Commons Sitting of 2 June 1980

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
KIRIBATI (INDEPENDENCE GIFT)
Mr. Speaker: I have received a message from the Speaker of the Kiribati Parliament, thanking the House for the gift of the gavel set presented to his Parliament by a delegation from this House on 27 March and including the text of the resolution passed unanimously by that Parliament. I will cause the terms of the resolution to be entered in the Journal of the House.
ORAL ANSWERS TO QUESTIONS
  WALES

    Unemployment
    Mr. Barry Jonesasked the Secretary of State for Wales by how much unemployment in Wales has risen since May 1979.
    The Secretary of State for Wales (Mr. Nicholas Edwards): Between May 1979 and May 1980 seasonally adjusted unemployment in Wales rose by 11,800.
    Mr. Jones: Do not those serious figures point to the need for an urgent change in Government policy so as to prevent Wales from suffering even more widespread and heavier unemployment? What, for example, will the right hon. Gentleman do to help the town of Flint, which is to suffer another 120 textile redundancies immediately, in addition to the existing 36 per cent. male unemployment rate in that town? What assistance, in the form of new jobs, will the right hon. Gentleman give Flint to help, for example, the 266 adolescents currently on the dole?
    Mr. Edwards: Of course unemployment in the town of Flint is serious, but the town is part of a wider travel-to-work
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    area in which the figures are not as serious as in the town itself. The hon. Member will be aware that there are about 3,000 jobs in the pipeline in the Flint and Wrexham travel-to-work areas and that we have launched a major programme of remedial actions in the area.
    Mr. Wigley: Does the right hon. Gentleman realise that 520 people, mainly men, joined the dole queue in Caernarvon only last week because of redundancies in three companies, putting the male unemployment rate up to almost 20 per cent? This is something that the Secretary of State has known was coming for a long time. What will he now do about it?
    Mr. Edwards: I am aware of the serious situation in that part of Wales. I have recently discussed it, as the hon. Gentleman knows, with the local authorities concerned and will shortly be writing to them. We are at the moment urgently considering the regional policy decisions in that part of Wales, where the situation has changed seriously. However, it must be said that, in that part of Wales which concerns the hon. Member, the major problem lies ahead, when the Dinorwic scheme comes to an end.
    Mr. Best: Does my right hon. Friend agree that one of the major ways of assisting future employment in Wales is through the medium of advance factory building and that he is to be congratulated on the fact that 47 per cent. of new factory building in the whole of the United Kingdom will be in Wales? However, will he also look carefully at what the hon. Member for Caernarvon (Mr. Wigley) said, particularly about the ending of employment in the Dinorwic pump storage scheme, since that will have a significant effect upon the growth of unemployment in that area of North West Wales?
    Mr. Edwards: My hon. Friend is correct to say that a major programme of advance factory building is going on. It would be wrong to think that there are easy solutions for the problems of North West Wales. No Government have found it easy to tackle the problems of that area. However, we are pressing on with the improvements to the A55 as an urgent priority. That is one major step that we can take to help that part of Wales.
    Mr. Alec Jones: Is the right hon. Gentleman satisfied with his first year in the Welsh Office—a year which has seen unemployment in Wales rise by 14,000? When can we expect some improvement in the unemployment figures as a consequence of Government actions? When are we likely to have an announcement about the uprating of those steel areas which have been badly affected? Finally, will not the right hon. Gentleman at least consider joining the "wets" in the Government who are now apparently contemplating urging the Government to make a U-turn—a U-turn which is essential if Wales is to be saved?
    Mr. Edwards: The last time that the right hon. Gentleman stood at that Box and urged action at Welsh Question Time, it was to urge the lunatic course of the action taken on 14 May. I do not pretend to take his advocacy any more seriously this afternoon. It ill becomes the right hon. Gentleman to lecture us when unemployment under his Government went up by 15,500 in their first year of office and by 21,000 in their second year.
    As for the right hon. Gentleman's only serious question, regional policy areas, that matter is being urgently reconsidered by the Government. However, we still have not reached a final settlement on the Llanwern redundancies.

    Road Programme
    Sir Anthony Meyerasked the Secretary of State for Wales how many miles of motorway and dual carriage road are at present under construction in Wales.
    The Under-Secretary of State for Wales (Mr. Michael Roberts): A total of 16·2 miles of new motorway and 21·8 miles of dual carriageway trunk roads. In addition, work has started on widening 2·6 miles of the M4 at Newport.
    Sir A. Meyer: Is my hon. Friend aware that the visible progress in the dualling of the A55 in my constituency is a source of great reassurance at a worrying time? Can my hon. Friend give me an assurance that he will do everything possible to protect the major items in the road programme from any cuts?
    Mr. Roberts: Priority is to be given within the programme in Wales to the proposed dual carriageway improvement of the A55. I hope that, within 12
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    months, work will start on three important A55 bypasses at Bangor, Colwyn Bay and Hawarden. This is subject to the satisfactory completion of statutory and contractual procedures.
    Mr. Anderson: What are the expected completion dates of the two remaining stretches of the M4 apart from the Baglan-Lonlas stretch?
    Mr. Roberts: It is hoped that the Coryton-Castleton section will be open this summer and that the section bypassing Bridgend will be opened next summer.
    Mr. Best: Is my hon. Friend aware of the correctness of what my right hon. Friend the Secretary of State said a moment ago about the need for the A55 and the provision of employment prospects in Gwynedd in North-West Wales? Will my hon. Friend give an absolute assurance that there will not be any slippage from the dates given by my right hon. Friend and that every priority will be given to ensuring that that programme goes ahead?
    Mr. Roberts: We stick firmly to our target of completing the improvements by 1987 or 1988.
    Mr. Roy Hughes: When we consider South Wales is there not a need to give the highest possible priority to the completion of the road scheme for Newport in order to ease traffic congestion in residential areas, to ensure that freight can be moved efficiently and to attract new enterprises to the town? Will the hon. Gentleman's Department now provide the funds for this very necessary work?
    Mr. Roberts: These are county schemes and they will be given proper consideration.

    Sheep and Beef Rearing
    Mr. Hoosonasked the Secretary of State for Wales what is his latest information on the net income derived from sheep and beef rearing in Wales; and whether he will make a statement.
    Mr. Nicholas Edwards: For the year ending February 1979, the farm management survey for Wales shows an average net income of £7,686 for hill and upland farms concentrating on sheep rearing,

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    £7,835 for hill and upland farms with mixed cattle and sheep enterprises, and £4,855 for lowland mixed cattle and sheep farms. The survey results for 1979–80 are likely to show a reduction in net income mainly because of lower returns from the sheep sector.
    Mr. Hooson: Since we are facing a reduction in income in the most recent year obviously my right hon. Friend will pin his hopes largely on a successful European settlement. May we also expect that he will be closely monitoring the clear squeeze between inflation on the one hand and the reduced revenue being experienced, particularly, by sheep and beef breeders?
    Mr. Edwards: It would, of course, be wrong for me to anticipate the statement to be made by my right hon. Friend later today. I can say that if the agreement reached by the Agriculture Ministers were agreed by the European Governments collectively it would be of considerable benefit to both sheep and cattle breeders in Wales.
    Mr. D. E. Thomas: Can the Secretary of State give an assurance to the sheep farmers of Merioneth, and throughout Wales, that the present system of income support for the sheep industry will not be sold out in any European deal and that the traditional form of the guaranteed price which has served the sheep industry so well will be maintained?
    Mr. Edwards: I do not wish to anticipate the statement that will be made in the House this afternoon. However, I think that from what the hon. Gentleman has seen of the agreement among the Agriculture Ministers he will understand that that agreement could be of considerable benefit to Welsh sheep producers.
    Mr. Alec Jones: Can the Secretary of State give some idea of the progress being made in the survey of marginal land and give an assurance that the survey will not be held up by any reduction of staff in the agricultural department of the Welsh Office?
    Mr. Edwards: On the contrary, by transforming the capital grant arrangement we are making the staff available to proceed with the survey. But it is a complicated matter, particularly in England,
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    where the ground is not distributed in so convenient a form as in Wales around the hill line and the survey will take considerable time. However, we are undertaking a number of pilot schemes on the Welsh border to see whether certain methods can be adopted which will speed up the whole survey.

    Industrial Sites (Newport)
    Mr. Roy Hughesasked the Secretary of State for Wales if he will take steps to allocate more funds for the provision of industrial sites in Newport, Gwent.
    Mr. Nicholas Edwards: On 4 February I announced a special allocation of £48 million over the next two years for industrial development work in the broad areas of Port Talbot and Newport. It is not possible to allocate further additional funds.
    Mr. Hughes: Does the Secretary of State appreciate that the development of new sites in Newport is imperative if the town is to withstand the massive loss of jobs caused by steel closures? Does the right hon. Gentleman also appreciate that it is vitally necessary to attract new industry to the area, not only for Newport itself, but for the whole of South-East Wales? Will the Secretary of State at least give a bit of hope to the people there in these dismal times?
    Mr. Edwards: As the hon. Gentleman is aware, we have announced a major programme covering the whole of South-East Wales. I am glad that he referred to it in those terms because the development that we have announced at Cwmbran is relevant. There are about 100 acres being acquired and developed immediately in Newport and almost 200,000 sq ft of factory space is being developed in the Newport area by the WDA under this programme.
    Mr. Hooson: As well as recognising the particular needs of Newport will my right hon. Friend also press on with the search for industrial sites in the great region of Blaenau-Gwent?
    Mr. Speaker: Order. That is a separate question altogether. It should be on the Order Paper.
    Mr. Alan Williams: Does the Secretary of State recollect that it is now a full

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    six months since I and some of my hon. Friends met him and the Secretary of State for Industry to ask for an upgrading of assisted area status as a result of possible redundancies at Margam and Llanwern——
    Mr. Speaker: Order. The same ruling applies to the right hon. Gentleman. This question deals with industrial sites at Newport, Gwent. If there is a question about Margam, it should be on the Order Paper.
    Mr. Williams: On a point of order, Mr. Speaker. May I make the point that the industrial sites at Newport are highly relevant because I am talking about the link between Margam and Llanwern?
    Mr. Speaker: Order. The right hon. Gentleman is wrong. My interpretation is that this is Newport, Gwent. Margam is a separate question and must be put down on the Order Paper.
    Mr. Williams: Llanwern is not.
    Mr. Speaker: The right hon. Gentleman did not say Llanwern; he said Margam.
    Mr. Williams: Further to that point of order, Mr. Speaker——
    Mr. Speaker: Order. I am not taking points of order during Question Time. I shall take points of order afterwards.

    Water Rates
    Mr. Wigleyasked the Secretary of State for Wales if he will take steps to protect householders in Wales from high levels of water rates.
    The Under-Secretary of State for Wales (Mr. Wyn Roberts): I regard it as one of my duties to see that water charges in Wales are no higher than is necessary.
    Mr. Wigley: Is the Minister aware that the average equated rate poundage for domestic properties in Wales was 25.3p in the pound for this year compared with only 13.2p in the pound for the United Kingdom and only 8.7p in the pound for the Thames area? These figures will get substantially worse when the equalisation provisions are abandoned next year. Will not the Government think again about this and ensure that there
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    is fair play for Welsh ratepayers over water?
    Mr. Roberts: I need hardly remind the hon. Gentleman that the Welsh ratepayer is particularly favoured because Wales receives domestic support to the tune of 36p in the pound compared with the 18p support that the English receive. That cannot be disregarded. In the last three years the Welsh water authority's charges have increased by 26 per cent. compared with an increase of 43 per cent. in the retail price index.
    Mr. Alec Jones: The Minister says that he is endeavouring to ensure that water charges are no higher than necessary. How can he reconcile that with the Government's declared intention to abandon the Water Charges Equalisation Act which is worth £3 million to domestic water consumers in Wales? When that Act is abolished, does he accept that Welsh domestic water consumers will have to find the extra £3 million, and that the gap between water charges in Wales and those in England will rise by about 44 per cent.? Does he accept that that is outrageous behaviour towards Welsh water consumers?
    Mr. Roberts: The Act is of diminishing value for Wales. We have made an announcement about it and we have set up an inter-departmental committee to consider water charges equalisation. We are giving it urgent consideration. No decisions have yet been taken. The committee is made up of officials.

    Welsh Language
    Mr. Garel-Jonesasked the Secretary of State for Wales what recent representations he has received in connection with his policy on the future of the Welsh language.
    Mr. Wyn Roberts: We have received 10 specific representations. In addition, I have heard much favourable comment on my right hon. Friend's statement on policy for the Welsh language in his speech at Llanrwst on 15 April.
    Mr. Garel-Jones: I am grateful to my hon. Friend for that reply. Will he confirm that Government expenditure on the Welsh language next year will be about three times that spent last year? Does he agree that that is a remarkable

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    achievement in view of the financial constraints, underlining the Government's commitment to the Welsh language?
    Mr. Roberts: My hon. Friend is right, it does indeed underline the Government's commitment to the Welsh language. The resources being devoted to the language are to be trebled. The £1· million that will be spent next year does not include expenditure on such items as the £245,000 to be spent on bilingual road signs.
    Mr. D. E. Thomas: Does the Minister accept that one speech does not amount to a policy? Does he accept that neither his Government nor the Labour Government have had a coherent policy towards the development and increase in use of the Welsh language in administration and public life in Wales? Does the Minister accept that it was a mistake for his Government to withdraw the services of the Council for the Welsh Language and to replace it with nothing?
    Mr. Roberts: I disagree strongly with the hon. Gentleman. Everybody in Wales will agree that my right hon. Friend's speech was a clear statement of policy. It has been much appreciated in Wales on that account. My right hon. Friend spoke about the Council for the Welsh Language. We do not want to set up another expensive quango. A unit in the Welsh Office is capable of dealing efficiently with the anticipated expenditure. We certainly do not lack advice from Wales on the way in which the money should be spent.
    Mr. Barry Jones: Are not the problems of the language developing so rapidly that the Minister will have to be even more generous? Does he accept that the blitz that the Government have mounted against council house building, particularly in North-West Wales, militates against the development of the Welsh language?
    Mr. Roberts: That is a separate question. We have taken precautions in the Housing Bill to ensure that the viability of rural communities is protected within our policy of selling council houses. The building, improvement and rehabilitation of council houses and spending of housing allocations is a matter for the local authorities.
    Mr. Hooson: Does my hon. Friend agree that successive Governments can take pride in the positive steps that they have taken to aid the Welsh language? Does he agree that a considerable onus is placed upon parents and others to take advantage of the Government's generous assistance?
    Mr. Roberts: I agree. It is fair to say that my right hon. Friend's speech and statement of policy give every possible encouragement to voluntary bodies which are dedicating themselves to the promotion of the Welsh language as a living tongue.
    Mr. Ioan Evans: What representations have the Government had about the abandonment of their election commitment that the fourth channel should be allocated to the Welsh language, since that was universally approved by the Welsh people? Will the Minister make a statement about the future?
    Mr. Roberts: I cannot say precisely how many representations we have received, but there have been remarkably few. We believe that the Government's plans for transmitting Welsh language programmes on BBC and ITV, as opposed to a single channel, offers a safer and more secure future for Welsh language programming on television.

    Bilingual Education
    Mr. Bestasked the Secretary of State for Wales what response he has received to the specific provision in the Education Act for the extra cost of bilingual education in Wales.
    Mr. Michael Roberts: This provision has been very widely welcomed. The necessary regulations will shortly be laid before the House and a circular explaining the operation of the scheme will be issued. In advance of this several bodies have already applied for assistance.
    Mr. Best: Is my hon. Friend aware that the enshrinement of the specific provision for the extra cost of bilingual education for the first time in history will be of great assistance to the education authorities which have to bear the extra cost? What provision is being made to encourage adults who do not speak the Welsh language to learn it?
    Mr. Roberts: I am grateful to my hon. Friend. A number of inquiries have been made about adult education. We hope to announce the distribution of resources for the present year in the early autumn.
    Mr. Wigley: Does the Minister accept that in areas such as Gwynedd Welsh language education cannot be regarded as something which will cost a few hundred thousand pounds on the side? Does he accept that such expenditure is the mainstream of the education budget? Will the Minister assure the House that, when rate support grant is calculated for areas such as Gwynedd, that will be taken into account?
    Mr. Roberts: A detailed study of a joint Welsh Office and local government working party shows that there are almost insuperable differences in the way of building a factor for bilingualism into the rate support grant arrangements, even when RSG is administered separately for Wales.

    Assisted Places Scheme
    Mr. D. E. Thomasasked the Secretary of State for Wales what is his estimate of the success of the assisted places scheme in schools in Wales.
    Mr. Michael Roberts: I have every confidence that the scheme will prove successful when it is introduced.
    Mr. Thomas: How many nursery places could be made available for the £750,000 being spent on the assisted places scheme?
    Mr. Roberts: In the year 1981–82, £100,000 will be spent on the scheme, not £750,000.
    Mr. Alan Williams: Does the Minister realise that it is unacceptable to Welsh parents that the Government should go ahead with the scheme and waste money in that way while the Secretary of State for Education is calling on parents to provide school books for the State system?
    Mr. Roberts: The last Government closed the direct grant schools in Wales and the rest of the United Kingdom. Many parents regarded those schools as important. They will welcome the scheme.
    Mr. Best: Is it not extraordinary that Labour Members should try to discriminate against bright children from poor families and prevent them from having the opportunity of a better education? Does not that prove that it is the Conservative Party that really cares about the people who are least able to spend money on education but who deserve a good education?
    Mr. Roberts: I am grateful to my hon. Friend. When the scheme is working people will recognise that it makes an important contribution.

    Coal Industry (South Wales)
    Mr. Alec Jonesasked the Secretary of State for Wales when last he discussed with the chairman of the National Coal Board the problems facing the South Wales coal industry.
    Mr. Ioan Evansasked the Secretary of State for Wales if he has discussed with the area director of the National Coal Board in Wales the effect of the British Steel Corporation closures at Shot-ton, Llanwern and Port Talbot on the South Wales coal industry.
    Mr. Nicholas Edwards: My last formal meeting was with the area director, National Coal Board, South Wales, on 27 February. I have met the chairman of the NCB and the area director informally on a number of occasions. I have discussed with them the effects of BSC's plans upon the South Wales coal industry.
    Mr. Jones: Does the Secretary of State recall that the Government's election manifesto promised the modernisation of the coal industry in South Wales? Is he aware that the Government's actions in driving the British steel corporation into importing foreign coal are inevitably forcing the National Coal Board to consider pit closures? How does he reconcile these two factors when it is already known that 12 pits have been named in the general colliery review and that one, Lewis-Merthyr, in my constituency, has been named for closure?
    Mr. Edwards: The right hon. Gentleman will be aware that there is a massive investment programme for the National Coal Board and that the board has reached agreement with the British Steel Corporation about imports of coal for the

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    current year. The corporation is not being forced into an agreement on imports of coal. The industry believes that it is essential, in the interests of future prosperity and viability, that it gets coal from abroad at a competitive rate.
    Mr. Evans: Will not the right hon. Gentleman agree that Wales takes the brunt of the steel cuts with the closure of Shotton and partial closures at Llanwern and Port Talbot, which will have a serious effect on the coal industry in Wales? How many pits does the right hon. Gentleman calculate will be closed? What action is he taking to get investment in the Phurnacite plant at Aberaman, another investment that could come to Wales?
    Mr. Edwards: The rundown of the British Steel Corporation's business in Wales will clearly have an effect on the coal industry in Wales, although there are other issues that have to be considered. The South Wales area director has recently given figures to the trade unions of the pits affected. The right hon. Member for Rhondda (Mr. Jones) has referred to them. I have nothing to add to what the Coal Board has said.
    Sir A. Meyer: Is it not a fact that, if resources can be concentrated on pits where the geology is favourable, there can be many excellent, secure jobs in the coal industry in Wales for many years to come?
    Mr. Edwards: Mr. Weekes has pointed out that if some of the heavy loss-making pits and those with the worst geological difficulties were to be closed over a period of years, there would be a viable coal industry in Wales with a strong future. I believe that he gave evidence to that effect to the Select Committee recently.

    Steel Closures
    Mr. Colemanasked the Secretary of state for Wales what recent discussions he has had with the chairman of the British Steel Corporation about the effects on employment in Wales arising from steel closures.
    Mr. Nicholas Edwards: I have had formal meetings with the chairman on six occasions in the past year, most recently on 26 May, and have had a number
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    of other conversations with him about BSC's plans.
    Mr. Coleman: Is the right hon. Gentleman aware of the feelings of apprehension that have been generated in Wales about additional unemployment arising from the statement by the chairman-designate of the British Steel Corporation in Wales last week? Will the right hon. Gentleman say whether he was given any advance warning or notice of what the chairman-designate was going to say? If not, since he is the Minister responsible for unemployment in Wales, will the right hon. Gentleman summon this gentleman to explain more fully what he said, so that hon. Members can, in turn, question the right hon. Gentleman about this statement?
    Mr. Edwards: I met the chairman-designate on his recent visit to Wales. He made clear to me—he is not yet in the chair—that he has taken no decisions about the future of the industry in Wales. He was asked at a press conference whether he could slow down the present closure programme. He pointed out that the situation in the steel industry on a world-wide basis had deteriorated since the original plans were made and that everyone would have to fight like fury to defend the present position, let alone slow it down and reduce the numbers involved.
    Sir A. Meyer: Will my right hon. Friend agree that, although it is true that pressure on the steel industry from outside factors is even more intense than was thought, the programme of closures originally proposed none the less bore signs of hasty panic measures? Might it not be possible to achieve an equally slim-line steel industry by more carefully thought-out measures, if only the corporation was given extra time?
    Mr. Edwards: The chairman-designate made clear to me that he does not believe that time is on his side. He is operating in a world-wide market. He spent a good deal of time telling me about the world-wide conditions as he sees them. If the agreements at Llanwern and Port Talbot are concluded, we have perhaps, a basis for future operations in Wales on which we should seek to build.
    Mr. Roy Hughes: Does not the right hon. Gentleman agree that, even without Mr. MacGregor, unemployment in Wales has reached calamitous proportions and that the policies of the Government seem to be leading to an even deeper recession? Is the right hon. Gentleman now prepared to make a statement about possible special development area status for steel areas, particularly those that have been most affected?
    Mr. Edwards: That issue does not directly arise from my conversations with the chairman of the British Steel Corporation. I can say that as soon as the Llanwern agreement is concluded—I understand that not all the unions have yet agreed—the Government will—indeed we are doing so now—urgently consider granting special development and development area status to the places affected and will make an announcement as soon as possible.
    Mr. Best: My right hon. Friend's remarks will be welcomed as a prospect for building in the future if the demand for steel should increase. Will he assure the House that he intends to continue to have frequent meetings with the chairman of the British Steel Corporation to ensure that the cutbacks now being achieved will not be so trenchant as to prevent any worthwhile expansion should the opportunity arise in the future?
    Mr. Edwards: The chairman-designate emphasised to me the importance of trying to seek fresh markets for the British Steel Corporation. He spent part of his conversations with me discussing ways in which that might be achieved.
    Mr. Barry Jones: Has the right hon. Gentleman any information about bids by Lonrho and others for the remainder of the BSC Shotton works? Will he be consulted?
    Mr. Edwards: I have no firm information about the inquiries made. At present I have no reason to think that a firm proposal is before the British Steel Corporation that is likely to lead to a deal being announced.
    Mr. Alan Williams: In view of the answer that the Secretary of State have to my hon.port (Mr. Hughes) will he confirm that
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    a full six months have elapsed since he met my hon. Friends and I to discuss possible pending steel redundancies in South Wales and the question of assisted area status? Will he assure the House that those six months have been used constructively in getting contingency clearance from Brussels for enhanced assisted area status?
    In view of the time available to consider his response, will the right hon. Gentleman promise that there will be an immediate announcement—I mean, by that, during this parliamentary week—of the Government's intentions for these areas? Will he bear in mind that Wales expects full special development area status for all areas in which people travel to work at Margam and Llanwern?
    Mr. Edwards: We made clear at that meeting that we would not take a decision, or make an announcement, until final agreement had been reached at Llanwern and Port Talbot. I understand that final agreement has not yet been reached at Llanwern, although I am hopeful that it will be reached in the near future. We are in touch with the Community. We shall be taking a decision as a matter of urgency.

    Local Government Manpower
    Mr. Andersonasked the Secretary of State for Wales what reduction he expects in local government employment in Wales in each of the next three years.
    Mr. Wyn Roberts: Over the next three years, all local authorities will need to reduce their manpower to achieve the level of expenditure which the Government consider acceptable. It is the responsibility of individual local authorities to examine critically their manpower levels and, in the light of their particular needs and circumstances, to make the necessary reductions.
    Mr. Anderson: Does the Minister remember those advertisements during the last election campaign—" Labour isn't working "—involving some paid actors and a long queue of "unemployed"? What does he now say about the unemployment figures in Wales that are being added to directly by the Government leaning on local authorities? In this Steel Corporation, the Government cannot shuffle off

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    their responsibilities for increasing unemployment in Wales
    Mr. Roberts: The hon. Gentleman is not right in thinking that local authorities have yet played their part in the reduction of public expenditure. Between December 1978 and December 1979, the reduction in manpower in local authorities in Wales was 0·2 per cent., compared with 5 per cent., between May 1979 and May 1980, in the Welsh Office. It is essential that local government plays its part in reducing public expenditure so that we may decrease interest rates and increase employment.
    Mr. Hooson: Does not my hon. Friend agree that it is most important that the taxation burden on the public should be reduced by cutting the number of public employees? Does not my hon. Friend deplore the fact that the worst trends among Welsh local authorities have been with authorities which have large Labour majorities?
    Mr. Roberts: My hon. Friend is right. His authority of Powys has reduced its manpower by about 3·4 per cent. The Local Government, Planning and Land (No. 2) Bill will require key information, including manpower statistics, to be provided by local authorities. Councillors and ratepayers will then be able to form better judgments.
    Mr. Wigley: Does the Minister recall the words that appeared in the North Wales Weekly News of 19 April 1979:
    " Vote Wyn Roberts for more jobs "?
    Where are they?
    Mr. Roberts: If local government follows our policy of reducing public expenditure there is a chance of our reducing interest rates and then of creating truly productive jobs.
    Mr. Alec Jones: Does not the Minister agree that local authorities are in a better position than central Government to judge the needs of their areas? Therefore, should not decisions on manning levels, expenditure and services provided be left largely to the local authorities?
    Mr. Roberts: I think that local authorities can be assisted considerably by the publication of their manpower statistics. The fact that central Government have been able to reduce their manpower by wastage and increased efficiency means
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    that local authorities could make similar reductions in their manpower levels which currently stand at a record high.

  INDUSTRY

    Manufacturing Industry
    Mr. Wigleyasked the Secretary of State for Industry what is his most recent estimate of the effect of interest rates on manufacturing industry.
    The Under-Secretary of State for Industry (Mr. Michael Marshall): I am unable to give any estimate of the effect of interest rates on manufacturing industry because the relationship between the two depends on many uncertain factors.
    Mr. Wigley: Did the Under-Secretary see the reports in the weekend press indicating a severe drop in the liquidity of manufacturing companies? Is he aware of the large number of companies, particularly the smaller ones, which are now facing bankruptcy, mostly because of the high rates of interest? Will the right hon. Gentleman press upon his colleagues the need to reconsider the question of interest rates in order to try to bail these companies out before they all go to the wall?
    Mr. Marshall: I am aware of the factors that the hon. Gentleman describes, but a premature move on interest rates would be at the expense of curbing inflation, and that still has to be the prime target.
    Mr. Aitken: Is my hon. Friend aware that throughout the country manufacturing industry is squealing with pain under the pressure of these high interest rates? Is he further aware that business men are looking to the Department of Industry to fight their corner for them against some of the other pressures that come from the Treasury?
    Mr. Marshall: I take note of my hon. Friend's point. In respect of investment and stockbuilding the problem he describes is real. However, premature movement would be at the cost of beating inflation.
    Mr. Alan Williams: Does not the nder-Secretary recognise that the combination of high interest rates, a high sterling rate and high inflation is presenting many manufacturing companies with a liquidity problem such as they have

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    never faced before? Will he explain how the Chief Secretary, when in opposition, was able to describe the lower rates of interest then prevailing as usury and to claim that they would destroy jobs in manufacturing industry, and why he is unable to tell us today the effects of the current higher rates of interest upon industry?
    Mr. Marshall: In his comparisons the right hon. Gentleman should bear in mind that the Government of whom he was a member did not give these facts. There are many imponderables. If the right hon. Gentleman wishes to pursue the matter he may well wish to follow the advice that he gave as a Minister, which was to go to the House of Commons Library, put his input into the Treasury model available there, and see what conclusions he comes up with.

