RATE OF VALUE-ADDED TAX

HC Deb 16 July 1980 vol 988 cc1577-611

As from the date of the passing of this Act in section 9(1) of the Finance Act 1972 (as amended by section 1(1)(b) of the Finance (No. 2) Act 1979) (standard rate of value-added tax) for the words "fifteen per cent." there shall be substituted the words "twelve and one half per cent."—[Mr. Horam.]

Brought up, and read the First time.

Mr. Horam

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

The object of the new clause is to reduce the general rate of VAT from its present level of 15 per cent. to 12½ per cent. We wish to do that for three reasons. First, we want to ameliorate the anomalies in the structure of VAT that have been made harsher by the increase from 8 per cent. to 15 per cent.—which was the Government's first major decision in the economic sphere. Secondly, we want to reduce inflation by cutting prices and influencing wage settlements and thirdly, we seek to increase manufacturing activity and, therefore, to reduce unemployment.

I shall deal first with the question of anomalies in hard cases. We discussed that issue in our debates on the Finance Bill last year, when the Government changed the general rate of VAT. In the intervening 12 months the practical difficulties of the structure of, and the exemptions from, VAT have become more apparent, especially as a result of the harsh economic climate created by the Government. There are a large number of anomalies ranging from the live theatre and food items to sanitary towels and matters of that sort.

I shall pick out two or three examples that illustrate the problem we now face. There is the important question of children's clothing and footwear where VAT is not chargeable but, for the sake of VAT, children stop being children when they reach the average size of a 13-year old. A proportion of children reach that point in time younger than 13, and as time goes by more and more will fall into that category. Therefore, tax must be paid at the full VAT rate for clothing and footwear for 11-year-olds. That state of affairs has persisted since VAT came into being, but it has been made worse by the doubling of the general rate of VAT in the 1979 Budget. It has had a particularly bad effect on young families.

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To be fair, the Goernment have looked into this matter, and I understand that they have received a report from the Customs and Excise. In commenting on that study, the Minister of State said that widening the scheme to benefit older children and larger children would mean going beyond the original purpose of the scheme". He added: Alternative schemes of relief which have been suggested in various quarters would similarly involve an unacceptable revenue risk". That is a pretty negative response to the hardships which exist. I am sure that the whole House is disappointed by the Minister's response.

I do not see why the VAT exemption cannot include school uniforms. In many localities, school uniforms for the area will be well known to those who sell them. When a person is buying a school uniform, it is perfectly apparent that not many teenagers or adults who are not at school will want a school uniform. There seems to be very little possibility of abuse, but, if there is, the Government should be able to resolve it. That practical suggestion has been put to the Government on a number of occasions, but it has not been taken seriously enough.

I believe that the Financial Secretary is to reply to the debate. I did not know that his responsibilities normally covered VAT. None the less, I shall be interested to hear what he has to say. I accept that that would mean a change in the structure of VAT. However, the reduction to 12½ per cent. would at least be some amelioration of that difficult situation.

The second area of concern which has emerged strongly in the last few months relates to VAT on the NHS. The NHS pays roughly between £90 million and £100 million in VAT. About £45 million was added as part of that total when the Government increased VAT from per cent. to 15 per cent. As we know, the NHS is suffering from an acute cash crisis. That was fully brought out at the last BMA conference. According to a report: Financial problems dominated the first day's debate at the conference in Newcastle, with doctors highlighting the effects of cash shortages. Hospitals, they said, were threatened with closure, over half a million patients were waiting for treatment, and services to the mentally and physically handicapped were wholly inadequate. The doctors carried overwhelmingly a motion expressing their 'grave concern' at the financial problems facing the NHS, and in particular its effect on medical and nursing staffing. The human consequences of that sort of cash shortage are often literally quite tragic. For example, in recent months, the Sunday Mirror has been running a campaign on the lack of kidney machines. I am glad to see my right hon. Friend the Member for Lewisham, East (Mr. Moyle) on the Front Bench, because I know that he has been concerned about this aspect of the problem. In the articles in the Sunday Mirror, Dr. Anthony Wing pointed out that 1,000 kidney patients died last year because machines were not available for them. They were not available because there was no cash to purchase them. It is no use the Minister for Health saying to the Sunday Mirror, as I gather he did, that along with him it should start a drive to raise the money from charities.

The fact is that we are talking about basic health needs, and in this case we are talking about human life. Surely we have gone past the stage when we can tackle these problems by adopting the attitude of Lady Bountiful. We must have clear public provision. A reduction of VAT on the NHS would provide a small amount of cash which is desperately needed at this point in the history of the NHS. I am sure that the Government would have the support of all Opposition Members if they decided not only to accept the new clause but to exempt the NHS as a whole from VAT.

My third example relates to the building industry. As we know, repairs and maintenance are taxable, whereas improvement is not. Thus, if one insert a chemical damp course in an old house, which is quite common during the rehabilitation work, the removal of the skirting board is taxable; the drilling and injecting of the chemical fluids are not taxable; reinstating the skirting board and redecorating are taxable. As a result, the keeping of records and the administration involved in that simple exercise are probably as much as the profit involved for the person who is carrying out the work.

There is now another nonsense whereby some of the grants which the Government are giving for work in this area are now exceeded by the amount of VAT which is paid on that work. For example, the Government supply the churches restoration fund with roughly £2 million in grants, yet it pays back more in VAT. That is clearly nonsense, and the Government know it to be nonsense. Given that at present we have an extremely depressed construction industry, a reduction of VAT to 12½ per cent. would be some small filip to that type of work, which because it is labour intensive, would do a considerable amount to ease the current rising unemployment.

However, it is not with these special cases, which have been made worse by 15 per cent. VAT, that I am principally concerned. I am more concerned about the general economic situation and the effect which a reduction in VAT would have. As I have already said, I believe that it would help to reduce inflation and increase employment.

There is no doubt now that one of the Government's biggest mistakes in the economic sphere was to increase VAT from 8 per cent. to 15 per cent. in their first Budget. It was particularly a mistake when they claimed that their central priority was to reduce inflation, because by doing so they increased the retail price index by more than 3½ per cent. at a stroke. Faced with public concern, the Government's riposte was that this was a once and for all increase. But that shows the lack of understanding of economic reality which has pervaded their approach to our economic problems.

An increase in VAT of that size has consequences, not least with regard to wage claims and settlements. It is now clear beyond any reasonable doubt that the increase in VAT was a major cause of the high wage round which is now nearing completion. The 21.3 per cent. rise in earnings was, according to most objective opinion, attributable to a considerable extent to the increase in VAT and other increased charges that were made by the Government. Certainly, that sort of figure bore no relation to the 7 to 11 per cent. monetary targets which the Government held out as their major element of control.

The first advantage of a reduction in the general rate of VAT, therefore, is that the Government would be seen to be doing something directly about the rate of inflation. We would have the novel sight of the Government tackling inflation by cutting prices. In their monetarist frame of mind, the Government will probably shrink from this obvious, banal approach to the problem. One can well understand that, especially after the Secretary of State for Trade has gone on record as saying that increases in prices due to VAT have nothing to do with inflation. We get into a remarkable mental state when the obvious and straightforward approach to the problems of inflation is rejected as somehow bizarre.

The second advantage of my suggestion is that this would come at a time when there is the possibility of a downward trend. As we know, the present level of the annual increase in the retail price index is just under 22 per cent. This month's figures will be coming out this week. There should be some levelling off in that rate of increase. I imagine that in the following month there will be a substantial decline in the index as the effect of the VAT increase comes to an end. Therefore, there should be a reduction of 3½ per cent. on that score alone.

If this new clause is accepted, that deceleration in the retail price index will be carried further, to the extent of 1½ to 2 per cent., by virtue of a general reduction in the general rate of VAT. Therefore, the RPI would fall dramatically in historical terms and that would have, if not an effect on wage claims that are in the course of settlement, an effect on the outcome of wage negotiations, because the RPI would meet or better the Government's target of 16 per cent. by the end of the year.

The third advantage is that it would have a favourable effect on prices without an unfavourable effect on employment. On the contrary, such a measure would increase output and productivity, and consequently employment, simply by increasing consumer demand. It would come at a time of a spectacular collapse—certainly in the Midlands—in consumer confidence, resulting in high levels of unemployment, an so on. Therefore, a reflationary measure of this sort would be apposite now, and would perform the function of the regulator which, by this Bill, the Government are taking out of the hands of future Governments.

