear of unemployment. This Budget has nothing to do with the economic and social problems of Britain. It reflects the economic attitudes of the early 1930s and the social values of the 1850s.

The central element of the Budget, from which everything else flows, is the reduction that the Chancellor has engineered in the PSBR. In money terms, that reduction appears as a fall from £9 billion to about £8½ billion. Those figures are misleading. If one applies inflation, and if one takes those figures in constant terms, the real fall is far greater. The real fall in next year's borrowing requirement is about 20 to 25 per cent.

The world is moving into a recession. The British economy is moving into a depression. Investment is falling and production is in decline. Unemployment is climbing inexorably towards the 2 million mark. None the less, a Tory Chancellor is deliberately making that slump worse by cutting Government spending and by cutting the Government deficit. He will put more people out of work and will cause more damage to our manufacturing industry, which is already in a weak position.

That is not the whole story. The Financial Secretary is not in the Chamber, but last night we extracted from him the admission that if the Government's unemployment forecasts are wrong, which could quite conceivably be the case, because they are optimistic and on the low side, and the bill for unemployment benefit next year and subsequent years is greater than budgeted for, the Government may apparently wish to cut other items of public expenditure to pay the extra bill. If unemployment increases more than the Government have budgeted for, housing, education, roads, hospitals and so on will be cut back to pay for extra unemployment benefits. That will result in a spiralling decline of public expenditure, which will be sucked into the black hole of ever-rising unemployment. The cuts in public expenditure will make unemployment worse, which will result in further cuts.

Given the importance that the Government attach to the level of the borrowing requirement, it is surprising that the Chancellor never gave a clear, concise reason why the borrowing requirement was being reduced. It is not only Labour Members who are confused. In the debate last night the hon. Members for Bath (Mr. Patten) and Bristol, West (Mr. Waldegrave) questioned the Government's strategy, seemed confused, and failed to understand the purpose of the reduction in the borrowing requirement. We have had no answer from the Financial Secretary or any other Minister. If tonight the Chancellor does not want to answer our questions, perhaps he will satisfy his hon. Friends and tell us why the borrowing requirement is being reduced.

Various suggestions have been made. In speech after speech before the Budget the Chancellor said that he was reducing the borrowing requirement to reduce interest rates, and there is a hint of that in the Budget Statement. The Chancellor should know by now—and perhaps if he does not he can ask the Governor of the Bank of England, who made a speech about the matter the other day—that the main determinant of interest rates is not the borrowing requirement but the rate of inflation.

The Treasury's forecast that inflation is running at 16½ per cent. is optimistic and heavily massaged. I believe that a forecast of 18 per cent. by the end of the year would be more accurate. Sterling fell today to $2.13, so it might be even higher. With inflation at 16½, 18, or 19 per cent., there is no way in which the Government can engineer a fall in interest rates.

If the Government seek to bring interest rates down below the rate of in flation, businesses and individuals will borrow money from their banks. Who can blame them? If they can borrow at a rate of interest lower than inflation, they are doing well. If more money is borrowed from the banks, it will affect bank borrowing, sterling M3 and the Chancellor's money supply target, and he will have to put up interest yet again. There is no way in which interest rates can fall when the rate of inflation is so high.

Mr. Bruce-Gardyne

I wonder where the right hon. Gentleman was during the months and months of his right hon. Friend's administration of the Treasury, when interest rates were consistently several points below the rate of inflation.

Mr. Davies

Whatever our faults, we never had MLR at 17 per cent. and mortgage interest rates at 15 per cent.

It cannot be argued that a fall in the PSBR leads to a fall in interest rates. Why are the Government reducing the PSBR? Is it to reduce inflation? I do not know. I have not heard an economic case argued that a reduction in the PSBR leads to a reduction in inflation. Those who argue the case only make assertions and do not provide evidence.

If, by magic, a lowering of the PSBR were to lead to a lowering of inflation, we should still ask why the unemployed, the sick and the poor should bear the brunt of the Government's fight against inflation. Why should the poor be sacrificed to assuage these terrible gods of monetarism? After all, they did not cause inflation. The greatest engine of inflation over the past 10 months has been the Government. They started with that infamous Budget last year, when VAT was raised, together with all the other charges, such as rent, rates, interest rates and fuel price increases, which were higher than the rate of inflation. Now, the RPI will increase as a result of this Budget.

The Government have increased inflation. It has not resulted from wage settlements. They have not yet worked their way through the system. The main engine of inflation has been the Tory Government. If they had not increased inflation, the underlying rates of the RPI could be about 12 per cent. instead of running up to 20 per cent.

Unemployment benefit is cut, prescription charges are increased, child benefit is cut, and yet, because of the income tax cuts in the Budget, a man earning £20,000 a year will be £8 a week better off.

Apparently, inflation is to be cured by making the poor poorer and the rich richer. That was always the logic behind Tory Budgets. The Government could have avoided the deflationary effects of the Budget, especially the adverse effects on the less-well-off, by budgeting for a public sector borrowing requirement of between £10 billion and £11 billion.

Before Conservative Members come out in blue spots, I wish to make it clear to them that that is the estimate of that well-known monetary stable, the London Business School. It is the leading institution that turns out monetarist economists. Indeed, a few months ago the Treasury, with great ballyhoo and fanfare, chose one of them to be its chief economic adviser. I do not know what has happened to him. He has disappeared into the recesses of the Treasury.

The Financial Secretary, who is still not in the Chamber, made a fair and sensible point when he spoke last January at the Financial Times conference. He said that in times of recession the borrowing requirement should not change as a proportion of the country's GDP. He was quite right, but the Chancellor squashed him when he made a speech that indicated that the borrowing requirement would be reduced.

The case for increasing Government spending is all the stronger because there is plenty of money available. There is an enormous amount of money coming into the pension funds and insurance companies. Over the next few years that will increase dramatically. We are talking not about haphazard savings that can be withdrawn but about contractual savings—the payments made into pension funds which cannot be withdrawn and which increase when wage settlements increase as fast as they have during the past year.

The effect of the pension legislation passed by the House some years ago is now reflected in the contractual savings contracts, which will increase the flow of funds into the institutions. It has been estimated that next year about £12 billion of new money will come into the life insurance companies and the pension funds. The Government will need only about £5 billion of that to fund their deficit and to keep within monetary targets.

It is the myth of the Conservative Party that interest rates affect the flow of funds. Interest rates are affected by inflation. If interest rates fall below the rate of inflation, the money supply becomes worse.

Mr. Terence Higgins (Worthing)

The right hon. Gentleman does not appreciate the point about the public sector borrowing requirement. It is necessary for the Government to borrow money. That being so, does he think that if the public sector borrowing requirement is larger rather than smaller, the Government will need to pay higher or lower interest rates to borrow the higher amount?

Mr. Davies

I made that point quite clear. The main determinant of interest rates is the rate of inflation. We borrowed more at a lower rate of interest when we were in Government.

A large amount of money is coming into the pension funds and insurance companies. Where does the Chancellor believe that that money will go? If he sticks to his medium-term strategy of reducing the public sector borrowing requirement year after year, those funds will increase from year to year because of the weight of money coming in.

If the Government take less funds from institutions, what will happen to the remaining money? No doubt some of it will slosh around the floor of that betting shop down the road called the Stock Exchange, and not much of that will find its way into productive investment if we judge the matter on past experience. That is partly because the Government are budgeting for a fall in growth. That money will not go into productive investment. Some of it will go into commercial property. That will not help our manufacturing base. More and more of that money will go abroad because of the abandonment of exchange control. The money will be used to purchase privately owned assets outside Britain.

The Opposition contend that money that flows from the savings of the British people and the money that comes from North. Sea oil should be used to build up public assets. We say that that money should not be channelled into privately owned assets. In the meantime, it should be used to provide jobs for people in Britain instead of being used to build up the industrial base of our competitors abroad, which is what will happen.

Of all the unkind cuts in the Budget, perhaps the unkindest is the cut in unemployment benefit and the abolition of the earnings-related supplement. What have the unemployed done to the Tory Party to incur and deserve the full wrath of the Chancellor of the Exchequer? First, the right hon. and learned Gentleman puts them out of work by his monetary and fiscal policies. Having put them out of work, he says that they are work-shy and lazy and that unemployment benefit must be cut to send them back to work. He then imposes another dose of deflation and ensures that there are no jobs for them to go to anyway. What have the unemployed done to deserve the full brunt of the Chancellor's wrath in the Budget?

As the House knows, especially after the pre-Budget publicity, the Chancellor comes from a little steel town in South Wales. It will be a very little steel town in South Wales if the plans of the Government and the British Steel Corporation go through. I do not know whether the right hon. and learned Gentleman ever goes back to Port Talbot. I do not know whether he now has any friends in Port Talbot, but I hope that he has. If he has, and if he goes back, perhaps he will explain to the steel workers, many of whom have worked most of their lives in the heat, dust and noise of blast furnaces, that the Tory Government believe that they are work-shy, lazy scrougers. Perhaps he will explain that unemployment benefit is being cut for that reason. Perhaps he will offer that explanation to the miners and tell them the same thing when they are put on the dole.

The Budget and the Government's other monetary and fiscal policies will turn large sections of industrial Britain into wastelands. All that the Government have to offer are a few miserable enterprise zones. From where is the money to come for investment in those zones? The estimate of the fall in investment in manufacturing industry next year is between 10 per cent. and 11 per cent. The Red Book states that there will be a 1 per cent. increase in investment, but that masks the increase in investment in North Sea oil. The main increase in investment is bound to be in North Sea oil.

There will be a substantial fall in investment in manufacturing industry. Where is the money to come from for investment in the so-called enterprise zones, which cover only a small part of the country? In South Wales the enterprise zone scheme covers only a few hundred acres. That is an area where the problem is enormous.