  TRADE

    Defective Products (European Community Directive)
    Mr. Teddy Taylorasked the Secretary of State for Trade what representations he has received from industry and commerce about the proposed EEC directive on liability for defective products; and if he will make a statement.
    The Under-Secretary of State for Trade (Mr. Reginald Eyre): My Department has received over 300 replies from the organisations representing interested parties whom it invited to comment on the draft directive. My right hon. Friend the Minister for Consumer Affairs has also received a number of letters from hon. Members on both sides of the House enclosing correspondence which they have received from constituents about the directive. The Government will take full account of all the views which have been expressed before deciding their attitude to the draft directive.
    Mr. Taylor: Is my hon. Friend aware of the concern in industry and commerce that the directive could frustrate and curb product development and experimentation by saddling firms with a quite intolerable and unlimited liability? How many of the representations made have supported the directive, how many have been against, and what is the Government's attitude to the directive? Have we the power to stop it if we want?
    Mr. Eyre: I note the points made by my hon. Friend. It may help if I summarise the effect of the replies which have been received. The consumer movement welcomes the directive and accepts that prices would be increased as a result of it. The British insurance industry believes that it can provide cover, and that the cost of insurance is unlikely to have any significant effect on production costs. Many manufacturers, however, are anxious about the costs involved and urge that if we accept a system of strict liability we should provide a "state of the art" or "development risks" defence.
    Mr. Fletcher-Cooke: This defective directive has been going about for a very long time in one form or another. There is also the report of the Pearson commission on the same subject. When may we expect the Government to make up their minds on the subject?
    Mr. Eyre: My hon. and learned Friend is right to say that this directive has received a good deal of attention. Of course, the version now being considered by the working party of the Council of Ministers is a revised draft. In view of all the representations which have been taken, the Government have reserved their position with regard to their attitude towards the draft until the text of the directive is more clear.

  ENVIRONMENT

    Richmond Park (Deer)
    Sir Anthony Royleasked the Secretary of State for the Environment how many deer were killed or injured in Richmond Park through motor accidents in monthly total, covering the last 12 months during the years 1970 to 1979; and what action he is taking or intends to take in order to reduce the death toll.
    The Under-Secretary of State for the Environment (Mr. Hector Monro): A total of 56 deer were killed or injured in traffic accidents in Richmond Park in the year ending May 1980, compared with 27 in the previous year.
    With permission, I will circulate some further statistics in the Official Report.
    In autumn last year the Department displayed notices in the park, and increased the number of police mobile patrols.

    1037
    Wildlife warning reflectors have been installed, and accidents have since declined. We are keeping the situation under close review.
    Sir. A. Royle: We appreciate very much the efforts that my hon. Friend and his Department are making to deal with this massacre of deer in Richmond Park. Will he give an assurance that during the summer months he will consult widely to make certain that next winter yet further steps are taken to ensure that this damaging reduction in the numbers of the herd does not continue?
    Mr. Monro: I thank my hon. Friend for the keen interest and wise advice that he has given my Department over the last year. The important point about next winter is that the Petersham Road should be open from October this year and therefore the pressure on the park in the evenings should be reduced. However, I shall of course continue to take all possible steps and hold consultations between now and the winter.
    Mr. Crouch: Is my hon. Friend aware that in my constituency concern is not for the deer but for my constituents who have been killed as a result of the escape of Nilgai Indian deer from zoo parks in my constituency
    Mr. Monro: I know of the case referred to by my hon. Friend, and a very sad event it was. However, I have written to my hon. Friend and he has received advice from his chief constable. He knows the limited steps that can be taken.
    Following are the statistics:
    THE FOLLOWING TABLE SHOWS THE NUMBERS OF ROAD TRAFFIC ACCIDENTS INVOLVING DEATH OR INJURY TO DEER IN RICHMOND PARK

    1976–77

    1977–78

    1978–79

    1979–80

    June

    3

    4

    3

    8

    July

    3

    2

    2

    8

    August

    3

    1

    3

    6

    September

    1

    1

    5

    October

    2

    7

    5

    9

    November

    1

    2

    1

    7

    December

    1

    1

    3

    January

    1

    2

    February

    3(1)

    2

    March

    4

    4

    April

    1

    2

    1

    May

    2

    2

    3

    1(2)

    TOTAL

    16

    21

    27

    56

    Notes:

    (1). Petersham Road closed.

    (2). To 27th May 1980

    Records prior to June 1976 are not available.

  NATIONAL HERITAGE FUND
  Mr. Freudasked the Chancellor of the Duchy of Lancaster what is the current credit balance of the national heritage fund.
  The Chancellor of the Duchy of Lancaster and Leader of the House of Commons (Mr. Norman St. John-Stevas): The sum of £12·4 million was credited to the national heritage memorial fund on 24 April, £6·2 million from the Vote of the Office of Arts and Libraries and £6·2 million from that of the Department of the Environment. The fund is administered by independent trustees, and it is for them to decide how they invest the fund and what disbursements they make from it.
  Mr. Freud: Does the Chancellor of the Duchy of Lancaster accept that, despite his answer, the well-being of the fund depends to a substantial extent on the good will of the Government? Will he assure the House that the Government will look sympathetically at claims for extraordinary acquisitions as and when they arise?
  Mr. St. John-Stevas: I assure the hon. Gentleman that the Government are extremely sympathetic to this fund, and to the work it is doing. This Government set up the fund during their first Session. It would be inappropriate for any Minister, either myself or the Secretary of State for the Environment, to attempt to interfere with the decisions of the trustees, because as the hon. Gentleman will recognise, it is the will of the House that these trustees should be completely independent of Government.
  Mr. Faulds: While I personally doubt the sufficiency of the moneys for the long-term purposes of the fund, would not the right hon. Gentleman agree that there are sufficient moneys available to save the Whistlers in the Glasgow university collection, once the Prime Minister makes up her tardy mind about the appointment of the Scottish trustee on the board?
  Mr. St. John-Stevas: First, may I say that the Prime Minister has given her consistent and full support to the setting-up of this fund, and she has been much

  1039
  quicker in this respect than the Government in whom, unfortunately, the hon. Gentleman was not included.
  Mr. Faulds: We shall rectify that.
  Mr. St John-Stevas: Secondly, with regard to the question of the Whistlers at Glasgow university I understand that an application has been made to the fund, and that is a matter for the trustees.

  PUBLIC LENDING RIGHT
  Mr. Goodladasked the Chancellor of the Duchy of Lancaster what representations he has received in response to his consultation paper on the public lending right; and if he will make a statement.
  Mr. St. John-Stevas: I have received comments from over 60 interested representative organisations and individuals. As a result, a number of changes in our original proposals are being considered. I am having further meetings with some of the main organisations, and others are taking place at official level. I hope to be able to lay a scheme before the House early in the next Session.
  Mr. Goodlad: My right hon. Friend's statement will be widely welcomed by local authorities, authors and libraries. Will he say a little more about the nature of the changes, and the provisional view formed by the Government in the light of the comments in the consultative document? In particular, will he say whether the danger of authors resident overseas—in countries where there is no reciprocal arrangement—sweeping a large proportion of the pool has been coped with?
  Mr. St. John-Stevas: We have received 62 sets of comments from local authorities, local library authorities, authors, publishers, librarians and their representative organisations. We are considering all those submissions carefully. With regard to foreign authors, I am sympathetic to the view that PLR should extend only to the books of those authors who live and work in this country. There are difficulties in defining that legally, and my Department is examining the matter.
  Mr. Faulds: Will the right hon. Gentleman give an undertaking that he will not present a public lending right
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  scheme to the House until he has personally taken into account the detailed and reasoned representations of those who know a great deal more about these matters than he does, or even I do?
  Mr. St. John-Stevas: I can certainly assure the hon. Gentleman that all representations on this matter are personally considered by me. I claim no monopoly of knowledge is this respect, although I have taken an interest in the matter for many years. If I undertook to take into account the representations of all the people who have more knowledge that the hon. Gentleman, the coming into operation of PLR would be indefinitely delayed.
  Mr. Viggersasked the Chancellor of the Duchy of Lancaster what administrative expense he anticipates during the current financial year in respect of the operation of public lending right provisions.
  Mr. St. John-Stevas: There is provision for £100,000 in the Estimates for the current financial year towards the cost of setting up the PLR scheme, which is planned to come into full operation during 1982–83. In the course of our preparatory work we have succeeded in nearly halving the previous estimates for the administrative running costs of the scheme, and we shall be looking for further savings.
  Mr. Viggers: Does my right hon. Friend agree that the latest official estimate was that it would cost £400,000 to set up the scheme, and £600,000 a year to administer it? Does it not, therefore, amount to a job creation scheme for administrators? If it should be necessary to delay the scheme, may I assure my right hon. Friend that he will be forgiven by many people?
  Mr. St. John-Stevas: Since I have managed to reduce the initial cost of the scheme to £100,000, and since the annual running cost of the scheme will be reduced from approximately £600,000 to half that sum, I feel that I am more deserving of congratulation than forgiveness from my hon. Friend. We hope, under the revised scheme that has been produced by my Office, that annual administrative costs in most years will represent between 13 and 16 per cent. of the sum available

  1041
  in the central fund. That is half the earlier estimate, but I shall try to find further means of reducing the cost. This scheme is intended to benefit authors, not bureaucrats.
  Mr. Skinner: Is the Minister trying to tell the House that one of the difficulties in trying to implement this scheme is that the Government cannot find the necessary definition of authors living and working in this country? In view of all the statements that were made prior to the general election about the wonderful way in which the Tories would encourage such people to flood back to this country as a result of tax cuts, why are they not back here?
  Mr. St. John-Stevas: We are making available for the financing of public lending right the same sum of money as did the previous Government, who were intermittently supported by the hon. Gentleman. That sum of money will be revalued to take account of inflation and other matters. We are keeping faith with the pledges that we made at the time of the general election. I am delighted that this scheme is coming into operation with the support of hon. Members on both sides of the House.

  NATIONAL HERITAGE TRUSTEES (HEADQUARTERS)
  Mr. Dalyellasked the Chancellor of the Duchy of Lancaster if he will make a statement on the progress made by the national heritage trustees in finding appropriate headquarters in a building worthy of restoration.
  The Under-Secretary of State for Education and Science (Mr. Neil Macfarlane): The choice of headquarters of the national heritage memorial fund is a matter for the trustees themselves. I understand that the trustees are actively seeking accommodation and that they are aware of the point made by the hon. Gentleman when he raised this issue on 21 April.
  Mr. Dalyell: If the cost of the headquarters does not come out of the £12·4 million, surely the Government have some say in the matter. Do the Government accept the criteria that the headquarters should be in a building that is worthy of restoration, and that the trustees should set an example?
  Mr. Macfarlane: I am sure that the hon. Gentleman is a sufficiently powerful advocate for me not to have to act as a messenger boy on this occasion. I am certain that the trustees will be more than aware of his point. I hope the theme that he echoed will be acknowledged by the trustees. He has made an important point, and I hope that the trustees will acknowledge it, and reflect upon it in the fullness of time.
  Mr. Cormack: Will my hon. Friend assure the House that in no circumstances will the trustees be given permission-even if they should request it—to base their headquarters in that appalling building in Marsham Street?
  Mr. Macfarlane: I am always happy to try to given an assurance, but I am sure the House will recognise that I do not have the authority or autonomy to give such an assurance in this case. I hope that the hon. Gentleman's point will be acknowledged and echoed by the trustees when they make their decision.

  WELSH LANGUAGE
  Mr. Hoosonasked the Chancellor of the Duchy of Lancaster what is the proportion of the Government's support for the arts in Wales which is specifically allocated to activities that sustain the Welsh language.
  Mr. Macfarlane: Central Government support for the arts in Wales is administered by the Welsh Arts Council. It distributes its grants on the basis of the artistic needs and merits of the activities it supports, as distinct from the language content, although many of these activities will sustain the Welsh language. My right hon. Friend the Secretary of State for Wales disburses Government funds specifically to foster the Welsh language, principally through the education budget for Wales.
  Mr. Hooson: Will the Government nevertheless bear in mind that the Welsh language is the most distinctive part of the entire heritage of Wales and that, accordingly, special attention to the needs of the language is called for?
  Mr. Macfarlane: The request made by my hon. Friend has been acknowledged in two pieces of legislation in the past 12

  1043
  months—the Education Act and the Broadcasting Bill. The points that he has made will be acknowledged by my right hon. Friend the Secretary of State for Wales.

EUROPEAN COMMUNITY (FOREIGN AFFAIRS COUNCIL MEETING)
The Lord Privy Seal (Sir Ian Gilmour)The Lord Privy Seal (Sir Ian Gilmour) rose——
Mr. Skinner: On a point of order, Mr. Speaker. I wonder whether you have had any representations from the Prime Minister in regard to this statement, in view of the fact that she was closely involved in this matter both at Dublin and at the following summit, when she made claims to get rid of the whole of the burden with which we are now saddled in payment to the Common Market, and as she said that that package would not in any way be involved with any other commitment. It now appears that we are to be subjected to an increase of 5 per cent. on farm prices and that she has sent this lackey along to do her job.
Mr. Speaker: Order. The answer is that I have not received any representations, except that the Lord Privy Seal is to make a statement.
Sir I. Gilmour: With permission, I will make a statement on the meeting of the Foreign Affairs Council that my noble Friend the Foreign and Commonwealth Secretary and I attended in Brussels on 29 and 30 May. My right hon. Friend the Minister for Agriculture, Fisheries and Food, will make a statement on the Agriculture Council, which took place at the same time, both councils were the culmination of a long and complex negotiation which the Government began shortly after taking office last year, on the size of the United Kingdom contribution to the European Community Budget.
The Foreign Affairs Council, in which work continued throughout the night of 29–30 May, reached provisional agreement on a number of issues, as did the Agriculture Council, which was meeting in parallel. After a meeting of the Cabinet today, the Government have informed the Italian Presidency that we
1044
accept the proposals that emerged from both councils.
I should like at the outset to offer unstinted praise to Signor Colombo, the Italian President of the Council, for his outstanding chairmanship. His skill played a vital part in the work that was done.
At the Foreign Affairs Council on 29 May, the following arrangements were proposed to alleviate the United Kingdom's budget problem. The first element in the solution is the following formula for 1980, provided our net contribution, before the risk-sharing formula is applied, does not exceed £1,080 million, there will be a ceiling on our net contribution after adjustment of £370 million; for 1981, provided our net contribution, before the formula is applied, does not exceed £1,300, the ceiling will be £440 million. All these sterling figures are converted at a rate of 1.65 units of account to the pound. This would result in a total rebate to Britain over the two-year period of £1,570 million.
A further element of the solution is a risk-sharing formula. Should the amounts of the United Kingdom's uncorrected net contributions in 1980 and 1981, as estimated by the Commission, in fact be exceeded, the arrangement is that in 1980 we will bear only one-quarter of the cost of this excess. For 1981, a more complex formula exists, under which we would meet the first £12 million of any excess, the next £60 million would be shared between us and our partners equally, and thereafter we would meet only a quarter of the excess cost, as in 1980.
For 1982, it was envisaged that by this time the Council would have completed a radical review of the pattern of Community expenditure and the operation of the budget. However, if that had not by 1982 produced arrangements resolving the United Kingdom's budget problem, the Commission would put forward proposals along the lines of the 1980 and 1981 solutions and the Council would act accordingly. We can therefore be sure that for 1982 as well there will be similar restrictions on the level of the United Kingdom's net contribution.
The payment of these amounts to Britain will be brought about by improvements in the operation of the 1975

1045
financial mechanism, bringing our gross contribution more or less into line with our share of Community GNP and, for the rest, through Community expenditure in the United Kingdom. There will be a new regulation under article 235 of the Treaty to provide for this expenditure.
Following the precedent of the financial mechanism, the credits under the new regulation will appear in the Community budget for the following year, but with the possibility of advance payments in the current year. For 1980, we would expect to be paid before the end of our financial year 1980–81.
In the long term, the most important part of the package is the commitment of the Council to review the development of Community policies and the operation of the budget. This, together with the restraints imposed by the 1 per cent. ceiling, will enable us to press for lasting reforms, which will, among other things, resolve the British budgetary problem. This review offers an opportunity that has never been available before, since we joined the Community, to work together with our partners for financial arrangements and Community policies that are to the advantage and interest of all the member States, as befits a Community of equals.
We agreed to a statement of general principles on fisheries, which leaves the substantive issues open for consideration on their merits in the Fisheries Council, which will next meet on 16 June. A deadline of 31 December 1980 has been fixed for agreement on a revised CFP. This is in the United Kingdom's interest. Her Majesty's Government have repeatedly urged rapid progress towards a satisfactory common fisheries policy settlement. I welcome the fact that the fisheries text recognises the need for this and for a settlement of all the outstanding elements of the CFP together. It in no way prejudices the vital interests of our fishermen, which we are determined to safeguard.
When my right hon. Friend the Prime Minister refused the offer that our partners made at Luxembourg, she made it clear that this was because the combination of amount and duration was not right. We have now negotiated better arrangements for the two years 1980 and 1981, taken together, than were on offer then, and we have also secured an arrangement
1046
for the third year, 1982, which was refused to us then. Furthermore, the Community has recognised that there will have to be a major review of the operation of the budget and the balance of Community expenditure and that the United Kingdom's budget problem must be resolved finally.
As my right hon. Friend the Prime Minister made clear after Luxembourg, we also refused what was on offer then because we were being asked to accept agreements outside the field of the budget which were damaging to us. Since then, as my right hon. Friend the Minister of Agriculture, Fisheries and Food will make clear in his report on sheepmeat and CAP prices and related measures, we have secured changes in what was being suggested that give us substantial advantages. Taking the balance of these proposals together, the Government believe that they add up to a fair and advantageous outcome.
In a negotiation as complex as this, no one party can expect to get everything that he wants and to concede nothing. There should be no belittling of the concessions that our partners are making at a time when, whatever the impact on them of the Community budget, the general economic background is unfavourable. With this arrangement Britain can play her part in developing further the internal and external policies of the Community.
The negotiation has, morever, focused the minds of all member States on the unsatisfactory way in which the Community budget operates and, more clearly than ever, on the undesirable imbalance in the pattern of Community expenditure. With the review commissioned for 1981 and the proximity of the 1 per cent VAT ceiling, we have an unrivalled opportunity to bring about sensible adjustments to the operation of the CAP and to put the Community's finances on a sounder basis than ever before.
This Government came to office determined to make a success of our membership of the Community. The first task was to deal with the inequitable budget contribution. That we have now done. But Europe is about more than that. The challenges that face the Community both internally and externally are as daunting as any in its relatively brief history. None of us can find adequate solutions

1047
to them on our own. This agreement gives us the chance to solve them together.
Mr. Alexander W. Lyon: On a point of order, Mr. Speaker. The Lord Privy Seal acknowledged that to judge his statement we must balance it with the statement of the Minister for Agriculture, Fisheries and Food. In order to know the price of the concessions that he has announced, we must know the prices that we shall have to pay on the food bill. Would it not be possible for the Minister for Agriculture, Fisheries and Food to make his statement now, so that we can question both Ministers together?
Mr. Speaker: That would be against our custom. When a statement has been made, the Minister usually submits himself for questions.
Mr. Shore: The Lord Privy Seal made much of the fact that for 1980 and 1981—and perhaps for 1982—we will be permitted to keep back more of our own money—two-thirds of our own loaf—and thus become only the second largest net contributor to the EEC. Is he so insensitive that he cannot understand that a settlement that will further increase the price of butter, milk, sugar, meat and cereals for every family in the land; that will limit the export of New Zealand lamb to Britain and face that country with competition in third markets from subsidised French lamb exports; that will increase still more the huge financial cost and swelling food surplus of the CAP—which offers only a partial and temporary relief to the totally unjust budgetary contribution of the United Kingdom—will not be acceptable to the nation and will only intensify its already deep dissatisfaction with the EEC?
How can the Lord Privy Seal justify his retreat from the position of broad balance to an agreement to pay out no less than £1,500 million over the next three years to countries that are more prosperous than Britain, and for the sole purpose of increasing the already unmanageable food surplus? When will the Prime Minister cease playing Lady Bountiful to the Community—[Interruption.] Those were her words. How can the Government justify the abandonment of their demands for a solution that would last as long as the problem, and
1048
substitute what amounts to a further three-year transitional period, at the end of which we shall still be left with a Treaty commitment to pay at least £1,500 million a year, or to endure the same haggle and confrontation that we have had over the past 12 months?
Above all, how can the Prime Minister agree to so wet a formula for the future—I quote from the official communiqué—to resolve
" the problem by means of structural changes "
when the next sentence in the communiqué explicitly re-endorses the basic principles of the CAP and the continuation of the bizarre tax system of Community own resources.
Is the Minister aware that with a little more nerve and persistence, by continuing our veto on price increases of foodstuffs already in surplus—which the Prime Minister assured the House as recently as 20 March, without qualification, that she would insist on, not to mention the statement in the Conservative Party's election manifesto to the same effect—and by backing the negotiating stance with legislation to halt the outflow of British money, the Prime Minister could have achieved what the whole House has twice resolved to achieve, namely, the elimination of our excess contribution and a fundamental and lasting change in the CAP?
We shall certainly wish to pursue the matter further. I hope that there will be an early debate.
Sir I. Gilmour: The right hon. Gentleman's remarks this afternoon illustrate the disadvantages of instant comment. He loosed off on Friday before he knew what he was saying, and before he knew the full terms of the agreement. He is now compelled to make the same silly remarks this afternoon.
Mr. English: Why did the Lord Privy Seal keep the details to himself? Why did he not circulate them earlier?
Mr. Speaker: Order. The hon. Gentleman must restrain himself. It is not fair to shout from a sedentary position.
Mr. English: On a point of order, Mr. Speaker. I apologise to you, but my emotions overcome me when I hear Ministers of the Crown complain,

1049
although they have not circulated certain statements earlier.
Sir I. Gilmour: The right hon. Member for Stepney and Poplar (Mr. Shore) was, if I may use his words, insensitive to talk about food prices. Perhaps he would be interested to hear that over the coming year the total effect on food prices of the present settlement will be the same as the increase that took place in food prices every fortnight under the Labour Government.
The right hon. Gentleman mentioned certain commodities. Under the Labour Government, milk prices rose, on average, by 7·3 per cent. a year. Under our two years, net of co-responsibility levy, they have risen by 1·25 per cent. Under Labour, sugar prices rose by 8·5 per cent.; under the Conservatives, by 3 per cent. Under Labour, wine rose by 7·3 per cent.; and under the Conservatives, by 3·5 per cent. In those circumstances, the right hon. Gentleman would have been well advised to emulate the generosity shown in the remarks of the Leader of the Opposition when my right hon. Friend the Prime Minister returned from Luxembourg. He spoke in a different tone from that of the right hon. Gentleman this afternoon.
If the right hon. Gentleman complains in such terms about our achievements, we must reflect a little on what happened under the previous Labour Government. The Opposition party achieved absolutely nothing in seeking to reduce our budget contribution during the five years that it was in power. Its renegotiations were a complete waste of time. It wasted the opportunity that we gave it by our transitional arrangements. Yet the right hon. Gentleman has the effrontery to tell us to turn down a refund of £710 million this year and £860 million next year.
Mr. Shore: We have had a fine display of bogus indignation but not a single reply to any of the questions that I put to the right hon. Gentleman. I shall not repeat them all—[Interruption.] I think that the House and the country would like to know why and, in particular, how, the right hon. Gentleman and his Government justify the total abandonment within weeks of the specific pledge to insist upon a price freeze on foodstuffs that were in surplus. That is the first thing that we want to know.
1050
The second thing that we want to know is what is the right hon. Gentleman's justification, against the background of the words that have been spoken from the Government Front Bench about a totally unjustified system under which this country is being milked for the benefit of the EEC, for the continued net payment by Britain, as the second largest contributor, of no less than £1,500 million over the next three years.
Sir I. Gilmour: I have already answered the second part of the right hon. Gentleman's question. As for the first part, perhaps I may quote his own leader to him.
Mr. William Hamilton: Quote your own leader.
Sir I. Gilmour: This is what the Leader of the Opposition said:
" I repeat very strongly that we shall support her in not giving way on the agricultural price freeze until the budgetary issue is settled."—[Official Report, 29 April 1980; Vol. 983, c. 1154.]
Mr. James Callaghan: Will the right hon. Gentleman accept from me that he has totally misconstrued the meaning of those words?
Sir I. Gilmour: With great respect to the right hon. Gentleman, I find that sentence virtually impossible to construe in any other way, and I shall be interested to hear an alternative construction of what he said.
Mr. Rippon: May I first congratulate Her Majesty's Government on the successful outcome of these negotiations, which have been conducted with skill and patience? Reverting to the observations of the right hon. Member for Stepney and Poplar (Mr. Shore), may I suggest—I ask my right hon. Friend to confirm this—that the truly wet formula was the formula negotiated by the Labour Government in Dublin in 1975, which is at the root of the present difficulties and has done so much to undermine the transitional arrangements?
I also express appreciation of the fact that now that the question of the budget has been settled and the farm price review has been agreed, British farmers will welcome the payment to them of a proper price for what they produce.
Sir I. Gilmour: I am most grateful to my right hon. and learned Friend for what he said at the beginning of his question. Of course he is right to remind the House that we have farmers, too, and that they need proper returns. He is entirely right in what he says, in that the formula evolved in 1975 has proved to be virtually useless.
Mr. J. Enoch Powell: Is the right hon. Gentleman aware that however many pledges and prepared positions the Government abandon, there is in this country a deep and rising determination that we must be free, sooner or later, from the intolerable limitations placed upon our freedom of action by our membership of the EEC—[Interruption.]—and that the statement that he has just made will prove to have been a step towards that end?
Sir I. Gilmour: I think that that is extremely unlikely. Bearing in mind the right hon. Gentleman's previous views on the Common Market, I always live in hopes that he will return to them.
Mr. Edward Gardner: Is my right hon. Friend aware that the country generally will be delighted by the success of the Prime Minister and my noble Friend the Foreign Secretary in persuading the European Community to pay to this country during the next three years a sum in excess of £2,000 million? Is he aware that this agreement will be seen as yet another demonstration of the Prime Minister's extraordinary ability to make possible the seemingly impossible?
Sir I. Gilmour: I entirely agree. This agreement is the culmination of negotiations carried out over a long period by my right hon. Friend the Prime Minister and my noble Friend. They have now been successful. It is unfortunate that so many Labour Members should appear to regret the successful outcome.
Mr. Russell Johnston: Does the right hon. Gentleman accept and agree that much credit for this settlement goes to our Community partners, not least the German Liberals—[Interruption.]—in the very difficult political situation that they face? Does he agree that while confrontation may take us so far—I agree that it has done so—ultimately the success of the Community will depend on developing a spirit of co-operation? Will
1052
he assure the House that that will now be the priority of the British Government?
Sir I. Gilmour: Of course, there can be no successful negotiations unless everyone taking part has played a useful part. As I tried to say earlier, no one party to the negotiations can claim everything for himself. As has already been said by our partners, the success of these negotiations has been a success for the Community as a whole. With respect to the hon. Gentleman, I do not accept the implication that we have been proceeding by confrontation. This was a very genuine difficulty and a grievance that needed to be settled, but we have not been proceeding by confrontation. I assure the hon. Gentleman, as I indicated in my statement, that our ambition and that of the rest of our Community partners is that the Community should prosper by the co-operation of all those concerned.
Mr. Wall: I congratulate my right hon. Friend on the budget package. Will he be a little more specific about certain issues concerning the fishing industry? For example, will British rights be preserved in the 50-mile zone, will the dumping of foreign fish below the cost of catching be ended, and will the British conservation values be maintained? Is he aware that these are very important matters to be resolved before a common fisheries policy is agreed?
Sir I. Gilmour: I entirely agree that these are all extremely important matters to the fishing industry and to the country. However, my hon. Friend will be aware that they were not affected by the declaration agreed at Brussels, and they will be discussed in the Fisheries Council later this month.
Mr. Spearing: Does the Lord Privy Seal agree that the agreement has not brought a broad balance; secondly, that in two years' time there will have to be another major renegotiation; and, thirdly, that in the meantime the CAP has been entrenched and not diminished?
Sir I. Gilmour: The hon. Gentleman will have heard what I said about the future in 1981 and 1982. For the first time it has been agreed that there should be a fundamental restructuring of the Community budget. This will be enforced by the 1 per cent. ceiling, which

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will be hit somewhere around then. The new Commission has been enjoined to bring forward proposals to benefit the entire Community by restructuring the budget, which has been the fundamental aim of this country for some time before then.
Mr. Maxwell-Hyslop: What proportion of the estimated cost of £1,000 million a year that the accession of Portugal, Spain and Greece will bring to the Community does my right hon. Friend expect to fall upon the United Kingdom in addition to its present financial commitments under this agreement?
Sir. I. Gilmour: The figures for Greece are included in the figures that I have already given to the House. Spain and Portugal cannot accede to the Community before 1983, and therefore the consideration of their position will be included in the fundamental review to which I have referred.
Mr. Anderson: Have not the German Government, particularly because of their domestic circumstances, made some remarkable concessions? Do Her Majesty's Government accept that there is a serious danger that the food price increases will fuel expectations in the current wage round, and that there will be a historic error, just as there was last June when the Government raised VAT?
Sir I. Gilmour: I agree that the German Government have made concessions, as have all other Governments, including the British Government. The hon. Gentleman must get it right about food prices. The effect of the agreement on food prices will be small. It will increase the RPI by 0·15 per cent.
Mr. Farr: I congratulate my right hon. Friend on what has been achieved, but would it not have been better to stand out for a more permanent agreement, covering the difficult years from 1982 onwards? Will he say something about New Zealand, which is of great concern to many hon. Members on both sides of the House?
Sir I. Gilmour: From one point of view it would be good to have a permanent agreement under which we paid nothing and everybody else paid us a great deal. I agree with my hon. Friend that it is possible to imagine a better agreement. I can assure him that in the
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present circumstances a better agreement was not open to us. As I said, I believe that the agreement that we have obtained is fair to all concerned. I have no doubt that my right hon. Friend the Minister of Agriculture, Fisheries and Food will be going into greater detail on New Zealand, but my hon. Friend will have noticed that the agreement fully safeguards New Zealand's interests.
Mr. Heffer: Irrespective of the exchange of niceties across the Chamber on previous statements, does the right hon. Gentleman agree that the agreement is a retreat from the statements made by his right hon. Friend the Prime Minister that there would be no trade-off? There has been a trade-off. That is bound to have an effect on ordinary British people. They will have to pay higher prices for a range of products. Is it not clear that basically there has been a sell-out in reaching the agreement?
Sir I. Gilmour: I have already told the House what the increase in prices will be. It will be an extremely small increase, namely, 0·15 per cent. on the RPI. The hon. Gentleman should remember that the agreement on sheepmeat is extremely advantageous to Britain. The external issues will help Britain.
Several Hon. Members Several Hon. Members rose——
Mr. Speaker: Order. The House knows that there is another statement to follow. I shall call three more bon. Members from each side of the House to ask questions on the statement that is now before us. When questions are asked on the following statement I shall bear in mind those who failed to catch my eye during questions on the present statement.
Mr. Eldon Griffiths: At a time of serious international tension, is not the most welcome feature of the agreement that it has put Europe back on the road to unity? As my right hon. Friend has achieved something far better than Dublin, far better than Luxembourg and far better than anything that the previous Labour Government were able to get near, is it not the sheerest gall and effrontery on the part of the Opposition to complain?
Sir I. Gilmour: I agree with my hon. Friend. I indicated to the right hon.