For the sake of professionalism we have available to us the Treasury model for simulating these exercises. I took the trouble to run these proposals through that model. The effect would be an immediate fall of 1.6 per cent. in the retail price index, and by the second quarter of 1982 prices would be 1.8 per cent. below what they would otherwise have been, due to the continuing effect of the immediate reduction of the RPI on wage settlements. By the second quarter of 1982 there would be about 100,000 more jobs. The results are not dramatic, but they are substantial and worthwhile.

The Government's answer to the new clause will be that it would add to the public sector borrowing requirement. From the calculations that I have just described, it would add an additional £1 billion in 1981, and rather less thereafter. The Minister may disagree, but we are talking about his own model.

He will say that if monetary targets remain unaltered, interest rates would rise. In successive debates we have made plain our opinion of the Government's monetary targets. They are too tight, and they are damaging output without significantly affecting inflation. We believe that they could be relaxed. That is our fundamental argument.

But even if we accepted the Government's parameters, and if the monetary targets were retained, I still believe that this measure would, on balance, be beneficial. To offset the higher interest rates we would have a greater level of consumer demand. While many factors are causing concern to industry at present, and causing lower production and higher unemployment, the sudden fall in consumer demand is the most fundamental point. That is where industry would prefer help. I believe that if it were asked to choose between lower interest rates and increased consumer demand, industry would choose the extra fillip to consumer demand that is implicit in this clause.

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If interest rates were maintained at their present level or increased as a result of this clause, pressure on wage settlements would continue. Even in the Government's own terms, I believe that this amendment is a sensible step forward. But in general terms, it will give the man in the street an indication that the Government are prepared to help directly to bring prices down in an obvious and unmistakable way, and it would be a sign that they cared about the horrifying rise in unemployment. In those terms I commend the new clause to the House.

Miss Joan Lestor (Eton and Slough)

I wish to speak on the narrow point of the cut-off stage of VAT for children's clothing. I have had correspondence with the Chancellor of the Exchequer and I have tabled many questions on the subject.

I have recently carried out a small survey on school uniform. Of 20 girls completing their second year at secondary school, 15 or 16 will have to buy clothing. which will be subject to VAT, to replace their school uniform. The argument against raising the cut-off level of VAT is that it is subject to abuse: small adults could buy clothing which would not be subject to VAT.

In two or three weeks I shall be buying a school uniform for my daughter. I shall be buying a grey skirt, a grey pullover, grey socks and a pink blouse. I can assure the House that I have no intention of buying that school uniform for myself and coming to the House thus attired. Whatever the arguments about the VAT cut-off level on some clothing, there can be no argument about school uniform. The problem facing many parents is that their children are now adult in terms of clothing, and they have to pay VAT on that clothing simply because they have produced taller or bigger children. That is utterly ridiculous.

There cannot be any argument about school uniform. However much we may have advanced in styles, there are not many adults who want to parade themselves in school uniform. Even if it is true that some people do that, the discrimination against the children or households that have to pay extra for children's clothing can be offset against the alleged abuse.

I hope that the Government will make a real effort to meet some of the arguments that have been made. In my view, there is an unanswerable case for school clothing. As for other clothing, the larger child, particularly the girl, is penalised because of size. If the parent has to pay VAT on children's leisure clothing, the larger child will not be able to have as many clothes as the smaller child. On those grounds, too, there ought to be some way in which some of these points can be met.

The doubling of VAT has produced great hardship for large numbers of families in this country in which the children have grown to stature and maturity—something the whole nation should be proud of—because of the great school meals service, which is now being undermined, and the school milk provision, which is now being lost.

My last point is one that has been mentioned again and again, although we seem to get nowhere with it. What on earth is the justification for VAT on sanitary towels? There can be no justification for it. When the Government are considering any changes in VAT or any relaxation of VAT, they should make a gesture and remove the VAT on sanitary towels.

Mr. Martin J. O'Neill (Clackmannan and East Stirlingshire)

My hon. Friend the Member for Eton and Slough (Miss Lestor) has put forward several arguments of a special nature. In doing so, I am sure that she was acting on behalf of the many parents of pupils at the well-known school that is named after her constituency. However, the arguments are even sharper when we consider the large State comprehensive schools, where school uniform is being discontinued and the children want to wear clothes which are as attractive as those of adults. At the ages of 15 and 16, considerable difficulties are arising in households as a result of the pressures of fashion and, at the same time, the pressures of value added tax.

I want to direct my remarks to the macro-economic effects of the new clause, because it is quite clear that, while there is no great response on the part of wage negotiators to cuts in taxation, increases in taxation can have a considerable effect. The VAT increase of last year is still being worked through the system in terms of wage claims.

Looking to the position 18 months to two years hence, some reduction in the rate of wage increases may be thought to be desirable. Obviously we want the rate of inflation eventually to come down. In that context, the amendment can be seen by the country at large as a meaningful step in the right direction. Obviously anything that can be done to reduce the level of unemployment is to be encouraged.

Reference has already been made to the use of computers and models. Unfortunately, so many different interpretations of the model are being made these days that it seems to be possible to prove almost anything. However, if we take the sensible construction that was placed on the model by my hon. Friend the Member for Gateshead, West (Mr. Horam), we can safely say that about 100,000 jobs would be likely to be created if the new clause were to be implemented.

In recent years, Labour Members have been reluctant to speak up on the regressive nature of indirect taxation. I believe that it is an essential tenet of Socialism that those who have should contribute more to the common weal than those who have not. We should therefore seek to reduce the level of taxes on consumption. This is perhaps simplistic and perhaps mildly ideological, but it is no less relevant as an element in political philosophy than the kinds of arguments put forward by the monetarists on the Conservative Benches, who seem to believe that they have only to cut direct taxes and allow indirect taxes to rip in order to produce some sort of liberated economy.

Apart from the 100,000 or so jobs that would be created by the reflationary element in the amendment, a 2½ per cent. reduction in VAT would be of considerable assistance to people who at present are living on unemployment benefit and on various forms of supplementary benefits, which will not be increased this year to anything like the same extent as the increase in inflation. The Government must surely admit that the amount by which the social security benefits will be increased will not match the levels of inflation being forecast even by their own faulty computer.

The time is long overdue for the Opposition to make clear that if we were back in power we would be starting to erode the intolerably high indirect taxation in this country, and that if necessary we would find the revenue from other sources. We do not share the Government's preoccupation with the level of public sector borrowing requirement. Therefore, we would be talking about a higher public sector borrowing requirement than the Government have set as their target. As a Socialist party we are seeking to bring about a greater degree of equality in the country—I accept that Conservative Members do not regard that as a justifiable political objective—and access to consumption is a desirable step in that direction.

Anyone who wishes to do something about reducing unemployment and making a modest impact on the level of inflation should support the new clause. I reiterate the point made by my hon. Friend the Member for Eton and Slough about the difficulties of parents in clothing their children. Incidentally, those parents have very little assurance today that their ever-growing children will have jobs once they leave school. The only realistic way in which to help such people in their difficulties is to support the new clause.

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

I support the amendment, the intention of which is to reduce the rate of value added tax. The Government have often stressed that the prime objective of their policy is to reduce inflation. They have appealed to wage earners to take notice of monetary targets, but that is far too remote and meaningless for ordinary people to take into account in their everyday lives, particularly when what they see, at a time when the Government are talking of monetary targets, is a succession of Government actions intended to increase prices.

Last year, there was a doubling of VAT. I well remember—it was the first Budget for which I had been present in the House—that Conservative Members were waving their Order Papers with glee at that Budget, which resulted in a doubling of VAT and the setting up of a marked inflationary spiral. No doubt, when those Conservative Members were supporting their own Government they thought that the objective was to reduce prices, but we have now long since forgotten about all the initiative and drive that were to result from last year's income tax cuts. The reason for doubling VAT was supposed to be to create energy and drive. Instead, the result has been spiralling inflation and growing unemployment. This year's financial debates have been a lot more sombre and sober than the debates in the heady days of the post-election euphoria.