Will private industry invest when there is a fall in the growth rate? The Government will not invest. I cannot see the money coming from abroad at a time of world recession. If the Government and the Tory Party believe that because Professor Friedman has come along and because the pendulum of economic thought has swung to the right, as it has in the Western world over the past few years, they can with impunity introduce a Budget of the sort that the right hon. and learned Gentleman presented and reverse all the progress that has been made in the Welfare State and in social benefits since the war, and that in a few years' time they will manage to convince a few people that somehow their economic philosophy will work, I say that the pendulum of economic thinking will soon swing back the other way, as it always does.

I believe that it is already swinging back the other way. Looking around the world, one find little evidence of monetarism being naturally operated. If it is being operated, it is not working very well. One only has to look at the United States. The monetarist system is not working very well in Professor Fried-man's own country. When the pendulum swings back to the left and to the Labour movement, it will go back much further in this country than in other countries, partly as a result of this Budget and partly as a result of the damage that the Chancellor and the Government have done to progress made in this society since the war.

The pendulum will swing back towards the present Opposition. I hope that at that time the Tory Party will not complain over-much about the consequences. The changes will be much greater as a result of the pendulum swinging back. In the meantime, we shall go on opposing not only the measures in the Budget but the thinking in the Budget. That thinking seeks to crucify large sections of British industry on the cross of sterile economic theory.

The Budget and the thinking behind it seek to put the burden for defeating inflation on the underprivileged and on the weak. The Budget seeks to treat people as cyphers in a financial and monetary plan. It is against that harsh thinking and the harsh consequences of that thinking that we shall be voting in the Lobby tonight.

9.26 pm

The Chancellor of the Exchequer (Sir Geoffrey Howe)

Having opened the debate some days ago by detaining the House for a little over two hours, I feel almost apologetic that the right hon. Member for Llanelli (Mr. Davies) has left me no less than 34 minutes in which to conclude the debate. I understand, moreover, that I do not need to seek the leave of the House to speak again.

I hope that the House will allow me to commence on a non-controversial note by welcoming warmly the kind and manifestly heartfelt words that the right hon. Gentleman uttered about our former colleague, Sir Stephen McAdden. He rightly paid tribute to the role that Sir Stephen played as Chairman of the Finance Bill Committee and as a devoted Member of the House for many years. It is a happy thing that I can commence by endorsing those words without any qualification.

I can also join the right hon. Gentleman in extending from the Government Front Bench our welcome to the returned Member from a former Scottish place now representing the happy electors of Southend, East. I have no doubt that my hon. Friend the Member for Southend, East, (Mr. Taylor) will be able to identify himself as closely with the citizens of Southend as he was able to do with those of Glasgow. There was another symbolic moment following the speech made by my hon. Friend because he was welcomed by the right hon. Member for Down, South (Mr. Powell). We had the interesting spectacle of a Scotsman, having migrated to the Essex flats, being welcomed by a Welshman from the Potteries who has migrated to Northern Ireland.

Mr. J. Enoch Powell

Does the Chancellor think that Wolverhampton is in the Potteries?

Sir G. Howe

If I cast any aspersions on the right hon. Gentleman's patrimony, I apologise. Between them, the right hon. Gentleman and my hon. Friend succeed in confirming the essential unity of the kingdom represented in this House. We may start on that note.

I turn now to reflect on some of the speeches made by Opposition Members. I apologise for the fact that I was not able to hear more than a small section of the speeches made by the right hon. Members for Heywood and Royton (Mr. Barnett) and for Ashton-Under-Lyne (Mr. Sheldon). The House is glad to see the former heavenly twins united and right and honourable together.

I turn with less enthusiasm to reflect on the speeches made by the Opposition Front Bench. The speech by the right hon. Member for Leeds, East (Mr. Healey) was followed by a distractive intervention by the right hon. Member for Salford, West (Mr. Orme), who made a less substantial contribution. Today our proceedings commenced with a speech by the right hon. Member for Deptford (Mr. Silkin) which those who were privileged to hear believe to be remarkable. One recognises, of course, that the right hon. Members for Deptford and for Leeds, East are limbering up for the contest that is to come. Having heard both speak as formidably as they did in the debate, I can think of only one thing more destructive than one bull in a china shop: two bulls in a china shop. The two right hon. Gentlemen are contending for the throne of a Government in exile from which the present monarch, judging by his performance on "Panorama" on Monday, remains reluctant to descend.

I was struck by the lack of enthusiasm shown by Opposition Members for the impending contest between the dinosaurs. They were almost entirely absent from the Chamber from beginning to end of the debate. They were unenthusiastic and unwilling to manifest their opposition to the wicked, class-ridden Budget about which we have heard so much. They were unwilling even to form an electoral college to offer chairs in support of their right hon. Friends. We have heard the right hon. Member for Leeds, East on many occasions.

I would not say that the right hon. Member for Deptford, today, on his form has acquired a conspicuous authority in the handling of economic matters. His speech was laced with purple prose. He has some contact with these matters. I believe that he was once seen, a year or so ago, donning a dirty agricultural mackintosh to be a representative in the Dorset demonstration by the National Union of Agricultural and Allied Workers. We welcome the right hon. Gentleman as a contributor to our economic debates as a type of rich man's Tolpuddle martyr. We look forward to hearing from him again.

The House has undertaken its appraisal of the strategy outlined in the Budget Statement. Broadly speaking, from this side of the House and from many quarters outside, there is approval for the two objectives which I set for the Government. There is approval of our declared determination to undertake and sustain what must be a long fight against inflation. I echo the words of my right hon. Friend the Chief Secretary. The battle cannot be won by a swift cavalry charge. There is also a welcome for the Government's recognition of the need to make improvements on the supply side of the economy by the removal of barriers and the establishment of incentives.

There is an increasingly widespread, if not universal, acceptance of the central role of monetary policy in economic policies. I was a little surprised to hear the right hon. Member for Llanelli launch into such a spirited and obvious heartfelt onslaught on what he described as the terrible gods of monetarism. I was surprised to hear the same style of attack from the hon. Member for Oldham, West (Mr. Meacher), who criticised my right hon. and hon. Friends for their tendency to refer to the importance of monetary policy. The hon. Gentleman described it as an idée fixe as if it were something about which we should be ashamed. My recollection is that the hon. Member for Oldham, West and the right hon. Members for Leeds, East and Llanelli were distinguished member of the last Government.

The right hon. Member for Llanelli was a close colleague of the right hon. Member for Leeds, East. For all I know, he may have helped the right hon. Gentle man to write his Budget Statement of April 1978. I quote what the right hon. Gentleman had to say: Monetary policy will continue to play a central role in our attack on inflation … For the coming year, 1978–79, I intend to continue using monetary targets, … by making a target range for sterling M3 the focus of our monetary policy."—[Official Report, 11 April 1978; Vol. 947, c. 1191.] Was the Treasury ringing at that time with plaintive cries from the right hon. Gentleman denouncing the terrible gods of monetarism as described by his right hon. Friend?

Mr. Denzil Davies

The right hon. and learned Gentleman has really missed the point. He clearly did not understand very much when he went to the seminar with Professor Friedman. The point about the Government's monetary policy is that inflation is running at close to 20 per cent. There are monetary targets of 7 per cent. to 11 per cent. with a central target of 9 per cent. That is why monetary policy is bankrupting so many industries.

Sir G. Howe

I welcome the reversion of the right hon. Gentleman to the rational appraisal of this subject. By all means we can have a discussion on whether the monetary targets are rightly chosen. We can have a discussion on whether the public sector borrowing requirement is rightly determined to achieve those monetary targets. But let us have a great deal less of this showmanship denunciation of monetarism when monetary policy was at the heart of the economic policy on which the right hon. Member for Leeds, East finally stumbled when he was at the Treasury.

The right hon. Gentleman has few claims to distinction or to a place in the history books, but I hope that he will struggle to cling on to the distinction which he achieved as the man who established monetary policy at the heart of economic policy in this country.

Mr. Healey

I want to put a simple point to the right hon. and learned Gentleman. I have always argued that control of the money supply was an important element in policy, but I do not think that one can run a motor car on the brake alone. There is a role for both the steering wheel and the accelerator. The real trouble with the right hon. and learned Gentleman is—as he showed in the discussion we had with Professor Friedman—that he does not even understand monetary policy, never mind the rest of the things with which he is supposed to be dealing.

Sir G. Howe

I gave way to the right hon. Gentleman hoping to receive some elucidation of his own position. Let us at least agree on this: that between the two Front Benches and among all those who have had close responsibility for economic management in recent years in this country it is accepted that monetary policy is a crucial element of economic policy.

It ill becomes the right hon. Member to denounce such things when he played such a part in making them possible. It is on that basis that there has been a general welcome for the medium-term financial strategy contained in the Red Book.

The right hon. Member for Down, South—to whom I shall have more to say later—was less enthusiastic about that, but he rightly commented when he welcomed the fact that we had published the White Paper on public expenditure on the same day as the Budget. He argued that that was a practice for which we should settle in future because it made sense to consider expenditure and revenue at the same time.

I know that my hon. Friend the Member for Honiton (Mr. Emery) took a different view on that. We have not reached a final conclusion about the right way to handle these matters, because it is plain from what the right hon. Gentleman said that if one wished to change in that direction as a matter of practice a number of other matters would have to be changed and considered as well. The issue clearly requires consideration, and we look forward to reading the report of the Armstrong committee of the Institute of Fiscal Studies which has been considering that matter.

I return to our medium-term financial strategy. Most people outside the House—and many inside it—welcome the extent to which that strategy gives coherence, conviction and confidence to the policies that we are pursuing. They recognise the extent to which we provide for sensible flexibility and there has been a special welcome for the caution of the assumptions that we have made.