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Member for Stepney and Poplar that he was on rather weak ground in complaining, bearing in mind the total lack of achievement of his party when in office. I agree most strongly with the first part of my hon. Friend's question. In an ever more dangerous world the unity of Europe is vital to us all.
Mr. Donald Stewart: In view of the breaking of the promise made by the Minister of Agriculture, Fisheries and Food on 24 April that there would be a veto on any increase in farm prices on items in structural surplus, what prospect is there now that the fishermen will not be betrayed in the forthcoming talks? Is he aware that if that occurs there will be the most serious developments?
Sir I. Gilmour: That is hardly worthy of the right hon. Gentleman. He knows full well that the Government have the interests of our fishermen fully in mind. We have safeguarded those interests until now and we shall continue to do so.
Mr. Moate: Does my right hon. Friend agree that by the standards set by the renegotiations entered into by the Labour Government and by the standards set in the original negotiations, the Government, and especially my right hon. Friend the Prime, Minister, have produced a remarkable achievement? However, judged by British interests, do not the very nature of the concessions that have been made—the move away from broad balance and the concessions on food prices—mean that Britain is still getting a very bad bargain? Will my right hon. Friend answer the question of my hon. Friend the Member for Harborough (Mr. Farr) on New Zealand? The agreement is vague about New Zealand. Will be give an absolute assurance that there will be no diminution of New Zealand lamb imports into Britain?
Sir. I. Gilmour: I cannot agree with my hon. Friend. I do not think that the agreement on New Zealand lamb is at all vague. It seems to be strikingly specific. My right hon. Friend the Minister of Agriculture, Fisheries and Food will be going into greater detail about that later. I cannot agree that we have achieved a bad bargain. If we had been starting from scratch, no doubt different results would have been obtained but, we were not. We
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have achieved a considerable amount. Of course, we have made concessions, In any negotiations that is bound to happen. However, as has been said from both sides of the House, our partners have made considerable concessions.
Mr. Jay: Has the right hon. Gentleman yet read the sentence in the communiqué that indicates that the proposed fundamental review must not call in question the principles of the common agricultural policy?
Sir I. Gilmour: I have. If the right hon. Gentleman will remind himself of what those principles are, in the Treaty, I think that he will be greatly reassured.
Mr. Myles: Does my right hon. Friend agree that there is no automatic mechanical link between the prices that were negotiated for agricultural produce in Europe and the prices in the shops in Britain?
Sir I. Gilmour: My hon. Friend is entirely right. It may be helpful if I say again that the average 5 per cent. increase in prices will add only 0·7 per cent. to the food price index—in other words, a very small amount.
Mr. Dalyell: Will the right hon. Gentleman clarify two matters in his original statement? First, in relation to the financial mechanism, he said that there was the possibility of advance payments taking into account that we would not be paid before the end of the financial year 1980–81 for the 1980 payments. Unless that is in black and white, what real possibility is there of advance payments?
Secondly, will the right hon. Gentleman accept from one who was a member of the Budget Committee of the indirectly elected European Assembly that on endless occasions we have heard about a major review of the budget? What will that major review achieve? There is no way of having a non-cosmetic major review without hurting various countries, which may refuse to be hurt.
Sir I. Gilmour: I agree that there is no way of ensuring that we get early repayment. However, we are bound to get repayment in our own financial year as opposed to the calendar year. This will help some of our partners. The

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Council has for the first time committed itself to a fundamental review and reiterated that no unacceptable situation should arise. The hon. Gentleman has forgotten that we have the prospect of the 1 per cent. ceiling, which is crucial in these matters.

EUROPEAN COMMUNITY (AGRICULTURE MINISTERS' MEETING)
The Minister of Agriculture, Fisheries and Food (Mr. Peter Walker): With permission, Mr. Speaker, I wish to make a statement about the Council of Agriculture Ministers' meeting in Brussels on 28 to 30 May, at which I represented the United Kingdom with my hon. Friend the Minister of State. At that meeting the Agriculture Council completed its consideration of the 1980–81 agricultural prices and related proposals.
We have pressed for and secured important modifications to the original proposals of the Commission. We have removed those elements of severe discrimination against our industries and we have secured a number of parts of the package from which we will derive substantial benefits.
The Commission had originally excluded any continuation of the special butter subsidy currently worth 13p a pound on butter. We have succeeded in obtaining the continuation of this subsidy for the coming marketing year, 100 per cent. financed by Community funds.
For five years we have failed to obtain substantial refunds on cereals used in the export of whisky. We have been successful in obtaining the refunds, backdated to the period since accession, and this will bring us in a net benefit of £40 million this year and approximately £16 million per year thereafter. We did argue for no price increases upon those products in surplus. On sugar, however, the world price has now gone well ahead of the European price and therefore there will be no cost of disposing of Europe's sugar surplus in the present circumstances. Britain will retain the same sugar quotas as last year.
The wine structural reform package agreed earlier this year is designed to make a major impact on the structural surplus and will impose an important discipline on producers in France and Italy.
At the Council meeting in Brussels last week I insisted on a further discipline of a limit being placed for the first time on the amount of wine eligible for end of season distillation, and this will impose a limit of 18 per cent. on any individual producer whose production goes into store.

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The price increase on milk is offset by an increase in the co-responsibility levy so that the net increase on milk prices will be 2½ per cent. This increase does not affect the liquid milk sales in the United Kingdom. During the marketing years 1979–80 and 1980–81 the average increase in the price of milk in the Community net of co-responsibility levy will be 1¼ per cent. per annum, and this, compared with the substantial increase in input costs of dairy producers, will mean that there will be a substantial reduction in real terms of the incomes of dairy producers throughout the Community. The total effect of the whole of the CAP package on the consumer will be an increase of 0·7 per cent. on the food price index and of 0·15 per cent. on the retail price index over a full year.
The package includes the introduction of a new suckler cow subsidy worth about £12 a cow, financed 100 per cent. from Community funds. The original Commission proposal, limiting this subsidy to smaller herds, was successfully eliminated. We also managed to retain in the package, contrary to the Commission's original proposals, the right to continue the variable beef premium scheme. As Britain provides 26 per cent. of the specialist beef herd in Europe, those measures will be of net benefit to the United Kingdom.
I obtained agreement that at an early Council meeting the Council would consider structural proposals to benefit the agriculture of Northern Ireland. At Luxembourg eight countries had agreed upon a sheepmeat regime based upon intervention throughout the Community. I believed that this would be bad for the British consumer, bad for the British producer and bad for New Zealand. I informed the Commission that there was no way that the British Government would accept such a scheme, in spite of its being backed by eight other member countries.
I succeeded in persuading the Commission and the Council of Ministers to accept United Kingdom proposals whereby there will be no intervention in the United Kingdom and the arrangements will so operate that there will be no incentive for any British lamb to go into intervention in France or any other part of the Community.
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I succeeded, for the first time in the history of the Community, in persuading the Community to provide Britain with a full deficiency payment system financed 100 per cent. from Community funds. The only previous major example of the Community accepting the principle of deficiency payments was when the previous Government negotiated the beef premium scheme, but that, whilst hailed as a triumph at the time, is a scheme that still enables intervention of British beef to take place and is financed only 25 per cent. from the Community funds and 75 per cent. from the British Treasury. The housewife will benefit because British lamb will tend to stay in Britain, to be eaten by the British consumer at reasonable prices instead of being sucked into intervention overseas as would have happened under the Commission's Luxembourg proposals.
British producers will obtain a 17 per cent. improvement in their guaranteed prices this year and can look forward to a secure future as the Community guaranteed price converges to a common price. Those improved producers' returns will be financed 100 per cent. by the Community with deficiency payments, and I anticipate that on the completion of the first four years of the scheme we shall receive an annual benefit from the Community to the order of £100 million per annum.
It was vital to defend New Zealand's interests and the whole regime will take effect only if and when New Zealand reaches a satisfactory agreement on the volume of its imports into the Community in exchange for a reduction in the tariff. I have agreed with the Commission that this agreement should and must include a New Zealand agreement as to the possible use of any export refunds. The fact that Britain, which produces half the lamb of Europe, will now have no lamb going into intervention means that, unlike the Commission's original proposals and those agreed by the Eight in Luxembourg, there will be little intervention in the Community. Throughout the negotiations I have kept close to the New Zealand Government and will continue to do so until their negotiations are satisfactorily completed.
Last year I was able to announce a price settlement which for the first time gave the United Kingdom a net benefit.

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Before making the budget adjustment now negotiated, this year's agricultural price settlement gives a net benefit of £37 million in 1980–81. In addition, the Commission's proposals to eliminate the butter subsidy, worth £108 million a year to British consumers, have been successfully rejected. We have in fact obtained a settlement of benefit to Britain and the success of the negotiations on the budget will mean that in future our partners will have a much greater financial interest in improving the common agricultural policy.
Mr. Mason: The Minister has obviously been a fall guy in this budget deal. The Prime Minister and the Foreign Secretary have used him as a tool during the negotiations. Agricultural policy has become a trade-off, and the right hon. Gentleman knows it. Why did he give way on the 5 per cent. increase on agricultural products? The Commission asked for an increase of 2.4 per cent. He has given way at double that price. According to the communiqué, prices in Britain will rise by between 5.5 per cent. and 7 per cent. Over a full year, that will cost the British consumer up to £300 million, representing another twist in the inflationary spiral. That is the first promise given to the House that he has broken.
Why did the right hon. Gentleman promise a price freeze on products in structural surplus but give way on the increase in the co-responsibility levy on milk from 0.5 per cent. to 2 per cent.? That will increase the CAP budget still further. That is the second promise that he has broken. Why did he promise that there would be no sheepmeat regime with intervention? There will be intervention in France and in the Republic of Ireland. Within 12 months there will be a sheepmeat mountain of about 30,000 to 35,000 tonnes. In order to accommodate that, pressure will be put on New Zealand to curb its exports to the United Kingdom. The right hon. Gentleman is bound to let New Zealand down. As a result of the sheepmeat mountain, subsidised exports on the world market will affect New Zealand's world trade.
Why did the right hon. Gentleman promise during our last debate on this issue to begin a reform of the CAP? The CAP has become worse and will become
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even more bloated. Why did he allow the common fisheries policy to become part of the deal? Both he and the Prime Minister promised that that would not happen. We do not know exactly what he has given away. Perhaps he has managed to maintain the butter subsidy. However, it applies only for one year, and is likely to fall next year at a cost of £108 million. The right hon. Gentleman, has managed to maintain the beef premium and to give a boost to farmers by means of the sheepmeat deal.
This package is a bad deal for United Kingdom consumers. It is riddled with the Minister's broken promises. It does not make good agricultural sense. He has failed miserably to make a start on reforming the CAP.
Mr. Walker: That is a remarkable condemnation from a member of the previous Labour Government, who never negotiated a common price fixing that gave any net benefit to Britain. The right hon. Gentleman has got the figure wrong. I therefore ask him to withdraw his statement that it will add an extra £300 million to consumption. Total expenditure on food is £26·7 billion and that will be increased to £26·9 billion. The right hon. Gentleman is only 50 per cent. out.
As regards items in structural surplus, the negotiations of the previous Labour Government led to substantial increases on every item in structural surplus, and there was no improvement on the return in the budget. When the Labour Government were in office, the price of milk rose on average by 7½ per cent. per annum compared with an average of 1·25 per cent. under this Government.
The right hon. Member for Barnsley (Mr. Mason) also gave totally inaccurate figures for sheepmeat. This time he was out by 200 per cent. as regards the possible intervention in France. A system that is good for British producers, good for British consumers and protects New Zealand should recieve some gratitude from the Labour Party.
Sir Ronald Bell: Will my right hon. Friend ignore carping criticisms of an agricultural settlement that will hasten the consumation that most people secretly or avowedly desire?
Mr. Walker: I know the views of my hon. and learned Friend the Member for

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Beaconsfield (Sir R. Bell). I am sure that he regrets that we have had a net benefit as a result of the CAP for the second year running.
Mr. Skinner: Is not the truth that, while the Minister was dozing in the corridors out there, the real decisions were being taken by his right hon. and noble Friend the Foreign Secretary on the other matter? Is not it a fact that, if the Government had stood firm on that question, the right hon. Gentleman would not have had to make this statement today about an increase of possibly 7 per cent. in prices, and that he might well have got a 50-mile zone for our fishermen and thereby helped them, in addition to getting a change in the structure of the budget? Instead of the retreat which he has announced today, the Government might have been able to stand firm and get all the taxpayers' money back which the Prime Minister talked about endlessly for three months prior to this settlement.
Mr. Walker: Perhaps I might, for once, congratulate the hon. Member for Bolsover (Mr. Skinner). On his estimate of prices, he has been far more accurate than usual. He estimates that food prices will go up by 7 per cent., when in fact they will go up by 0·7 per cent. By his standards, that is pretty good.
As for fishing, I am glad that my right hon. Friends negotiating in another Council made sure that there was no change in the negotiating position of the British Government. We are in no way compromised on that.
Mrs. Kellett-Bowman: Will my right hon. Friend accept the grateful thanks of farmers in my part of the world, especially the hill and marginal farmers, for the suckler cow subsidy of £12 paid entirely by the Community and for the lamb settlement which will ensure the future of our lamb producers, and the thanks of the British housewife for the butter subsidy, again paid 100 per cent. by the Community?
Mr. Walker: I am grateful to my hon. Friend. She is right in indicating that the provisions in respect of suckler cows and sheep will be of particular help to Scotland and Wales and to some of the most difficult agricultural areas in other parts of Britain.
Mr. Douglas: Does not the right hon. Gentleman concede that what he really means by an improvement in the common agricultural policy is an entrenchment of an economic monstrosity which no one can justify? If I may revert to the statement by the Lord Privy Seal, the escape clauses in the deal post-1982 in effect mean that we shall continue to pay a very high proportion of the Community's budget in underpinning the CAP, which is economic nonsense.
Mr. Walker: In terms of the future of the CAP, one of the most important facts is that over the next two years Germany will be paying an additional £460 million and France an additional £350 million, which I believe will make them far more interested in the sensible reform of the CAP.
Mr. Peter Mills: Although I congratulate my right hon. Friend on his extremely interesting and helpful package, may I ask him to bear in mind that the one feature about which some of us are slightly concerned is the co-responsibility levy, especially as it is rather unfair to British dairy producers? To complete this package, will he assure the House that in the autumn he will look very carefully at the costs of British dairy tarmers and see that they are covered?
Mr. Walker: I am grateful to my hon. Friend for his earlier remarks. As for the co-responsibility levy, it is true that this total package on milk will not be of net advantage to our dairy producers due to the fact that our liquid milk consumption is so large, although, in all fairness, our dairy producers have had the benefit of increases in the liquid milk price and increases due to the green pound devaluations over the past year which in combination have improved—I agree, necessarily improved—their incomes by about £250 million a year.
Mr. Beith: Does the statement made by the Foreign Ministers' Council on fisheries mean anything at all and, if so, what?
Mr. Walker: It means that attempts in the Foreign Ministers' Council to restrict our negotiating position and to write in conditions which would have been against our interests were resisted by my right hon. Friends and that we have total freedom to negotiate.
Mr. Marlow: Does my right hon. Friend agree that there are many costs associated with our membership of the Community, the most notorious of which is the budget—a problem which, to an extent, has been resolved—but the greatest of which is that we have to buy food at Common Market prices rather than at world market prices?
Did my right hon. Friend see in The Sunday Times yesterday a calculation to the effect that, even net of what our producers receive from Community funds, it is costing us an additional £1,500 million a year to pay for Common Market food? This amounts to a cost of more than £2 a week for every family of four and is a hell of a price to pay for allowing the free access into our market of industrial goods from French and German manufacturers. If that is the limit of European generosity, the sooner we pull out of this regime, the better.
Mr. Walker: With all respect to the article in The Sunday Times, it was based on what I consider to be a series of inaccurate figures. For example, the sugar figure was based on the world price of sugar two years ago, when it was substantially below the European price, whereas now the world sugar price is £80 a ton above the European price. We are trading at a net benefit on the basis of the world price of sugar. Altogether, the calculations made in The Sunday Times yesterday, for a series of reasons, was £1,000 million wrong.
Several Hon. Members Several Hon. Members rose——
Mr. Speaker: In case other hon. Members feel that they can emulate the language of the hon. Member for Northampton, North (Mr. Marlow), I remind him that we use parliamentary language in this place.
Mr. Straw: As the additional cost of this deal to the consumer is £300 million and, in return, we have simply got an additional £60 million off the budget, for every £1 that was achieved in Brussels the British housewife will be paying another £5. When the right hon. Gentleman says that food prices will go up by only 0·7 per cent., is he saying that at the end of the year the British housewife will be paying only 0·7 per cent. more in food prices than she is paying today?
Mr. Walker: The hon. Gentleman knows that there is a wide range of impacts on food prices, of which CAP prices are only one. I am dealing with the effect of CAP prices. The hon. Gentleman's figure of £300 million is wrong. It is £198 million. What is more, it is untrue to say that that is what housewives will pay because of Europe. A large amount of that will be paid, quite rightly, to British producers.
Mr. Gummer: Does my right hon. Friend agree that the reason why he has achieved so good a settlement on this occasion is that our Community partners are well aware that he will stand up for British interests and that he and the Government are committed to membership of the Common Market? That being so, are not we much more likely to get a thorough overhaul of the CAP primarily because our Community partners know exactly where they are with us, whereas they did not know where they were with the previous Administration?
Mr. Walker: It is significant that we have achieved a butter subsidy twice that ever achieved by our predecessors and the first major deficiency payments scheme ever operated by the Community.
Mr. James Johnson: The Minister has shown a great deal of optimism today about his farming negotiations. When does he hope to make a more optimistic statement about fishing negotiations, bearing in mind that we have a sympathiser at No. 10 and that there is a great deal of gloom and doom in our ports, about which the right hon. Gentleman must know, which are suffering death by a thousand cuts daily?
Mr. Walker: As the hon. Gentleman knows, it was in mid-March that I agreed to increased aid being paid to the fishing industry. I know that the position continues to be very serious. That is why at my last meeting with the industry I agreed to review the situation at the beginning of July, and I shall be doing that.
As for the fishing negotiations, the next meeting will be on 16 June. I am extremely pleased that the Prime Minister and the Foreign Secretary insisted that in no way would any bargaining be done on fishing as a result of the budget deal.
Several Hon. Members Several Hon. Members rose——
Mr. Speaker: I propose to call four more hon. Members from each side of the House. That will be a fair run.
Mr. Bruce-Gardyne: Will my right hon. Friend make it clear beyond doubt that whatever the phrase may mean in the Community, we have retained the total right to veto any future agreement on farm prices? Secondly, can he dispose of the report in one newspaper over the weekend that we shall have a positive benefit from purchasing foodstuffs from outwith the Community, because that would not be a very good idea when the Community is generating great surpluses?
Mr. Walker: On my hon. Friend's second point, the situation varies from commodity to commodity. At present there is a great advantage in buying sugar at Community prices. On my hon. Friend's first point, it is true that at the meeting of Foreign Ministers there was an attempt to get Britain to control or restrict its powers of veto over future farm price negotiations. I am glad to say that that was totally rejected by the United Kingdom, and we have freedom in all future price negotiations.
Mr. English: Will the right hon. Gentleman accept that we are all grateful for his answer to the hon. Member for Northampton, North (Mr. Marlow), since that figure has not hitherto been published? Will he place in the Library the details that illustrate that the cost of the agreement to the consumer is less than £2,000 million instead of £3,000 million, as The Sunday Times stated? Furthermore, will the right hon. Gentleman state what sanction has been applied against France for its breach of the law before the agreement was reached?
Mr. Walker: If I may, I shall send the hon. Gentleman, and make available in the Library, the calculation offered by my Department in a Treasury paper which was made public about three months ago and which sets out the current basis of calculation.
On the hon. Gentleman's second point, the French frontier will now be open to British exports. Individual traders who have paid levies are free to take in the French courts any action that they think fit.
Mr. Douglas Hogg: Will my right hon. Friend confirm what I thought that he said, namely, that there will not be a reduction in the sugar quotas? If that is correct, does it reflect an abandonment or merely a postponement of the Commission's proposal to reduce the sugar quotas? If the latter, how long does my right hon. Friend expect the present level of United Kingdom quotas to continue?
Mr. Walker: I do not know what the Commission's future proposals will be, but they will doubtless depend on future market trends. The world sugar situation has dramatically changed. As I stated, at present Community sugar prices are about £80 a ton cheaper than the world price. It is a matter for considerable conjecture whether demand for sugar and supplies of sugar will continue at the same level. Therefore, I can give no indication. For this year we have the same quotas as for last year.
Mr. Deakins: As the Minister is in such an informative mood, admitting that there was a trade-off between the budget deal and the agricultural prices deal, thereby giving the lie to his right hon. Friend's earlier pledge to the House, will he explain how a policy of raising food prices can contribute towards reducing inflation?
Mr. Walker: I repeat what my right hon. Friend said. The increase in food prices over a whole year will be equal to the average increase every two weeks during the previous Labour Government. The increase should not be exaggerated.
Mr. Pollock: Is my right hon. Friend aware that his statement has already been warmly welcomed by the president of the Scottish NFU, who rightly praises the involvement of Scottish Ministers? Will he accept that his actions will restore much-needed confidence to the sheep sector of Scottish agriculture?
Mr. Walker: I am grateful to my hon. Friend. I hope that he will convey to the farmers of Scotland the ridicule with which his remark was greeted by Labour Members. Our agricultural community has had two years in which its income has substantially dropped in real terms. Our sheep proposals will greatly help Scotland and other areas in the United Kingdom.
Mr. Robert Hughes: The Minister boasts about what he has done for the farmers, but can he explain why in all negotiations the fishermen are made to wait until 1 January 1981, when it is hoped that there will be an agreement about an agreement? Will the right hon. Gentleman accept that that has about as much value as that which it was once suggested attached to the vice-presidency of the United States? It is not worth a bucket of warm spit.
Mr. Walker: As the hon. Gentleman knows, because of his great interest in the subject, I inherited a situation where talks on fishing in Europe had broken down. We were fast approaching the position where a number of legal cases that I had inherited might have been decided in a dangerous way. After the budget negotiations we are now free to negotiate a common fishing policy.
Mr. Michael Morris: Does my right hon. Friend agree that the essential point to be drawn from his statement and the statement of the Lord Privy Seal is that for a 0·15 per cent. increase in food prices we have achieved a two-thirds reduction in our contribution to the Community budget? Will he accept that that will be welcomed by the average British household as showing progress towards a future successful Common Market?
Mr. Walker: In addition to what my hon. Friend correctly says, a substantial part of the 0·7 per cent. increase in food prices will be paid to British producers. This is needed to finance wage increases, such as the 20 per cent. given to agricultural workers in the last wage settlement.
Mr. D. E. Thomas: Will the Minister clarify his statement on sheepmeat policy and indicate what he means by a full deficiency payments scheme? Does that mean the continuation of the present guarantee price scheme, and if so, for how long? Will he confirm that it is only a transitional scheme until the United Kingdom price for lamb approaches the common price in the Community? What will happen to intra-Community trade?
Mr. Walker: There will be free movement of goods across frontiers. The immediate British guarantee price is fixed, at the same price as the French intervention price, and there will be no incentive
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to export lamb when the French are exercising intervention. When French prices are high, British farmers will be free to take advantage of that trade when it is available. As we converge to a common price, the gap will steadily decrease between consumer prices in this country and the price that we give our producers, which will be met 100 per cent. by Community-financed deficiency payments.
Mr. Strang: In view of the ambiguity in the Council text on fisheries policy, will the right hon. Gentleman make it clear that there is no question of the budget settlement being conditional on a fisheries agreement being reached by the end of the year? Also, will he confirm that his statement means that the New Zealand Government have a veto on the implementation of the sheepmeat regime?
Mr. Walker: "Yes" to both questions.

BUSINESS OF THE HOUSE
The Chancellor of the Duchy of Lancaster and Leader of the House of Commons (Mr. Norman St. John-Stevas): With permission, Mr. Speaker, I should like to make a short Business Statement.
At the end of the business already announced for Wednesday, the House will be asked to consider motions to approve the Iran (Trading Sanctions) Order and the Export of Goods (Control) (Iran Sanctions) Order.
Mr. Spearing: Will the Leader of the House also consider changing the Committee stage of the Finance Bill so that we can discuss the two statements made today? If not, may we discuss them next week?
Mr. St. John-Stevas: Subject to Mr. Speaker's ruling, anything that has been said today may or may not be relevant to the discussions on the Finance Bill. Mr. Speaker will therefore rule on that.
Mr. Speaker: Order. I remind the House that questions must be confined to the Business Statement.
Mr. Dalyell: Is there a time limit on the debate on the Iran sanctions?
Mr. St. John-Stevas: That is being discussed through the usual channels. I

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hope that the debate will begin and end at a reasonable hour.
Mr. Skinner: On a point of order, Mr. Speaker. Are you stating categorically that when the Leader of the House makes a Business Statement about a change of business, questions must relate only to that matter? I had always been under the impression that after a Business Statement hon. Members could ask questions on any business during that week, although we tend not to do so.
Mr. Speaker: My ruling is that when a narrow Business Statement is made, changing only one item of business in the week, business questions are confined to that matter. Every Thursday hon. Members have the opportunity to raise broader questions relating to business, which is in the interests of the House.

MINISTERIAL STATEMENTS
Mr. Cryer: On a point of Order, Mr. Speaker. Earlier, my hon. Friend the Member for York (Mr. Lyon) asked whether the two statements that had been made today could not have been made together because they were linked. You said that it was not part of our pattern of procedure and that therefore it could not be done. However, these were both important statements. In the past, copies of statements have been available in the Vote Office. For example, when the Secretary of State for Industry made a long and complicated announcement about variations and reductions in regional aid, a copy was placed in the Vote Office.
The Government will not take much notice of the Opposition if they can help it, on procedure or anything else, but it would be of great effect if you, Sir, could use your office to suggest that copies of important statements be placed in the Vote Office. You may have noticed that one of the statements today was simply badly read and the other was gabbled. That makes it difficult for hon. Members to follow the arguments.
Also, great resentment is caused to hon. Members when they see members of the press turning over copies of statements that have been duplicated and circulated to them beforehand but that are not available to us.
Mr. Speaker: This is not the first time that the hon. Member has submitted that point to me and to the House. I realise his strong feeling on the matter. What he has said will have been heard by those responsible for our business.