Since then, the Government have not stood still. They have talked about monetary targets and the fight against inflation, but they have regularly increased price after price. We have not only had petrol and oil prices going up in line with the most hawkish of OPEC countries. The Government have accepted rises in common agricultural prices; they have accepted a devaluation of the green pound.

Mortgages have risen to astronomical, and historically high, levels. Rents have been forced up. There is even talk that the Secretary of State for the Environment will use his financial powers to compel local housing authorities to raise council house rents. However, at the same time, Treasury Ministers talk about the need to hold down prices and wage demands.

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Little secret is made of the fact that the Government's expenditure proposals mean that council house rents will rise by up to £9 or £10 a week—over and above inflation—over three years. In addition, there will be further reductions in house building programmes. Nationalised industries have been set impossible financial targets. It is clear that that will result in huge increases in the cost of electricity, coal, gas, petrol, postal charges, train fares, bus fares, and so on. I have stressed the Government's deliberate intention to raise prices and squeeze living standards in order to emphasise a crucial point. Do the Government wish to bring down the rate of inflation quickly? Is that their policy? Their policies are clearly directed—in deed as opposed to in word—the opposite direction.

It is no good telling wage earners that they must not price themselves out of jobs, if the Government are busy stoking up the fires of inflation. Unemployment is racing at an alarming speed towards the 2 million mark. There has been a record number of bankruptcies and long-established businesses genuinely fear for their survival. Informed commentators say that unemployment will reach 2½ million or 3 million. The Minister knows that that is not scaremongering. The figures have been produced by responsible and realistic forecasters. After all that, the Government will return only to the rate of inflation that they inherited when the Labour Party left office. That is ironic. Unemployment, production losses, and enormous increases in living costs will result only in the inflation rate that existed when the Government took office.

The amendment gives the Government an opportunity to reduce inflation by a deliberate and direct act of policy. As my hon. Friend the Member for Gateshead, West (Mr. Horam) said, the Government will be able to boost demand, sales, production and jobs. If the retail price index falls in July, it will give the Government an opportunity to reduce inflation by 5 per cent. or 6 per cent. at a crucial moment in their preparations for the annual round of wage negotiations. Last year, VAT was doubled, and that undoubtedly had an effect on the ability of wage negotiators to convince their members to talk about wage restraint. Just as I was critical last year, I am prepared this year to state that I am certain that a reduction of 5 per cent. or 6 per cent. in the retail price index would affect wage negotiations and wage negotiators.

The Government have been given an opportunity to show that actions speak louder than words. It is no good talking about monetary targets if they shove up the prices. The Government can vote for reduced prices tonight. They can show that they believe what they say. They can go further. They can moderate some of the other price increases that threaten. The electorate does not realise what will hit it in the form of increased prices for gas, electricity and rent. People do not realise what will happen this winter. Only yesterday, the Chancellor of the Exchequer told people to take note of monetary targets. It is no use having such targets if the Government deliberately force up prices at the same time.

In the next few months there will be deliberate and massive increases. Even industry is complaining about gas prices. It realises what is implied. It is no good just talking about bringing down inflation. Last year, Conservative Back Benchers waved their Order Papers in election euphoria just as the Government were doubling VAT and setting off on a disastrous economic policy.

Mr. Hooley

Breaking their manifesto promise.

Mr. Woolmer

The Government said that it was a lie to suggest that they would increase VAT. This year, Conservative Back Benchers can vote more soberly and responsibly to reduce VAT. They can show that the House believes that inflation can be brought under control.

Mr. Robert Adley (Christchurch and Lymington)

I shall intervene briefly in the debate, and I hope that I am not out of order. I recall that when a previous Conservative Government introduced VAT it was at the uniform rate of 10 per cent. It was not the Conservative Party that increased VAT to 25 per cent. I have never forgotten the look that the former Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey), gave to my right hon. Friend the Member for Sidcup (Mr. Heath), when he gloatingly announced that VAT would be increased to 25 per cent. for boat builders. That had a very damaging effect on my constituency.

I declare an interest, as I am a marketing director of a hotel company. I wish to draw the attention of my hon. Friend the Financial Secretary to the effect that the increased rate of VAT has had on the competitiveness of our tourist industry. The strength of our currency has had a considerable effect. However, in the national interest, I make no complaint. Many of those in the service industries feel that it is unfair that the hotel industry is not allowed to offer overseas visitors any exemption on VAT. Such visitors bring valuable foreign currency into Britain. However, exemption is available to those overseas visitors who buy fur coats and a whole range of luxury goods. I hope that my hon. Friend will bear in mind that the hotel industry feels that it is getting a raw deal. The foreign currency earned from tourism is just as valuable as the foreign currency that is earned by those who come here to buy goods in our shops.

I accept that my hon. Friend will not be able to do anything about that in the Bill. However, as other amendments have not been selected, I have chosen this opportunity to bring that point to the attention of my hon. Friend.

Mr. Hooley

I would have thought that the Treasury Bench would have welcomed the new clause with open arms. Her Majesty's loyal Opposition are positively panting to help the Government in their declared aim of bringing down inflation. I can hardly imagine a better, quicker or simpler way of achieving that than cutting VAT from 15 to 12½ per cent.

Ministers repeatedly tell us, both inside and outside the House, that inflation is the central objective of their policies. According to them, everything else depends on that, including the health of the economy, growth and so on. They say that the ability to pay better pensions and social benefits depends on the success of the attack on inflation. When the Prime Minister goes to international gatherings, such as the meeting in Venice, the story is told that inflation is the bogy man, and that it must be brought down. I have no reason to dispute that the Government hold that view. However, they have shown themselves grotesquely incompetent in pursuit of that central objective.

As my hon. Friend the Member for Batley and Morley (Mr. Woolmer) said, the Government inherited an inflation rate of 10 per cent. and managed to push it up to 22 per cent. in 14 months. That is quite an achievement, given all their arguments point to cutting inflation. On that ground alone, the Treasury should welcome this contribution from Her Majesty's Opposition, which will help to solve our appalling rate of inflation.

Let us consider some of the other advantages of the clause to the country and to the Government. Let us consider the clause's effect on unemployment. The Government have shown themselves to be depressingly indifferent to the plight of the unemployed. Despite protestations, the figures have gone up. The last set of figures showed that 1.6 million people were unemployed. That is a record. Everybody believes that that figure will have risen to 1.8 million in a week's time. Most people believe that it will have reached 2 million by the end of the year, or by the beginning of next year. What are the Government doing about it? Absolutely nothing. The small firms employment subsidy has been scrapped, skillcentres are being cut down, the special temporary employment programme is being slashed from 35,000 to 12,000 places and so on. One could quote item after item on which the Government have failed to take positive action to deal with unemployment.

Far be it from me to suggest that by reducing VAT from 15 per cent to 12½ per cent. the Government could solve that problem. But at least some contribution would be made. There would be some incentive to demand and some incentive to manufacturers to produce more, knowing that even if their goods were produced at the same price, at least the incidence of taxation would bring down prices a little in the shops and stimulate demand. Quite apart from the argument on inflation, there is a powerful argument for the amendment in terms of reducing unemployment, even if only marginally.

The third point relates to business confidence. A little while ago MLR came down with a great flourish from 17 per cent. to 16 per cent. It is still at an absolutely outrageous and ridiculous height. It is still destroying the ability of many firms to survive and the incentive of many others to invest. Nevertheless, there was a great flourish as MLR came down by one percentage point. The stock exchange went mad, there was great excitement, and share prices went up. Surely if business were given the incentive of knowing that VAT would be cut by 2½ per cent. as a direct stimulus to demand, it would be encouraged. Those business men—if there are any left—who still have some small faith in the Government's ability to manage our economic affairs would be encouraged by such a move. At least it would be a faint indication that the Government were moving towards some sort of expansion of the economy instead of maintaining the vicious, depressing deflation that all their policies represent. In the interests of keeping their friends in the CBI the Government should adopt this modest but sensible proposition. The Government's friends are shrinking in numbers day by day. Thus, from the points of view of inflation, unemployment and business confidence there is every incentive for the Government to accept this sensible and constructive amendment.