In particular, there has been a wide welcome for our wisdom in not—as so many others have done in the past—assuming the achievement of future economic growth before it has happened. Even in Down, South, I hope that that will count as virtue of a kind. Of course, there has been discussion in a number of quarters about the right size of the public sector borrowing requirement as a percentage of the real GNP. I shall return to that in a moment. But I hope that I can claim that there is at least one encouraging precedent for the medium-term approach to economic strategy that we have outlined.

The first reference that I have been able to find to a medium-term strategy is contained in the well-known letter written by the right hon. Member for Leeds, East to the IMF on 15 December 1976. He said then that the Government were pursuing a medium term strategy, and he added: In order to secure that strategy, the White Paper … indicated the Government's intention in the years ahead to reduce the share of resources taken by public expenditure. It is also part of this strategy to reduce the public sector borrowing requirement so as to establish monetary conditions which will help the growth of output and the control of inflation. The Government sees this strategy as the basis for a three-year programme". I am glad to pay tribute to the right hon. Gentleman's example. The one predecessor for a monetary strategy spread over three years at a time was that set out in his letter to the IMF. It is a useful example.

There is, of course, one important difference in the strategy which the right hon. Gentleman outlined. As was manifest from the comments of his hon. Friend the Member for Oldham, West, he must have had considerable difficulty in persuading his colleagues to adopt it voluntarily. Indeed, as we know, he was unable to persuade his colleagues in Government to accept a medium-term strategy, except under the humiliating supervision of the IMF. Now, at least the people have elected a Government who have both the courage and the wisdom to adopt a strategy of that kind for themselves.

Mr. David Ennals (Norwich, North)

I am grateful to the right hon. and learned Gentleman for giving way. Does he accept that during the three years following the letter from my right hon. Friend which he has just read the level of inflation was more than halved, yet in the 12 months since his first Budget the rate of inflation has doubled?

Sir G. Howe

I accept the right hon. Gentleman's point with enthusiasm. It is at the heart of the case that we make. Once the Labour Party adopted the policies prescribed by the IMF, things began to go right. Inflation did begin to come down. The tragedy is that in the last year of the previous Government they cast all those benefits away, leaving us to inherit a tearaway rate of inflation and a tearaway expansion of the money supply.

That is the background against which we have made our choice of the public sector borrowing requirement and the monetary rate of growth.

Mr. Alfred Dubs (Battersea, South)

What influence does the right hon. and learned Gentleman think the Labour Government's incomes policy had on the decline in the rate of inflation?

Sir G. Howe

The hon. Gentleman will know that one of the factors which was explosive in the last winter of the previous Government was the collapse of that self-same, much-vaunted incomes policy. The experience of successive Governments who have pursued formal incomes policies is that they tend to sow the seeds of their own destruction, as was clearly shown by the experience of the previous Government.

We have chosen a PSBR which we believe to be compatible with a proper control of the money supply and a proper control of the right level of interest rates. I was very surprised at the extent to which hon. Members sought to question the importance of the PSBR when one comes to deciding the influences on the level of money supply and of interest rates. When one looks again at the letter written to the IMF by the right hon. Member for Leeds, East, one finds at the heart of that letter, repeated not once, not twice but four or five times, the statement that an essential element of the Government's strategy will be a continuing of a substantial reduction over the next few years in the share of resources required by the public sector. It is also essential to reduce the public sector borrowing requirement in order to create monetary conditions which will encourage investment and support sustained growth and the control of inflation". Time and again the right hon. Gentleman comes back to that view. He says later: I am therefore convinced that the further reduction in public expenditure and in the public sector borrowing requirement is inevitable. I find it very odd that we should be now criticised by the Opposition for having decided that it makes total sense and that it is necessary to reduce the PSBR as part of the means of securing monetary stability.

The suggestion has been made by my hon. Friend the Member for Oxford (Mr. Patten) that more general relief should be given to industry. I recognise that a case can be made for a reduction of the national insurance surcharge, but it is a very expensive tax to reduce. A reduction of 1 per cent. in that tax would cost £1,000 million. It would amount to about one-nineteenth of the average pay increase in the last 12 months. To achieve such a reduction would be at the expense of a higher PSBR and, therefore, at the expense of high interest rate. I believe that it is right to give primacy to the reduction of the PSBR. To achieve that balance I had to do two things—curb the size of public spending and get the right mixture of tax changes. As regards the income tax changes, I make no apology for having got rid of the reduced rate band. It was a tax that served no useful purpose, benefited only a small number of people, and did not operate to reduce the marginal rate for more than a handful of people.

Mr. Healey

Does the right hon. and learned Gentleman agree that by abolishing the reduced rate band he has increased personal allowances by only 11 per cent. as against the 18 per cent. required by the increase in inflation over the year concerned, and that therefore he is cheating the British taxpayer out of nearly half of the relief that should have been expected this year by his own argument?

Sir G. Howe

The right hon. Gentleman makes an astonishing intervention. I made that entirely clear in my Budget Statement. I also made it very clear that I was taking that decision in order to raise the tax threshold by the full 18 per cent. to keep it clear of benefits and keep the threshold up. The right hon. Gentleman is easily amused. I also made the increases in indirect taxes, about which the House knows, adding about 1 per cent. to the RPI.

I was interested by the frequency with which the view has been expressed during the debate that it is misleading and perhaps harmful for the RPI to continue to include alcohol and tobacco amongst its components. My right hon. Friend the Member for Worthing (Mr. Higgins), the right hon. Member for Norwich, North (Mr. Enna1s) and my hon. Friend the Member for Croydon, South (Sir W. Clark) and a number of other hon. Members all questioned whether it was necessarily right to continue to include tobacco and alcohol in the RPI. As someone who has recently given up the tobacco weed, it would have been easy for me to have been tempted in that direction. However, I confess to having a drink from time to time. As was pointed out yesterday, the RPI is based on the family expense survey and important questions would arise if we were to make any change on that front. I am willing to listen to the arguments advanced on that point.

Mr. Dalyell

Does the Chancellor accept in general the case that has been put forward about the existence of massive tax frauds—the so-called black economy—as described by the Inland Revenue Staff Association and referred to by my right hon. Friend the Member for Llanelli (Mr. Davies)?

Sir G. Howe

No doubt we shall come back to that subject in the debates on the Finance Bill. Of course, it is important to have effective tax enforcement machinery and to prevent tax frauds where one can do so sensibly. That is why, for example, I have announced substantial increases in the penalties for late payment of VAT. All the reductions in manpower in the Inland Revenue that I described in my Budget Statement are reductions that follow changes in the tax system. In no sense do they represent a reduction in the Inland Revenue's ability to chase tax frauds. I still believe that one of the most effective ways of eliminating tax fraud is to reduce temptation by moving from very high marginal tax rates to more sensible rates.

Mr. Denzil Davies

rose—

Sir G. Howe

No, I will not give way.

Mr. Denzil Davies

rose—

Mr. Speaker

Order. It is quite clear that the Chancellor is not giving way. He must be allowed to continue his speech.

Sir G. Howe

I think that I have been more than generous in giving way.

I turn now to the public expenditure cuts which have been announced to the House. It is most extraordinary to note the way in which the cuts that we have announced have been criticised on the one hand by the right hon. Member for Down, South and my right hon. Friend the Member for Worthing, who feels that they fall short of what should have been achieved, and on the other hand by the Opposition, who have sought to present these cuts as the most savage act since Ghengis Khan. Nothing could be a more grotesque caricature of what we have been doing.

The choices that we have made in our spending programme have been dominated by our determination to achieve a fair result—[Interruption.] The idea that we are inviting the poor to bear the brunt of our strategy bears no relationship whatever to the truth. We have considered first the old and the needy, and we have honoured fully our commitment to price-protect their incomes. Pensions will go up in November fully in line with our forecast on prices. In the same way, the supplementary benefit rate will go up in line with prices. For the poor and those in need, we have more than fulfilled our pledges.

For all those people with special needs —one-parent families, the disabled and others—family income supplement has also been increased. The tax changes, coupled with the increase in child benefit, give the smallest increases to single people, more to married couples and the largest increases to families with children. In all those respects we have more than fulfilled our obligations to those in need.

Of course, certain benefits have not gone up fully in line with inflation. Those are the benefits that we intend to bring within the tax system in the next two years. Those benefits will be absorbed into the tax system as a result of agreement—

Mr. Healey

rose—

Mr. Speaker

Order. It is quite clear that the Chancellor wishes to continue his speech. He must be allowed to do so.

Sir. G. Howe

Child benefit has gone up by 18¾ per cent. The level of child benefit now being paid will cost more than £400 million a year. That is being added to £3,300 million already being spent. As a result of that, the basic rate taxpayer, married with two children, will be significantly better off as a result of the benefit he is receiving than he would have been under the old child tax allowance and the family allowance uprating. In all those respects we have more than fulfilled our obligation to look after those in need.

The right hon. Member for Deptford advanced the argument, in relation to what we were doing about strikers' families' benefits, what we were attacking workers' hard-won rights. Nothing could be more nonsensical than that assertion. The entitlement of workers' families to strikers' benefit had hardly been known until 1966. In each of the years until 1966 not more than £50,000 a year was paid out in benefit to strikers' families. That changed in 1966 not as a result of any conscious action of the Government but as a result of mistakes made by Richard Crossman at that time. It is totally absurd to say that in making this change we are deliberately penalising workers or their families. We are not placing any kind of burden on strikers. If any burden is placed upon them, it is placed there by them-selves.

Finally, I turn from the economic balance and social justice of the Budget to the extent to which it is designed to promote enterprise, employment and prosperity. I close with a comment on the quite remarkably disgraceful speech of the right hon. Member for Deptford. He treated himself to a unique combination of distortion and self-denial. If more of his hon. Friends had been here to listen to him, they would have known that he was a most unconvincing tribune of the people. He and his right hon. Friend the Member for Llanelli both sought to suggest that the Conservative Party welcomed higher unemployment. Nothing could be further from the truth. The Conservative Party is dedicated to the restoration of nearer to full employment. That is one of our objectives. Charges of that kind come very ill indeed from the members of the previous Government, under whom unemployment increased from 600,000 to 1½ million.