EUROPEAN COMMUNITY
Mr. Spearing: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely;
" the decision of Her Majesty's Government to accept a series of agreements with the European Economic Community whose terms are contrary to the wishes of the House, expressed in its resolutions of 16 July and 22 November 1979".
I do not think that there is any doubt that these matters are specific and important or, in view of their implications and the important details relating to food prices and fisheries, that they demand urgent consideration. The exchanges that I had a few moments ago with the Leader of the House show that at the moment Her Majesty's Government do not contemplate a debate.
On 16 July 1979, the House resolved:
" That this House urges Her Majesty's Government, in view of the United Kingdom's massive and ever increasing net contribution to the Community Budget, to press for a fundamental reform of the budgetary arrangements so that Britain's contribution to the Budget is at least not greater than the receipts."—[Official Report, 16 July 1979; Vol. 970, c. 1096.]
On 22 November, a similar motion resolved:
" That this House … fully supports the Prime Minister in her determination to secure the objectives approved by the House on 16 July."—[Official Report, 22 November 1979; Vol. 974, c. 726.]
The objectives have clearly not been achieved, although the merits of the arrangements that have been arrived at are debatable.
It is of course the right of any Government to come to a conclusion of this sort and to make that plain, but to do so in a manner contrary to the wishes clearly expressed by the House, not once but twice, and on the second occasion on a motion moved by the Chancellor of the Exchequer himself, means that the House has a right to expect the Government to account for their decision and for the matter to

1073
be scrutinised and its merits debated. I therefore submit that this matter comes within the terms of the Standing Order.
Mr. Speaker: The hon. Member for Newham, South (Mr. Spearing) seeks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter, namely,
" the decision of Her Majesty's Government to accept a series of agreements with the European Economic Community whose terms are contrary to the wishes of the House, expressed in its resolutions of 16 July and 22 November 1979".
I listened to the exchanges earlier this afternoon and I listened with concern to the hon. Member. As the House knows, it has given me instructions to give no reason when I reach a decision on an application under Standing Order No. 9. After careful consideration of the representations of the hon. Member, I have to rule that they do not fall within the provisions of the Standing Order, and that therefore I cannot submit his application to the House.

ORDERS OF THE DAY
  FINANCE (No. 2) BILL

    (Clauses Nos. 10, 17,18, 20, 23, 53, 68 and 91)
    Considered in Committee.
    [Mr. BRYANT GODMAN IRVINE in the Chair]

    Clause 10

      REGULATOR POWERS
      4.45 pm
      The First Deputy Chairman: Before I call the first group of amendments, I point out that in the past hon. Members have used the clause in the Finance Bill which deals with the regulator powers as an opportunity for a wide-ranging debate on the economy. The Chair is content for that practice to be followed again on this occasion, and I suggest that the debate should take place on this group of amendments.
      Mr. Denzil Davies: I beg to move amendment No. 1, in page 7, line 1, leave out subsection (3).
      The First Deputy Chairman: It will be convenient to discuss at the same time the following amendments:
      No. 2, in page 7, line 5, leave out subsection (4).
      No. 3, in page 7, line 24, leave out from ' apply ' to ' a ' in line 25 and insert
      ' shall not be effective until it is approved by '.
      Mr. Davies: These three amendments are probing amendments to find out what is behind this clause, which seeks to change the procedure—a procedure that has existed for a long time—whereby the House has been able every year to reassert or otherwise the economic regulator provisions in the Finance Bill. The subsections to which the amendments relate will change that procedure. I hope that the Minister will tell us the purpose of the clause.
      You have said, Mr. Godman Irvine, that we can debate the economy in general on these amendments. It has been traditional for the Committee to do so, either in a clause stand part debate or on amendments to the regulator clause. In view of your statement, perhaps I may speak on the economy in general, hoping

      1075
      that the Minister will deal not only with the economy but with the amendments.
      If the clause is agreed, this will be the last opportunity for the Committee to debate the regulator provisions. The clause contains a power under which the Government can, through the affirmative resolution procedure, make various changes to indirect taxes. In future, under this clause they will be able to do so merely by a resolution. There will be no need for the kind of clause that has appeared in every Finance Bill since the early 1960s.
      One is tempted to say that it is no wonder that the Government want this to be the last debate on the regulator clause. In view of the way in which the economy is going, and has gone over the past year, I am not surprised that they want to limit the time for debates on it.
      Since we debated the regulator clause in Committee last year, inflation has doubled. It was running at about 10 per cent. at this time last year. It is now over 21·8 per cent., according to the last retail price index, and is probably climbing to 23 per cent. This afternoon, the Minister of Agriculture Fisheries and Food said that the agreement in Brussels would add only 0·15 per cent. to the RPI, but that will still bring last month's figures up to 22 per cent.
      So inflation has doubled under this Government. Production is falling and unemployment is continuing to climb and will rapidly reach perhaps close on 2 million, if not 2 million. Investment is declining, we have record interest rates, and manufacturing industry is slowly but surely being destroyed in many parts of the country.
      For a Government who are supposed to treat inflation as a priority, this is an appalling record. Most of the 10 per cent. increase in inflation over the past year has been caused by the Government themselves. While Ministers, especially Treasury Ministers, fiddle around with their monetarist theories and play with the dogmas of Milton Friedman, they have deliberately and actively raised prices. They have increased indirect taxes. Through their policies they have increased local rates, interest charges and public welfare charges in an attempt to reduce public expenditure. The Government have also increased nationalised industry prices.
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      All these acts have deliberately increased prices, yet the Government pretend that, somehow, their monetary policies will squeeze inflation out of the system. They have shovelled inflation into the system with one hand while somehow hoping to squeeze it out with the other by pursuing their eccentric monetary policies. The favourite slogan of the monetarists is that Governments are the sole cause of inflation. I do not know about that, but at least one can say that over the past year this Government have been the sole cause of inflationary increases.
      How have the Government got themselves into the extraordinary position in which we have record inflation and unemployment alongside falling production and investment? A good Calvinist would say that their position must somehow be the result of the original sin, and that all the Government's problems stem from some original and predetermined sin.
      That, of course, was the basis of the election campaign that the right hon. Lady the Prime Minister and the Tory Party fought. They fought an extraordinarily populist election campaign. It was a far more populist election campaign than most election campaigns in this country. One would have to look to the United States for a comparison with the populist campaign fought by the right hon. Lady. One could describe the Tory election campaign as a combination of Huey Long and George Wallace if one wished to look at it in transatlantic terms.
      The Tory argument goes like this. If the people want tax cuts—and Saatchi and Saatchi went around the country and discovered, surprisingly, that they did—let them have tax cuts. If people want public expenditure cuts—and we all know that everyone dislikes waste in the public sector—let them have those cuts. Regardless of the state of the economy, or whether the country could afford income tax cuts, the Tory Party came to power on populist slogans about income tax cuts and public expenditure cuts, which seemed very attractive at the time.
      The only way in which the Government will reach their objectives is by trading inflation for income tax cuts and public expenditure cuts, and by not treating inflation as their priority. The only

      1077
      way in which the Government could carry out their pledges on income tax was by putting up prices. They gave inflation away in their attempts to justify the populist slogans and policies with which they won the general election.
      Let us look at income tax. In the Government's first Budget, prices went up by about 4 per cent. That was admitted by the Chancellor. Value added tax accounted for about 3¾ per cent. and other indirect taxes put the RPI up by about 1 per cent. The Bill that we are now debating, and will debate upstairs, puts the RPI up by about 1 per cent. Therefore, the taxation changes initiated by the Government in the first and second Finance Bills have put up the rate of inflation, as measured by the RPI, by 5 per cent. That was a deliberate act on the part of the Government. If we take an increase of about 10 per cent. in the rate of inflation over the past year, 5 per cent. of that increase has been caused deliberately by tax changes.
      Most of the benefit from those tax changes has not gone to the majority of the British people. Most has gone to those earning £15,000 or more a year. That is the result of the first Budget and of this Finance Bill. It means that most people must now pay higher prices so that a few people can benefit from the tax changes.
      Let us turn to the question of public expenditure cuts, which is the other arm of Government policy—if it can be so described. We have had, I think, three public expenditure White Papers since the Government came to office. Those three White Papers have probably put up the cost of living—as measured by the RPI, in terms of rents, nationalised industry prices, prescription charges and all the other welfare charges that have been increased—by at least 3 per cent.
      We can therefore say without exaggeration that about 8 per cent. of the increase in the RPI over the last year comes directly as a result of Government policies on income tax and public expenditure cuts. The extra 2 per cent.—the difference between 8 per cent. and 10 per cent.—is about all that can be attributed to higher world commodity prices and world oil prices. But, of course, we have been too cushioned by the strength of the pound.
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      Having put up inflation to 21·8 per cent.—and it is still rising—the Government made a further error by reducing their monetary targets. On the one hand they deliberately made inflation worse and on the other, quite contrary to that policy, they reduced their monetary targets to about 9 per cent. That led to an inevitable squeeze on manufacturing industry, which I will deal with in a moment.
      That policy also resulted in the high interest rates from which we now suffer. It is extraordinary how the Tory Party deludes itself about interest rates. There now appears to be a belief that interest rates can come down. The chairman of Barclays Bank advocated that yesterday, and the Government are now under considerable pressure. There is also the belief that now that we are to receive £700 million from the Common Market, in either this or the next fiscal year, thus reducing the PSBR, that money will enable the Chancellor to reduce interest rates.
      Interest rates are not high because the Government are having difficulty selling their stock. The reason is inflation. There is the fear that if interest rates are reduced below the rate of inflation bank lending will increase and that will make money supply targets even more difficult to achieve. Because of pressure, the Government may be tempted to reduce interest rates. If they were to do so, two consequences would follow. The first would be that companies would borrow more money from the banks.
      If companies go into the next wage round with an inflation rate of 22 per cent. or 23 per cent.—and many companies will have to settle at about that level—they will, of course, be able more easily to borrow from the banks, because the cost of borrowing in those circumstances will be slightly less. Not only will that make inflation worse; it will make the money supply targets more difficult of attainment.
      Mr. John Bmce-Gardyne: It seems to me that the right hon. Gentleman has just perpetrated a fundamental fallacy. He says that if the inflation rate is 22 per cent. or 23 per cent. companies will have to settle at that level, but surely our experience over the past 12 months has been that in many instances manufacturing companies have not settled at anything like the going rate of inflation.

      1079
      Where the going rate of inflation has been the basis of settlements, it has been all too often as a result of the lucubrations of people like Professor Clegg.
      Mr. Davies: I appreciate that the hon. Member for Knutsford (Mr. Bruce-Gardyne) likes to pursue his vendetta against Professor Clegg and at the same time blame all the Government's economic failings on the professor.
      Manufacturing companies will settle at different levels. Many settled at less than 20 per cent., especially at the beginning of this wage round, when inflation was between 14 per cent. and 15 per cent. As the wage round has progressed, we have seen higher and higher settlements. That will happen next year, because the starting point will be around 20 per cent. and not around 14 per cent as it was at the beginning of this wage round. We shall see more pressure on companies to borrow from the banks.
      If interest rates come down, there will be an increase in money supply. If interest rates are reduced, the reduction is bound to have an effect, though it is doubtful how great it will be, on the value of the pound. If the differential between our interest rates and those of the United States, in particular, is reduced, presumably it may reduce the value of sterling, though I know that there are other factors such as the so-called petrocurrency basis of sterling. If the pound comes down—and manufacturing industry will welcome that—it will make inflation worse. If the pound had been at a lower level than it is now, inflation would be higher than 21·8 per cent.
      The Government are in a cleft stick. They wish to reduce interest rates in order to help manufacturing industry, but if they do so they will make the money supply problem worse. If they reduce the value of the pound, that will also make inflation worse.
      5 pm
      The final constraint on the Government in reducing interest rates is their shaky monetary targets. They will become more shaky as the year progresses. If one regards the taking away of the corset in terms of domestic credit expansion because of the deficit in the balance of payments and the reduction in exchange control, it is by no means certain
      1080
      that the Government are within their target for sterling M3. That, with the pressure on bank lending, will make it difficult for the Chancellor, with credibility, to reduce interest rates—although everybody hopes that he will.
      I turn to the consequences of the policy. Manufacturing industry and the unemployed suffer most. Manufacturing industry has suffered appallingly in the last 12 months and will continue to suffer for the next two years because of Government policies. The regional chairman of the CBI in the West Midlands was quoted in the Financial Times recently as saying:
      " I doubt whether the Government yet appreciates the plight of manufacturing industry and the speed at which it is being destroyed."
      We have said that consistently in the last 12 months, but the Government have not listened. Perhaps they will listen to the chairman of the West Midlands CBI.
      The Government are in some difficulty. Having put themselves into the hole, it is difficult to see how they can respond to the plight of manufacturing industry without making inflation even worse. Manufacturing industry is suffering because high inflation—caused by the Government putting up prices by about 8 per cent.—damages investment in industry directly. High inflation causes high interest rates, and inflation is the main reason why interest rates are so high. High interest rates make it difficult for companies to invest and they cause a high value for the pound. That high value damages exports and makes imports more attractive. As a result, manufacturing industry is being destroyed.
      The unemployed are also suffering. Unemployment will increase, but the Government have deliberately cut benefits to the unemployed because they cannot afford them. We have heard speeches about the need to create the will to work and the problems of the poverty trap. The main reason why the Government cannot index unemployment benefit to the cost of living is that they cannot afford it under their plans to cut the public sector borrowing requirement when inflation is running at between 20 and 23 per cent. The Government have broken the link between prices and unemployment benefit. The unemployed suffer, first, from the high rate of inflation

      1081
      and, secondly, because their benefits are to be cut and not indexed.
      One must contrast that with the Bill's provisions. In clause 23 the Government are introducing automatic indexation for people earning more than £11,000 a year—the people in the old surtax bracket. For them the law is to be changed to enable their incomes to be indexed automatically to the cost of living unless the Government introduce an order. The people who have benefited most from the two Budgets are to be protected against inflation, but the people who have suffered most from the Government's policies—the unemployed—will have their benefits cut. That is a condemnation of the Government's social priorities.
      A number of excuses have been made to explain why the Government's monetarist policies do not seem to be working. The Government have said that people do not understand monetary policy and do not read the treatises of Hayek and Friedman. Last year the Financial Secretary said that
      " people have yet to understand fully the link between a tight money policy and their own behaviour."
      He seemed to be saying that negotiations should take place on the basis of the level of sterling M3.
      The Financial Times tries to reflect what the opinion formers think. In an extraordinary statement in a leader recently, that publication stated that
      " the failure of both sides of industry to take any notice of a determined monetary policy has done much to produce the present situation of high inflation, high interest rates and (negative) profit margins."
      Yet, when the Conservatives were in Opposition, they said that merely to control the money supply would solve the problems, that inflation and interest rates would come down and that wage settlements would respond. Now, the Conservatives say that the problem is caused by negotiators who do not understand the economic theories of Hayek and Friedman.
      The Governor of the Bank of England said the same in an extraordinary statement. He said that
      " monetary policy required a slowdown in the rate of wage increases."
      I thought that monetary policy was supposed to create a slow-down in wage increases.
      1082
      Clearly, something is going wrong with the Government's theories on monetary policy.
      I do not see how the Government can expect negotiators in industry to understand the theories of rather eccentric mid-European professors which do not suit the British economy. They might suit America and possibly they have worked there to some extent. That is because credit is used more liberally in America. Acting on credit can cause a reduction in inflation in America. However, credit is not used to that extent in Britain and here the problem lies in wage bargaining. Monetary policy cannot go to the root of the problems of wage bargaining.
      Having trotted out the excuses, the Government are looking for scapegoats. They are the trade union movement and, in particular, the public sector, as the hon. Member for Knutsford indicated in his intervention. Whatever their faults, the trade unions are not responsible for the inflation that we have suffered in the last year. That has not been caused by high wage settlements, because only now are they gradually working their way through into price increases.
      The inflation of the last 12 months has been caused mainly by the Government and partly by world factors. The Government cannot say that trade unions and wage negotiators have caused the 21·8 per cent. inflation rate; nor can they say that the public sector is responsible. When the miners settled at 20 per cent., the Prime Minister said that it was a triumph for common sense in the public sector. Then the rate of inflation was about 15 per cent. They therefore settled at 5 per cent. above the inflation rate. If the miners settle next time at 5 per cent. above the inflation rate when it is running at 21 per cent. or 22 per cent., will that be a triumph for common sense?
      The Government should not make the trade unions or the public sector the scapegoats for their policy. The Government are responsible for the inflation rate. Whatever happens next winter, they will be held responsible by the trade union movement and the country.
      We are asked about the alternatives. I believe that a grand Cabinet meeting is to take place at Chequers to review economic policy. I am sure that the Chief Secretary will be there. Somebody has to

      1083
      keep an eye on the "wets" in the Cabinet. He and the Chancellor will tell the "wets" that there is no other policy and that nothing more can be done. To some extent, that is right. Now that the Government have put us in the hole and created the difficulty, it is difficult to see what can be done. Any other policy that they introduce will make inflation even worse.
      However, the Government need not have put us in this position. Inflation need not have been more than 12 per cent. if the Government had treated it as a priority. That was the underlying rate. That could have been the rate of inflation at the moment. The extra 8 per cent. has been caused by the Government. If there was an inflation rate of 12 or 13 per cent., interest rates would have been lower. The value of the pound would also have been lower, which would have helped manufacturing industry and discouraged imports.
      There was no need for a high rate of inflation. With inflation at the level I have mentioned, monetary targets could have been kept at between 7 and 12 per cent. I do not object to monetary targets being slightly lower than the rate of inflation. My objection is that under this Government there should exist such a gap between the monetary target and the rate of inflation. That is causing the damage. There could have been a monetary target of between 7 and 12 per cent. with an inflation rate of 12 or 13 per cent., and interest rates at the same level.
      The PSBR this year could have been at least £2 billion higher than it is. There is no problem at the moment in selling Government stock. There has not been much of a problem throughout the year. But, despite the fact that the PSBR has been reduced, the Government are paying 14 per cent. or more for long-term money. A PSBR £2 billion higher would have necessitated fewer cuts in public expenditure and a smaller increase in welfare charges and prices.
      The Government could have talked to the trade union movement instead of treating the unions with considerable hostility. Unfortunately, after a year of debacle and a year of disastrous policies, the Government do not know where to turn. Wherever they turn, they will make
      1084
      the economy worse. At the end of four years, or whatever the period may be, there will be a higher rate of inflation than when the Government took office. There will be a higher rate of unemployment and a smaller manufacturing industry base. The remedies that will need to be adopted will be much more drastic than in the past.
      Mr. Bruce-Gardyne: Unlike the right hon. Member for Llanelli (Mr. Davies), I welcome the fact that this would appear to be our last regulator debate. The regulator debate has become a bit of a bore. It occurs always about three weeks or a month after the Budget debate, and sometimes it is interlarded with the public expenditure debate. The result is a running series of circuses about the management of the economy. I doubt whether these debates add enormously to the sum total of our knowledge or information. It seems to me that, in principle, there is a lot to be said for eliminating, even if this is due to technical reasons, the circumstances that give rise to this debate. That is probably not the right way to begin a speech in this debate.
      The other purpose of the regulator debate is to give an opportunity for a member of the Opposition Shadow Treasury team to present his assessment on how the economy is being managed. That happened when we were in Opposition. It has happened again today. I hope that I shall not do the right hon. Member for Llanelli any harm by saying—in contradistinction to what I have just said—that his speech went a long way towards justifying the regulator debate. It was a better argued, better presented and more logically advanced proposition than that of the Shadow Chancellor, the right hon. Member for Leeds, East (Mr. Healy), through which we had to sit twice over a few days ago. The contribution of the right hon. Member for Llanelli was also shorter.
      Unlike the double contribution of his right hon. Friend, the remarks of the right hon. Member for Llanelli were worth listening to. Curiously, at the end—I am sure the right hon. Gentleman would deny any such brutal allegation—it seemed that he was endorsing the Government's strategy. I happen to believe that he was right to do so.

      1085
      5.15 pm
      I wish to cast some small doubt on the alternative nostrums peddled in some sectors of Fleet Street and also by such luminaries as the chairman of the West Midlands branch of the CBI, to whom the right hon. Member for Llanelli referred, not to mention such curious happenings as the Labour Party's supernumerary conference on Saturday. The right hon. Gentleman referred, in terms of wise dubiety, to nostrums that we should aim at an early and substantial reduction in interest rates, that this would lead to an early and substantial reduction in the exchange rate and that if this were to have implications for counter-inflation policy we should perhaps talk about or contemplate the prospect of some form of incomes control. I wish to deal briefly with each of those propositions.
      Mr. Denzil Davies: I was saying that the Government are now in such a position that it is difficult for them to reduce interest rates. I did not say that it was desirable to do so. The Government deliberately got themselves into this position, through their own policies. It will now be difficult for the Government to get out of the hole that they have dug themselves.
      Mr. Bruce-Gardyne: I am aware that that was what the right hon. Gentleman said. The reason that leads him to what I consider a sensible conclusion does not necessarily invalidate the good sense of the conclusion at which he eventually arrived. It is the conclusion with which I am concerned.
      I want to deal first with the proposition that there should be a rapid, early and substantial reduction in interest rates. There is no doubt that the desirability of such a reduction is manifest for a number of reasons. Interest rates at present levels clearly have a debilitating effect that we should wish to eliminate at the earliest opportunity on the entrepreneurial sector of the economy. It is also true—I hope that it will never be overlooked—that they lead enormously to the cost of financing the Government's own budgetary deficit. One has to regard with some depression the repeated issuing of tap stocks with a redemption date going on into the twenty-first century at current levels of interest rate. To put it mildly, they tend to diminish the attractiveness to the Government's
      1086
      money managers of reducing the rate of inflation.
      We must recognise that the level of interest rates, when measured against the current rate of inflation, is negative. I agreed very much when the right hon. Gentleman pointed out that an early and substantial reduction in interest rates would be likely to have worrying implications for bank borrowing. There is also, unfortunately, too much evidence at present that bank credit is being used to finance wage settlements that firms cannot genuinely afford from their own resources. It is hard to believe that a substantial reduction in interest rates at this time would not have the effect of stimulating that tendency.
      We should also enter a word of caution against, the proposition that a substantial reduction in interest rates would necessarily lead to a corresponding reduction in the rate of sterling. As the right hon. Member from Llanelli rightly recognised, that level reflects a number of factors of which the level of interest rates and the interest rate differential with other financial centres such as the United States are only two. We should not take it for granted that a substantial reduction in interest: rates would necessarily or automatically lead to the fall in the exchange rate that some people expect.
      Over the past 10 years, the countries with the fastest growing proportion of world exports and manufacturing have been those with the largest increases in exchange rates. Countries such as ours which have witnessed the sharpest deterioration in their share of world exports and manufactures have tended to witness a substantial drop in their exchange rates over the corresponding period. It is a mistake to believe that even if we could achieve a significant drop in the exchange rates that would necessarily redound to the health and prosperity of British manufacturing industry.
      Mr. Bill Homewood: The hon. Gentleman's comments conflict with my general impression about the prosperity of our competitors. The general belief seems to be that most of them have prospered with an undervalued rather than an over-valued currency. Is that what the hon. Member was saying?
      Mr. Brnce-Gardyne: No, that is not what I was saying. I was saying that countries such as the Federal Republic of Germany and Japan, leaving aside the last year's experiences, experienced over the preceding decade the most rapid increase in the international value of their currencies and also tended to experience the largest increase in their share of world manufactures. The statistics are available and the hon. Gentleman can examine them if he wishes.
      I am not saying that the road to successful export performance takes us via a constant appreciation of the currency. That would be nonsense. But I believe that the conviction that a substantial reduction in the exchange rate would lead to a dramatically healthier climate for our manufacturing industry in world markets is at least open to question on the basis of the experience of other countries over many years.
      Mr. Anthony Beaumont-Dark: My hon. Friend mentions Germany and Japan, which prospered on a rising currency. However, neither of those countries has had oil. Their currencies rose as a result of a strong and efficient industry. Does my hon. Friend agree that if this country did not have oil, which makes sterling a petrocurrency, the value of sterling would be more likely to be $1·70 or $1·80 at the outside? Surely, therefore, manufacturing industry is being asked to pay the price for the prosperity that we hope oil will ultimately bring.
      Mr. Bruce-Gardyne: That is a fair point, but it is at least possible, given the experience of our foreign competitors, that an appreciating exchange rate will, by the impact it has on stimulating competition among domestic manufacturers in their home and foreign markets, and by reducing inflationary expectations in domestic terms, have, through time, a positively beneficial effect. However, I do not deny that the present strength of the exchange rate reflects the world market expectations of the value of our oil resources, and to that extent it may be artificial. But whether it is artificial or not, we shall have to live with it, and it is not automatically necessarily within the power of my right hon. and learned Friend the Chancellor of the Exchequer to change substantially the level of the
      1088
      exchange rate which results from sterling being a petrocurrency.
      Mr. Michael Spicer: Does it not support my hon. Friend's argument to recall that when sterling was $1·50 or $1·60 this country did not experience a massive upsurge in exports?
      Mr. Bruce-Gardyne: My hon. Friend makes a very fair point which demonstrates the degree of dubiety one should have about arguments on the vital importance of the exchange rate. The one certainty is that if we manage to engineer, in one form or another, a substantial reduction in the exchange rate, just as we embarked upon a substantial reduction in the interest rate, the implications for domestic inflation would be very serious.
      That leads to the third panacea that is being peddled. I refer to the idea of a return in one form or another to some system of control over pay. Goodness knows we have been down this road often enough. It continues to be a source of amazement to me that, notwithstanding our experience, there are those who persist in arguing that there is no road back to prosperity that does not involve the application of some form of incomes control. We should be absolutely clear that there can be no form of wage control which does not involve a system of bargaining with the producer interest groups concerned. In addition, the counterparts are certain to be higher levels of public expenditure, an increased deficit on the PSBR and, at this time, a substantial lurch into wholesale protection.
      There is only one way to read that formula. It is that the inflationary consequence of the cure that would be applied would be infinitely worse than the inflationary disease that it is supposed to cure. That is no way in which to proceed.
      I welcome the conclusion reached by the right hon. Member for Llanelli, even if I do not acquiesce in the reasoning which led him to that conclusion, because I think that we have to continue to give the overriding priority to taming the inflationary hurricane. The way in which the Government are seeking to achieve that by coherent monetary targets, by maintaining interest rates at a level which is consistent with the achievement of those targets, and by insisting that the private

      1089
      sector must, broadly speaking, live with the consequences of the settlements it chooses to make is the only way in which we can wring this appalling drug of inflation out of the system. I have no doubt that so long as we persist in this course it will achieve its objectives.
      5.30 pm
      It can be argued that over the past 12 months too much of the burden of wringing inflation out of the system has been carried by the private sector of the economy. At a time when we are legitimately expecting the private sector to cope with the combined pressures of the high cost of borrowing money, high exchange rates and very fierce competitive pressures at home and abroad, it is not satisfactory that review bodies should be allowed to make recommendations for settlements for anyone, from doctors to Back-Bench Members of Parliament, which are then accommodated at a high level in cash limits. We must ensure that within the public sector cash limits apply the same stringent disciplines which competitive pressures, orchestrated by the Government's monetarist policies, already apply in the private sector. Provided we do that—it is essential that we should do it within the next 12 months—the Government's policy is entirely coherent and it will achieve its objective.
      Mr. Robert Sheldon: The hon. Member for Knutsford (Mr. Bruce-Gardyne) was right to give some history of the regulator debate. He called it a boring debate, but it is a question of timing. The purpose of the regulator debate, as established by Iain Macleod, is that there comes a time in debating the Finance Bill when the economic situation has moved on. Normally, by the time we discuss clause 10 of the Finance Bill, some of the errors in the Bill have become more apparent, and it is useful to look at the background within which the Budget and the Finance Bill were framed in order to see how relevant the Bill was to the economic situation two or three months earlier. However, this is the first day of the Committee stage of the Bill, so we are a little premature, but the general principle that was established for the regulator debate is right.
      One voice that I regret not being able to hear on these matters is that of Reg
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      Maudling, who used to sit below the Gangway and give somewhat unpopular accounts of the economic problems as he saw them. He was listened to with respect, but he was a little unfashionable, so his comments never received the attention that they deserved. He would have been a splendid critic of the way in which new economic theories are put forward to bamboozle people.
      People dealing with economic matters, whether in the Treasury, whether they are economic commentators or whether they are hon. Members who are interested in these matters, tend to be subject to a sort of tunnel vision and are able to look only at one matter at a time. That tunnel vision does not necessarily cover the most important area which should be considered.
      In the past, we used the gold standard as the one element around which all our policies had to be created. Many years later, in the early 1960s, the inviolate exchange rate took priority. Now, in this well-trodden path comes monetarism. It is said that if we get the money supply right, everything else will follow. If we get the gold standard right, everything else will follow. Keep the inviolate exchange rate right and everything else will follow.
      But that does not follow, and we are beginning to question these policies. A number of Conservative Members as well as some Labour Members are beginning to doubt the accuracy of that prescription. They will recall the three-column leader in The Times—which can have been written only by the editor—which stated that the Cabinet had to accept the superior understanding of those members of the Cabinet who understand the economic problems and their complexity. That level of arrogance, whereby the majority of the Cabinet had to keep quiet while they listened to the arguments of those members who believed in a certain level of money supply, makes the politics inferior to the economics of the matter.
      What we are now seeing, and what I hope we shall see at the meeting in Chequers, is a better balance between the views of those people who claimed 12 or 13 months ago that their policies would be successful and the views of those who were not heard.