There is another aspect as well—that of an incomes policy. So far the Government's incomes policy—in so far as they have one—appears to be to default on and dishonour pledges that have been made. For example, they have defaulted on the pledge to Members of this House on their salaries. There was a firm commitment by the Leader of the House that the recommendations of the independent review body would be honoured. That firm commitment has been broken and the Prime Minister has told the House that she has no intention of laying before the House an instrument or resolution to implement the findings of the Boyle committee's report.

I suggest that by reducing VAT the Government could make some impact on the formulation of wage demands. The reduction of VAT would help to reduce inflation and thus reduce the RPI. If the cost of goods in the shops were reduced, responsible negotiators—and my trade union friends are responsible negotiators, despite the rubbish that is sometimes talked on the Conservative Benches—would take this into account in their wage bargaining. Thus there would be a useful effect on the general level of inflation—the constant spiral of prices acting on incomes and incomes acting again on prices. Therefore, in terms of incomes policy and the general effect on incomes bargaining, the reduction in VAT could be positive and beneficial without any loss in real purchasing power to any of the bargainers. I am not suggesting that their incomes should be reduced, but possibly they could accept slightly moderated claims without in any way reducing the real standard of living of the people they represent. If the new clause were carried the prices in the shops would be reduced and this would be conducive to bringing down inflation.

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Therefore, all aspects of the clause are conducive to the declared aims of the Government—the reduction of inflation, the reduction of unemployment, the restoration of business confidence and assistance with the wage bargaining problems of trade union leaders and others. In all those respects this amendment would make a positive and constructive contribution and I would be interested to hear how the Financial Secretary could claim otherwise.

There is another aspect. This Government, by a squalid sleight of hand, deprived the pensioners of this country of two weeks' increase in their pensions. They created what has never been heard of before—the 54-week year. A large sum of money which should have accrued to the pensioners by way of an increase for those two weeks has not been given to the rightful recipients. By accepting the amendment the Government could make a modest contribution to restoring the purchasing power of pensions.

It would be difficult to calculate the exact effect of this. It is not easy to calculate how much indirect tax pensioners pay but it is quite considerable. When one adds up the various indirect taxes one realises that the notion that pensioners do not pay tax is nonsense. Pensioners pay a fair bit of their income in indirect taxation. The clause would make a modest contribution towards relieving the 8 million people who are living on pensions in retirement of their taxation burden and would help their standard of living. It would also offset the squalid trick played upon them by the Government with the creation of the 54-week year. This also applies to a great many other social benefits.

The new clause would also offset the Government's very mean attitude to the uprating of child benefit. We all know that child benefit was not properly up-rated to compensate in full for the anticipated rise in inflation. This was another little manoeuvre designed to save the Government %£30 million or £40 million at the expense of parents with children. My hon. Friend the Member for Eton and Slough (Miss Lestor) mentioned the problem of VAT on clothing for children who are growing into adult sizes. That is a special problem and there are plenty of others faced by parents paying for the needs of children at school, particularly those in their teens. Reducing VAT in the manner suggested by my hon. Friend would considerably help parents, who were looking forward to a genuine up-rating of child benefit, and have been cheated by the Government.

It will be difficult for the Treasury to deny the advantages my hon. Friend's proposition for inflation, employment, business confidence, incomes policy and the benefits to those living on social security. However, the Financial Secretary may argue that there would be a demand for additional imports, which would create a balance of payments problem. With £10 billion or £15 billion North Sea oil and gas revenue I doubt whether even this Government could create a serious deficit in the balance of payments. In the past 14 months they have tried hard to put us in deficit, but they will have to try even harder as the enormous natural wealth of gas and oil comes more and more on stream. The Financial Secretary would be hard pressed to argue the disadvantage for our balance of payments compared with the stimulation of demand that the clause would produce.

Another entrenched position that the Treasury takes is over the famous PSBR—the public sector borrowing requirement or the central Government borrowing requirement. There are delightful variations on the theme. Next to the Government's worship of their goal to reduce inflation is their central aim of controlling or reducing the PSBR. The Minister of Agriculture, Fisheries and Food the other day made a speech that is highly embarrassing to the Government. He pointed out that the cost of having 1.6 million people unemployed is about £7 billion in terms of paying unemployment and social security benefits and forgoing the revenue from income tax. The figure may be £5 billion or £8 billion. We need not quarrel about the odd billion pounds when we are dealing with Treasury figures. The main theme of the right hon. Gentleman's argument is correct. The Government are deliberately forcing up unemployment, which is heading steadily for 1.8 million, and will probably reach 2 million by the end of the year. They are thereby aggravating the PSBR problem.

My hon. Friend the Member for Batley and Morley argues that a reduction in VAT from 15 to 12½ per cent. would reduce the unemployment figure by 100,000, which is probably a fair estimate. If demand is increased and business confidence improved, that is quite possible. That reduction would provide the Treasury with the revenue that it needs to fill in the gap in the PSBR.

The Financial Secretary may argue that a 2½ per cent. reduction in VAT will lose the Treasury a great deal of revenue, which would upset the PSBR calculation and bring disaster upon disaster. We are already experiencing the disasters of inflation that the Government are supposed to be combating. The clause would help to move the economy in the right direction, stimulate demand and reduce unemployment. It would also have a beneficial effect on the PSBR. It would provide extra revenue, and reduce the Treasury's commitment to unemployment and social security payments. There is everything to be said for this sensible and constructive clause in terms of inflation, unemployment, business confidence, an incomes policy—if the Government want one—the value of pensions and child benefit, where the Government have acted so shabbily, the balance of payments and even the Treasury idol, the PSBR.

Mr. David Stoddart (Swindon)

I support the amendment.

I should first like to put the hon. Member for Christchurch and Lymington (Mr. Adley) right. I am sure that he does not mean to give the impression that under a Labour Government VAT stood at 25 per cent. The rate of VAT under a Labour Government was reduced from 10 to 8 per cent. In accordance with our policy, certain inessential items were taxed at a higher rate, but the majority of items were taxed at 8 per cent.

Mr. Adley

I said only that the boat builders in my constituency were severely damaged and unemployment was created. The industry, which at that time was mainly concerned with export trade, was hard hit when the Labour Government increased VAT from 10 to 25 per cent. That severely affected the home market, and consequently the export market.

Mr. Stoddart

I served on the Committee, and heard all the arguments about the boat builders. The hon. Gentleman is aware that VAT is not levied on boats exported. During the whole period of the last Labour Government the standard rate of VAT was 8 per cent.

This is a sensible new clause which should commend itself to the Government, because the present Chancellor of the Exchequer gave the impression in a broadcast before the election that he would support a 12½ per cent. rate of VAT. The Government should review their policy and honour that near pledge to the electorate.

It is interesting to contrast the Government's actions yesterday with their attitude today. Yesterday they proposed expenditure of £5,000 million on a so-called independent nuclear deterrent. Even the Americans agree that it is not a deterrent and that it is not independent. They would prefer us not to have it. The House should contrast that with the Government's resistance of a reasonable amendment to assist the people of this country and to help to reduce the rate of unemployment.

8.30 pm

We are suffering a recession which is rapidly developing into a slump. The shadows of the 1930s are closing around us. As my hon. Friends have pointed out, a reduction in VAT would help to push those shadows away a little. If the Government have a care for the unemployed and wish to avoid the gathering slump, they should take the amendment seriously.

We heard today that the general standard of living is being affected not only by unemployment, but by a reduction in the number of hours of overtime being worked. Incomes have been reduced by 1½ per cent. because of that reduction. That is significant and will assist the developing slump. There is a need to stimulate the economy and not to push it further down. But perhaps the Government intend to use unemployment and a lower standard of living to bludgeon workers into utter docility. If that is their plan, I must tell them that it is an unwise one which will rebound on them with social, and perhaps even political, consequences.

I have referred in previous speeches to VAT on children's clothes. I have two kids and, like other Members, I know about the problem from first-hand experience. I was in the Hosue in 1972 when VAT—an absurd foreign tax—was imposed on this country. I remember hon. Members from both sides fighting the Government for an exemption for children's shoes and clothes. That was a fight by Parliament against a resistant Government who, because of the efforts of hon. Members on both sides, eventually made a concession.