The right hon. Gentleman sought to suggest that we were seeking to pursue poverty as a path to profit. What total nonsense! The people of this country know very well that in the years since the end of the war, roughly divided between Governments of both major parties, the living standards of the people of this country rose five or six times faster under Conservative Governments than Labour Governments.

As for the suggestion that the Government are setting about the destruction and dismemberment of the Welfare State, the restoration of property and privilege and the introduction of pain to the people—what absolute nonsense! The people of this country voted this Government into office because they knew that we were better custodians of their rights and living standards.

The right hon. Gentleman referred to enterprise zones in a style that he thought might commend itself to the House. He was uncertain whether he should cheer or condemn them. He said that they would create jobs at the expense of somewhere else and profits at the expense of the nation. He should know a thing or two about making profits. It is perfectly possible to make profits to the advantage of the nation. The enterprise zones are designed to do just that. He argued that the enterprise zones would destroy each zone and the quality of life protected over so many years by planning laws.

One wonders where he has been for the past 20 or 30 years. If he wants to know what these places are like, I should be glad to take him around at any time and show him the quality of life in dockland, the urban wildernesses in South Wales and the conditions of Merseyside, to give him a chance to meet the people and see something of the communities in which they live. I beg him to understand that the changes we propose are designed to bring back life, vitality and enterprise to those communities, which too much planning and Socialism have destroyed.

We have heard from the Labour Party no kind of coherent policy whatsoever. This Budget represents the policies on which the British people are agreed. It is a Budget to put the fight against inflation first, a Budget to secure the restoration of enterprise, a Budget to carry through the policies on which this Government were elected, the policies which are enshrined in this Budget, which I gladly commend to the House.

Question put and agreed to.

Resolved, That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to 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 varying the rate of that tax otherwise than in relation to all supplies and importations; or
4. (iv) for any relief other than relief applying 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.—[Sir Geoffrey Howe.]

Mr. Speaker

I am now 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 37, on the three motions on procedure, and on the motion on the Finance (No. 2) money resolution, on all of which the Finance Bill is to be brought in. I believe that it would be in the interests of the House if, instead of my reading out every one of these resolutions, I put them in blocks and gave an opportunity for anyone who wishes to call for a Division to do so.

2. SPIRITS

Motion made, and Question, That, as from 27 March 1980, the rates of duty specified in section 5 of the Alcoholic Liquor Duties Act 1979 shall be increased from £10.44 and £10.47 per litre of alcohol in the spirits to £11.87 and £11.90 per litre of alcohol in the spirits respectively. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

3.BEER

Motion made, and Question, That, as from 27 March 1980, the rates of duty specified in section 36 of the Alcoholic Liquor Duties Act 1979 shall be increased—

1. (a) from £10.65 for each hectolitre to £13.05 for each hectolitre;
2. (b) from £0.3550 for each additional degree of original gravity exceeding 1030 degrees to £0.435 for each such additional degree.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

4. WINE

Motion made, and Question, That, as from 27 March 1980, the rates of duty under section 54 of the Alcoholic Liquor Duties Act 1979 shall be as follows—

Description of wine	Rates of duty per hectolitre
Wine of a strength—	£
not exceeding 15 per cent	81.42
exceeding 15 but not exceeding 18 per cent.	93.93
exceeding 18 but not exceeding 22 per cent.	110.59
exceeding 22 per cent.	110.59

plus £11.87 for every 1 per cent. or part of 1 per cent. in excess of 22 per cent; each of the above rates of duty being, in the case of sparkling wine, increased by £17.90 per hectolitre.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

5. MADE-WINE

Motion made, and Question, That, as from 27 March 1980, the rates of duty under section 55 of the Alcoholic Liquor Duties Act 1979 shall be as follows—

Description of made-wine	Rate of duty per hectolitre
Made-wine of a strength—	£
not exceeding 10 per cent.	52.85
exceeding 10 but not exceeding 15 per cent.	79.16
exceeding 15 but not exceeding 18 per cent.	87.04
exceeding 18 per cent.	87.04 plus

£11.87 for every 1 per cent. or part of 1 per cent. in excess of 18 per cent.; each of the above rates of duty being, in the case of sparkling made-wine increased by £825 per hectolitre.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

6. CIDER

Motion made, and Question, That, as from 27 March 1980, the rate of duty specified in section 62(1) of the Alcoholic

"TABLE
1.	Cigarettes	An amount equal to 21 per cent, of the retail price plus £13.42 per thousand cigarettes.
2.	Cigars	£25.60 per kilogram.
3.	Hand-rolling tobacco	£22.60 per kilogram.
4.	Other smoking tobacco and chewing tobacco	£17.40 per kilogram."

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

8. GAMING LICENCE DUTY

Motion made, and Question, That new provision may be made with respect to gaming licence duty.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

9. GAMING MACHINE LICENCE DUTY

Motion made, and Question, That new provision may be made with respect to gaming machine licence duty.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

10. BINGO DUTY

Motion made, and Question, That provision may be made for increasing bingo duty.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

Liquor Duties Act 1979 shall be increased from £5.32 per hectolitre to £6.05 per hectolitre. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

7. TOBACCO PRODUCTS

Motion made, and Question, That the following Table shall, with effect from 29 March 1980, be substituted for the Table in Schedule 1 to the Tobacco Products Duty Act 1979—

11. HYDROCARBON OIL ETC.

Motion made, and Question, That the following provisions shall have effect as from 6 o'clock in the evening of 26 March 1980—

(1) In section 6(1) of the Hydrocarbon Oil Duties Act 1979 (duty of excise at the rate of £0.0810 a litre in the case of light oil and £0.0920 a litre in the case of heavy oil) for the words from "a duty of excise" onwards there shall be substituted the words "a duty of excise at the rate of £0.10 a litre";

(2) In section 11(1)(b) of that Act (rebate on aviation turbine fuel and heavy oil other than kerosene at rate of £0.0066 a litre less than the rate at which duty is for the time being chargeable) for "£0.0066" there shall be substituted "£0.0077";

(3) In section 14(1) of that Act (rebate on light oil delivered to approved person for use as furnace fuel at rate of £0.0066 a litre less than the rate at which duty is charged) for "£0.0066" there shall be substituted "£0.0077";

(4) In sections 7 and 8(3) and (4)(c) of that Act and Article 3 of the Excise Duties (Gas as Road Fuel) Order 1972 for the words "light oil" there shall be substituted the words "hydrocarbon oil". And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

12. VEHICLES EXCISE DUTY

Motion made, and Question, That the Vehicles (Excise) Act 1971 and the Vehicles (Excise) Act (Northern Ireland) 1972 shall have effect with the amendments set out below. But this Resolution shall not authorise the making of amendments that would result in different provisions being in force in different parts of Great Britain. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

(1) In the said Acts of 1971 and 1972—

1. (a) for the provisions of Part II of Schedules 1 to 5 (annual rates of duty) there shall be substituted the provisions set out below;
2. (b) in section 16 (trade licences) for "£25" and "£5" there shall be substituted respectively "£30" and "£6";
3. (c) in section 4(1) (vehicles exempt from duty) before paragraph (a) there shall be inserted—

(aa) electrically propelled vehicles;".

(2) Paragraph (1)(a) and (b) above have effect in relation to licences taken out after 26 March 1980 and paragraph (1)(c) above has effect from 27 March 1980.

PROVISIONS SUBSTITUTED FOR PART II OF SCHEDULE 3 TO ACT OF 1971
	Weight unladen of vehicle	Rate of duty
1.	2.	3.	4.	5.
Description of vehicle	Exceeding	Not exceeding	Initial	Additional for each ton or part of a ton in excess of the weight in column 2
			£	£
1. Agricultural machines; digging machines; mobile cranes; works trucks; mowing machines; fishermen's tractors	—	—	10.50	—
2. Haulage vehicles, being showmen's vehicles	—	7¼tons	101.00	—
	7¼ tons	8 tons	121.00	—
	8 tons	10 tons	142.00	—
	10 tons	—	142.00	22.00
3. Haulage vehicles, not being showmen's vehicles	—	2 tons	120.00	—
	2 tons	4 tons	216.00	—
	4 tons	6 tons	312.00	—
	6 tons	7¼ tons	408.00	—
	7¼ tons	8 tons	498.00	—
	8 tons	10 tons	498.00	84.00
	10 tons	—	666.00	96.00

PROVISIONS SUBSTITUTED FOR PART II OF SCHEDULE 1 TO ACT OF 1971 AND ACT OF 1972
Description of vehicle	Rate of duty
	£
1. Bicycles and tricycles of which the cylinder capacity of the engine does not exceed 150 cubic centimetres	6.00
2. Bicycles of which the cylinder capacity of the engine exceeds 150 cubic centimetres but does not exceed 250 cubic centimeters, tricycles (other than those in the foregoing paragraph) and vehicles (other than mowing machines) with more than three wheels, being tricycles and vehicles neither constructed nor adapted for use nor used for the carriage of a driver or passenger	12.00
3. Bicycles and tricycles not in the foregoing paragraphs	24.00

PROVISIONS SUBSTITUTED FOR PART II OF SCHEDULE 2 TO ACT OF 1971 AND ACT OF 1972
Description of vehicle	Rate o duty
	£
Hackney carriages	30.00

with an additional 60p for each person above 20 (excluding the driver) for which the vehicle has seating capacity