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      We are now faced with the problem of how to control the money supply. The Government, faced with that problem, increased interest rates. We now have the straightforward deflation that we knew so well in the years before the war. The great hopes of the Government for the management of the economy by controlling money supply and thus inflation that were paraded before us last year are now seen to be nothing but memories of a vision that has long since vanished.
      The Chief Secretary to the Treasury, who has been called "the statutory honest man " in the Cabinet, talked about three years of unparalleled austerity. I am sure he is right, because he believes that, whether or not a policy is successful, it should be pursued if it is right. He condemned those who talked glibly—obviously, members of the Conservative Party and the Government—about prosperity being around the corner. But in an astonishing speech in America last week the Secretary of State for Industry said:
      " Britain is in transition."
      He continued:
      " Before very long the thousands of healthy successful businesses will no longer be overloaded. Britain will be on its way again."
      That is about as close as we can get to " prosperity being around the corner ".
      Other people are less optimistic. I should like to quote from a statement in The Sunday Times Business News by Mr. Reg Parks, chairman of the West Midlands CBI and also of the Brock-house engineering group. He said:
      "I doubt whether the Government yet appreciate the plight of manufacturing industry and the speed at which it is being destroyed. There is a great deal of talk about the Phoenix rising from the ashes; but what if we are left just with the ashes? "
      Over the last few days there seems to have been a chorus of opposition from industry to the Government's policy. Business men rarely give of their best when they are involved with political matters. They speak best on their industrial performance and on how they make their profits. At this moment they are talking about the matters which they know most about—their evaporating hopes for their profits and their fears about the disasters that may come.
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      Mr. Leonard Regan, the chairman of Carrington Viyella, said that he knows of no
      " greater recipe for disaster in manufacturing industry than that which exists at present."
      I believe that that chorus will swell as the impact of what the Government are doing to manufacturing industry comes home to people not in leader columns of newspapers but in their own businesses as they see them from day to day.
      I believe that the hon. Member for Knutsford was right when he said that if we were to lower interest rates to reduce the level of the pound, it may not have such a dramatic effect. I believe that the central issue with which we should be concerned is the level of the pound. This is causing great problems to industry in this country facing competition leading to responses by those who want to see restraint by means of tariffs and quotas. That is not the best way to do it. If we find ourselves with no other way of keeping sectors of manufacturing industry alive, we shall be forced into that direction; but I wish to see it by achieving a more realistic rate for the pound. As I said, I believe this is the central issue.
      Manufactured imports into this country have been increasing at an alarming rate and our manufactured exports are having great difficulty because the petro-pound produces further problems. I should like to see something done about depletion policy. I believe that oil in the North Sea is better there than feeding imports and making our exports more difficult to sell. However, that is another matter.
      How should we get the pound down? The answer is quite straightforward: we go on the market and sell it. Conservative Members who understand market forces will know what will then happen. The pound will go down. They will be appalled at the monetary consequences. But our manufacturing industry is critical to us. Our service industries cannot provide the employment that this country needs to maintain its standard of living. Only our manufacturing industry can do that. The terrible thing is the equanimity with which the Government view the disaster facing manufacturing industry. They believe that at some stage in the future—they do not know how—it will be reborn. Frankly, I do not believe it. If our manufacturing industry suffers the disasters

      1093
      that have been predicted by Ministers, amongst others, we shall find it very difficult to return to a basis of expansion and investment and job creation by manufacturing industry.
      Mr. D. N, Campbell-Savours: May I take my right hon. Friend back to a comment that he made about oil extraction? Does he believe that if the rate of extraction of oil from the North Sea were reduced, that would have the effect of helping manufacturing industry by reducing the exchange value of sterling?
      Mr. Sheldon: There are problems in doing it suddenly, because commitments have been undertaken. But, within that context, I should wish to see a stricter depletion policy for the reasons that I have given. I believe that it is better to have the oil in the North Sea appreciating in value than to have gold appreciating rather less in value in the vaults of the Bank of England. That is the way in which I should wish us to proceed. If there were to be a substantial inflow of funds, I should overcome it by means of negative interest rates or by some of the other ways in which we can deal with that problem. The crucial priority must be manufacturing industry. If we put this as a residual while we get everything else right, we shall fail not only the future of this country but the employment and prosperity upon which we must ultimately depend.
      5.45 pm
      An immediate problem is the role of the trade unions. The fact is that the Government believe in the market economy and they expect the trade unions to believe in it, too. But trade unions came into being by joining together to make weak employees a much stronger force. To ask them to accept the market economy is to ask them to deny their very existence. The problem that the Government are now beginning to see is that the market economy, which they wish to see established, depends upon the trade union movement becoming a much weaker force. If that is what they had in mind, they should have spelt it out more clearly, because I do not think that the country would have accepted it. Indeed, I do not think that many Conservative Members thought of this kind of confrontation with the trade unions as the
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      way in which the Conservative Government would move rather the other way round. They looked forward to the pursuit of monetarism as meaning that the Government would be freed from having to deal with the trade unions. The idea was to follow a strict monetary policy and to leave industry and the trade unions to sort it out between themselves. In that way, they need not concern themselves with industrial relations problems or with the Industrial Relations Act. Management and the trade unions would sort it out and the Government would look on benignly. That is not happening, and the Government realise that it is not happening.
      Slowly, step by step, the Government are beginning to ask trade unions to moderate their demands. They are beginning to see that there is a role here for the Government. They have to be involved in manufacturing industry and in wage settlements. It will be difficult for them—more difficult for them than for us—to deal with the TUC, but in some way they will have to reach some understanding with it. It will be much harder than it might have been because the TUC does not have the kind of power to enable it to deal with management one to one, person to person. It is a question of persuasion. It is a difficult task.
      Slowly, step by step, Governments need to work with trade unions to advocate wage moderation and to show that this is the sensible way to proceed. Given the limited power of trade unions to deal with these matters, it is a difficult task but one that has to be attempted. The sooner the Government come to terms with the world which we inhabit, the sooner they can start to deal with the real problems facing us.
      Mr. Chris Patten: I shall seek to follow the argument of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) later in my remarks. However, as he and other speakers said, this is the last of these debates that we shall have on a Finance Bill, since the economic regulator powers have now been made permanent.
      Even if the afternoon has not been heavy with nostalgia, it has been heavy with some of the arguments that have been traded across the Floor of the Chamber since well before the economic

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      regulator was introduced as a tool of demand management—if I may be excused for using the phrase—in the Finance Act 1961. It has changed a good deal since then, with the coming of VAT and with the tobacco duty charge in 1976. Now, in its new and permanent guise, I am interested to see that it is to be scrubbed clean of any Keynesian stains.
      Clause 10 removes from section 1(2) of the Excise Duties (Surcharges or Rebates) Act 1979 the preamble,
      " If it appears to the Treasury that it is expedient, with a view to regulating the balance between demand and resources in the United Kingdom, that an order "
      and so on, and substitutes the words:
      " The Treasury may, by an order applying to one or more of the groups of duties to which this section applies, provide for an adjustment ".
      I imagine that that minor adjustment reflects a more substantial change of philosophy, but we shall obviously have our work cut out if we pursue heresy up and down the highways and byways of the public general Acts.
      As my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) suggested, the House is especially grateful to the right hon. Member for Leeds, East, (Mr. Healey) for taking the day off—and especially grateful are those who were present for his last two outings. Although we may disagree with him, we wish him well in the contest that may or may not lie ahead. He has probably done himself much good by staying in the pavilion this afternoon, and allowing his right hon. Friend the Member for Llanelli (Mr. Davies) to open the innings.
      We enjoy listening to the right hon. Gentleman, who is becoming the thinking man's Neil Kinnock. We enjoyed his speech today, although he was still a little short on policy. We shall look forward with great interest to his intellectual endorsement of the statement that was discussed last Saturday in Wembley. I am sure that he will wish to speak about those policies on some future occasion. We should not wish to prevent him from doing so.
      I wish to follow some of the right hon. Gentleman's remarks, and also some of the remarks of my hon. Friend the Member
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      for Knutsford, in relation to pay. This issue is affected by the regulator. I have made one or two speeches in the past about pay, and felt that in doing so I was popular with some hon. Members as the person who sang " While sheep safely graze " at a butcher's funeral. I am less inhibited about speaking today because in the recent public expenditure debate my right hon. and learned Friend the Chancellor of the Exchequer said that we cannot get away from the issue of pay. That is absolutely true. Try as we may, the issue turns up like a bad penny in the centre of any political debate. It has turned up again today, for the simple and unattractive reason that the first pay round under this Government has been damagingly high. I do not think that anyone would deny that that pay round will make our problems over the next two or three years more difficult than they would otherwise have been. The next pay round will have to be very different.
      The question of pay arouses more controversy within the two parties than it does between them. I have not always been so spirited a partisan in the debates as some of my hon. Friends. I am still waiting, rather vainly, for my views to become fashionable. I do not believe that pay is of no consequence, and that we can leave everything to the ebb and flow of domestic credit. Nor do I believe, as did Mr. Aubrey Jones—I think that I am quoting the right person—that the National Board for Prices and Incomes was one of the keys to the survival of democracy. I can understand his reasoning, but even if a fully-fledged prices and incomes policy, with boards, norms, guiding lights, and chinks of light at the end of the tunnel, were on offer—which it is not, to put my hon. Friend the Member for Knutsford at ease—I would not be at the front of the queue to purchase it.
      I agree with the sentiments expressed by the CBI in its policy document issued in February of last year, entitled "Pay: the Choice Ahead ". I agree that pay controls are inflexible and impractical—they obstruct change, and are a palliative rather than a permanent solution. But the CBI argued, rightly, that it would not be correct to jump from that argument to the conclusion that we can rely exclusively on monetary policy.
      As my right hon. Friend the Member for Worthing (Mr. Higgins) is in the Chamber, I shall refer to some of his remarks on the issue. I do not wish to blight his career, but he has probably written and spoken more sense on the matter than most hon. Members. I recall him writing that a public sector incomes policy is indispensable for any Government who are serious about trying to abate inflation. He also argued that unless public spending wage claims were controlled, they would have to be paid for either by a wholly unacceptable increase in taxation—and I fear that we are likely to see an explosion in rates this year, partly as a consequence of pay claims—or by an increase in the Government deficit. Mr. Walter Eltis, in a recent stockbrokers letter, pointed out that unless we have an effective public sector incomes policy, there will be an enormous burden on the monetarists' own chosen weapons.
      There are two other reasons that I wish to adduce for the proposition that monetarism is not enough in relation to pay. First, in the past it has been argued that tight credit and rising unemployment—despite the demise of the Phillips curve—would weaken the hand of the unions and strengthen the hand of the employers at the negotiating table. I am not sure that that is always true today. One of the surprising lessons learned from the steel strike was that in some industries workers appear to prefer redundancy to an unacceptable pay award. It is also true that expensive credit increases the cost of sitting out a strike, and sometimes employers will therefore paradoxically settle for a higher amount than might otherwise have been put on the table.
      The other remark that I wish to make about the insufficiency of monetarism was said much better by the CBI, in the document to which I referred earlier. It said:
      " The biggest problem is that if monetary policy is to have a major influence on the outcome of pay negotiations, control of the money supply might be so tight that the cost in terms of unemployment would be enormous."
      On the grounds both of compassion and of industrial and political survival, that is something that we should try to avoid.
      It is unfortunate that trade union leaders do not study the M3 growth path
      1098
      in the Financial Times before they enter the bargaining room. It may be unfortunate, too, that, unlike labour leaders in, say, Hong Kong, they will not settle for a substantial cut in their real wage when credit is tight, in order to avoid losing jobs. Nevertheless, that is the world in which we live, and we must make some accommodations to that if we are to stand any chance of changing it.
      Mr. Bruce-Gardyne: My hon. Friend referred to the indispensability of an incomes policy for the public sector. Is he arguing that it is possible—leaving aside whether it is desirable—to have a govern-mentally structured policy of norms and controls for wages in the public sector, and nothing for wages in the private sector?
      Mr. Patten: My remarks on public sector pay policy will follow on from the issue that I am now discussing. I hope that those remarks will be taken as an answer to my hon. Friend.
      I wish to turn to public sector pay and " Comparability Clegg ". It is important to recognise that Clegg is not an economic phenomenon but a political phenomenon. When the Clegg Commission was established, and the terms of reference set out, the then Prime Minister talked about avoiding arrangements that could prove inflationary. We all know that that was never the name of the game. The reason for Clegg was to try to get the right hon. Gentleman and his colleagues out of a tight corner. We are now paying part of the price of his wish to delay the election in the autumn of 1978.
      It is also true—we might as well be honest about it—that that having happened, Conservative Members were unlikely to enter the last election campaign saying that whatever Clegg said about pay there would be no money on the table if we were elected. Some hon. Members may have said that in their election addresses. If so, I trust that their virtue will be rewarded, if not by the Almighty, at least by the Whips' Office at some stage in the future.
      6 pm
      But that is the fact. So we are saddled with what someone, a few years ago, quite rightly called, a wage-wage spiral. No one wants to be compared down; everyone wants to be compared up. What comparability actually means is being as

      1099
      well off in one's working life as one has ever been. All the paraphernalia of quartiles and analogues is given the status of Holy Writ. The trouble is that comparisons matter. A few years ago a PEP survey suggested that, after increases in the cost of living, comparisons with other people's pay were the most important factor in determining individuals' views about what they themselves should be paid. It is sad, but that is true.
      One of the consequences of comparability is that in the private sector it destroys the link between earnings and productivity and in the public sector it destroys the link between earnings and ability to pay. To answer my hon. Friend, I think that the most important thing that we must establish in the public sector is the link between earnings and the ability to pay. At present, in public expenditure too much goes on pay and not enough on capital and services. Cash limits must mean what they say. We must make clear that 25 into 14 does not go two years running. As my right hon. Friend the Member for Worthing pointed out in a debate before Whitsun, what that means, among other things, is that we must say goodbye rather than au revoir to staging, because staging has enabled us to evade cash limits consistently in the past.
      As well as re-establishing the principle of ability to pay we must restore more awareness of market forces to pay bargaining in the public sector. That is not easy. Its difficulties were admitted in the tract against incomes policy by Mr. Brittan and Mr. Lilley a few years ago. But, difficult though it is, we must move a little further in that direction. That is one reason why I personally favour a continuation of a standing commission on public sector pay, stripped of the task of buying off trouble but charged with four jobs: first, to try to insert a greater awareness of market force principles into pay bargaining; second, to try to make more sense of such comparisons as people will always want to have made about their pay; third, to reconcile—we talked about this in our manifesto—cash limits with traditional bargaining procedures; and lastly, to service all those permanent and ad hoc groups that deal with pay in the public sector. Too often, it seems, they operate as though they were sponsors of the groups whose pay they are looking
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      at. What I should like to see us doing is establishing common, informed and publicly discussed principles that would underpin the whole of the public sector pay bargaining process.
      Mr. Tim Eggar: Does my hon. Friend see a continuing role for the Pay Research Unit, and does he believe that public sector pay should be related to private sector pay?
      Mr. Patten: No. It can be related sometimes, but there are other occasions when it is plainly absurd for it to be so. It is a bit unfair to knock the PRU out of court at the same time as one is being, understandably, rather rude about Clegg. Quite a lot of the PRU's record is not bad. But one needs to establish common principles for outfits such as the PRU and other organisations that determine pay in the public sector.
      The Government might also look at ways in which they could move as many as possible of the public sector pay settlements to the end of the pay round, so that they followed rather than preceded the private sector pay round. That might also help us to start to compress the pay round, which would be a thoroughly desirable objective.
      I should like to make one other point of general application to the private sector and to the public sector. I remain an unswerving believer in the sort of concerted action procedures that exist in other countries and about which we talked a good deal when we were in opposition. There have been many useful and helpful proposals about concerted action by the CBI. I realise that it is an immensely difficult area, but we should start doing some positive work on this. I do not have very much time for those who believe that it would represent a terrible flirtation with corporatism.
      As Keith Middlemass pointed out in a recent book—an extremely good book—on the British political system, it is that sort of co-operative approach which was at the foundation of British economic management for 50 years, until the last 15 years or so, and they were rather more successful years for the economy than the last 10 or 15 years. [An HON. MEMBER: " Keynesianism."] No, not Keynesianism, but co-operation. They are not necessarily—although they are sometimes—the same thing.

      1101
      I am encouraged by the fact that the Chief Secretary, in a speech before Whit-sun, said that concerted action was not the same thing as a formal incomes policy. I am also interested that Mr. Brittan recently returned from abroad and said that he was
      " alarmed at the British economic and political system ",
      which he thought
      " resembles more and more animals glaring at each other uncomprehendingly out of hostile cages."
      The English is not mine, but I very much agree with the sentiment. Mr. Brittan went on to say that it was time to talk to the TUC about the trade-off between pay and jobs, and I think that that is right. Professor von Hayek, who featured prominently in the speech of the right hon. Member for Llanelli, writes in one of his books about " real wage resistance " and the problems of overcoming it—by which term he means the perfectly natural determination of people to try to ensure that their standard of living stays the same or rises year by year.
      The truth, as the Chief Secretary has been absolutely right to point out, is that our standard of living cannot rise for the next year or so if we are to get inflation down, and to the extent that it does, unemployment will be that much higher. One can try to smash real wage resistance, but if one were to do that I fear that one would smash a great deal more besides. The only option in a free society is to try to change it by reason and by persuasion. That is where politics comes into the picture. If the present Government cannot get people to behave responsibly without—my hon. Friend the Member for Knutsford was right to make this point—having to take on irresponsible policies themselves in order to purchase acquiescence, we shall not be able to achieve very much else. I think that this is a constraint within which we operate on both sides of the House, and we would do very well to remember it.
      Mr. Homewood: I should like to answer briefly some of the points made by the hon. Member for Bath (Mr. Patten). Many of us would accept much of what he said about pay comparability, but he has left alone much of the argument that has taken place and he offers no rationale of how we should solve the problems which the Clegg Commission
      1102
      and all the pay comparability arrangements have been set up to solve. It is all very well to talk easily about not having a comparability system because of built-in inflation, but one must then go and argue the case of how we deal with the fact that there are people in manufacturing industries who, particularly under the new technologies, rather rapidly and without working much harder, will increase their earnings. Some comparability arrangements are necessary.
      Many years ago there was an inflation rate of about 6 per cent. In those days manufacturing industry could increase productivity and earnings on a purely incentive basis. Workers would go home with large wage packets and talk to their neighbours about them. If one of his neighbours happened to be a bus driver, he would immediately put pressure on his trade union because he could not understand why the bloke next door earned more money when he did not seem to be working any harder. The trouble was that as a bus driver he did not have a similar opportunity to earn more money. No matter how the Government choose to deal with this issue, comparability must be the essence of our arrangements. The Clegg report has not been a failure. Clegg may have made mistakes, but he made an attempt to compare public sector wages with wages in the private sector on the basis of productivity.
      Many years ago I became a dilettante student of economics. I made a cursory study of economics, but realised that did not understand much of what was written or said. I read the little bits that I could understand, and left out those that I could not. My studying became so disjointed that I lost all interest. However, when I became a Member of Parliament I realised that most of those who spoke on economics knew as little as I did. I had a resurgence of interest, and I began to read about economics once more. During the past six or seven months I have come to the conclusion that if any of the classical economists—whom we hear so much about in the House—were here, they would find it difficult to understand what was going on.
      During a recent television programme the Bishop of Liverpool said that politicians would never admit that they were

      1103
      wrong. If some of the classical economists were alive, they might say that they were not sure whether they were wrong, but they were sure that the Government had put their economic theories into practice in the wrong way. After 12 months in office the Government have produced a situation that I would not have believed possible. When they came to power, they spoke about monetarism. Some years ago the right hon. Member for Down, South (Mr. Powell) said that only Governments could create inflation, because only Governments could print money. I felt that that was a logical conclusion. However, unfortunately, one would expect unemployment to rise rapidly. In those days we were discussing Budget deficits and Budget surpluses. The public sector borrowing requirement refers only to a Budget surplus. If one were to get rid of the surplus, unemployment would rise rapidly.
      6.15 pm
      When the Government came into office, I thought that they would exercise strict monetary control and diminish the Budget surplus to a level that would control inflation. I would have expected the level of unemployment to rise. However, to achieve both a rapid increase in inflation and a rapid upsurge in unemployment does not fit the theory. We no longer hear, as we heard before the election, that the policy will succeed automatically. The Chief Secretary and the hon. Member for Knutsford (Mr. Bruce-Gardyne) now tell us that success will take time. Keynes used the cliché that in the long term we shall all be dead. My mother-in-law is 87 years old. My father is aged 85. The Chief Secretary does not look too young, and I am 60 years old. We do not have time to wait. There has been no response to the theories put forward. Keynes would probably turn in his grave if he knew that the interest rate was 17 per cent. He would have expected unemployment to escalate, but he would not have expected an inflation rate of 20 per cent. Keynes would have stood up and asked why that was so.
      I do not understand what is happening. I am sure that the Government do not understand what is going on. It is said that things will happen in the long term. The Government should examine what
      1104
      has gone wrong. Neither they nor our economic commentators understand economics. During the past six months I have begun to read the business news. I have read that we may not understand the effects of monetarism because we do not know how much money is being deposited in our banks by British citizens overseas, nor do we know how much currency is being exported.
      I have no theoretical basis on which to found my belief that the Government's theories will work in the perfect competitive market that they seek. However, we are a long way from achieving that market. Both producers and trade unions have a great amount of monopoly influence. As a result, the Government's policies are irrelevant to any solution for inflation. A high level of unemployment may be acceptable to the Government, but they may have to go to unacceptable levels if they continue with this policy.
      Monopoly influences are not in accord with the Government's monetarist policy. The Government seem to believe that in a low-demand situation—induced by monetarist policies—employers will reduce prices, increase competitiveness and resist wage demands. That has not been proved to be true, yet it should have been, because the Government have been in office for 12 months.
      If the Government continue with their present policy, I believe that they will destroy the United Kingdom's manufacturing base. Even when demand is low manufacturers are able to pass on increased costs to the public. The trade unions are achieving wage settlements of 20 per cent. while inflation is running at 22 per cent. Obviously they are able to sustain their position. Unemployment is rising, and the belief that manufacturers and industrialists will be able to resist trade union pressure against that background is proving to be a myth, as it has proved to be a myth in almost every minor recession that we have had since the war.
      The Government must remember that 70 per cent. of the British economy will be able to pass on increased costs because of monopoly power. Much of our manufacturing base is being destroyed by a theory that is completely wrong. The Chief Secretary's speeches recently have indicated that he is living with his fingers crossed in a world of hope. It is clear

      1105
      that he is hoping that everything will be all right in the end. I hope that it will all come right, but if it does not within the timescale in which the right hon. Gentleman is living we shall be on an island floating in a sea of oil, and we shall have nothing else.
      I admit that I have not concerned myself too much with the regulatory powers. I realise that this is the last opportunity that we shall have to discuss them, although this is my first opportunity to do so. However, we shall all make opportunities to make similar speeches. I ask the right hon. Gentleman to address himself to the problems. If the theory is not working, why will the Government not reexamine it? If they do not do so shortly, they will do the nation a grave disservice.
      Mr. Michael Spicer: I agreed with a good deal of what the hon. Member for Kettering (Mr. Homewood) had to say, especially on trade union monopolies. Should we not work towards achieving a balance in which trade unions have less monopoly power—a system in which we have more industrially-based and plant-based unions? The present balance results in the distortions and difficulties that concern us all.
      The main issue seems to centre on the question whether debates on regulator powers are boring. I have sat through four Finance Bill Committees and I shall be sorry to see the end of regulator powers debates. These are the few debates in Committee on the Finance Bill that I have understood.
      It is unfortunate that the right hon. Member for Llanelli (Mr. Davies) is no longer in the Chamber. He delivered a well-argued speech. His theme appeared to be that now that we are where we are there is nothing much that can be done. I think that that sums up in a sentence his argument. The hon. Member for Norwich, South (Mr. Garrett) seems to disagree.
      The main reason why we are where we are is that the previous Labour Government allowed Government spending, especially on wages in the public sector, to get totally out of control. That is one of the main reasons why Britain is suffering the present rate of inflation. I accept, as some Labour Members argue, that VAT is a factor. It is a factor that is superimposed on others. The fact remains
      1106
      that public spending, especially on wages, has become out of control.
      I agree with the right hon. Member for Llanelli and with my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) that there are no panaceas. The right hon. Gentleman and my hon. Friend referred to what are considered to be two possible panaceas, namely, the reduction of the interest rate overnight or a reduction of the exchange rate, and a reduction in the value of the pound. It has already been argued that by lowering the rate of interest and, therefore, the rate of exchange, inflation will be beaten to some extent. Are world interest rates falling? At the end of last week in New York the prime rate was reduced but market interest rates showed some signs of rising. It cannot be argued that the effect of reducing interest rates and increasing the demand for credit is a panacea. That also applies to a reduction of the exchange rate.
      My hon. Friend the Member for Knutsford made a good questioning statement on the effect of exchange rates. I intervened to ask him—I agreed with his argument—whether he recalled that it was being argued two or three years ago that there should be rapid depreciation of the value of sterling. It was contended that that would have a magical effect on British exports. The results disabused the proponents of that illusory argument. When sterling found itself at $1·50 or $1·60 there was no tremendous surge of exports. It is legitimate to question whether a reduction in exchange rate or the value of the pound against other currencies is the panacea for Britain's present problems. It is open to question whether a reduction of the interest rate is a panacea.
      My hon. Friends the Members for Knutsford and for Bath (Mr. Patten) concentrated on pay. It seems that the one really worrying aspect of the British economy centres on the possibility of an uncontrollable wage explosion, especially in the public sector, as we approach the next round of wage bargaining.
      The right hon. Member for Llanelli seemed to argue—I may have it wrong again—that wage increases have not been a major factor in the recent inflationary process. It is not necessarily cause and effect, but rises in earnings were 13·2 per cent. in 1978 and 15·6 per cent. in

      1107
      1979, and they will probably be about 21 per cent. in 1980, whereas the figures for increases in consumer prices for the same three years are 8 per cent., 13 per cent. and 19 per cent. Wages have been rising faster than consumer prices. Therefore, there is some substance in the argument that wages have played a part in the inflationary process. If that is so, or if it is not, the effect that increased wages are to have in the next 12 months must be a great worry. To that extent, I agree with what the right hon. Gentleman was hinting at and arguing about. We have to concentrate on the problem of the wage explosion that could beset us.
      6.30 pm
      In this context, the hon. Member for Kettering was right in saying that perhaps my party had tended to overestimate the flexibility of the labour market and to argue from a position that supposed that there was a near-perfect market in the wage bargaining process. My hon. Friend the Member for Bath pointed to at least one reason why this was not the case and why, in many respects, we had a very imperfect market. He described how people bargaining for wages quite often seemed prepared to trade their jobs against an increase in wages, and I think that he was referring especially to the steel strike.
      Mr. Homewood: The line that the hon. Gentleman is pursuing is a mistaken one, as was the line pursued by the hon. Member for Bath (Mr. Patten). The steel workers did not bargain their jobs against increased wages. There were a great many arguments about closures at the same time as the strike for increased wages occurred, but no steel worker was able to say that he would accept closures for increased wages. It did not happen that way.
      Mr. Spicer: I was about to make the same point, because it strengthens my argument. It is not the trade union members themselves who take this trade-off; it is their leaders. With the way that the trade unions are structured, the Brownie points are gained by trade union leaders who win wage increases, even if they are won at the expense of jobs. Trade union leaders are judged not on whether they preserve jobs—perhaps it is too difficult to do so; it is too nebulous—but on their effectiveness in winning wage increases.
      1108
      Perhaps that answers the hon. Member's point.
      That brings me to another matter that was touched on by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who indicated that if the Conservative Party argued for a more flexible labour market it would really be talking about a weakened trade union movement. I do not believe that to be true. We are not talking about weakening the trade union movement. However, we may be talking about making the trade union movement more effective in upholding the direct interests of its members, in the way that it is in the United States. One of the great paradoxes in this country is the ineffectiveness of the trade union movement on behalf of its members when at the same time it has done great damage to the national interest.
      I dispute the idea that by having trade unions that are bargaining, say, on an industry basis and therefore less in a monopolistic position, they are less able to be genuinely effective in upholding the interests of their members.
      We are still left with the problem that the right hon. Member for Llanelli rightly identified. What about the potential wages explosion? That is a great worry. For what it is worth, I have gradually and reluctantly come to the conclusion that we may have to follow some advice which no less a person than Sam Brittan, the great anti-incomes policy proponent, has given consistently. He has said on a number of occasions that there may come a time when aspirations for wage increases have got so irrational and are so out of control that there is a case for a wages freeze.
      The problem is that a wages freeze has two inevitable results. First, it ends in an explosion. Secondly, because of that, a wages freeze tends to lead a Government into the panoply of associated policies and Socialism. Once a regular wages policy is established it is necessary to introduce a prices policy, a profits policy, and Socialism. The worry on the Government Benches about a wages freeze has been, first, that of the inevitable explosion and, secondly, that it is the thin end of the wedge from which, traditionally and historically, we have always moved to a total wages policy.
      Mr. Campbell-Savours: Perhaps the hon. Gentleman can enlighten Opposition