However, that concession is coming to nought, because the clothes of children aged 10 and 11 are being taxed at the standard rate of VAT. I have a son of 14 who is a big chap and takes size 11 shoes. My other boy is 10½. Yesterday, he complained that his shoes were getting tight and my wife bought him a new pair. Because he now takes size 4, having moved up from size 3½, my wife had to pay VAT on the new shoes.

What sort of exemption is that? The Government should examine the matter closely. Families are under siege—from escalating food prices, rents, mortgage interest and rates. They do not receive the exemption that we thought they would have on children's clothes.

The Government even ratted on the child benefit increase. The increase that families should have received last November was delayed until November this year. They have not yet got their 75p and even that is about 45p below what the Government estimate the child benefit should be to keep it in line with inflation.

The clause is eminently sensible. For their own sake, for the sake of sensible policy and for the country's future, the Government should consider it seriously. For all the reasons advanced by my hon. Friends, including those on the Opposition Front Bench, they should accept it.

Mr. D. N. Campbell-Savours (Workington)

Being one of those who wish to attend the debate on the summer time order later tonight, I do not wish unduly to delay the House now. However, I must say that the Financial Secretary and his friends in the Treasury would have done well to join some of us last Thursday when we marched from King's Cross station to near the House with 800 steel workers from Consett. The many people who took part did not know what the future held for them. They are among the nearly 2 million unemployed who look to the Government to take action to resolve their difficulties.

I do not wish to dissociate myself from the principle of high indirect taxation, although perhaps not necessarily as high as was introduced last year and in succeeding Budgets. It would be of benefit to the House if the Government accepted the spirit of the clause. Labour hon. Members believe that the economy needs a cash injection. That is said not only by the trade union movement and Labour hon. Members but by Conservative hon. Members. I wish that they would speak up. It is noticeable that they have sat quietly from the beginning to the end of this debate. They have said nothing, yet we know that they would like to express some views.

The people in industry and trade that Conservative hon. Members represent come to the House in delegations to make exactly the same case. I give an isolated example. At a meeting of the Northern group of Labour Members yesterday, yet another delegation pressed for more cash to be injected into the economy. The delegation represented the building industry, which is not exactly one of the best of friends of the Labour Party. We had great difficulty in convincing its members that they should be putting their view directly to Conservative hon. Members.

During last week's march with our colleagues from Consett one asked me "Who really is responsible for what is happening?" I do not necessarily blame the Prime Minister. I blame key Ministers in the Treasury. It may well be that future demonstrations in London should turn their attention on the demagogues in the Treasury who are destroying this country's economic and monetary base. They are the guilty ones, the people causing the damage. It is about time they recognised it, but it seems that one of them would prefer to spend his time on the Front Bench sleeping—perhaps he is listening—to listening to the crucial points made by hundreds of thousands of people throughout the northern region.

I turn to the principle of VAT, which is the means by which we seek to increase the amount of money that circulates in the economy, thereby ensuring greater consumption. I raise a point that has been raised with the Financial Secretary by a number of lobbies whose members have come to the House in the last few years. The point concerns small hotel keepers, inn keepers and boarding house keepers who turn over just sufficient money to take them beyond the VAT threshold. As VAT increases—it is at a particularly high level now—the position of those people is gravely endangered by other businesses which are not registered for VAT and which fall just below the VAT threshold.

Over the last few years, in the national parks and the coastal towns, owners of small boarding houses have put up signs in their windows saying "Without VAT". In many areas that is having a detrimental effect upon similar businesses which are registered for VAT and which must submit all their returns to the Inland Revenue, whether to the Excise or to the direct taxation divisions.

When the Minister replies to the debate, I hope that he will comment on the tenuous position of small traders who feel aggrieved by the decision of the Government last year to raise the level of VAT. I hope that he will take this opportunity to reply to that point.

Mr. Ronald W. Brown

I wish to put two points to the Financial Secretary. He has heard my first point before, but I do not apologise for asking him to consider it again. As he knows, I am the parliamentary adviser to the furniture trade unions and I have argued with the hon. Gentleman and his Department on many occasions about the way in which VAT is applied in the furniture industry.

First, there is the price of furniture as manufactured by an efficient and effective industry. It is manufactured at an extremely competitive price, but by the time it reaches the shop the price has been marked up by 100 per cent. The Minister knows that VAT is then added. There can be no possible case for saying that any value has been added to the furniture. Nothing has taken place from the time the furniture was made and boved to the time it reaches the shop to add any value to the article. Value added tax should be imposed at the point where value has been added.

It is time that the Financial Secretary looked at the issue. It is unfair that a great number of people are being forced to buy furniture at a much higher price because of VAT. For example, a piece of furniture can be manufactured in a Scottish prison for £163. The Minister knows that apparently we are now driven to manufacturing furniture in prison and contracting to sell it outside while at the same time making furniture trade workers redundant by closing businesses. I have always failed to follow the Government's argument, but they pursue it almost to the point of vendetta.

If that same piece of furniture had been manufactured for £163 outside the prison, by the time it reached the shop it would cost, after mark up, more than £340. The customer would also have to pay 15 per cent. VAT on top of that price. Without going into the entire argument again, I ask the Minister to reconsider the matter and explain how he can justify VAT being added to the mark-up price of furniture. Applying VAT in that way is an abrogation of the meaning of VAT.

8.45 pm

The other point I wish to raise has been the subject of a dialogue between myself and the hon. Gentleman, who was kind enough to write to me about it. One of my constituents lives in a flat owned by the Crown. His garage is a long way from his flat. When he was a Crown tenant he did not pay VAT on the rent of his garage because the garage and the flat were owned by the Crown. However, the Crown decided that instead of developing the area it would hand the site over to a housing association. The man still occupies his flat. The difference is that the owner is now a housing association which is a lessee of the Crown. The man's garage is in the same place but he now has to pay VAT on the rent of his garage.

For the life of me I cannot see the rationale of that. The man's circumstances are precisely the same. He did not ask to become a housing association tenant. He did not ask to be transferred. The Minister knows that such happenings are wrong. When he wrote to me, he said that there was not much that he could do about it. He said that that was the state of play. The Bill gives him a chance to put right what he knows to be wrong. The Minister has the vehicle and he can now put right a total absurdity.

Mr. Lawson

We have had what is customarily called a wide-ranging debate. It did not wholly confine itself to new clause 21. I shall try to confine myself to the clause. I hope that hon. Members will not feel that that is discourteous to the House.

I shall take the points in sequence and deal first with what might be called the micro-economic problems and the particular detailed problems of VAT raised by the hon. Member for Gateshead, West (Mr. Horam) and others and then I shall deal with the more general points made by the hon. Member for Gateshead, West and others.

Before I forget, I shall deal with the problems raised by the hon. Member for Hackney, South and Shoreditch (Mr. Brown)—if I can engage his attention for a moment. He raised two points. First, he mentioned his constituent who was formerly a Crown tenant and became a housing association tenant and the correspondence that he has had with me on that matter. In fact, he has had that correspondence with my hon. and learned Friend the Minister of State, certainly not with me. I am sure that my hon. and learned Friend will do his best to satisfy the hon. Member on this point. Whether he succeeds remains to be seen. Clearly he has not succeeded so far.

The hon. Member also referred to furniture. There is a problem. Oscar Wilde said that a cynic was someone who knew the price of everything and the value of nothing. In fiscal matters we have to be cynics. We have to go on price. If the price reached at one stage of the production or distribution process, or the price to the consumer, is higher than it was at an earlier stage, that has to be taken to be the value added. There is no other more metaphysical or meaningful way in which we can assess what value has been added. I am sorry that I cannot satisfy the hon. Gentleman further than that.

A number of micro-problems have been put to the House. One was raised by the hon. Member for Gateshead, West and spoken to, not for the first time, by the hon. Member for Eton and Slough (Miss Lestor), who has been a persistent campaigner about it, as I know well. They raised the matter of children's clothing and footwear. It is a complicated matter. There is one way of removing the complication, namely, to remove the concession on children's footwear and clothing. If that were done, there would be no demarcation problems. I am sure that neither the hon. Member for Gateshead, West nor the hon. Member for Eton and Slough wants the concession to be removed. As the hon. Member for Swindon (Mr. Stoddart) said, as soon as we have a special concession for children's clothing and footwear, we are bound to have a demarcation problem. We have examined these issues carefully and there is no practical way of overcoming the problem. The previous Government found themselves in precisely the same position.