PROVISIONS SUBSTITUTED FOR PART 11 OF SCHEDULE 3 TO ACT OF 1972
	Weight unladen of vehicle	Rate of duty
1.	2.	3.	4.	5.
Description of vehicle	Exceeding	Not exceeding	Initial	Additional for each ton or part of a ton in excess of the weight in column 2
			£	£
1. Agricultural machines; digging machines; mobile cranes; works trucks; mowing machines; fishermen's tractors	—	—	10.50	—
2. Haulage vehicles, being showmen's vehicles	—	7¼ tons	101.00	—
	7¼ tons	8 tons	121.00	—
	8 tons	10 tons	142.00	—
	10 tons	—	142.00	22.00
3. Haulage vehicles, not being showmen's vehicles	—	tons	108.00	—
	2 tons	4 tons	192.00	—
	4 tons	6 tons	276.00	—
	6 tons	7¼ tons	360.00	—
	7¼ tons	8 tons	444.00	—
	8 tons	—	444.00	96.00

PROVISIONS SUBSTITUTED FOR PART II OF SCHEDULE 4 TO ACT OF 1971
TABLES SHOWING ANNUAL RATES OF DUTY ON GOODS VEHICLES
TABLE A
GENERAL RATES OF DUTY
	Weight unladen of vehicle	Rate of duty
1.	2.	3.	4.	5.
Description of vehicle	Exceeding	Not exceeding	Initial	Additional for each . ton or part of a . ton in excess of the weight in column 2
			£	£
1. Farmers' goods vehicles	—	12 cwt.	36.00	—
	12 cwt.	16 cwt.	38.00	—
	16 cwt.	1 ton	42.00	—
	1 ton	3 tons	42.00	5
	3 tons	5 tons	80.00	4
	5 tons	7 tons	111.00	3
	7 tons	9 tons	135.00	2
	9 tons	—	163.00	4
2. Showmen's goods vehicles	—	12 cwt.	36.00	—
	12 cwt.	16 cwt.	38.00	—
	16 cwt.	1 ton	42.00	—
	1 ton	3 tons	42.00	5
	3 tons	5 tons	80.00	4
	5 tons	6 tons	111.00	3
	6 tons	9 tons	123.00	5
	9 tons	—	193.00	7
3. Tower wagons	—	12 cwt.	48.00	—
	12 cwt.	16 cwt.	53.00	—
	16 cwt.	1 ton	60.00	—
	1 ton	4 tons	60.00	6
	4 tons	6 tons	133.(00	7
	6 tons	9 tons	190.00	6
	9 tons	—	275.00	10
4. Goods vehicles not included in any of the foregoing provisions of this Part of this Schedule.	—	16 cwt.	60.00	—
	16 cwt.	1 ton	67.00	—
	1 ton	4 tons	67.00	17
	4 tons	9 tons	269.00	30
	9 tons	10 tons	940.00	33
	10 tons	—	1,071.00	39

TABLE B
RATES OF DUTY ON GOODS VEHICLES USED FOR DRAWING TRAILERS
	Weight of unladen weight
1.	2.	3.	4.
Description of vehicle	Exceeding	Not exceeding	Rate of duty
			£
1. Showsmen's goods vehicles	—	—	36.00
2. Other goods vehicles	—	1½tons	36.00
	1½ tons	3 tons	48.00
	3 tons	4 tons	80.00
	4 tons	6 tons	108.00
	6 tons	9 tons	134.00
	9 tons	—	146.00

PROVISIONS SUBSTITUTED FOR PART II OF SCHEDULE 4 TO ACT OF 1972
TABLES SHOWING ANNUAL RATES OF DUTY ON GOODS VEHICLES
TABLE A
GENERAL RATES OF DUTY
	Weight unladen of vehicle	Rate of duty
1	2.	3.	4.	5.
Description of vehicle	Exceeding	Not exceeding	Initial	Additional for each¼ton or part of a ¼ ton in excess of the weight in column 2
			£	£
1. Farmers' goods vehicles	—	12 cwt.	36.00	—
	12cwt.	16 cwt.	38.00	—
	16 cwt.	1 ton	42.00	—
	1 ton	3 tons	42.00	5
	3 tons	6 tons	83.00	2
	6 tons	8 tons	110.00	1
	8 tons	9 tons	121.00	2
	9 tons	—	138.00	3
2. Showmen's goods vehicles; tower wagons	—	12 cwt.	46.00	—
	12 cwt.	16 cwt.	48.00	—
	16 cwt.	1 ton	54.00	—
	1 ton	3 tons	54.00	3
	3 tons	6 tons	78.00	4
	6 tons	9 tons	122.00	5
	9 tons	—	193.00	7
3. Goods vehicles not included in any of the	—	16 cwt.	60.00	—
foregoing provisions of this Part	16 cwt.	1 ton	67.00	—
	1 ton	3 tons	67.00	12
	3 tons	4 tons	163.00	19
	4 tons	6 tons	241.00	25
	6 tons	9 tons	440.00	29
	9 tons	—	845.00	35

TABLE B
RATES OF DUTY ON GOODS VEHICLES USED FOR DRAWING TRAILERS
	Weight of unladen vehicle
1.	2.	3.	4.
Description of vehicle	Exceeding	Not exceeding	Rate of duty
			£
1. Showmen's goods vehicles	—	—	36.00
2. Other goods vehicles	—	1½ tons	36.00
	1½ tons	3 tons	48.00
	3 tons	4 tons	80.00
	4 tons	6 tons	108.00
	6 tons	9 tons	134.00
	9 tons	—	146.00

Provisions Substituted for Part II of Schedule 5 to Act of 1971
Description of vehicle	Rate of duty
	£
1. Vehicles not exceeding 7 horse-power, if registered under the Roads Act 1920 for the first time before 1 January 1947	43.00
2. Vehicles not included above	60.00

Provisions Substituted for Part II of Schedule 5 to Act of 1972
Description of vehicle	Rate of duty
1. Vehicles first registered under the Roads Act 1920 before 1 January 1947, or which, if their first registration for taxation purposes had been effected in Northern Ireland would have been so first registered as aforesaid under the Act as in force in Northern Ireland:	£
(i) not exceeding 6 horse-power	36.00
(ii) exceeding 6 horse-power but not exceeding 9 horse-power—for each unit or part of a unit of horse-power	6.00
2. Other vehicles	60.00

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

13. VALUE ADDED TAX: LIABILITY TO BE REGISTERED

Motion made, and Question,

(1) Paragraph 1 of Schedule 1 to the Finance Act 1972 (liability to be registered) shall be amended as follows.

(2) For sub-paragraph (a) there shall be substituted—

1. "(a) after the end of any quarter, if the value of his taxable supplies—
1. (i) in that quarter has exceeded £4,000; or
2. (ii) in the four quarters then ending has exceeded £13,500; or".

(3) In sub-paragraph (b) for "10,000" there shall be substituted "£13,500". (4) For the words from "except" to the end of the paragraph there shall be substituted the words "except that a person is not liable to be registered by virtue of sub-paragraph (a)(i) above after the end of any quarter if the Commissioners are satisfied that the value of his taxable supplies in that quarter and the next three quarters will not exceed £13,500. (5) In section 20(1) of the said Act of 1972 (registration of local authorities) for "£10,000", in both places, there shall be substituted "£13,500". (6) The foregoing provisions shall come into force on 27 March 1980. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

14. VALUE ADDED TAX: TERMINATION OF LIABILITY TO BE REGISTERED

Motion made, and Question, That—

(1) Paragraph 2 of Schedule 1 to the Finance Act 1972 (termination of liability to be registered) shall be amended as follows. (2) For sub-paragraph (a) there shall be sub-stituted— (a) after the end of any quarter or prescribed accounting period if he has been registered for the whole of the two years then ending and the value of his taxable supplies in each of those years has been £13,000 or less; and".

(3) In sub-paragraph (b) for "£8,500" there shall be substituted "£12,500". (4) After paragraph (b) there shall be inserted the words"except that a person shall not at any time cease to be liable to be registered by virtue of sub-paragraph (a) above if there are reasonable grounds for believing that the value of his taxable supplies in the period of one year then beginning will exceed £13,500.". (5) The foregoing provisions shall come into force on 1 June 1980. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

15. VALUE ADDED TAX: DEEMED SUPPLY ON DE-REGISTRATION

Motion made, and Question, That—

(1) Paragraph 7 of Schedule 2 to the Finance Act 1972 (deemed supply of business assets where person ceases to be taxable) shall be amended as follows. (2) For paragraph 7(c) and (d) there shall be substituted— (c) the tax on the deemed supply would not be more than £250.".

(3) The existing provisions of paragraph 7 shall become sub-paragraph (I) and after those provisions there shall be inserted— (2) This paragraph does not apply to any goods in the case of which the taxable person can show to the satisfaction of the Commissioners—

1. (a) that no credit for input tax in respect of the supply or importation of the goods has been allowed to him;
2. (b) that the goods were not acquired by him as part of the assets of a business which was transferred to him as a going concern by another taxable person; and
3. (c) that he has not obtained relief in respect of the goods under section 4 of the Finance Act 1973 (tax- or duty-paid stock held at commencement of VAT).

(3) The Treasury may by order increase or further increase the sum specified in sub-paragraph (1)(c) above.". (4) The foregoing provisions shall come into force on 1 June 1980. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

16. SURCHARGES AND REBATES IN RESPECT OF EXCISE DUTIES

Motion made, and Question, That the Excise Duties (Surcharges or Rebates) Act 1979 shall be amended so as to remove the restrictions on the purposes for which and the period within which orders may be made under that Act and to alter the provisions of that Act relating to parliamentary control.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

17. INCOME TAX (CHARGE AND RATES FOR 1980–81)

Motion made, and Question. That—

(1) Income tax for the year 1980-81 shall be charged at the basic rate of 30 per cent.; and—

1. (a) in respect of so much of an individual's total income as exceeds £11,250 at such higher rates as are specified in the Table below; and
356
2. (b) in respect of so much of the investment income included in an individual's total income as exceeds £5,500 at the additional rate of 15 per cent.