      1109
      Members, who are fascinated by his argument. Has he much support on his own Benches for the idea of a wages freeze?
      Mr. Spicer: I stress that I put forward the idea very reluctantly. However, both the Prime Minister and the Chancellor of the Exchequer have said that in certain extremely unhappy circumstances a wages freeze might very reluctantly be forced on the Government. I do not know whether that is an answer to the hon. Member for Workington (Mr. Campbell-Savours).
      Mr. Martin J. O'Neill: Is the hon. Gentleman getting any support from the trade union movement for the kind of policy towards which he is groping? In the last 15 years the greatest obstacle to the acceptance of an incomes policy has been the inability of successive Governments to carry the trade union movement with them. This is primarily because this has been a last-ditch policy. If any Government propose making a U-turn, they have to start preparing the ground very early on. The subject of an incomes policy might be best reserved for the debate at the next general election, when there might be a different climate of opinion in which both major political parties were prepared to outbid each other in terms of the arrangements that could be arrived at as part of an incomes policy.
      Mr. Spicer: Let me try to make myself more clear. I am trying to distinguish between a policy of running incomes—trying to iron out anomalies, trying to have comparabilities, and setting up different boards over a long period of time—and a policy that says simply " We shall freeze, with all the existing anomalies." The latter course has one immediate disadvantage, in that over the period of the freeze any unfairnesses are frozen and have to be resolved later on at the end of the freeze. However, the main objective of such a policy is to provide a period of months in which to allow people to consider the implications of an irrational explosion.
      Of course, it may be that I am wrong and that we are not approaching an irrational explosion in wages. It may be that the market forces that we have been discussing will have their effect. If we move to the very high levels of unemployment about which we hear so much,
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      it may be that the need for a wages freeze will be totally unnecessary, in which case I shall be delighted, because there is no doubt that in certain respects it will be extremely difficult to sell.
      A short pay freeze must be distinguished from a long-term incomes policy. The problem is, what happens at the end of a short-term wage freeze? I do not believe that at the end of a short wage freeze the country will be any worse off than at the beginning, when there has been a wages explosion.
      Mr. Bruce-Gardyne: Perhaps.
      Mr. Spicer: I should be interested to hear my hon. Friend's argument.
      Government policy should be geared to creating a flexible labour market, assisted by trade union and housing practices. If the Government policy has not achieved that, and if wage increases have got totally out of hand, it may be necessary to introduce a wage freeze. I do not believe that after a freeze lasting three or four months the country would be in a worse position.
      The problem arises only if a Government believe that they must continue on such a course once started. A wage freeze must be distinguished from a long-term wages policy.
      Mr. Barry Henderson: Does my hon. Friend agree that his argument primarily depends on the thesis that wage increases are necessarily inflationary? If wage increases are matched by production or productivity increases in a firm, they are not inflationary and are to be welcomed.
      Mr. Spicer: That is right. However, if one includes such matters as productivity, it becomes a traditional incomes policy, which I would not welcome. Difficulties arise with wages boards and in many other respects once one starts to identify groups of workers for increases, on whatever admirable grounds.
      Mr. O'Neill: Has the hon. Gentleman considered what would happen during this freeze if the present interest rates prevailed? Firms that had anticipated price rises to meet the cost of servicing loans would be in difficulties. Bankruptcies would increase faster than at present. Would the credit system remain outside the freeze? Would the freeze relate only

      1111
      to price and wages? Would there be a relaxation for sectors of the community that would be in greater difficulties as a result of the freeze?
      6.45 pm
      Mr. Spicer: As I have indicated, the policy on interest rates should be separate.
      I am concentrating on a potential wages explosion. It may not happen. It it does not we can continue a normal bargaining process on an even keel. I am concerned that the current rate of inflation will become the starting point for the next round of wage negotiations. We may have demands for 40 per cent. or 50 per cent. wage increases. Groups of workers may be in a monopoly position, or provide an essential service, and will therefore be able to hold the country to ransom. We are then potentially out of control.
      A wage freeze is a last resort. However, I believe that it should be included in the Government's range of options. It is infinitely preferable for the Government to have a wage freeze in their contingency planning than to be panicked or pushed off course from their basic monetary, taxation and fiscal policies. The danger is that the Government may be encouraged to make a U-turn. I do not believe that it is a U-turn to continue their present policies but to bear in mind the possibility of a wages freeze if wages get out of control.
      Mr. David Ennals: I was fascinated to hear the hon. Member for Worcestershire, South (Mr. Spicer) involving himself in the argument in the Conservative Party about whether a wage freeze was right. I do not know how much support he has, but I believe that he is following the wrong line. The hon. Gentleman is saying that he disagrees with the Government's policy. I hope that the Government are listening not only to this debate but to the debate throughout the country. They have so far shown an extraordinary arrogance. They say that monetarism is the solution to our problems and that given time they will get it right, but all the signs are that they are getting everything wrong. I do not know whether wage claims are out of control, but inflation is.
      I saw a marvellous announcement yesterday that war pensioners will be
      1112
      lucky enough to receive a 16½ per cent. increase in November. I declare an interest. I am a war pensioner, and I do not believe one war pensioner will consider that marvellous. No one, surely, can believe that inflation will be only 16½ per cent. in November. Perhaps the Minister will tell us whether he believes that it will be. Inflation is rising, unemployment is mounting, production is declining and trade is worsening.
      The hon. Member for Bath (Mr. Patten) believes that monetarism is not enough. He gave some support to a pay policy. I do not believe that a Government can plan the economy without considering an incomes policy—and I do not mean only a pay policy, but an incomes policy. I was glad that my right hon. Friend the Leader of the Opposition, at Wembley on Saturday, reiterated that a Government should have, to some degree, an incomes policy. It would not have been possible for the Labour Government to reduce inflation from 28 per cent. to 7·7 per cent. without an incomes policy and an agreement worked out with the trade union movement and accepted by the country, and with the support of the Liberal Party. It was too optimistic, however, to attempt a 5 per cent. incomes policy in the fourth year of a Labour Government. It did us much damage.
      The hon. Member for Bath was wrong to attack the Clegg Commission. I do not agree with all its conclusions, but part of an incomes policy must include a study of comparabilities. When somebody quoted Mr. Aubrey Jones I said " Hear, hear ", because one cannot manage without some body to look at comparabilities. It will not be in this debate—it may not be for six months or a year—but, as night follows day, at some stage the Government will be forced into a U-turn to prevent the economy from going to rack and ruin.
      I am sorry that the right hon. Member for Worthing (Mr. Higgins) and the hon. Member for Watford (Mr. Garel-Jones) are no longer present. I hope that the Chancellor will use his powers under this clause to increase the revenue from cigarette sales. The object is clear. Smoking is the greatest single cause of unnecessary early death. Its effects on lung cancer, bronchitis, emphysema and heart disease have been mentioned many times. It is a lethal addictive habit. Men

      1113
      and women must be free to decide whether to take their lives in their hands by smoking, but there is no reason why the Chancellor should take so little notice of these health considerations when setting the level of excise duty.
      In an Adjournment debate on 16 May the hon. Member for Watford showed how the cost of cigarettes had not kept pace with inflation. He pointed out that in 1945 a packet of 20 cigarettes cost 1·7 per cent. of gross average weekly earnings. In 1979 the percentage had fallen to 0·7. To maintain the same proportion an average packet of 20 would now have to cost £1 ·60. I hasten to say that I am not suggesting that the Chancellor should use his powers to add another £1 to the cost of a packet of cigarettes—that would be going too far—but I wish that he had put up the price by 10p or 15p, instead of just 5p. He would then have had the resources significantly to increase child benefit and he need not have behaved so miserably over prescription charges, and he would have acted on health grounds.
      The level of prices is a significant deterrent against smoking. The price should be raised to a reasonable figure and then index-linked, so that the Chancellor does not have to take a new decision every year. In this spirit, urging the Chancellor to use these powers—which the Minister of State said on 15 May would have only a modest effect on the RPI—I point out that even a small increase in the cost of cigarettes could have a significant effect on the nation's health.
      Mr. Frank Hooley: It says something for our proceedings that what is supposed to be a Committee of the whole House consists of only a handful of hon. Members, the majority of whom are members of the Finance Bill Standing Committee anyway.
      I have always believed that one of our most important reforms was to send the Finance Bill to a Standing Committee. I am sorry that we have not gone the whole hog again this year, although in purely party political terms it is a pleasant exercise to spend three or four days of Government time on the Floor of the House, thereby pre-empting other business. However, the statements made today show that there is plenty of useful business that the House could be debating instead of this fairly confined discussion
      1114
      among those who are already concerned with the Finance Bill.
      I am concerned about the arcane, esoteric and unintelligible way in which we draft our financial legislation. I had the vague impression that it was intended to abolish the regulator. I now understand—although I am still not sure that I have it right—that we are making it permanent, with no need for adjusting legislation in future.
      The Chief Secretary to the Treasury (Mr. John Biffen)The Chief Secretary to the Treasury (Mr. John Biffen) indicated assent.
      Mr. Hooley: I see the Chief Secretary, who knows more about the matter than I do, nodding.
      We have come to a pretty pass when it is impossible for a layman, on a normal reading, to understand an important clause in the Finance Bill. I did at first get it wrong. I understand now that we are building into our system, on a more or less permanent basis, an instrument of financial control which has existed on an ad hoc basis for some years. To that extent, I suppose that we should welcome clause 10. However, as has been said, this occasion is a device for a further debate on the general conduct of the Government's control, or lack of control, of the economy. I want to address myself to that theme rather than to pursue the content of clause 10.
      One of my hon. Friends said earlier that there has been a tendency in recent years to pick on some issue as the panacea for our economic problems. Devaluation and other methods have been regarded as of cardinal importance in their day. At the moment, the fad is money supply. The top priority—certainly not a panacea or a solution, but something requiring the highest priority—is investment in manufacturing industry. In considering the technique of control, or lack of control, as the Government now have it, industrial investment should take a high priority.
      Even a cursory examination shows that the startling and striking difference between the economies of the United Kingdom, West Germany, France, Japan and, to some extent, the United States, is the percentage of industrial wealth that each devotes to such investment. I do not have the figures at my fingertips. I quoted some in the Budget debate, so I

      1115
      need not rehearse them now. but I am sure that the Chief Secretary will acknowledge that one of the most serious differences between our economy and those of our most successful industrial competitiors is the amount that we are prepared to devote to investment in modernising and maintaining the efficiency of our industries.
      It is therefore deplorable that the Secretary of State for Industry should still be dithering over a footling and modest amount of investment in the high technology area of microprocessors—largely for the ideological reason that the investment proposed is public rather than private. It is extraordinary that he should regard private investment by foreign interests as highly desirable and to be greatly encouraged, while investment by the British taxpayer in British industry—a public stake in advanced technology—is something over which he has to agonise and deliberate, and on which he finds it impossible to make up his mind. While he is dithering over a miserable £25 million the Japanese are investing £500 million, and the French, the Germans and the Americans are investing comparable sums.
      Until we really get to grips with the issue of a sustained and high level of industrial investment, all the gimmickry of monetarism and the problems of interest rates and the rest will do nothing to solve our basic problems as an industrial nation. I do not wish to go into the question of which industries we could properly invest in—I have outlined some of them before—but unless successive British Governments grapple seriously with this problem we shall not make any progress towards achieving a fundamentally powerful and stable economy.
      Apart from investment, the highest economic priority is full employment. The two go hand in hand. It is a mistake to argue that investment in advanced technology is the enemy of full employment. If we look round the world we see that the countries with the greatest investment in advanced technology have, comparatively, the lowest levels of unemployment. It is precisely in those countries where investment in such technology is nonexistent, or low, that unemployment levels are highest.
      1116
      7 pm
      There is no fundamental incompatability between high investment and full employment. On the contrary, unless our industries are maintained and modernised they will not be able to compete in world markets, and employment will diminish accordingly. We must look also at the instruments for the achievement of the twin objectives of high investment and full employment. They range over matters that have already been touched upon in the debate and concern incomes policy, interest rates, taxation, the exchange rate, imports and public expenditure.
      I do not intend to examine all those issues, but I wish to say a word or two about some of the issues that relate directly to the problem of industrial investment. Clearly, high interest rates are inimical to investment. If companies have to borrow at 15, 18 or 20 per cent. and do not see a rate of return on their capital greater than 3 or 4 per cent. they will borrow the minimum and invest in new plant and machinery at the lowest level.
      In this context there is a fundamental difference of interest between the City and the financial institutions, and manufacturing industry. The former are concerned with the use of money and the manipulation of funds, and one of their major objectives is the highest possible rate of return on funds deployed. Manufacturing industry is not concerned with the manipulation of money. It is concerned with the creation of real goods and wealth that can be sold and used in the real world.
      Manufacturing industry does not want interest rates as high as 18 or 20 per cent. It wants interest rates at 3, 4 or 5 per cent. so that our factories can be equipped with the new machinery which can generate the real wealth which the country needs. High interest rates are one of the biggest enemies of manufacturing industry.
      One of the curiosities of the Government's conduct is that they continually boast that they have cut taxation. I believe that that is untrue. The Government have certainly changed the balance of taxation in their efforts to move away from higher direct taxation to higher indirect taxation. They have deliberately imposed heavier loads on poorer people

      1117
      so that the rich might benefit, but they have not cut taxation overall. I should be interested to see accurate figures for the Government's claim. I see no reason for cutting taxation, provided that the revenue that accrues from taxation is deployed in a sensible fashion. Part of that deployment should be—consonant with my earlier argument—in the strengthening and the modernisation of our industry.
      Ideologically the Government will not pursue that policy because they wish to restrict the expansion and the power of the public corporations. They do not believe in the exercise of power through the National Enterprise Board. Nevertheless, we shall not solve our economic problems and expand our economy unless the instruments of taxation and the public corporations are used to modernise British industry.
      The public corporations are important in this respect. The expansion of the work of the Post Office, the railways, the National Coal Board, the electricity and gas industries, transport and the vast range of public corporation activity, would be a dynamo. It would be a generator of new orders and new activity in the private sector. We do not have to sit back and wait for the private sector to invest. If we use the public corporations correctly and expand their activities by offering them the opportunity to instal more up-to-date equipment, that will generate orders for the private sector, which will contribute to a higher rate of investment and to the further modernisation of our equipment.
      That issue, however, impinges on the argument about public expenditure. The Government have an ideological fixation about public expenditure. They say that public expenditure is bad and must be cut. We have witnessed the extraordinary spectacle of the Secretary of State for Industry saying that it is desirable that foreign financial interests should invest in high technology in this country. No doubt those foreign investors will take their profits and shut down factories when it suits them, but that is regarded as fine and splendid because it is the investment of private money.
      On that basis foreign money can be invested in this country and investors can exploit any subsidies that happen to be going. The Tories believe that that is all
      1118
      right. But when it is suggested that our own money should be invested in those same areas of technology to build up assets for our own people in our own country and under our control, that is regarded as bad because it involves public expenditure. That is a totally absurd and illogical argument. Until we get over that kind of mentality—which we shall not do as long as the present Secretary of State for Industry occupies that post—we shall make no progress in solving our financial problems.
      Several hon. Members have touched on the issue of an incomes policy. The hon. Member for Worcestershire, South (Mr. Spicer) devoted much time to the question, as did several Conservative Members. Those hon. Members constantly say that incomes policies always fail and result in wage explosions. They say that incomes policies do not achieve this or that. I think that they should ask themselves why it is that the issue of an incomes policy continually returns to the arena of political argument.
      The answer is, of course, that even a Government such as this one cannot run away from the fact that we shall not remotely be able to pretend to guide—much less to plan or control—the economy by paying no attention to incomes policy. The first tentative steps in that direction were taken by Mr. Selwyn Lloyd in the early 1960s.
      Mr. Bruce-Gardyne: What about the emperor Diocletian?
      Mr. Hooley: The hon. Member obviously has a greater knowledge of history than I do. I have no doubt that Diocletian was well informed on these matters. We can debate at another time whether Diocletian was right. He had powers which the Government would like, but are unlikely to get.
      There is no way in which a modern economy can be run without some explicit or implicit incomes policy. Even collective bargaining is a type of incomes policy. It is an incomes policy by neglect or by default. If the country's economy is to be run on a sensible footing the Government must determine for themselves what type of incomes policy they desire and how they will achieve it. Those who deride incomes policies might reflect that after three years of a policy agreed between the Labour Government and the

      1119
      TUC inflation fell below 8 per cent. We are not even contemplating inflation falling below 15 per cent. within the next year or two.
      The Government said that the conquest of inflation was their greatest objective. They promised the country that inflation would be defeated. They might reflect that after three years of an agreed incomes policy inflation was reduced. It is now running at between 21 per cent. and 22 per cent., and the prospect is that it will rise even higher.
      My attachment to incomes policy is based on a Socialist desire for greater social justice and fairness. That cannot be achieved between the different groups with different economic power—nurses and miners, or agriculture workers and engineers—by a free play of the market which we dignify with the title of " free collective bargaining ".
      The political and economic difficulties of agreeing an incomes policy between the Government, the trade union movement and the industrialists are enormous, but that does not mean that they cannot be tackled successfully. They were tackled successfully for three years by a Government who did not even have a majority. As a result inflation came down to a level that is not even contemplated by the present Government. We shall not approach a solution to our economic problems without a clear incomes policy based on an agreement between the Government, the trade union movement and the CBI.
      I turn to the question of import control, or import planning. We already have substantial import control in the form of the common agriculture policy. No country in the world indulges in absolute free trade in agriculture. The idea of international import planning is not new. The multi-fibre arrangement, whatever its shortcomings—and they are many—represented an attempt by many countries to plan international trade in textiles between the major exporting and importing countries. The principle of international import planning is not new. It is not impractical. It exists, and it will continue.
      7.15 pm
      General import controls are a little dubious economically, but politically they are unavoidable. I do not see the
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      trade unions and industries sitting back while industry after industry is destroyed by imports, not from the Third world, but from major industrial competitors such as Japan, Italy, France, Germany and America. Politically it is not on for industries to disappear, as the motor cycle industry disappeared. Nor is it possible for damage to be done to the television and other industries without the Government, whatever their ideology, taking steps to protect them or to provide alternative sources of employment and income for the workers who are displaced.
      The top economic priority must be the encouragement of a high and sustained level of industrial investment. Without that we have no future as a manufacturing nation.
      Mr. Campbell-Savours: The debate has been interesting. Some remarkably interesting contributions have been made by Conservative Members. When the hon. Member for Bath (Mr. Patten) rose—[HON. MEMBERS: " A wet."]—it was interesting to note that his colleagues were quick to dry him off, because clearly he was departing from the orthodox view of his Front Bench colleagues. The hon. Member for Worcestershire, South (Mr. Spicer) made an interesting speech. Many of us were more than fascinated when we considered the pledges made by the Conservative Party during the general election campaign. It was made clear then that a Conservative Government would never interfere on wages. If the hon. Member's Government were to recommend a form of incomes policy even hon. Members who support such a policy would oppose it because the Government were not elected on that basis. Some of us believe that incomes policy is crucial but that it should not be introduced by a Government elected on a manifesto that was totally opposed to it.
      The debate has widened into a general economic discussion. It would be wrong not to take the opportunity to put the debate into a regional context. I rise regularly with a particular grouse from West Cumberland and the Northern region. This is one of the few debates in which one can stress the important and damaging effects that Government policies are having on that region.
      I do not want to labour the question of the 1½ million unemployed, the deterioration in the balance of payments,

      1121
      and collapsing investment. Increasing short-time working is rarely commented on in the Chamber. However, it is a measure of the growing crisis in British industry. I went to the Library to dig out the figures for short-time working. In the last few weeks the Department of Employment has tried to change the criteria on which the short-time working compensation scheme statistics are submitted in official releases. That draws attention away from the special problems in certain parts of the country.
      There has been a 17 per cent. increase in unemployment in the Northern region since the general election last year. There are now 132,293 people out of work, and 22,000 redundancies have occurred. That is a shocking increase. It is an indictment of the Government's economic strategy. Double-figure unemployment now exists in seven travel-to-work areas in the Northern region, including Hartlepool. Wearside, North-West Durham, South Tyneside, South-East Durham and Teesside. These are crucial indications of the failure of the Government's economic policy and their failure to stand up to their responsibilities to the British people.
      The region has a ratio of unemployment to vacancies of 17:1—two-and-a-half times the national average—which indicates that Government policies, although devised to effect balance in the population do not achieve that aim. The emphasis and bias in Government policies prevails on the regions of traditional unemployment. We feel the cool breeze of the lack of success of Government policy. One statistic of great importance relates to youth unemployment. In April 1979, before the general election, the figure for youth unemployment was 5,606. By April 1980, it had risen to 9,883—an almost 100 per cent. increase, directly attributable to the failure of Government policy over the last 12 months.
      I studied the length of time that people spend unemployed before they are able to find suitable alternative employment. Out of the 39,000 people on the unemployment register, over 24,000 are out of work for 13 weeks or over before they are able to find alternative employment. The response of the Government has been appalling. They cut public expenditure in the region, thereby aggravating unemployment. They cut expenditure on
      1122
      regional support, and future forecasts show that by 1984 the level of regional aid will go down from the current £3,203 million to £1,760 million. That will affect the incentives available for companies to come to the Northern region. The output objective has been reduced. A forecast 4 per cent. reduction in output will affect the Northern region. Like all the indices stemming from the Government's economic policy, they are indices of failure.
      The refusal to take action on the value of sterling is seriously affecting the ability of companies in the Northern region to export to world markets. The refusal to intervene on interest rates affects smaller companies. The managing director of Miller's of Cockermouth—a company of major importance in West Cumbria employing 750 people in footwear production—referring to interest rates and the large bank profits stemming from those interest rates, wrote to me:
      " I feel most strongly that as a trading nation trying to sell and improve our performance abroad, we should have facilities comparable to our competitors. I could suggest that a portion of the high bank profits currently being made by all British banks, due, as we all know to high interest rates, should be reduced by a lower loan rate for export finance."
      The same managing director, writing to the CBI, trying to enlist its support for intervention on bank profits to ensure lower interest rates for companies in the region, said:
      " We are a medium-sized footwear manufacturing company and have recently secured contracts to Scandinavia and Russia totalling over £2 million in spite of pretty stiff competition from many sources already. There is no doubt from everything that I have been told that a key to our competitors' success in their export efforts is that they are able to borrow money at very low interest rates, either from their Governments or from their banks, with repayment terms that I am given to understand sometimes can stretch into years. What is our position in Britain? "
      In other words, he was asking what is the Government's strategy to help his company. He added:
      " We have to borrow money from our banks at very high interest rates or to encash our deposits to meet the financing. It also seems iniquitous that if one were borrowing to finance capital goods, a lower rate applies payable over a two-year period. I could also take the view that capital goods and machine tools might have more of a military value than the rather mundane goods we call footwear but the manufacturer of this footwear, being a high labour intensified business, does provide employment for many hundreds of people."

      1123
      That means many hundreds of people in my constituency. We regard low interest rates as crucial if we are to maintain even the current levels of employment in the Workington constituency and in other parts of the Northern region. In the absence of Government action on interest rates, all we can foresee is more closures of factories and more people thrown on to the dole. As this is more a Treasury debate than an industry debate, following the contributions made by my hon. Friends and myself, and also that of my hon. Friend the Member for Clackmannan and East Stirlingshire (Mr. O'Neill), who hopes to raise constituency points of a similar nature, Treasury Ministers—who do not often hear these important arguments—will perhaps accept that these problems exist and that action is needed.
      Whereas some companies find it difficult to cope, other companies do cope. But some cannot cope. In the last two weeks there has been announced in my constituency and also in the constituency of my hon. Friend the Member for Carlisle (Mr. Lewis), the closure of Courtaulds, with the loss of 670 jobs. I wonder how many people in the Treasury recognise the problems of Courtaulds and understand that there is an obligation on them to ensure that Government economic policy prevents these closures taking place. We simply cannot attract the industry to replace the jobs and job opportunities that are being displaced.
      I contacted Courtaulds soon after the closure was announced. The officers of the company said that the closure of the plant in Workington, with the loss of 350 jobs, had nothing to do with the work force. The company was happy with the efficiency of the work force, the labour relations, the production and the quality of the goods. But it also listed items about which it was unhappy. The company was not satisfied with the level of inflation. It was hard to price and to market products in conditions where imports, at every twist and turn, were allowed to intervene and take domestic markets. The company was not happy with the high levels of interest, especially where falling profitability meant that high interest rates were a major factor in viability, especially in the regions.
      1124
      I should like to quote the statement made by Courtaulds, for there are perhaps those in the Treasury who have never seen a closure notice—the kind of notice that is distributed to workers in constituencies in the regions. The notice, headed " Samuel Courtauld & Co. Ltd " received by my consituents a week ago, said:
      "Both Carlisle and Lillyhall (Workington) factories reduced output to 60 per cent. capacity in August 1979 and a further cut-back to 40 per cent. capacity has been necessary since January 1980. This has resulted in substantial financial losses amounting to £1·2 million for the two factories over the last financial year."
      It should be remembered that this has nothing to do with the workers. It has to do with the national economic situation. The notice went on:
      " Trading conditions in textiles have become very much more difficult during the last twelve months with increased imports and interest rates rising. At the same time, the strength of the £ sterling has made exporting much less rewarding. The spun apparel area in which these mills have largely operated has been particularly badly affected. Having reviewed the position most carefully the Company is reluctantly forced to the conclusion that temporary measures to cut back production are no longer appropriate and that there is no alternative but to propose the closure of both the Carlisle and Lillyhall factories."
      7.30 pm
      The special Labour Party conference held in London last Saturday was concerned with such problems. I apologise for not having been there owing to a considerable number of constituency engagements, including one with Courtauld workers. People from the regions were going to the rostrum to spell out the problems of unemployment and redundancy that exist throughout the United Kingdom. At such meetings pieces of paper such as that which I have just quoted are handed out every day. Every day in the Northern region companies close. The responsibility lies with the Treasury to take action to resolve these problems and to introduce policies that do not lead to such closures.
      It is unfair for Conservative Members to talk about the Government's long-term objective being to create conditions of greater liquidity in which the people have more money in their pockets but which, for some reason that I cannot