Miss Joan Lestor

Will the hon. Gentleman comment on the school uniform proposition? That seems to be an area where a concession could be made.

Mr. Lawson

I was about to turn to that. I was struck by the hon. lady's argument when she said that her daughter's school uniform was a pink blouse and a grey suit. She said that she would not come to the house dressed in that fashion. However, she has come to the House today dressed in a lime green V-necked dress. Who is to say whether that may not be a school uniform? There may be a school that has that style as its uniform. What is and what is not a school uniform is something that is not obvious.

The hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) said that the school uniform in the obvious and conventional sense is gradually disappearing. What now passes for school uniform is becoming closer and closer to what we would construe as ordinary clothing.

Mr. O'Neill

Will the hon. Gentleman concede that the answer might be to do away with VAT on clothing for all ages?

Mr. Lawson

It would be possible to do that, but the lost revenue would have to be raised elsewhere.

It has been alleged that VAT is a regressive tax. Secondly, it has been said that we have a very high rate of VAT following the 1979 Budget. That was alleged by the hon. Member for Workington (Mr. Campbell-Savours), who said that he is in favour of high indirect taxes but not as high as the present rate of VAT.

I accept that VAT could be a regressive tax, but much depends on the structure. It is not regressive in Britain. Essentials such as food, heating, lighting, house prices, rents, fares on public transport and young children's clothing are all zero-rated, unlike most other countries with VAT. These are essential items and items of expenditure that bulk far larger in the budgets of the poor than they do in those of the wealthy. That means that British VAT is not a regresssive tax. That was accepted by the previous Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey).

The effective rate of VAT is 8 per cent. About half of all items attract 15 per cent. VAT while the other half are zero-rated. That means that the effective rate is about 8 per cent. That is the lowest effective rate of VAT in any country in the European Community. There was an effective rate of 5½ per cent. under the previous Labour Government. The two rates of 8 per cent. and 12½ per cent. equalled an effective rate of 5½ per cent. As I have said, 8 per cent. is the lowest rate in the European Community. I do not think that by international standards it is possible to say that this is a high rate of indirect taxation.

My hon. Friend the Member for Christchurch and Lymington, (Mr. Adley) was particularly concerned about the tourist industry. The whole House knows how doughtily he has fought for it. He made a considerable achievement during the last Parliament that all hon. Members recall. I regret, however, that I cannot accept his plea, which boiled down to the argument that there should be a 15 per cent. rate of VAT for British holiday-makers but no VAT for the foreign tourist, who may or may not be a holiday-maker, in hotels in this country. I believe that that is a form of discrimination that the House would not wish to see. Certainly the Government would not wish to see it.

I do not deny the big contribution that the tourist industry makes to our economy; but it also makes a contribution to the economy in other countries. My hon. Friend can go to any country in the Continent of Europe and I am sure that he will find no distinction in the VAT levied on the foreign tourist and that levied on the indigenous hotel resident.

Mr. Adley

My hon. Friend is not quite right. In most other countries, there is a uniform rebate for export earnings, whether in goods or services. It is in this country that a distinction is made between the two. It is not normally the case in most countries.

Mr. Lawson

I think, with respect, that my hon. Friend will find that tourists, foreign or not foreign, pay exactly the same VAT in the hotels of any country of the Community. If that is wrong, I shall write to my hon. Friend and let him know that I am wrong.

Mr. Adley

And change it here?

Mr. Lawson

I am of the opinion that what I have said is right.

I think I have dealt with most of what might be called the micro-economic questions, although not all of them. The main thrust of the Opposition case has been a macro-economic one. They have sought to maintain that by reducing VAT from 15 per cent. to 12½ per cent.—

Mr. Roland Moyle (Lewisham, East)

Before moving on to the macro-problems, the hon. Gentleman may care to deal with what he calls the micro-problems of people dying because there are insufficient kidney machines in the National Health Service as a result of the high rate of VAT that has to be paid on the equipment.

Mr. Lawson

The amount of resources available to the National Health Service depends on the health of the economy as a whole. The purpose of this Government's economic policy is to increase the health of the economy so that more resources become available to the Health Service and other essential services. To suggest that every problem in the National Health Service is due to VAT is the most arrant nonsense. The right hon. Gentleman knows as well as I do that there were immense problems under the previous Government.

The hon. Member for Gateshead, West suggested that if we were to reduce VAT by this amount inflation would come down and all our problems would be on the way to solution. What would happen if I were to agree to the new clause—it will be no secret to the hon. Gentleman that I do not intend to agree to accept it—and if VAT were to be reduced from 15½to 12½ per cent., is that the cost in a full year would be £1.6 billion. That increase in the borrowing requirement in a full year is only for starters.

We are about to discuss another official Opposition amendment on personal allowances. That would cost about £640 million. The Opposition are therefore today alone proposing to increase the borrowing requirement by substantially over £2 billion. That is not all. A document called the draft Labour manifesto was published recently—

Mr. Horam

Pathetic.

9 pm

Mr. Lawson

Indeed the hon. Gentleman is right. It was pathetic. Nevertheless, it was a document of which most of his hon. Friends approved and to which they gave their support. It calls for increases in public expenditure of at least £16 billion at a rough estimate. The undoing of the economies that we have made adds an extra £7 billion. The social security proposals would cost £9 billion. That is an extra £16 billion, leaving aside everything else.

That shows the irresponsibility of the Opposition. When in government they took a different line. They were most concerned then that the borrowing requirement should be kept down. Now they do not care. The new clause amounts to pure inflationism. If the Opposition believe they can reduce inflation this way, I am surprised at the modesty of their clause. Why stop at 12½ per cent? Why not reduce the rate to 10 per cent. and bring down inflation further? Why not go to 5 per cent. and reduce it further still? Why not abolish inflation altogether by abolishing VAT? I do not know why they have not thought of that. They have been producing economic nonsense.

As the hon. Member for Gateshead, West knows, inflation is now on the way down. He said that he expected the figures which are to be published later this week to show a levelling off, if not a reduction. He said that the next month's figures after that would show a substantial reduction. My right hon. and learned Friend the Chancellor said only recently that he expected inflation to be running at 16½ per cent. by the end of the year. That is about 5½ per cent. below the current level.

Labour Members, including the hon. Member for Batley and Morley (Mr. Woolmer), have said that a reduction of between 5 and 6 per cent. would have a profound effect. My right hon. and learned Friend has forecast that that is exactly what would happen on present policies by the end of the year. Our present policies offer the prospect of getting inflation down. The inheritance we suffered of excessive monetary growth and a sharply rising rate of inflation was the cause of the problems of the past 12 months, problems with which we have been grappling. The turning point has now been reached.

The new clause is the most arrant inflationism. The Opposition are calling for an increase in the borrowing requirement, an increase in monetary growth and an increase in inflation. I hope that the House will reject this clause.

Mr. Horam

In line with all his colleagues the Financial Secretary has done a great deal of talking about inflation, but they have done precious little about it since they came into office. We have seen the results: an escalating rate of inflation now reaching 22 per cent. The hon. Gentleman speaks as though there is a triumph in the possibility that it may level off in the figures that we are about to see.

This clause would enable the Government to do something direct and imme-

diate about this very important problem. It would also have a favourable effect on the climate for wage settlements during the next 12 months. That is a matter about which the Government are clearly concerned. It would have a beneficial effect—not dramatic, but certainly worthwhile—on the spiralling unemployment which the country is viewing with increased alarm.

I am extremely disappointed that the Government have not seized the opportunity that we, a responsible Opposition, have afforded them. It is nonsense for the Financial Secretary to talk about this clause being irresponsible. It is constructive, moderate and commonsense economics: and I urge my hon. Friends to vote for it.

Question put, That the clause be read a Second time:—

The House divided: Ayes 231, Noes 293.