TABLE
Part of excess over £11,250	Higher rate
The flrst £2,000	40 per cent
The next £3,500	45 per cent.
The next £5,500	50 per cent.
The next £5,500	55 per cent.
The remainder	60 per cent.

(2) This Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the Income and Corporation Taxes Act 1970 (pay as you earn) before 1 June 1980. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968. —[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

18. INCOME TAX (PERSONAL RELIEFS)

Motion made, and Question, That—

(1) In section 8 of the Income and Corporation Taxes Act 1970 (personal reliefs)—

1. (a) in subsection (1)(a) (married) for "£1,815" there shall be substituted "£2,145";
2. (b) in subsection (1)(b) (single) and (2) (wife's earned income relief) for "£1,165" there shall be substituted "£1,375";
3. (c) in subsection (1A) (age allowance) for "£2,455" and "£1,540" there shall be substituted "£2,895" and "£1,820" respectively;
4. (d) in subsection (1B) (income limit for age allowance) for "£5,000" there shall be substituted "£5,900".

(2) In section 14(2) of that Act (additional relief for widows and others in respect of children) for"£650"there shall be substituted "£770".

(3) After section 15 of that Act there shall be inserted—

"Widow's bereavement allowance

15A.—(1) Where a man dies in a year of assessment for which he is entitled to the higher (married persons) relief under section 8(1) above, or would be so entitled but for an election under section 15 above or section 23 of the Finance Act 1971 (separate taxation of wife's earnings), his widow shall be entitled for that year to a deduction from her total income—

1. (a) if the death occurred in the first month of that year, of an amount equal to that specified in section 14(2) above;
2. (b) in any other case, of that amount less one-twelfth for every month in the year before that in which the death occurred.

(2) In subsection (1)(b) above "month" means a month beginning with the 6th day of a month of the calendar year."

(4) This Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the said Act of 1970 (pay as you earn) before 1 June 1980. And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of

Division No. 2491	AYES	[10.01 pm
Ailken, Jonathan	Edwards, Rt Hon N. (Pembroke)	Jopling, Rt Hon Michael
Alexander, Richard	Eggar, Timothy	Joseph, Rt Hon Sir Keith
Amery, Rt Hon Julian	Elliott, Sir William	Kaberry, Sir Donald
Ancram, Michael	Emery, Peter	Kellett-Bowman, Mrs Elaine
Arnold, Tom	Eyre, Reginald	Kershaw, Anthony
Aspinwall, Jack	Fairbalrn, Nicholas	Kimball, Marcus
Atkins, Robert (Preston North)	Fairgrieve, Russell	King, Rt Hon Tom
Atkinson, David (B'mouth, East)	Faith, Mrs Sheila	Kitson, Sir Timothy
Baker, Kenneth (St. Marylebone)	Farr, John	Knight, Mrs Jill
Baker, Nicholas (North Dorset)	Fell, Anthony	Knox, David
Banks, Robert	Fenner, Mrs Peggy	Lamont, Norman
Beaumont-Dark, Anthony	Finsberg, Geoffrey	Lang, Ian
Bell. Sir Ronald	Fisher, Sir Nigel	Langford-Holt, Sir John
Bendall, Vivian	Fletcher, Alexander (Edinburgh N)	Latham, Michael
Bennett, Sir Frederic (Torbay)	Fletcher-Cooke, Charles	Lawrence, Ivan
Benyon, Thomas (Abingdon)	Fookes, Miss Janet	Lawson, Nigel
Benyon, W. (Buckingham)	Forman, Nigel	Lee, John
Best, Keith	Fowler, Rt Hon Norman	Lennox-Boyd, Hon Mark
Bevan, David Gilroy	Fox, Marcus	Lester, Jim (Beeston)
Bitten, Rt Hon John	Fraser, Rt Hon H. (Stafford & St)	Lewis, Kenneth (Rutland)
Biggs-Davison, John	Fraser, Peter (South Angus)	Lloyd, Peter (Fareham)
Blackburn, John	Fry, Peter	Loveridge, John
Blaker, Peter	Galbralth, Hon T. G. D.	Luce, Richard
Body, Richard	Gardiner, George (Reigate)	Lyell, Nicholas
Bonsor, Sir Nicholas	Gardner, Edward (South Fylde)	McCrindle, Robert
Boscawen, Hon Robert	Garel-Jones, Tristan	Macfarlane, Neil
Bowden, Andrew	Gilmour, Rt Hon Sir Ian	MacGregor, John
Boyson, Dr Rhodes	Glyn, Dr Alan	MacKay, John (Argyll)
Braine, Sir Bernard	Goodhart, Philip	McNalr-Wilson, Michael (Newbury)
Bright, Graham	Goodhew, Victor	McNair-WIIson, Patrick (New Forest)
Brinton, Tim	Goodlad, Alastair	McQuarrie, Albert
Brittan, Leon	Gorst, John	Madel, David
Brocklebank-Fowler, Christopher	Gow, Ian	Major, John
Brooke, Hon Peter	Gower, Sir Raymond	Marland, Paul
Brotherton, Michael	Grant, Anthony (Harrow C)	Marlow, Tony
Brown, Michael (Brigg & Sc'thorpe)	Gray, Hamish	Marshall, Michael (Arundel)
Browne, John (Winchester)	Greenway, Harry	Mates, Michael
Bruce-Gardyne, John	Grieve, Percy	Mather, Carol
Bryan, Sir Paul	Griffiths, Eldon (Bury St Edmunds)	Maude, Rt Hon Angus
Buchanan-Smith, Hon Alick	Griffiths, Peter (Portsmouth N)	Mawby, Ray
Buck, Antony	Grist, Ian	Mawtiinney, Dr Brian
Budgen, Nick	Gryils, Michael	Maxwell-Hyslop, Robin
Burden, F. A.	Gummer, John Selwyn	Mayhew, Patrick
Butcher, John	Hamilton, Hon Archie (Eps'm&Ew'll)	Mellor, David Meyer, Sir Anthony
Butler, Hon Adam	Hamilton, Michael (Salisbury)
Cadbury, Jocelyn	Hampson, Dr Keith	Miller, Hal (Bromsgrove & Reddltch)
Carlisle, John (Luton West)	Hannam, John	Mills, lain (Meriden)
Carlisle, Kennelh (Lincoln)	Haselhurst, Alan	Mills, Peter (West Devon)
Carlisle, Rt Hon Mark (Runcorn)	Havers, Rt Hon Sir Michael	Mlscampbell, Norman
Channon, Paul	Hawkins, Paul	Mitchell, David (Basingstoke)
Chapman, Sydney	Hawksley, Warren	Moate, Roger
Churchill, W. S.	Hayhoe, Barney	Molyneaux, James
Clark, Hon Alan (Plymouth, Sutton)	Heath, Rt Hon Edward	Monro, Hector
Clark, Sir William (Croydon South)	Heddle, John	Montgomery, Fergus
Clarke, Kenneth (Rushcliffe)	Henderson, Barry	Moore, John
Clegg, Sir Walter	Heseltlne, Rt Hon Michael	Morgan, Geralnt
Cockeram, Eric	Hicks, Robert	Morris, Michael (Northampton, Sth)
Colvin, Michael	Higgins, Rt Hon Terence L.	Mudd, David
Cope, John	Hill, James	Murphy, Christopher
Cormack, Patrick	Hogg, Hon Douglas (Grantham)	Myles, David
Corrle, John	Holland, Philip (Carlton)	Neale, Gerrard
Costain, A. P.	Hooson, Tom	Needham, Richard
Crouch, David	Hordern, Peter	Nelson, Anthony
Dean, Paul (North Somerset)	Howe, Rt Hon Sir Geoffrey	Neubert, Michael
Dickens, Geoffrey	Howell, Rt Hon David (Guildford)	Newton, Tony
Dorrell, Stephen	Howell, Ralph (North Norfolk)	Normanton, Tom
Douglas-Hamilton, Lord James	Hunt, David (Wirral)	Nott, Rt Hon John
Dover, Denshore	Hunt, John (Ravensbourne)	Onslow, Cranley
du Cann, Rt Hon Edward	Hurd, Hon Douglas	Oppenheim, Rt Hon Mrs Sally
Dunn, Robert (Dartford)	Irving, Charles (Cheltenham)	Osborn, John
Durant, Tony	Jenkin, Rt Hon Patrick	Page, Rt Hon Sir R. Graham
Dykes, Hugh	Jessel, Toby	Page, Richard (SW Hertfordshire)
Eden, Rt Hon Sir John	Johnson Smith, Geoffrey	Parkinson, Cecil

the Provisional Collection of Taxes Act 1968. —[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions):—

The House divided: Ayes 320, Noes 258.