      1125
      understand, they will not spend on imports and in which more jobs will be created at home. That just will not work. My constituents cannot wait that long. They have problems now of extended unemployment.
      That is the position of Courtaulds, and that company is blaming the Government. It is interesting to note what happened when I put the point to its chairman at its offices in London last week. I suggested that he should come with us politicians of West Cumbria to the Department of Trade to plead the case collectively—politicians and the people who own industry combined—for Government controls to protect industries in this position. The response was " No ". The company did not want that link with politicians.
      That sort of gutless response has created contempt among the work forces in my constituency and in the constituency of my hon. Friend the Member for Carlisle. We now find that the workers in those industries are saying that if Courtaulds will not enter those kind of talks with the Government, perhaps there should be some form of financial investigation of the company to try to establish what is going on within it.
      Why will not these companies stand up to the Prime Minister or challenge the Government and demand that action be taken? It was put beautifully today in an article in The Guardian, by Frances Morell, who is modestly described as:
      " on the executive of the Labour Co-ordinating Committee."
      Under the heading:
      " The barons Labour must take on "
      she wrote
      " The reconstruction and expansion of the economy that is needed to satisfy "
      the wishes of working people
      " can only be carried out with the protection of exchange controls, import planning and the stimulus of public investment. The exercise of these legitimate Government powers is contrary to the interests of multinational banking and trading."
      Perhaps that was the case for Courtaulds. Perhaps that is why it is not willing to confront the Government. Perhaps it has a greater financial, business, industrial and multinational interest, which is impeding it from defending its industry at home and the jobs of its workers.
      1126
      It was heart-warming this morning to see the headline on the front page of The Guardian
      " Pressure builds for Thatcher U-turn ".
      That is what we all want, because we know that without that U-turn there will be between 2·5 million and 3 million people out of work. If we get the U-turn some sanity will be returned to the Government's economic strategy and policy. It is only in those conditions that Labour Members will be able to return to their constituencies in the comfortable knowledge that Parliament is acting as it should and representing the better interests of the people.
      Mr. O'Neill: I should like to develop the theme initiated by my hon. Friend the Member for Workington (Mr. Campbell-Savours). For a Scotsman to speak about the Scottish economy in an economic debate is a long-established tradition, but I do not want to do that today.
      I wish to concentrate on my constituency, which in some respects has hitherto been atypical of Scotland. It has enjoyed relatively high levels of employment and highly productive industry, using some of the most advanced technologies. These are industries that have enjoyed long and happy periods of industrial relations free of major strikes. However, in the last five months the central Scotland area, part of which I am fortunate to represent, has been subject to a succession of body blows. In most instances the body blows flow directly from the economic policies we have been discussing today. If I instance several of them, it will indicate the disquiet that exists on the Labour Benches about the general thrust of the Government's economic policy as it affects the entire country.
      At the end of December a firm called Glynwed, which has plants at Falkirk and Lambert in my constituency, announced the closure of its Falkirk plant at which many of my constituents are employed. It was to cause some 400 redundancies. Glynwed produces the Aga cooker, which is enjoyed by those who can afford them and by those institutions which require them for large-scale cooking. Glynwed is a multinational firm which takes advantage of the local skills

      1127
      in central Scotland of the foundry industry and which has over the years produced cookers that last.
      In the negotiations in which the trade union officials and I and my hon. Friends from the adjoining constituencies participated, we were told that the main reason for the closure of the factory was a fall in demand for the company's products. Demand had fallen because of cutbacks in public expenditure. Local authorities could not afford to buy or replace cookers. There had been an overall fall in demand for cookers for institutions. To that could probably be added a fall in demand resulting from a lower demand for school dinners after the increase in the price of those meals through the constraints placed on the education service by public expenditure cuts. In parallel to that the company was embarking upon a £2 million investment programme in South Africa. I do not wish to make an anti-apartheid speech this evening. With the absence of exchange controls and with other impediments removed, it is easy for firms to invest abroad rather than at home.
      There have been only one or two sittings of the Standing Committee examining the Bill, but in them I have referred to the interface between the drink industry and my constituency. One of the major employers in my constituency is United Glass, which is a subsidiary of the DCL group, and which produces bottles for the whisky industry. There is a world recession, and, although I do not blame the Government for it, they are doing more than their share to sustain it.
      As a result of that recession, the whisky industry is suffering from considerable difficulties. The whisky bottles are not being filled and emptied as fast as they were. That is primarily because people do not have as much money as they did but also because the suppliers of the bottles and the people who fill them do not want large stocks lying around when inflation is running at 20 per cent. and when the money that has to be borrowed to fund those stocks is subject to an interest rate of 17 or 18 per cent. As a result of the higher rate of inflation, both the supplier and the producer have had to run down their stocks, and as a consequence, 200 jobs have been lost because one of the furnaces has had to be closed
      1128
      down. That furnace is the most modern of its kind in Europe. It was opened some years ago by a Minister in the previous Government, and it was paraded as one of the great success stories of Scottish industry. It has now been put into mothballs, and there is no likelihood of the furnace being put into operation again.
      I could go through the whole of my constituency and talk about such matters. My hon. Friend the Member for Workington spoke about the Labour Party conference at Wembley. I spent some time at the conference talking about redundancies to the convener of shop stewards at one of the heavy engineering works in my constituency. That engineering firm is part of the Weir Group, which produces pumps for desalination units. It is dependent upon exports, and it has a world-wide reputation. Because of the high level of the pound and the high rate of inflation, the firm is finding it difficult to sell goods abroad. It has a highly developed department which can sell the franchise—so to speak—for the production of units abroad, and that is what it will do. It was only three weeks ago that the firm opened up a new foundry in the Alloa complex which was regarded as a guarantee. But within four or five weeks the job security of many of the workers has been put in jeopardy. It would be irresponsible to talk in terms of numbers of people who will be thrown on to the streets, but an area of tremendous optimism five weeks ago has now been cast into considerable gloom.
      Not every industry in my constituency is in a state of gloom. There are one or two industries in which things are brighter. One example is a woollen mill in which jobs have been secured—but they have been secured at the expense of jobs in Darlington, Greenock and in one of the villages close by. The local newspaper emblazoned the headline " 400 extra jobs", but, then it was discovered that those jobs were at the expense of about 700 jobs in other parts of the country, and the possible loss of another 150 jobs close to the mill in which the extra jobs had been secured. In this instance, my area is benefiting, but at the expense of other areas.
      Unless there is a change in Government policy the woollen industry will go even further into the pit, regardless of the

      1129
      rationalisation processes. Unless a more effective multi-fibre agreement is reached, and unless there is more stringent policing of the import of French wool into this country, there will be even more imports of cheap woollen goods, and further disincentives to the home knitting industry, which I should have thought Conservative Members, with their Samuel Smiles approach to industry, would wish to promote. Some jobs in breweries in my constituency have been saved, but only as a result of the closure of a brewery in Edinburgh.
      7.45 pm
      I have mentioned some of the traditional industries in my constituency which were considered by the Department of Industry to be in such a healthy state as to warrant the removal of development area status. I do not propose this evening to argue the case for the restoration of that status, but I wish to make clear that, if the Government thought a year ago that everything was going smoothly in this part of Scotland, they should now see—a year later—that their objective of reducing inflation at the expense of unemployment has been singularly unsuccessful. Inflation and unemployment have continued to rise. The high level of interest rates has frustrated business men, and the high level of the pound has prevented some of the high-earning export industries from expanding in the way that they had planned a few weeks ago.
      One office in my constituency probably sums up the Government's failure. Instead of opening five days a week, the unemployment benefit office in Alloa will now only open two days a week. I attended a meeting last Friday at which it was stated that the present volume of business does not warrant the office being open more than two days a week.
      In my estimation—the view is shared by my local government colleagues—the trouble, expense, and other problems experienced by people travelling from Alloa to Stirling far outweighs any savings. The local authority argues that it has to pay people to travel from Alloa to Stirling because there is a social security office in the town. But that office has nothing to do with the payment of benefits. The fact that the local authority had to help to fund that office meant that the effect of the Government expenditure cuts was transferred from the Department of Social
      1130
      Security to the local authority. That is perhaps the apotheosis of the failure of the Government. In one short-sighted week, they closed one of the few agencies that provided assistance to people who had suffered as a result of their policies, and the expense has to be borne by another arm of local government which is also being assaulted by the same economic policies.
      We have heard speeches today on the desirability of wage restraint. The hon. Member for Worcestershire, South (Mr. Spicer) suggested that there should be a pay freeze. I am not aware of a high industrial concentration in his part of the country. Not very much money is made there from the production of goods. Hon. Members who represent areas where traditionally—and, we hope, in the future—the wealth of the country will be produced see nothing but gloom and despondency as a result of the Government's policies.
      We see nothing in the way of encouragement in this Finance Bill, and we have heard nothing so far this evening from any Conservative Member which will create the sort of climate of co-operation and optimism that is necessary if we are to have the trust of people, and if we are to take them along the right road, which, admittedly, may require some degree of income restraint. The Government's cavalier attitude towards the trade unions and towards many of the social benefits which we consider necessary and desirable has soured the climate. If the " wets " are seeking to change the mind of their Government, it is not enough simply to argue for some kind of incomes policy for nurses and teachers, or a wage freeze for everyone for six months. We need a change of will, and a change of heart from the Government, and so far tonight I have seen precious little chance of that.
      Mr. Tam Dalyell: I endorse many of the comments made by my hon. Friend and parliamentary colleague the Member for Clackmannan and East Stirlingshire (Mr. O'Neill) about the whisky industry and others in our area.
      Tonight I should like to engage the Chief Secretary's attention once again on the issue that I raised in the Budget debate, and tangentially upstairs, and we shall doubtless return to it—the so-called black economy. I do not know what appears in the

      1131
      Oswestry local papers, but in the West Lothian local papers more and more one sees advertisements for painting, plumbing and repairs of all kinds with just a telephone number—no address, and no indication where the base of the work is. By the smile on the Chief Secretary's face, I know that it has already occurred to him that this is for the one basic purpose of tax avoidance.
      If I may be forgiven a short and cautionary tale, I have a friend who is an inspector of taxes in Scotland. His wife wanted a painting job done. She saw in the local paper a telephone number that seemed handy. Unwittingly, she rang that number and along came the painter and his mate. They were very good. They set about the task with considerable skill. When she gave them a cup of tea, the painter, by way of casual conversation, asked "What does your husband do?" She said " Oh, he is one of Her Majesty's inspectors of taxes ". History does not relate whether the tea was finished. However, what is certain is that my friend's wife went back into the house and when she came out again she discovered that both painter and mate had taken to their heels. The paint, paintbrushes and all the tools had vanished, and although the job was nearly three-quarters done, strange to relate no bill has been forthcoming to the present day.
      I put it in those terms, but I then turn to the evidence of Sir William Pile before the Expenditure Committee. I can put it in frivolous terms, but in case anyone thinks that this is a one-off story, let me assure him that it is far from being that.
      My hon. Friend the Member for Nottingham, West (Mr. English), the Chairman of the Committee, on 26 March 1979 put this question to Sir William Pile as chairman of the Revenue:
      " There is said to be a ' black economy ' if you like. Do you think it is sufficiently large to be of administrative importance? "
      Sir William replied:
      " I think it is a matter of very considerable importance."
      That is the chairman of the Revenue. The Chief Secretary nods.
      Sir William continued:
      " It is very difficult to measure it. I have seen a figure given. In terms of the income undeclared for tax purposes it was said to amount to the equivalent of 15 per cent. of
      1132
      the GDP. We are talking about an enormous sum. It is impossible, I think, by definition, to confirm or to measure it, but what I did do was to ask what would have to happen for that to be a plausible outcome? What would people have to do, how would people have to behave, if 15 per cent. of the GDP was to be masked from the eyes of the Inland Revenue and, therefore, not taxed? The main area where this would happen would be in the area of moonlighting—second incomes that are simply not declared. It would have to mean that something like one employed person in four would have to be earning £1,000 a year which never came before the Revenue. One asked oneself, if that is what would have to happen for that particular situation to be validated, is it plausible? The conclusion that my colleagues and I came to was that at that level it sounded a bit implausible, but we thought that it was not so implausible at 7½ per cent. of the GDP; in other words, if you said that one in eight might be having an undeclared income of £1,000, or one in four £500. Nobody can measure it, it is an act of judgment, but it did seem to us that at that level, there or thereabouts—at least I got a majority of my fairly experienced senior colleagues to say—we could not say that was implausible from our knowledge."
      These are his senior colleagues in the Inland Revenue. Sir William continued:
      " If that is so, then the black economy is a very worrying element in the totality of economic activity, quite apart from the loss of revenue."
      That was 1979. On talking to tax people, the impression I gain is that they are aware that this trend is becoming more, not less, serious. If firms know very well that their competitors and other firms in the business are getting away with it, there is considerable pressure for them to do the same. Indeed, there are more and more complaints from people who complete their tax returns properly that they are suffering unfair competition from individuals or groups who are evading the tax net. Therefore, the whole question of equity is serious.
      I find it perplexing that the Government have hitherto seemed unprepared to debate in the open the implications of the two official estimates that we have had. Sir William Pile's estimate was the greater. His estimate was that it probably amounted to 7½ per cent. of GDP, which currently would put it at about £14,000 million. On the other hand, the Central Statistical Office put it at about half that figure, but one has to recall that it heavily qualified its estimate by saying that it was by no manner of means confident that people had been any more thorough in

      1133
      filling up their returns than they were with their income tax returns.
      Whichever figure one chooses, it is extremely large. Even if one discounts a good deal of it in terms of tax liability—that is, that a proportion will be earned by people who will not be liable to tax—the loss of revenue to the Exchequer must be significant. The Inland Revenue Staff Federation puts the loss to the Exchequer as between £1,000 million and £3,000 million—" somewhere ", as Mr. Tony Christopher says " in that span ".
      Mr. Campbell-Savours: Is my hon. Friend aware that it has been suggested by a number of economic commentators in the Italian press that the take in Italy is as much as 40 per cent. down on what it should be? If in a number of European Community countries there is a deficiency in the VAT take, it will have an unfair effect on the level of contributions paid by domestic Governments to the European budget. Therefore, there are much wider international implications in this matter.
      Mr. Dalyell: I do not doubt that my hon. Friend is right. I do not want to be led astray, but in a previous incarnation, in the indirectly elected European Assembly, I was a member of the budget sub-committee, which was concerned with fraud. I vividly remember going to Rome to try to talk to the Italian auditors concerned with matters such as Como butter. I am not pretending that we got very far, but I do not doubt that the Italian situation has got completely out of control. Therefore, I give my hon. Friend the Member for Workington (Mr. Campbell-Savours) his point.
      The Government's answer seems to be that all this will go away if taxes are officially reduced. Not only is there much less scope over the next few years to reduce taxes by much, but the United Kingdom's rates are certainly not disproportionate to those elsewhere. In fact, they are much lower. It is possible that our ratio of tax revenue to GDP is lower than the average in Europe—and that was before the Chancellor's first Budget.
      Against that, the Government intend to deploy 1,050 extra staff in the Department of Health and Social Security to try to tackle fraud in that area—something to which I objected strongly in the debate on the Budget. Even though detected fraud to date is about £4 million,
      1134
      it represents no more than 0·02 per cent. of benefits paid out. Only about 0·25 per cent. of the 25 million social security claims are thought to be fraudulent. Those are the Government's figures. Why concentrate on the minnows of social security fraud?
      8 pm
      It is something near to a fact that only about 0·3 per cent. of incorporated businesses are examined in depth by the Inland Revenue. There are 543,000 businesses in Britain, expanding at the rate of about 20,000 a year—not allowing for closures and bankruptcies. For unincorporated businesses, the in-depth examination rate is about 2·7 per cent. Across the board, investigation and checking of compliance is so seriously neglected that it often borders on he scandalous.
      In the opinion of some, the British public either do not understand, or do not wish to know, the extent to which a relative minority are cheating, and therefore being subsidised by others. Anyone who says " We must live with the black economy because many people use it " should realise that those who use it are cheating their fellow citizens. One cannot mince words on that matter. Does the Chief Secretary accept the figures that I have quoted—be they the figures given by Sir William Pile, or the figures given by the CSO? The situation is grave. Even if we take the most favourable figures, no one can deny the gravity of the situation resulting from the black economy.
      Some hon. Members are becoming more and more concerned about where the black economy operates. I refer to the taxation of those who operate in the North Sea, but not to the special problem of the divers. I have great sympathy with any Government's dealings with the divers, because the whole of the oil production depends on them. They are angry people, with a special problem. They are mad if they dive after they are 39 or 40 years of age. As one who has discussed those problems at the Loch Linnhe diving school at Fort William, I shall not be part of any criticism of this Government, or the Labour Government, for their attitude towards the divers.
      There is another side to the story. I receive the impression that there are

      1135
      many working in the British sector of the North Sea who are not known to the Inland Revenue. In a previous incarnation, when I travelled frequently from the European Assembly to Scotland via Amsterdam, it was clear at Schipol and elsewhere that many who were going to work in the British sector of the North Sea were from Amsterdam or from German origins. Whether they were known to the British tax authorities was, to put it mildly, doubtful.
      Having stated the North Sea porblem, I have a specific question to ask the Chief Secretary, on which he may wish to take advice. It is a complex matter, of which I have not given him notice. I refer to the Finance Act 1973, schedule 15 paragraph 5, which states:
      " Paragraph 4 above does not apply to any assessment of tax under Schedule E."
      Paragraph 4 states:
      "(1) Subject to the following provisions of this Schedule, where any tax is assessed by virtue of section 38 of this Act on a person not resident in the United Kingdom in respect of—

      (a)profits or gains from activities auth orised or carried on in connection with activities authorised, by a licence granted under the Petroleum (Production) Act 1934, or

      (b)profits or gains from, or chargeable gains accruing on the disposal of, exploration or exploitation rights connected with activities so authorised or carried on,

      then, if the tax remains unpaid later than thirty days after it has become due and payable, the Board may serve a notice on the holder of the licence stating particulars of the assessment, the amount remaining unpaid and the date when it became payable, and requiring the holder of the licence to pay that amount together with any interest due thereon under section 86 of the Taxes Management Act 1970, within thirty days of the service of the notice.
      (2) Any amount which a person is required to pay by a notice under this paragraph may be recovered from him as if it were tax due and duly demanded from him; and he may recover any such amount paid by him from the person on whom the assessment was made."
      The guts of the matter is whether, if the Government agree that there is a problem of not collecting tax from nationals of a whole range of countries working in the British sector of the North Sea, there is an argument for taking out paragraph 5 of schedule 15. I do not presume to tell the Treasury lawyers how to do that, but, in the last resort, they could make the licence holders responsible for the payment of tax. Anyone
      1136
      who knows the oil men will know very well that as soon as they think the Revenue is on their tails they leave the North Sea and go to the Gulf of Mexico, Indonesia, Alaska or heaven knows where. There is precious little chance of collecting PAYE or any other tax once that has happened. If responsibility were placed firmly at the door of the licence holders—not in the first instance, but as a last resort—considerable extra tax could be collected.
      I have to behave properly towards the Chief Secretary, because he has always been courteous to the Committee. I do not ask him to answer that question tonight, but to return to the matter at some later stage, when, doubtless, he will oblige the Committee with an answer.
      Mr. Biffen: I have the rather melancholy task of recommending to the Committee the rejection of the amendment moved by the right hon. Member for Llanelli (Mr. Davies). It is melancholy, because the amendment was moved in a charming fashion and also because this clause has a history of almost 20 years, in which it has provided the House with an amiable occasion for a wide-ranging economic debate. Nothing could have ranged much wider than the issues covered this afternoon, ending with the contribution of the hon. Member for West Lothian (Mr. Dalyell).
      I wish to say at once to the hon. Gentleman that I shall certainly consider his speech most carefully. I shall be in touch with him, with a properly judged reply on all the points that he raised—not only his last point which was direct, immediate and technical, although significant in its implication, but some of his earlier points, which deserve the greater consideration of the Committee.
      I do not know whether the black economy can be properly measured by the answers given by Sir William Pile or by the article written for the CSO. By whatever measure, it is a matter not merely of some significance but one that many believe to be developing in its character. If it is true, it is not only in respect of what it does for tax yields, and what it implies for a change in tax structure to accommodate that position, but what it means for the whole statistical world within which we are imprisoned—for, indeed, we are imprisoned within what is very often a statistical world in

      1137
      which we try to tell ourselves how we are performing and how we compare with the greater world outside. Then we discover, years later, that the figures were all phoney anyway, and that this particular piece of self-flagellation was to some degree unnecessary. The hon. Member for West Lothian, not for the first time, has done the Committeee a service by bringing the issue before us.
      Mr. Dalyell: The trouble, of course is that this is an extending situation, and it is extending because the more people realise what is happening the more they feel, rightly or wrongly, that they themselves are forced to participate in the act.
      Mr. Biffen: I note what the hon. Gentleman has to say. If there is validity in this—I am not disputing it—I hope that it will be a compelling reason, for example, why the Select Committee on the Treasury and Civil Service should turn its energies in this direction. I can think of no more appropriate subject on which to engage the bipartisan activities of the House of Commons.
      I turn to the clause as it stands and as it is formally engaged by the amendment. It is a slight eccentricity that we have to get this matter out of the way before we come to the more general knockabout, but, none the less, it is important to realise just what is involved.
      The hon. Member for Sheffield, Heeley (Mr. Hooley) asked, quite properly " What are we losing? What are we giving up by accepting the clause? " I have to say that if the clause is passed this evening, as I shall recommend, the powers to make regulator orders will no longer require statutory annual renewal. We shall be deprived of this annual parliamentary outing. None the less, parliamentary powers will remain as and when regulator powers are actually used—that is to say, orders effectively to increase taxation will require affirmative resolution within 28 sitting days, and orders reducing taxation will be subject to negative rather than affirmative procedure.
      The regulator powers affect alcohol, hydrocarbon oil and minor Excise duties, such as those on betting, bingo and matches, and the full potential of their regulator yield is £500 million. The Committee will be more conversant with the concept of the regulator being applied to value added tax and tobacco, which can
      1138
      yield, at their maximum, an annual figure of about £2,500 million.
      What this clause does is to bring these lesser issues and more modest yields into line with existing practice for VAT and for tobacco products. As the legislative framework for VAT and for duty on tobacco products has been provided in one instance by a previous Conservative Government and in another instance by a previous Labour Government, I would hope that it is not thought to be too wildly innovating to bring about this broad common practice.
      Mr. Robert Sheldon: As the Chief Secretary is giving his reasons for ending the regulator debate by providing that these matters do not need to be brought up in the Finance Bill each year, may I ask why he did not go further and do the same thing in regard to clause 26, which applies to the limit for relief on mortgage interest repayments, which, under the Bill, still needs to be brought up every year?
      8.15 pm
      Mr. Biffen: That is a proposition that I shall be happy to consider when we reach the subject.
      I turn to the matter that has detained the Committee for the bulk of this afternoon—a general economic debate. We are already at a modest hour of the evening and I do not want to impinge too sharply on the income tax debate, but I hope that the Committee will bear with me for a while if I rehearse the broad thrust of Government economic policy since the election. It is based upon a belief that we require a broadly stabilised level of public spending over the lifetime of this Parliament, shaving off at the rate of 1 per cent. a year, and that that has to be paralleled by responsible levels of taxation, but levels that embrace a significant measure of tax reform.
      It is hoped that the consequential borrowing requirement will fall and so provide the monetary preconditions for a fall in the rate of inflation. That will take its due course and will provide an interim period that is bound to have, as a consequence, a disagreeable impact on levels of output and levels of employment. That has never been gainsaid by any Conservative Member.

      1139
      The hon. Member for Kettering (Mr. Homewood) made an engaging contribution to our debate. I say to him and to the Committee that we do not proceed upon this policy in any sense of arrogance and determination that we can see in every consequence what will be its impact. We travel with a sense of conviction. Above all, because we travel with a sense of conviction, we are determined to pursue this policy through a period. The hon. Member for Kettering said that he thought that after 12 months it was time that we realised that we were on the wrong course. I have to say that the story of economic policy in this country since the Second World War has been a policy of fits and starts by successive Governments who have abandoned policies when they encountered difficulties and who have aborted the things in which they believed because they were not prepared to see these matters through to a final conclusion.
      Of course, so much about politics is " when " rather than " what ", and so much of the challenge for the present Government is " when " rather than " what ". In answer to the points raised by the hon. Member for Kettering, I say to the Committee that we are embarked upon a policy from which we do not intend to be deflected by the interim difficulties and problems that we know are bound to arise during the transitional period.
      Mr. Homewood: What bothers me is the expression " We shall not be deterred ". In whose lifetime will the Government realise that they might be on the wrong track? Twelve months is a long time in present circumstances. If matters were tending in a certain direction, it would be a short time and I should be prepared to wait, but when matters are going in the wrong direction, I wonder how long I shall have to wait for them to come into the right direction.
      Mr. Biffen: As the hon. Gentleman believes that we are going in the wrong direction, arguments about time do not seem particularly material. Anyone who was schooled in the belief that a week—or even a year—is a long time is not necessarily best equipped to take guidance on economic policy, where one has to take full advantage of the span of a
      1140
      full Parliament—and that is what we intend to do.
      Of course, I do not deny for a moment that there are transitional difficulties. It would be foolish to pretend otherwise. [Interruption.] Why there should be giggles and laughter at the mention of one's preparedness to weather transitional difficulties, I do not know. Is one supposed to say that one will back off the first time one meets transitional difficulties?
      Mr. Hooley: The Chief Secretary is a very sensible chap. Does it occur to him that if one is manifestly heading for a precipice there is more sense in changing direction than going over it? [Interruption.]
      Mr. Biffen: I am not angelic, or equipped with a pair of wings, and I do not believe that we are heading for a precipice. However, no one will deny that there are transitional difficulties through which the Government will pass.
      Mr. Campbell-Savours Mr. Campbell-Savours rose——
      Mr. Biffen: I shall give way to the hon. Gentleman, but I wish to make progress. I am sure that that is the wish of the Committee. I hope that it will bear with me if I do not proceed immediately with my speech.
      Mr. Campbell-Savours: The right hon. Gentleman refers to the need for the full period of the Government to pass before policies are realised. Is he saying to the people of Workington in my constituency "You may have to wait for five years before you are re-employed "? If that is what he is really saying, I hope that he will say it from the Dispatch Box. It would look beautiful in a headline in the Weekend Times and Star. I am sure that my constituents would be excited to read of such a prospect from the Government.
      Mr. Biffen: I will not say that and I will not oblige the hon. Gentleman in yet one more of his constituency speeches. The Chamber is appropriate for constituency speeches. It is also appropriate for speeches that are aimed at a wider audience.
      I turn to three issues that were raised during the debate. I think that these are the issues that excited most comment. I refer to the level of interest rates, the level of exchange rates, and the issue of

      1141
      pay. I reinforce what my right hon. and learned Friend the Chancellor of the Exchequer said on current interest rates when he addressed the House on 7 May. He said:
      " To reduce MLR prematurely would risk undermining our policy to bring down the rate of inflation."—[Official Report, 7 May 1980; Vol. 983, c. 303.]
      I was encouraged when my right hon. and learned Friend's prudent attitude was reinforced this afternoon in the contributions of my hon. Friends the Members for Worcestershire, South (Mr. Spicer) and Knutsford (Mr. Bruce-Gardyne).
      At present there is encouraging evidence that sterling M3 is coming under control. However, there is to be considered the impact of the acceptance of that statistic. No Government would lightheartedly disregard that.
      The rate of inflation was mentioned several times by the right hon. Member for Llanelli. I accept that that is a factor in the equation. We must remember that the market assessment of interest rates takes a forward view of inflation. It is not merely a matter of measuring the current rate of inflation with the current minimum lending rate.
      The Government's position remains precisely as outlined on Second Reading. We believe that there is the possibility of a fall in interest rates later this year—[Interruption.] I do not know why that should be thought so flippant by Labour Members. The right hon. Member for Llanelli outlined what he thought were the difficulties that would circumscribe any early fall in the minimum lending rate. In this instance, as in others, we shall act with realism and prudence. That will be the hallmark of our policy. We shall not be manoeuvered or nudged into positions in which we have no inherent belief because of temporary embarrassments.
      The exchange rate has featured in many speeches. It was linked inevitably with the wider issue of import controls. There are limitations upon the Government's power to influence the level of the exchange rate. I am not yet clear about the view of the Labour Party post-Wembley. The hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) confessed that he had actually attended the conference—he is in the
      1142
      position of a veteran deserving a bronze star if ever there was one. He came away with a reinforced view that there should be physical import controls. That policy was echoed by the hon. Member for Workington (Mr. Campbell-Savours). The same theme was taken up by the hon. Member for Sheffield, Heeley. Those hon. Members made all the running. I am sure that the right hon. Member for Llanelli will put a final synthesis on the wide-ranging advocacy of import controls.
      I hope that the Committee will reflect carefully before endorsing the argument that our present exchange rate system requires any wide-ranging systematic organisation of import controls. I know that it is true that the exchange rate at its current level causes acute embarrassment and hardship for a number of companies. That is inevitable in any economy that is committed to change and renewal. There is no way in which we can contract out of that and out of the impact of oil upon our economy, including our exchange rate.
      To what extent are these market messages unacceptable and deeply destructive of our inherent national economic strength? I suggest that the Committee would be well advised to reflect on what sort of management is acutely affected by an appreciating exchange rate. It will tend to be a low value-added type of activity. We must ask ourselves whether we think that that activity holds the key to the industrial and commercial development of the economy through the 1980s. I put that forward not as an assertion but as a question, a subject, a topic and as a consideration that the Committee will have to bear in mind as the issue of the exchange rate continues to be a major feature in our political debate.
      I am certain that any substantial retreat by Britain behind the barriers of trade restraint, whether by quota or tariff, will be a retrograde step.
      I turn to the issue of pay. I note the problem of wage bargaining, which is central to the remarks of the right hon. Member for Llanelli. Pay is probably the most delicate and difficult of all the issues that will face the Government over the next few months. I pay my respects to what I thought was a most thoughtful speech by my hon. Friend the Member for