Division No. 406]	AYES	[9.05 pm
Abse, Leo	Cunningham, Dr John (Whitenaven)	Gilbert, Rt Hon Dr John
Adams, Allen	Dalyell, Tam	Ginsburg, David
Allaun, Frank	Davidson, Arthur	Gourlay, Harry
Anderson, Donald	Davies, Rt Hon Denzll (Llanelli)	Graham, Ted
Archer, Rt Hon Peter	Davies, [...]for (Gower)	Grant, George (Morpeth)
Armstrong, Rt Hon Ernest	Davis, Clinton (Hackney Central)	Grant, John (Islington C)
Ashley, Rt Hon Jack	Davis, Terry (B'rm'ham, Stechford)	Hamilton, W. W. (Central Fife)
Ashton, Joe	Deakins, Eric	Hardy, Peter
Atkinson, Norman (H'gey, Tott'ham)	Dean, Joseph (Leeds West)	Harrison, Rt Hon Walter
Bagier, Gordon A. T.	Dempsey, James	Hattersley, Rt Hon Roy
Barnett, Guy (Greenwich)	Dewar, Donald	Haynes, Frank
Barnett, Rt Hon Joel (Heywood)	Dixon, Donald	Healey, Rt Hon Denis
Benn, Rt Hon Anthony Wedgwood	Dobson, Frank	Heffer, Eric S.
Bennett, Andrew (Stockport N)	Dormand, Jack	Hogg, Norman (E Dunbartonshire)
Bidwell, Sydney	Douglas, Dick	Holland, Stuart (L'beth, Vauxhall)
Booth, Rt Hon Albert	Douglas-Mann, Bruce	Home Robertson, John
Boothroyd, Miss Betty	Dubs, Alfred	Homewood, William
Bottomley, Rt Hon Arthur (M'brough)	Duffy, A. E. P.	Hooley, Frank
Bradley, Tom	Dunnett, Jack	Horam, John
Bray, Dr Jeremy	Dunwoody, Mrs Gwyneth	Howell, Rt Hon Denis (B'ham, Sm H)
Brown. Hugh D. (Provan)	Eadie, Alex	Hughes, Mark (Durham)
Brown, Robert C. (Newcastle W)	Eastham, Ken	Hughes, Robert (Aberdeen North)
Brown, Ronald W. (Hackney S)	Edwards, Robert (Wolv SE)	Janner, Hon Greviile
Brown, Ron (Edinburgh, Leith)	Ellis, Raymond (NE Derbyshire)	Jay, Rt Hon Douglas
Buchan, Norman	Ellis, Tom (Wrexham)	John, Brynmor
Callaghan, Rt Hon J. (Cardiff SE)	English, Michael	Johnson, James (Hull West)
Callaghan, Jim (Mlddleton & P)	Evans, Ioan (Aberdare)	Jones, Rt Hon Alec (Rhondda)
Campbell, Ian	Evans, John (Newton)	Jones, Barry (East Flint)
Campbell-Savours, Dale	Faulds. Andrew	Jones, Dan (Burnley)
Canavan, Dennis	Field, Frank	Kaufman, Rt Hon Gerald
Carmichael, Neil	Fitch, Alan	Kerr, Russell
Carter-Jones, Lewis	Fitt, Gerard	Kilfedder, James A.
Cartwright, John	Flannery, Martin	Kilroy-Silk, Robert
Clark, Dr. David (South Shields)	Fletcher, L. R. (Ilkeston)	Lambie, David
Cocks, Rt Hon Michael (Bristol S)	Fletcher, Ted (Darlington)	Leighton, Ronald
Cohen, Stanley	Foot, Rt Hon Michael	Lestor, Miss Joan (Eton & Slough)
Coleman, Donald	Ford, Ben	Lewis, Ron (Carlisle)
Concannon, Rt Hon J. D.	Forrester, John	Litherland, Robert
Conlan, Bernard	Foster, Derek	Lofthouse, Geoffrey
Cook, Robin F	Foulkes, George	Lyon, Alexander (York)
Cowans, Harry	Fraser, John (Lambeth, Norwood)	McDonald, Dr Oonagh
Crowther, J. S.	Freeson, Rt Hon Reginald	McElhone, Frank
Cryer, Bob	Garrett, John (Norwich S)	McKay, Allen (Penistone)
Cunliffe, Lawrence	Garrett, W. E. (Wallsend)	McKelvey, William
Cunningham, George (Islington S)	George, Bruce	MacKenzie, Rt Hon Gregor
Maclennan, Robert	Price, Christopher (Lewisham West)	Strang, Gavin
McNally, Thomas	Race, Reg	Straw, Jack
McTaggart, Robert	Radice, Giles	Summerskill, Hon Dr Shirley
McWilliam, John	Rees, Rt Hon Merlyn (Leeds South)	Taylor, Mrs Ann (Bolton West)
Magee, Bryan	Richardson, Jo	Thomas, Jeffrey (Abertillery)
Marshall, David (Gl'sgow, Shettles'n)	Roberts, Albert (Normanton)	Thomas, Mike (Newcastle East)
Marshall, Dr Edmund (Goole)	Roberts, Allan (Bootle)	Thomas, Dr Roger (Carmarthen)
Marshall, Jim (Leicester South)	Roberts, Ernest (Hackney North)	Thome, Stan (Preston South)
Martin, Michael (Gl'gow, Sprlngb'rn)	Roberts, Gwilym (Cannock)	Tinn, James
Mason, Rt Hon Roy	Robertson, George	Torney, Tom
Maynard, Miss Joan	Robinson, Geoffrey (Coventry NW)	Urwin, Rt Hon Tom
Meacher, Michael	Rodgers, Rt Hon William	Varley, Rt Hon Eric G.
Mellish, Rt Hon Robert	Rooker, J. W.	Walker, Rt Hon Harold (Doncaster)
Mikardo, Ian	Roper, John	Watkins, David
Millan, Rt Hon Bruce	Ross, Ernest (Dundee West)	Weetch, Ken
Mitchell, R. C. (Soton, Itchen)	Ryman, John	Welsh, Michael
Morris, Rt Hon Alfred (Wythenshawe)	Sandelson, Neville	White, Frank R. (Bury & Radcliffe)
Morris, Rt Hon Charles (Openshaw)	Sever, John	Whitehead, Phillip
Morris, Rt Hon John (Aberavon)	Sheerman, Barry	Whitlock, William
Morton, George	Sheldon, Rt Hon Robert (A'ton-u-L)	Wigley, Dafydd
Moyle, Rt Hon Roland	Short, Mrs Renée	Willey, Rt Hon Frederick
Newens, Stanley	Silkin, Rt Hon John (Deptford)	Williams, Sir Thomas (Warrington)
Oakes, Rt Hon Gordon	Silkin, Rt Hon S. C. (Dulwich)	Wilson, Gordon (Dundee East)
Ogden, Eric	Silverman, Julius	Winnick, David
O'Halloran, Michael	Skinner, Dennis	Woodall, Alec
O'Neill, Martin	Smith, Rt Hon J. (North Lanarkshire)	Woolmer, Kenneth
Orme, Rt Hon Stanley	Soley, Clive	Wrigglesworth, Ian
Owen, Rt Hon Dr David	Spearing, Nigel	Wright, Sheila
Parker, John	Spriggs, Leslie	Young, David (Bolton East)
Parry, Robert	Stallard, A. W.
Pavitt, Laurie	Stewart, Rt Hon Donald (W Isles)	TELLERS FOR THE AYES:
Pendry, Tom	Stoddart, David	Mr. James Hamilton and
Powell, Raymond (Ogmore)	Stott, Roger	Mr. Hugh McCartney.
Prescott, John
NOES
Adley, Robert	Carlisle, Kenneth (Lincoln)	Gardiner, George (Reigate)
Altken, Jonathan	Carlisle, Rt Hon Mark (Runcorn)	Garel-Jones, Tristan
Alexander, Richard	Chancer, Mrs. Lynda	Glyn, Dr Alan
Alison, Michael	Channon, Paul	Goodhart, Philip
Alton, David	Chapman, Sydney	Goodlad, Alastair
Amery, Rt Hon Julian	Churchill, W. S.	Gow, Ian
Ancram, Michael	Clark, Hon Alan (Plymouth, Sutton)	Grant, Anthony (Harrow C)
Arnold, Tom	Clark, Sir William (Croydon South)	Greenway, Harry
Atkins, Rt Hon H. (Spelthorne)	Clarke, Kenneth (Rushcliffe)	Grieve, Percy
Atkins, Robert (Preston North)	Clegg, Sir Walter	Griffiths, Eldon (Bury St Edmunds)
Atkinson, David (B'mouth, East)	Colvin, Michael	Griffiths, Peter (Portsmouth N)
Baker, Kenneth (St. Marylebone)	Cormack, Patrick	Grylls, Michael
Baker, Nicholas (North Dorset)	Corrie, John	Gummer, John Selwyn
Banks, Robert	Costain, A. P.	Hamilton, Hon Archie (Eps'm & Ew'll)
Beaumont-Dark, Anthony	Cranborne, Viscount	Hamilton, Michael (Salisbury)
Beith, A. J.	Critchley, Julian	Hampson, Dr Keith
Bell, Sir Ronald	Crouch, David	Hannam, John
Bendall, Vivian	Dean, Paul (North Somerset)	Haselhurst, Alan
Bennett, Sir Frederic (Torbay)	Dorrell, Stephen	Havers, Rt Hon Sir Michael
Benyon, Thomas (Abingdon)	Dover, Denshore	Hawkins, Paul
Benyon, W. (Buckingham)	du Cann, Rt Hon Edward	Hawksley, Warren
Best, Keith	Dunn, Robert (Dartford)	Hayhoe, Barney
Bevan David Gilroy	Durant, Tony	Heddle, John
Biffen, Rt Hon John	Dykes, Hugh	Henderson, Barry
Biggs-Davison, John	Eden, Rt Hon Sir John	Heseltine, Rt Hon Michael
Blackburn, John	Edwards, Rt Hon N. (Pembroke)	Hicks, Robert
Blaker, Peter	Eggar, Timothy	Higgins, Rt Hon Terence L.
Body, Richard	Elliott, Sir William	Hill, James
Bonsor, Sir Nicholas	Emery, Peter	Hogg, Hon Douglas (Grantham)
Boscawen, Hon Robert	Eyre, Reginald	Holland, Philip (Carlton)
Bottomley, Peter (Woolwich West)	Fairbairn, Nicholas	Hordern, Peter
Bowden, Andrew	Fairgrieve, Russell	Howe, Rt Hon Sir Geoffrey
Boyson, Dr. Rhodes	Faith, Mrs Shella	Howell, Ralph (North Norfolk)
Braine, Sir Bernard	Farr, John	Howells, Geraint
Bright, Graham	Fell, Anthony	Hunt, David (Wirral)
Brinton, Tim	Fenner, Mrs Peggy	Hunt, John (Ravensbourne)
Brittan, Leon	Finsberg, Geoffrey	Irving, Charles (Cheltenham)
Brocklebank-Fowler, Christopher	Fisher, Sir Nigel	Jenkin, Rt Hon Patrick
Brotherton, Michael	Fletcher, Alexander (Edinburgh N)	Jessel, Toby
Brown, Michael (Brigg & Sc'tnorpe)	Fletcher-Cooke, Charles	Johnson Smith, Geoffrey
Browne, John (Wincheser)	Fookes, Miss Janet	Jopling, Rt Hon Michael
Bryan, Sir Paul	Forman, Nigel	Kaberry, Sir Donald
Buchanan-Smith, Hon Alick	Fowler, Rt Hon Norman	Kellett-Bowman, Mrs Elaine
Buck, Antony	Fox, Marcus	Kershaw, Anthony
Budgen, Nick	Fraser, Rt Hon H. (Stafford & St)	Kimball, Marcus
Bulmer, Esmond	Fraser, Peter (South Angus)	King, Rt Hon Tom
Butcher, John	Fry, Peter	Kitson, Sir Timothy
Butler, Hon Adam	Galbraith, Hon T. G. D.	Knight, Mrs Jill