Parris, Matthew	Shaw, Giles (Pudsey)	Trippier, David
Patten, Christopher (Bath)	Shaw, Michael (Scarborough)	Trotter, Neville
Patten, John (Oxford)	Shelton, William (Streatham)	Taylor, Teddy (Southend East)
Pattie, Geoffrey	Shepherd, Colin (Hereford)	van Straubenzee, W. R.
Pawsey, James	Shepherd, Richard (Aldridge-Br'hills)	Vaughan, Dr Gerard
Percival, Sir Ian	Shersby, Michael	Viggers, Peter
Peyton, Rt Hon John	Silvester, Fred	Waddington, David
Pink, R. Bonner	Sims, Roger	Wakeham, John
Pollock, Alexander	Skeet, T. H. H.	Waldegrave, Hon William
Porter, George	Smith, Dudley (War. and Leam'ton)	Walker, Rt Hon. Peter (Worcester)
Powell, Rt Hon J. Enoch (S Down)	Speed, Keith	Walker, Bill (Perth & E Perthshire)
Prentice, Rt Hon Reg	Speller Tony	Walker-Smith, Rt Hon Sir Derek
Price, David (Eastleigh)	Spence, John	Wall, Patrick
Prior, Rt Hon James	Spicer, Jim (West Dorset)	Waller, Gary
Proctor, K. Harvey	Spicer, Michael (S Worcestershire)	Walters, Dennis
Pym, Rt Hon Francis	Sproat, lain	Ward, John
Raison, Timothy	Stalnton, Keith	Warren, Kenneth
Rathbone, Tim	Stanbrook, Ivor	Watson, John
Rees, Peter (Dover and Deal)	Stanley, John	Wells, John (Maidstone)
Rees-Davies, W. R.	Steen, Anthony	Wells, Bowen (Hert'rd & Stev'nage)
Heritors, Tim	Stevens, Martin	Wheeler, John
Rhodes James, Robert	Stewart, Ian (Hitchin)	Whitelaw, Rt Hon William
Rhys Williams, Sir Brandon	Stewart, John (East Renfrewshire)	Whitney, Raymond
Ridley, Hon Nicholas	Stokes, John	Wickenden, Keith
Ridsdale, Julian	Stradling Thomas, J.	Wiggin, Jerry
Rippon, Rt Hon Geoffrey	Tapsell, Peter	Wilkinson, John
Roberts, Michael (Cardiff NW)	Taylor, Robert (Croydon NW)	Williams, Delwyn (Montgomery)
Roberts, Wyn (Conway)	Tebbit, Norman	Winterton, Nicholas
Ross, Wm. (Londonderry)	Temple-Morris, Peter	Wolfson, Mark
Rossi, Hugh	Thatcher, Rt Hon Mrs Margaret	Young, Sir George (Acton)
Rost, Peter	Thomas, Rt Hon Peter (Hendon S)	Younger, Rt Hon George
Royle, Sir Anthony	Thompson, Donald
Sainsbury, Hon Timothy	Thornton, Malcolm	TELLERS FOR THE AYES:
St. John-Stevas, Rt Hon Norman	Townend, John (Bridlington)	Mr. Spencer Le Marchant, and
Scott, Nicholas	Townsend, Cyril D. (Bexleyheath)	Mr. Anthony Berry.
NOES
Abse, Leo	Davies, Rt Hon Denzil (Llanelli)	Gourlay, Harry
Adams, Allen	Davies, Ifor (Gower)	Graham, Ted
Allaun, Frank	Davis, Clinton (Hackney Central)	Grant, George (Morpeth)
Alton, David	Davis, Terry (B'rm'ham, Stechford)	Grant, John (Islington C)
Anderson, Donald	Deakins, Eric	Hamilton, James (Bothwell)
Archer, Rt Hon Peter	Dean, Joseph (Leeds West)	Hamilton, W. W. (Central Fife)
Armstrong, Rt Hon Ernest	Dempsey, James	Hardy, Peter
Ashley, Rt Hon Jack	Dewar, Donald	Harrison, Rt Hon Walter
Ashton, Joe	Dixon, Donald	Hattersley, Rt Hon Roy
Atkinson, Norman (H'gey, Tott'ham)	Dobson, Frank	Haynes, Frank
Barnett, Rt Hon Joel (Heywood)	Dormand, Jack	Healey, Rt Hon Denis
Beith, A. J.	Douglas, Dick	Heffer, Eric S.
Benn, Rt Hon Anthony Wedgwood	Douglas-Mann, Bruce	Hogg, Norman (E Dunbartonshire)
Bennett, Andrew (Stockport N)	Dubs, Alfred	Holland, Stuart (L'beth, Vauxhall)
Booth, Rt Hon Albert	Duffy, A. E. P.	Home Robertson, John
Boothroyd, Miss Betty	Dunnett, Jack	Homewood, William
Bottomley, Rt Hon Arthur (M'brough)	Dunwoody, Mrs Gwyneth	Hooley, Frank
Bradley, Tom	Eadie, Alex	Horam, John
Bray, Dr Jeremy	Eastham, Ken	Howell, Rt Hon Denis (B'ham, Sm H)
Brown, Hugh D. (Provan)	Edwards, Robert (Wolv SE)	Howells, Geraint
Brown, Robert C. (Newcastle W)	Ellis, Raymond (NE Derbyshire)	Huckfield, Les
Brown, Ronald W. (Hackney S)	Ellis, Tom (Wrexham)	Hudson Davies, Gwilym Ednyfed
Brown, Ron(Edinburgh, Leith)	English, Michael	Hughes, Mark (Durham)
Buchan, Norman	Ennals, Rt Hon David	Hughes, Roy (Newport)
Callaghan, Jim (Middleton & P)	Evans, loan (Aberdare)	Jay, Rt Hon Douglas
Campbell, Ian	Ewing, Harry	John, Brynmor
Campbell-Savours, Dale	Faulds. Andrew	Johnson, James (Hull West)
Canavan, Dennis	Field, Frank	Johnson, Walter (Derby South)
Cant, R. B.	Fitch, Alan	Johnston, Russell (Inverness)
Carmichael, Neil	Fitt, Gerard	Jones, Rt Hon Alec (Rhondda)
Cartwright, John	Flannery, Martin	Jones, Barry (East Flint)
Clark, Dr David (South Shields)	Fletcher, L. R. (Ilkeston)	Jones, Dan (Burnley)
Cocks, Rt Hon Michael (Bristol S)	Fletcher, Ted (Darlington)	Kaufman, Rt Hon Gerald
Cohen, Stanley	Foot, Rt Hon Michael	Kerr, Russell
Coleman, Donald	Ford, Ben	Kllfedder, James A.
Concannon, Rt Hon J. D.	Forrester, John	Kilroy-Silk, Robert
Conlan, Bernard	Foster, Derek	Lambie, David
Cook, Robin F.	Foulkes, George	Lamborn, Harry
Cowans, Harry	Fraser, John (Lambeth, Norwood)	Lamond, James
Cox, Tom (Wandsworth, Tooting)	Freeson, Rt Hon Reginald	Leadbitter, Ted
Craigen, J. M. (Glasgow, Maryhill)	Freud, Clement	Leighton, Ronald
Crowther, J. S.	Garrett, John (Norwich S)	Lestor, Miss Joan (Eton & Slough)
Cryer, Bob	Garrett, W. E. (Wallsend)	Lewis, Arthur (Newham North We)
Cunliffe, Lawrence	George, Bruce	Lewis, Ron (Carlisle)
Cunningham, Dr John (Whitehaven)	Gilbert, Rt Hon Dr John	Litherland, Robert
Dalyell, Tarn	Ginsburg, David	Lofthouse, Geoffrey
Davidson, Arthur	Golding, John	Lyon, Alexander (York)

Lyons, Edward (Bradford West)	Palmer, Arthur	Steel, Rt Hon David
Mabon, Rt Hon Dr J Dickson	Park, George	Stewart, Rt Hon Donald (W Isles)
McCartney, Hugh	Parker, John	Stoddart, David
McDonald, Dr Oonagh	Parry, Robert	Strang, Gavin
McElhone, Frank	Pavitt, Laurie	Straw, Jack
McGuire, Michael (Ince)	Pendry, Tom	Summerskill, Hon Dr Shirley
McKay, Allen (Penistone)	Powell, Raymond (Ogmore)	Taylor, Mrs Ann (Bolton West)
McKelvey, William	Prescott, John	Thomas, Dafydd (Merioneth)
MacKenzie, Rt Hon Gregor	Price, Christopher (Lewisham West)	Thomas, Jeffrey (Abertillery)
Maclennan, Robert	Race, Reg	Thomas, Mike (Newcastle East)
McMillan, Tom (Glasgow, Central)	Radice, Giles	Thomas, Dr Roger (Carmarthen)
McNally, Thomas	Rees, Rt Hon Merlyn (Leeds South)	"home, Stan (Preston South)
McNamara, Kevin	Richardson, Jo	Tilley, John
McWilliam, John	Roberts, Albert (Normanton)	Torney, Tom
Magee, Bryan	Roberts, Allan (Bootle)	Urwin, Rt Hon Tom
Marks, Kenneth	Roberts, Ernest (Hackney North)	Varley, Rt Hon Eric G.
Marshall, David (Gl'sgow.Shettles'n)	Roberts, Gwilym (Cannock)	Wainwright, Edwin (Dearne Valley)
Marshall, Dr Edmund (Goole)	Robertson, George	Wainwright, Richard (Colne Valley)
Marshall, Jim (Leicester South)	Robinson, Geoffrey (Coventry NW)	Walker, Rt Hon Harold (Doncaster)
Martin, Michael (Gl'gow, Springb'rn)	Robinson, Peter (Belfast East)	Watkins, David
Mason, Rt Hon Roy	Rodgers, Rt Hon William	Welsh, Michael
Maxton, John	Rooker, J. W.	White, Frank R. (Bury & Radcliffe)
Maynard, Miss Joan	Ross, Stephen (Isle of Wight)	White, James (Glasgow, Pollok)
Meacher, Michael	Rowlands, Ted	Whitehead, Phillip
Mellish, Rt Hon Robert	Ryman, John	Whitlock, William
Millan, Rt Hon Bruce	Sandelson, Neville	Willey, Rt Hon Frederick
Miller, Dr M. S. (East Kilbride)	Sever, John	Williams, Rt Hon Alan (Swansea W)
Mitchell, Austin (Grimsby)	Sheerman, Barry	Williams, Sir Thomas (Warrington)
Mitchell, R. C. (Soton, Itchen)	Sheldon, Rt Hon Robert (A'ton-u-L)	Wilson, Gordon (Dundee East)
Morris, Rt Hon Alfred (Wythenshawe)	Shore, Rt Hon Peter (Step and Pop)	Wilson, William (Coventry SE)
Morris, Rt Hon Charles (Openshaw)	Short, Mrs Renée	Winnick, David
Morris, Rt Hon John (Aberavon)	Silkin, Rt Hon John (Deptford)	Woodall, Alec
Morton, George	Silkin, Rt Hon S.C. (Dulwich)	Woolmer, Kenneth
Moyle, Rt Hon Roland	Silverman, Julius	Wrigglesworth, Ian
Newens, Stanley	Smith, Rt Hon J. (North Lanarkshire)	Wright, Sheila
Oakes, Rt Hon Gordon	Snape, Peter	Young, David (Bolton East)
Ogden, Eric	Soley, Clive
O'Halloran, Michael	Spearing, Nigel	TELLERS FOR THE NOES:
O'Neill, Martin	Spriggs, Leslie	Mr. John Evans, and
Orme, Rt Hon Stanley	Stallard, A. W.	Mr. James Tinn.
Owen, Rt Hon Dr David

Question accordingly agreed to.