Knox, David	Newton, Tony	Sproat, Iain
Lamont, Norman	Normanton, Tom	Stainton, Keith
Lang, Ian	Nott, Rt Hon John	Stanbrook, Ivor
Langford-Holt, Sir John	Onslow, Cranley	Stanley, John
Latham, Michael	Oppenheim, Rt Hon Mrs Sally	Steel, Rt Hon David
Lawrence, Ivan	Osborn, John	Steen, Anthony
Lawson, Nigel	Page, John (Harrow, West)	Stevens, Martin
Lee, John	Page, Rt Hon Sir R. Graham	Stewart, Ian (Hitchin)
Le Marchant, Spencer	Page, Richard (SW Hertfordshire)	Stewart, John (East Renfrewshire)
Lennox-Boyd, Hon Mark	Parkinson, Cecil	Stokes, John
Lester, Jim (Beeston)	Patten, Christopher (Bath)	Stradling Thomas, J.
Lewis, Kenneth (Rutland)	Patten, John (Oxford)	Tapsell, Peter
Lloyd, Peter (Fareham)	Pattie, Geoffrey	Taylor, Robert (Croydon NW)
Loveridge, John	Pawsey, James	Taylor, Teddy (Southend East)
Lyell, Nicholas	Percival, Sir Ian	Tebbit, Norman
Macfarlane, Neil	Pink, R. Bonner	Temple-Morris, Peter
MacGregor, John	Pollock, Alexander	Thomas, Rt Hon. Peter (Hendon S)
MacKay, John (Argyll)	Porter, George	Thornton, Malcolm
Macmillan, Rt Hon M. (Farnham)	Prentice, Rt Hon Reg	Townsend, Cyril D. (Bexleyheath)
McNair-Wilson, Michael (Newbury)	Price, David (Eastleigh)	Trippier, David
McNair-Wilson, Patrick (New Forest)	Proctor, K. Harvey	Trotter, Neville
McOuarrie, Albert	Pym, Rt Hon Francis	van-Straubenzee, W. R.
Madel, David	Raison, Timothy	Vaughan, Dr Gerard
Major, John	Rathbone, Tim	Viggers, Peter
Marland, Paul	Rees, Peter (Dover and Deal)	Waddington, David
Marshall, Michael (Arundel)	Rees-Davies, W. R.	Wainwright, Richard (Colne Valley)
Marten, Neil (Banbury)	Renton, Tim	Wakeham, John
Mates, Michael	Rhodes James, Robert	Waldegrave, Hon William
Mather, Carol	Rhys Williams, Sir Brandon	Walker, Rt Hon Peter (Worcester)
Mawby, Ray	Ridley, Hon Nicholas	Walker, Bill (Perth & E Perthshire)
Mawhinney, Dr Brian	Ridsdale, Julian	Walker-Smith, Rt Hon Sir Derek
Maxwell-Hyslop, Robin	Rifkind, Malcolm	Wall, Patrick
Mayhew, Patrick	Roberts, Michael (Cardiff NW)	Waller, Gary
Meyer, Sir Anthony	Roberts, Wyn (Conway)	Walters, Dennis
Mills, Iain (Meriden)	Ross, Stephen (Isle of Wight)	Ward, John
Mills, Peter (West Devon)	Royle, Sir Anthony	Warren, Kenneth
Miscampbell, Norman	Sainsbury, Hon Timothy	Wells, John (Maidstone)
Mitchell, David (Basingstoke)	St. John-Stevas, Rt Hon Norman	Wells, Bowen (Hert'rd & Stev'nage)
Moate, Roger	Scott, Nicholas	Whitelaw, Rt Hon William
Monro, Hector	Shaw, Michael (Scarborough)	Whitney, Raymond
Montgomery, Fergus	Shelton, William (Streatham)	Wickenden, Keith
Moore, John	Shepherd, Colin (Hereford)	Wiggin, Jerry
Morris, Michael (Northampton, Sth)	Shepherd, Richard(Aldridge-Br'hills)	Wilkinson, John
Morrison, Hon Charles (Devizes)	Shersby, Michael	Williams, Delwyn (Montgomery)
Morrison, Hon Peter (City of Chester)	Silvester, Fred	Winterton, Nicholas
Mudd, David	Sims, Roger	Wolfson, Mark
Murphy, Christopher	Smith, Dudley (War. and Leam'ton)	Younger, Rt Hon George
Neale, Gerrard	Speed, Keith
Needham, Richard	Spence, John	TELLERS FOR THE NOES:
Nelson, Anthony	Spicer, Michael (S Worcestershire)	Lord James Douglas-Hamilton and
Neubert, Michael	Spicer, Jim (West Dorset)	Mr. John Cope.

Question accordingly negatived.