Mr. Speaker

Does any hon. Member seek to divide the House on any of the remaining motions? If not, I shall put them all together.

19. RELIEF FOR INTEREST (LIMIT FOR 1980–81)

Motion made, and Question, That the limit imposed by paragraph 5 of Schedule 1 to the Finance Act 1974 shall, subject to any reduction to be made under that paragraph, be £25,000 for the year 1980–81.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

20. CORPORATION TAX (CHARGE AND RATE FOR FINANCIAL YEAR 1979)

Motion made, and Question, That corporation tax shall be charged for the financial year 1979 at the rate of 52 per cent.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

21. ADVANCE CORPORATION TAX (RATE FOR FINANCIAL YEAR 1980)

Motion made, and Question, That the rate of advance corporation tax for the financial year 1980 shall be three-sevenths. —[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

22. CORPORATION TAX (SMALL COMPANIES)

Motion made, and Question, That—

1. (a) the small companies rate for the financial year 1979 shall be 40 per cent.; and
2. (b) the fraction by reference to which corporation tax charged on income is reduced under section 95(2) of the Finance Act 1972 shall for that financial year be seven-fiftieths.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

23. INTEREST PAID TO DIRECTORS BY CLOSE COMPANIES

Motion made, and Question, That provision may be made for repealing s.285(1) to (5) of the Income and Corporation Taxes Act 1970.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

24. BENEFITS IN KIND

Motion made, and Question, That new provision may be made for determining the cash equivalent of certain benefits chargeable to tax under Chapter II of Part III of the Finance Act 1976.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

25. STOCK RELIEF

Motion made, and Question, That certain buildings may be excluded from the definition of "trading stock" in Schedule 5 to the Finance Act 1976.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

26. CAPITAL ALLOWANCES

Motion made, and Question, That provision may be made for restricting relief under Chapter I of Part III of the Finance Act 1971 including, in certain cases, provision with retrospective effect.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

27. GRANTS UNDER INDUSTRY ACT 1972 ETC.

Motion made, and Question, That provision may be made with respect to the taxation of grants under sections 7 and 8 of the Industry Act 1972 and the corresponding Northern Ireland provisions.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

28. LIFE INSURANCE PREMIUM RELIEF

Motion made, and Question, That provision may be made for restricting the policies which are qualifying policies within the meaning of Part I of Schedule 1 to the Taxes Act 1970.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

29. RETIREMENT ANNUITIES

Motion made, and Question, That—

1. (a) in connection with provisions for affording further relief under section 227 of the Income and Corporation Taxes Act 1970, relief available by virtue of subsection (2), (2A) or (3) of that section may be withdrawn;
2. (b) subsection (5) of that section may be amended.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

30. TRUSTEE SAVINGS BANKS

Motion made, and Question, That charges to income tax and corporation tax may be imposed by—

1. (a) provisions withdrawing relief in respect of interest for periods after 20 November 1979 on deposits with trustee savings banks; and
2. (b) provisions relating to the taxation of trustee savings banks in respect of accounting periods beginning after that date.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

31. CAPITAL GAINS

Motion made, and Question. That provision may be made—

1. (a) for repealing sections 94 and 97 of 1972 the Capital Gains Tax Act 1979 and for restricting the operation of sections 267 and 273 of the Income and Corporation Taxes Act 1970 in cases involving authorised unit trusts or investment trusts;
2. (b) with respect to the computation under that Act of the gain or loss on a disposal of machinery or plant where the disposal value falls to be brought into account under section 44 of the Finance Act 1971;
3. (c) with respect to the treatment under the said Act of 1979 of certain options to buy or sell shares in a company.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions), and agreed to.

32. CAPITAL TRANSFER TAX

Motion made, and Question, That charges to capital transfer tax may be imposed by provisions—(a) restricting the operation of sections 86 and 87 of the Finance Act 1976; (b) relating to proper liferents in Scotland—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

33. DEVELOPMENT LAND TAX

Motion made, and Question, That provision may be made—(a) whereby the deferment of liability enjoyed by statutory undertakers under section 23 of the Development Land Tax Act 1976 is terminated on the occasion of a disposal of the relevant interest to persons other than statutory undertakers;(b) restricting the exemption conferred by section 12 of that Act.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions)and agreed to.

34. REDUCTION OF STAMP DUTY ON CONVEYANCES AND LEASES

Motion made, and Question, That the following provisionse shall have effect for the period beginning 6 April 1980 and ending 31 days after the earliest of the dates metioned in section 50(2) of the Finance Act 1973—

(1) In subsection (1) of section 55 of the Finance Act 1963 and in the Table in Part 1 of Schedule 11 to that Act (under which stamp duty is not chargeable on conveyances and

"Exceeding £250 and not exceeding £300	Nil	6.00	36.00	72.00
Exceeding £300 and not exceeding £350	Nil	7.00	42.00	84.00
Exceeding £350 and not exceeding £400	Nii	8.00	48.00	96.00
Exceeding £400
for any full sum of £50 and also for any fractional part thereof	0.50	1.00	6.07	12.00

(4) The foregoing provision shall apply to instruments executed on or after 6th April 1980. And it is hereby declared that is it expedient in the public interest that this Resolution should have statutory effect under the provisions of section 50 of the Finance Act 1973.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

35. STAMP DUTY ON CHARITABLE COVENANTS FOR VARIABLE AMOUNTS

Motion made, and Question, That the following provisions shall have effect for the period beginning 6th April 1980 and ending 31 days after the earliest of the dates mentioned in section 50(2) of the Finance Act 1973—

(1) No stamp duty shall be chargeable by virtue of the heading in Schedule 1 to the Stamp Act 1891 "Deed of any kind whatsoever, not described in this Schedule" on any covenant made otherwise than for consideration transfers certified at £15,000 and is chargeable at reduced rates on those certified at £20,000, £25,000 and £30,000) and in subsection (1) of section 4 of the Finance Act (Northern Ireland) 1963 and in the Table in Part I of Schedule 1 to that Act (which makes similar provision for Northern Ireland) for" £15,000", "£20,000", "£25,000"and" £30,000", wherever occurring there shall be substituted respectively "£20,000", "£25,000", "£30,000", and "£35,000".

(2) In subsection (2) of the said section 55 and of the said section 4 (under which the relief afforded by subsection (1) of those sections is not available as respects the duly chargeable in respect of the premium for a lease if the consideration includes rent exceeding £150 a year) for "£150" there shall be substituted" £250".

(3) In the heading "Lease or Tack" in Schedule 1 to the Stamp Act 1891 at it applies throughout the United Kingdom

1. (a) in paragraph (2)(a) (duty where definite term less than a year of furnished dwelling-house and rent exceeds £250) for "£250" there shall be substituted "£400", and
2. (b) in the table in paragraph (3) (which provides for duty on rent in the case of any other term and the first column of which indicates the rent, the second column the duty where the term does not exceed 7 years or is indefinite, the third column the duty where the term exceeds 7 years but not 35 years, the fourth column the duty where the term exceeds 35 years but not 100 years and the fifth column the duty where the term exceeds 100 years) for the last entry there shall be substituted—

in money or money's worth in favour of a body of persons or trust established for charitable purposes only whereby annual payments become payable for a period which may exceed three years and is not capable of earlier termination under any power exercisable without the consent of the persons for the time being entitled to the payments.

(2) The foregoing provision shall apply to covenants executed on or after 6th April 1980.

And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of section 50 of the Finance Act 1973. —[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

36. OIL TAXATION

Motion made, and Question, That—

1. (a) the rate of petroleum revenue tax for chargeable periods ending after 31st 367 December 1979 shall be increased from 60 per cent. to 70 per cent.;
2. (b) provision may be made for requiring the making of advance payments of petroleum revenue tax;
3. (c) provision may be made for supplementing and modifying Part I of the Oil Taxation Act 1975 in cases where there is a transfer of the whole or part of an interest in an oil field;
4. (d) provision (including provision with retrospective effect) may be made with respect to the application of that Act in relation to—
1. (i) oil consisting of gas;
2. (ii) an oil-bearing area consisting partly of an oil field within the meaning of that Act and partly of a sector under the jurisdiction of another country.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

37. RELIEF FROM TAX (INCIDENTAL AND CONSEQUENTIAL CHARGES)

Motion made, and Question, That it is expedient to authorise any incidental or consequential charges to any duty or tax (including charges having retrospective effect) which may arise from provisions designed in general to afford relief from tax.—[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.

PROCEDURE (MUTUAL RECOVERY AND DISCLOSURE OF INFORMATION AS RESPECTS VALUE ADDED TAX)

Motion made, and Question, That, notwithstanding anything to 'the contrary in the practice of the House relating to matters which may be included in Finance Bills, provision may be made in any Finance Bill of the present Session for giving effect to the Directive of the Council of the European Communities dated 6 December 1979 No. 79/ 1070/EEC and the Directive of that Council dated 6th December 1979 No. 79/1071/EEC. —[Sir Geoffrey Howe.]

put forthwith pursuant to Standing Order No. 94 (Ways and Means motions),and agreed to.