      1143
      Bath (Mr. Patten). It was vitiated only by the reference to the Confederation of British Industry. I hope that my hon. Friend will not become a mascot of the bosses. I do not think that that will be so.
      My hon. Friends are worried about the extent to which adequate control over public spending can be secured without having a more effective public sector pay policy. That is understandable, because pay accounts for 17 per cent. of central Government expenditure. More significantly, it accounts for 46 per cent. of local government expenditure. Such issues must be resolved and elaborated during the weeks and months ahead.
      8.30 pm
      My hon. Friends were wise not to confuse the Government's role as an employer with the tantalising issue of Government regulation of incomes throughout the economy. My hon. Friend the Member for Knutsford made a trenchant speech, warning against that danger. I respect the fact that my hon. Friend the Member for Worcestershire, South advocated a wage freeze of limited duration, to play a supportive role in the Government's general economic policy. However, we should remember that that jungle path is littered with whitened bones. The Government are pioneering for the future, but they are also mindful of the past.
      During the debate it has been argued frequently that monetarism—as the slogan goes—is not enough. The first person to coin that phrase was my right hon. Friend the Secretary of State for Industry. Everybody realises that the Government's basic economic policies need supporting social policies. Above all, they need to be prosecuted on a scale that will enable our social fabric to adjust to all the disagreeable consequences implicit in a significant drop in the rate of inflation. We are determined to remain on the road to monetary stability. In that spirit, I call on the Committee to reject the amendment and to vindicate the Government's economic policies.
      Mr. Denzil Davies: I do not wish to make another speech on the economy, and I shall therefore be brief. The Chief Secretary has explained the purpose of the clause. We have had an interesting debate.
      1144
      However, it has illustrated the Government's confusion about their economic policy. The Chief Secretary said that he hoped that the borrowing requirement would fall and provide the monetary conditions for a fall in inflation. That is the essence of the Government's argument. I do not understand it, but no doubt we shall be given an opportunity to analyse it later.
      If the borrowing requirement were to fall, the Government would have to sell less stock and presumably that would lead to lower interest rates. The Government have never explained how those two steps will reduce inflation. That is at the heart of the confusion in the Government's policy. The Government have not given us a satisfactory explanation today, and I doubt whether we shall receive a satisfactory explanation before the Bill is enacted.
      The hon. Member for Knutsford (Mr. Bruce-Gardyne) made an interesting speech. He took a certain amount of pleasure because I had said that the Government had dug a hole that they could not get out of. The difference between us is that the hon. Member for Knutsford seems to be happy in that hole; he does not want to get out. However, I am appalled that the Government have dug that hole and that they have caused such damage to industry.
      The hon. Member for Bath (Mr. Patten) made an interesting speech, advocating—as he always does—a form of incomes policy. He argued cogently. The hon. Member for Worcestershire, South (Mr. Spicer) wanted a pay freeze.
      We were given a variety of alternative strategies by Conservative Members. That demonstrates the Government's confusion. When a meeting is held at Chequers at the end of the month—I heard no denial from the Chief Secretary—many suggestions will be made. There will be a suggestion to soldier on. The Chief Secretary said that it is a question of " when ", not " what ". However, he did not say when or what. He mentioned the next election, perhaps in four years' time. He did not say what. Will the Government have reduced inflation to 15 per cent.? What are we aiming for?
      We have heard about the need to reduce the rate of inflation. To what? Perhaps the Chief Secretary will tell us

      1145
      the Government's aim in Committee upstairs or on Report. We hear about reducing inflation. To what level will it be reduced? What level is acceptable? Is the average level of our main competitors acceptable? What is the " what "? Clearly we shall not be told when. So we shall find that Treasury view—soldiering on through the " when " to the " what ".
      Then there will be the argument for a statutory incomes policy, followed by the argument for a pay freeze. Then perhaps we shall have the adoption of Professor von Hayek's suggestion that so long as there is a monopoly of labour—which I do not accept—it is essential to have a statutory incomes policy even if monetarist policies are being pursued. It may be that we shall hear from certain Government supporters—the hon. Member for Knutsford for one—that the monetarist heaven can be achieved only if the immunities of the trade unions are taken away. I have no doubt that some hon. Members will argue that the only way that a monetarist policy can work is by taking away the basis of the immunities of the trade union movement. I have no doubt that that will be a very interesting meeting, and we shall see whether anything comes out of it.
      Meanwhile, I shall not recommend my right hon. and hon. Friends to divide the Committee on this amendment, because it was designed to be a probing amendment. However, we shall wish to vote against the clause standing part of the Bill. I apprehend, Mr. Godman Irvine, that you will not allow a stand part debate, but we shall wish to vote against the clause not only because the Government are denying the House of Commons the right to debate these issues—the Chief Secretary said that he felt rather melancholy about taking away this right, which an Opposition should have every year, to debate the Government's economic policies—but also to register our condemnation of the Government's policies over the past year. When we get to next year, I have no doubt that we shall still have high unemployment, high inflation and very low production and investment.
      For those reasons, I shall recommend my right hon. and hon. Friends to vote against the clause standing part of the Bill.
      Amendment negatived.
      Question put, That the clause stand part of the Bill:—
      The Committee divided: Ayes 170. Noes 120.

      Division No. 3281

      AYES

      [8.37 p.m.

      Alexander, Richard

      Critchley, Julian

      Hogg, Hon Douglas (Grantham)

      Ancram, Michael

      Dorrell, Stephen

      Holland, Philip (Carlton)

      Aspinwall, Jack

      Douglas-Hamilton, Lord James

      Howell, Ralph (North Norfolk)

      Beaumont-Dark, Anthony

      Dover, Denshore

      Howells, Geraint

      Belth, A. J.

      Dunn, Robert (Dartford)

      Hunt, John (Ravensbourne)

      Bell, Sir Ronald

      Edwards, Rt Hon N. (Pembroke)

      Hurd, Hon Douglas

      Bendall, Vivian

      Eyre, Reginald

      Johnston, Russell (Inverness)

      Benyon, Thomas (Abingdon)

      Fairbairn, Nicholas

      Jopling, Rt Hon Michael

      Benyon, W. (Buckingham)

      Fairgrieve, Russell

      Kaberry, Sir Donald

      Berry, Hon Anthony

      Faith, Mrs Sheiia

      Kellett-Bowman, Mrs Elaine

      Best, Keith

      Fenner, Mrs Peggy

      King, Rt Hon Tom

      Bevan, David Gilroy

      Finsberg, Geoffrey

      Lawson, Nigel

      Biffen, Rt Hon John

      Fisher, Sir Nigel

      Lee, John

      Biggs-Davlson, John

      Fletcher, Alexander (Edinburgh N)

      Le Marchant, Spencer

      Blackburn, John

      Fletcher-Cooke, Charles

      Lennox-Boyd, Hon Mark

      Body, Richard

      Fowler, Rt Hon Norman

      Lester, Jim (Beeston)

      Boyson, Dr Rhodes

      Fraser, Peter (South Angus)

      Lloyd, Peter (Fareham)

      Brinton, Tim

      Gardiner, George (Reigate)

      Loveridge, John

      Brotherton, Michael

      Garel-Jones, Tristan

      Lyell, Nicholas

      Brown, Michael (Brigg & Sc'thorpe)

      Goodlad, Alastair

      Macfarlane, Neil

      Browne, John (Winchester)

      Gorst, John

      Macmillan, Rt Hon M. (Farnham)

      Bruce-Gardyne, John

      Gow, Ian

      McNair-Wilson, Michael (Newbury)

      Bryan, Sir Paul

      Griffiths, Peter (Portsmouth N)

      Major, John

      Budgen, Nick

      Grimond, Rt Hon J.

      Marlow, Tony

      Bulmer, Esmond

      Grist, Ian

      Marten, Neil (Banbury)

      Cadbury, Jocelyn

      Gummer, John Selwyn

      Mates, Michael

      Carlisle, John (Luton West)

      Hamilton, Michael (Salisbury)

      Mather, Carol

      Carlisle, Kenneth (Lincoln)

      Haselhurst, Alan

      Maude, Rt Hon Angus

      Chapman, Sydney

      Havers, Rt Hon Sir Michael

      Maxwell-Hyslop, Robin

      Clark, Hon Alan (Plymouth, Sutton)

      Hawksley, Warren

      Mayhew, Patrick

      Clarke, Kenneth (Rushcliffe)

      Heath, Rt Hon Edward

      Mellor, David

      Cockeram, Eric

      Heddle, John

      Meyer, Sir Anthony

      Cope, John

      Henderson, Barry

      Miller, Hal (Bromsgrove & Redditch)

      Costain, A. P.

      Hicks, Robert

      Miscampbell, Norman

      Cranborne, Viscount

      Hill, James

      Mitchell, David (Basingstoke)

      Morgan, Geraint

      Renton, Tim

      Trippier, David

      Morris, Michael (Northampton, Sth)

      Rhodes James, Robert

      van Straubenzee, W. R.

      Morrison, Hon Peter (City of Chester)

      Roberts, Michael (Cardiff NW)

      Viggers, Peter

      Murphy, Christopher

      Sainsbury, Hon Timothy

      Waddington, David

      Myles, David

      Shaw, Michael (Scarborough)

      Wakeham, John

      Needham, Richard

      Shepherd, Colin (Hereford)

      Walker, Bill (Perth & E Perthshire)

      Nelson, Anthony

      Silvester, Fred

      Walker-Smith, Rt Hon Sir Derek

      Newton, Tony

      Sims, Roger

      Wall, Patrick

      Oppenheim, Rt Hon Mrs Sally

      Skeet, T. H. H.

      Waller, Gary

      Page, Rt Hon Sir R. Graham

      Speller, Tony

      Ward, John

      Page, Richard (SW Hertfordshire)

      Spicer, Michael (S Worcestershire)

      Warren, Kenneth

      Parris, Matthew

      Sproat, lain

      Watson, John

      Patten, Christopher (Bath)

      Stanbrook, Ivor

      Wells, John (Maidstone)

      Patten, John (Oxford)

      Steen, Anthony

      Wells, Bowen (Hert'rd & Stev'nage)

      Pattie, Geoffrey

      Stevens, Martin

      Wheeler, John

      Penhallgon, David

      Stewart, Ian (Hitchin)

      Wickenden, Keith

      Pollock, Alexander

      Stewart, John (East Renfrewshire)

      Winterton, Nicholas

      Porter, George

      Stradling Thomas, J.

      Wolfson, Mark

      Prentice, Rt Hon Reg

      Thatcher, Rt Hon Mrs Margaret

      Price, David (Eastleigh)

      Thomas, Rt Hon Peter (Hendon S)

      TELLERS FOR THE AYES:

      Proctor, K. Harvey

      Thompson, Donald

      Mr. Robert Boscawcn and

      Rathbone, Tim

      Thome, Nell (llford South)

      Mr. Peter Brooke.

      Rees, Peter (Dover and Deal)

      Townend, John (Bridlington)

      NOES

      Allaun, Frank

      Foster, Derek

      Parry, Robert

      Anderson, Donald

      Garrett, John (Norwich S)

      Powell, Rt Hon J. Enoch (S Down)

      Archer, Rt Hon Peter

      Grant, George (Morpeth)

      Prescott, John

      Barnett, Guy (Greenwich)

      Hamilton, W. W. (Central Fife)

      Rees, Rt Hon Merlyn (Leeds South)

      Benn, Rt Hon Anthony Wedgwood

      Haynes, Frank

      Richardson, Jo

      Bennett, Andrew (Stockport N)

      Heffer, Eric S.

      Roberts, Gwilym (Cannock)

      Booth, Rt Hon Albert

      Hogg, Norman (E Dunbartonshire)

      Rodgers, Rt Hon William

      Boothroyd, Miss Betty

      Holland, Stuart (L'beth, Vauxhall)

      Rooker, J. W.

      Bottomley, Rt Hon Arthur (M'brough)

      Homewood, William

      Ross, Ernest (Dundee West)

      Bray, Dr Jeremy

      Hooley, Frank

      Rowlands, Ted

      Callaghan, Jim (Middleton & P)

      Horam, John

      Sever, John

      Campbell-Savours, Dale

      Hughes, Robert (Aberdeen North)

      Sheldon, Rt Hon Robert (A'ton-u-L)

      Carter-Jones, Lewis

      Hughes, Roy (Newport)

      Silverman, Julius

      Clark, Dr David (South Shields)

      John, Brynmor

      Skinner, Dennis

      Cocks, Rt Hon Michael (Bristol S)

      Johnson, James (Hull West)

      Snape, Peter

      Coleman, Donald

      Jones, Rt Hon Alec (Rhondda)

      Soley, Clive

      Cowans, Harry

      Kilroy-Silk, Robert

      Spearing, Nigel

      Crowther, J. S.

      Lamborn, Harry

      Spriggs, Leslie

      Cryer, Bob

      Leadbitter, Ted

      Stewart, Rt Hon Donald (W Isles)

      Cunliffe, Lawrence

      Leighton, Ronald

      Stoddart, David

      Cunningham, George (Islington S)

      Lewis, Ron (Carlisle)

      Strang, Gavin

      Cunningham, Dr John (Whitehaven)

      Litherland, Robert

      Summerskill, Hon Dr Shirley

      Dalyell, Tarn

      Lyons, Edward (Bradford West)

      Thomas, Dafydd (Merioneth)

      Davies, Rt Hon Denzil (Llanelli)

      McCartney, Hugh

      Tilley, John

      Davis, Terry (B'rm'ham, Stechford)

      McKay, Allen (Penistone)

      Tinn, James

      Deakins. Eric

      MacKenzie, Rt Hon Gregor

      Torney, Tom

      Dewar, Donald

      McNamara, Kevin

      Wainwright, Edwin (Dearne Valley)

      Dixon, Donald

      Magee, Bryan

      Wellbeloved, James

      Dormand, Jack

      Marshall, Dr Edmund (Goole)

      Welsh, Michael

      Douglas, Dick

      Marshall, Jim (Leicester South)

      White, Frank R. (Bury & Radcliffe)

      Dubs, Alfred

      Mikardo, Ian

      White, James (Glasgow, Pollok)

      Duffy, A. E. P.

      Millan, Rt Hon Bruce

      Wigley, Dafydd

      Dunwoody, Mrs Gwyneth

      Mitchell, R. C. (Soton, tichen)

      Willey, Rt Hon Frederick

      Eastham, Ken

      Molyneaux, James

      Wilson, Gordon (Dundee East)

      Ellis, Fiaymond (NE Derbyshire)

      Morris, Rt Hon Alfred (Wythenshawe)

      Wilson, William (Coventry SE)

      Evans, loan (Aberdare)

      Morris, Rt Hon Charles (Opershaw)

      Winnick, David

      Evans, John (Newton)

      Morris, Rt Hon John (Aberavon)

      Woolmer, Kenneth

      Ewing, Harry

      Morton, George

      Field, Frank

      Moyle, Rt Hon Roland

      TELLERS FOP. THE NOES:

      Flannery, Martin

      O'Neill, Martin

      Mr. James Hamilton and

      Fletcher, Ted (Darlington)

      Park, George

      Mr. Joseph Dean.

      Foot, Rt Hon Michael

      Question accordingly agreed to.
      Clause 10 ordered to stand part of the Bill.

    Clause 17

      CHARGE OF INCOME TAX FOR 1980–81 AND ABOLITION OF LOWER RATE
      Mr. David Penhaligon: I beg to move amendment No. 5, in page 11, line 10, after "; and—", insert—
      1148
      " (a) in respect of so much of an individual's total income as does not exceed £750 at the rate of 20 per cent.".
      The First Deputy Chairman: It will be convenient to discuss at the same time the following amendments:
      No. 6, in page 11, line 10, at end insert—
      " (aa) in respect of so much of an vidual's total income as does not exceed £1,000 at 25 per cent.".

      1149
      No. 11, in page 11, line 24, leave out subsection (2).
      No. 12, in page 11, leave out lines 24 and 25.
      Mr. Penhaligon: This amendment would reinstate the lower tax band which the Government have abolished, and we have suggested a rate of 20 per cent. on the first £750 instead of the old lower rate of 25 per cent. This is a method of indexation—perhaps an unconventional one. It is a 20 per cent. reduction of that tax burden, which we think is preferable.
      The Government have obeyed the strict letter of the famous Rooker-Wise amendment but not its spirit. They have misled people into believing that they have obeyed its spirit. The irony is that the bulk of the hon. Members who voted for the Rooker-Wise amendment on that great night were Conservative Members. It is a little much that the Conservative Party should now take almost the first opportunity to get rid of it.
      The Budget has provided for an 18 per cent. indexation of the basic tax band, which is probably a little less than the current level of inflation in any case. The real result of what has happened is slightly complicated but worth examining for all that.
      A single person who last year earned £1,915 would have found that he qualified for the full basic tax allowance of £1,165. He would have paid £750 at 25 per cent. The same person this year will find that he will have a tax allowance of £1,375 and on the remaining £540 he will pay at the rate of 30 per cent. By that mechanism his tax bill will have been reduced from £187·50 to £162, a saving of £25·50.
      A similar calculation can be made for a married person, though the figures are slightly different in that he will pay £135 and his saving will also be £25 instead of the £52·50 that he might have expected. I say that he might have expected £52·50 because he would not have expected to pay at the rate of 30 per cent. on his first £750. He would have expected to pay at the 25 per cent. rate. Therefore, he has been cheated of half the savings that he could reasonably have expected from a fair and unbiased interpretation of the amendment passed during the last Parliament—that is, £27 as opposed to £25. Such a sum of money is of considerable
      1150
      significance to people at that level of income. In reality we have all been cheated out of £27. When one pays a great deal of tax, £27 is of less significance than it is for a person whose tax bill is £150 or £170 a year. To him, £27 is of great significance.
      The Government may argue that the abolition of the lower band is justified because it affects very few people. According to a parliamentary answer, it would affect 10 per cent. of the taxpaying population, that is, 2,500,000 people. The marginal rate of taxation, given that this amendment is passed, would be 20 per cent. Two and a half million people on low incomes are well worth considering.
      If the amendment is not accepted today, the Government will have forced on the low-paid people of Britain an effective entry tax rate of nearly 37 per cent. That is a 30 per cent. rate on the lowest band of tax, given the Budget proposals, plus the 6¾ per cent. from the national insurance contribution, a total of 36¾ per cent. tax for a single person on his twenty-eighth pound and for a married person on his forty-second pound. I understand that only Australia can produce tax rates to rival that. It is a quite incredible rate.
      For those on family income supplement, the situation is even more incredible. If a person on FIS is unfortunate enough—and I use that phrase with thought—to gain a pound a week rise in his pay he will find the following effects on his take-home pay. His FIS will be immediately reduced by 50p. That is the rule of the game. He will immediately pay 30p of that £1 rise in income tax and he will also have to make a 6¾p national insurance contribution. That is an effective marginal tax rate at entry of 86¾ per cent. for a family man with as many as three children. He begins to pay at that rate on his forty-second pound. That is what Government Members will vote for today if they refuse to accept the amendment that I have offered them the opportunity of passing.
      Even if the amendment is passed, the marginal tax rate for the man on family income supplement will be 77 per cent. I hardly consider that satisfactory and that ignores the effect of rent and rate rebates. I suspect that, with FIS, income tax, national insurance contribution and rent and rate rebates, a married man with

      1151
      children earning £50 a week will find himself worse off if he receives a pay rise in the current situation. I cannot imagine a greater nonsense. It is a nonsense which the Conservative Party rightly spent a great deal of time claiming it would rectify if it were given a mandate at the election.
      Low-paid people are forced to demand above-average pay increases because of this nonsense. The Government may say that they are low paid because they have no industrial muscle and can do nothing about it. Such a philosophy, which has been normal in the last 12 months, is to be deprecated. The low-paid are in for a shock when they realise what will happen to them as a result of this Bill.
      The Minister will probably say that my amendment will cost a great deal of money. I calculate that it will cost about £1·8 billion. Part of that could be recovered by increasing excise duties in line with tax. If petrol had to be involved, which is not exactly favoured in my area, and the money used to help the low-paid that might just be digestible.
      The Government could increase the public sector borrowing requirement. It is too low, given the recession. We spend too much time worrying about the fine detail of the PSBR. In the last 12 months, because of the Government's policies which have led to 20 per cent. inflation, the real value of the national debt has been reduced by a full 20 per cent. I do not know whether that was the object of the policies but there is no doubt that it is a consequence. At least part of that peculiar saving could be used to reintroduce a low tax rate for the low paid.
      The Liberal Party believes that a taxation entry rate of 30 per cent. is too high. The effective entry rate is 36¾ per cent. and it is scandalous. We offer the amendment as a way out of certain of the Government's proposals which must have escaped their notice because I cannot believe that the Government are in favour of such ludicrously high rates of initial tax. I draw the Minister's attention in particular to the effects on people receiving family income supplement. It is incredible that on the forty-third pound earned by a married man with two or three children we tax him at an effective rate of over 87 per cent., as well as the loss of his rent and rate rebate.
      1152
      I look forward with optimism to a positive reply from the Government.
      Mr. Henderson: My interest is in the fishing industry, and share fishing in particular. Farmers are given relief on fluctuating profits under section 28 of the Finance Act 1978. It is unfortunate that such relief was not given to fishermen, because the same criterion applies to them. Fishermen are primary food producers. They have fluctuating fortunes and are affected by the weather.
      An example of the scale of fluctuation is one of my constituents, who in 1978 made a profit of £30,000 but in 1979 made a profit of only £800. If reliefs for fluctuating profits were granted on the basis of an average between years it would affect the tax band under which my constituent could be assessed for income tax. In addition, fishermen have to suffer less stable markets. They must work under strict conservation rules. They cannot improve their incomes by catching more fish. Therefore, in times of difficulties, such as exist at the moment with low prices, they cannot recover the sitution by catching more fish.
      9 pm
      Partly due to the weather but also for other reasons, such as low prices, reduced opportunities and black imports, the industry is suffering severely. It has done so previously and may do so again. It is to be hoped that the difficulties of the industry will be temporary. If so, the extension of this relief on fluctuating profits to fishermen could help at the present time. Not many people would be affected by this proposal. It would involve low cost to the Exchequer. The criteria seem almost exactly the same as exist for the farmers for whom the relief was originally introduced. It seems simple justice that the relief should be extended to fishermen.
      It would give a real boost to the industry's shaken morale. I hope at some stage during the passage of this Bill——
      Mr. Dalyell: I have some sympathy with the hon. Gentleman. I know the problems of Crail and Pittenweem, and the other small fishing ports that he represents. When the hon. Gentleman speaks of low cost, he will surely accept that this is a principle that could be extended further than to fishing and farming.
      Mr. Henderson: I accept that possibility. It has not, however, been suggested previously that the provisions should be extended beyond the criteria that moved the Treasury in 1978 to provide this relief for farmers. I am arguing that the criteria that produced this original relief would apply equally well to fishermen as to farmers in a way that would not apply to the same extent to any other section of the community. I believe that if the Minister could give some encouragement towards the extension of relief in this way it would help the fishing industry in its present crisis.
      Mr. John Horam: I trust that the hon. Member for Fife, East (Mr. Henderson) will forgive me if I do not follow him in his remarks about the share fishing industry in his constituency. Apart from the fact that there are no fishermen in Gateshead, I feel that I should address my remarks to amendment No. 6 proposed by the official Opposition, on which we wish to have a separate vote.
      Before discussing the important points related to the reduced rate band, I should put on record two major charges that the Opposition mount against the Government's tax proposals, particularly in the sphere of income tax. In a complete betrayal of all that the Conservative Party said at the general election, the Government, in their first two Budgets, have increased significantly the real burden of taxation. This has been done at a time when the economy is entering a serious recession. The matter was put well by Mr. Walter Eltis, an economist well known to both sides of the Committee—his views have not been uncongenial to the Government in the past and certainly not particularly congenial to the Opposition—in an article entitled " How Much is Going Wrong? ", which he wrote recently for a private company, Rowe and Pitman.
      Mr. Eltis said:
      " The sad catalogue of the Government's failures with the real economy are extremely well known and little need be added here. Sir Geoffrey is raising taxes and social security contributions 6½ per cent. in real terms in his first two years as Chancellor—1978–79 to 1980–81. His tight monetary policies together with the world recession are expected to reduce the real National Product something like 2 per cent. in same two-year period. He is therefore raising taxation 8½ per cent. faster than the National Product in just two years."
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      That summarises the real effect—even now it is not fully understood by people at large—of the U-turn that has already been executed in respect of income tax. Given all that the Government said that they were going to do—and, to be fair to them, did on income tax in the first Budget—the net effect at the end of 12 months is an increase of 8½ per cent. in the real burden of taxation which ordinary people have to bear.
      As the hon. Member for Truro (Mr. Penhaligon) said in moving his amendment, this must be reflected in the wage claims that come forward in the next round of bargaining. People find themselves under pressure as a result of this increase in taxation. It has happened to all Governments in the past, and this Government do not seem to have learnt that lesson.
      The second charge against the Government's income tax policies and their overall taxation policies is that this large increase in the burden of taxation has been laid mainly on the shoulders of those of modest means and of the poor. The wealthy are the only ones to have gained from the redistribution in the last 12 months. From our point of view that is morally wrong, and it will lead to a growth in poverty on a scale which many of us thought we would never see again. In so far as it does not lead to an increase in poverty, it will certainly lead to hard times for those on modest incomes. It is, of course, with the working poor that we are concerned when we talk about the reduced rate band.
      To be fair to the Chancellor, I must say that in introducing his Budget, he explained that he was abolishing the reduced rate band because he needed the money to finance the full indexation of thresholds—he was perfectly frank about that, but he went on to justify its abolition for quite different reasons, and it has become fashionable in some tax circles to argue in that way. Arguments of the sort that (he Chancellor produced then as a justification for this step are somewhat more flimsy than he pretended.
      The first is that the abolition of the 25 per cent. tax band will save bureaucracy. Unfortunately, that claim was blown up almost immediately when the Inland Revenue witnesses appeared before the Select Committee. The hon. Member for Enfield, North (Mr. Eggar) is nodding his

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      head, and he will know what happened. The Inland Revenue was compelled to admit that the savings would be mainly on clerical staff. In other words, we are once again talking in terms of the chiefs sacking the indians, rather than of securing major savings of administrators. In addition, the savings are small and it is very difficult for a Government who are at some stage, and before long, planning to introduce taxation of unemployment benefit to argue that they want to go very far down the road of saving staff in the Inland Revenue.
      In reading that interesting evidence I noted the passage where the Inland Revenue said that the Treasury was responsible for research into the effects of taxation, whereas the Treasury said that that task was the responsibility of the Inland Revenue. I hope that Treasury Ministers will note this curious disagreement. It is interesting that no one in either of these Departments is responsible directly and solely for this research. This is one area where there could be a small increase in bureaucracy, because this is a vital matter. The Chief Secretary said in relation to one tax increase that it was not important to look at the effect on ordinary people of increases in taxation. That is a deplorable attitude. The ignorance in this area should be rectified by any caring Government.
      The second argument that the Government put forward to justify the abolition of the 25 per cent. tax band was that there were not many low-paid workers in that band. The matter was also discussed at length by the Select Committee. That is an important and interesting argument. No one denies that about 3½ million people pay tax in this band. The Institute of Fiscal Studies—I pay tribute to it for its work in this area, and also to the Low Pay Unit, which has done a considerable amount of work—says that the 3½ million figure is misleading, because "of that total only about 300,000 people are married adult men and therefore the main breadwinners of the family. The institute calculates that of those 300,000, only 10,000, and possibly fewer, are in the poverty trap—that is, people who are eligible for the family income supplement. Therefore, in some sort of magical way the 3½ million figure disappears, and only about 10,000 people
      1156
      are really affected by this change in taxation policy. That is not so much a fiscal study as fiscal sorcery. It is reducing the argument to an absurd degree.
      I shall put the case the other way. To take out of the argument all the other people is equally misleading. Within that 3½ million figure, more than 1 million are aged over 60. The Institute of Fiscal Studies—and others—has argued that these people do not matter so much because their children have grown up, their costs are lower, and therefore a reduced rate band does not matter so much to them. That is a curious argument. These people are still on very low wages. A couple are having to exist on £40 or £50 a week, and even if their children have grown up and left home it is still an extremely low income in this day and age.
      Of the 31½ million total, nearly 1½ million are working wives. They are women who, in the majority of cases, have to work because the main wage of the husband is not sufficient. Therefore, families on very low incomes are suffering, and it is precisely those people that this Government said they wished to help. The previous Labour Government helped. The tax experts are trying to ignore and write off those people. The 300,000 adult males for whom the tax experts have shown some concern are people about whom we should be concerned. They are mainly people in their forties and fifties who are earning only £40 or £50 a week. They are probably people who, for a period during the year, are unemployed and therefore come into tax at a low level even though their earnings when they are employed may be higher than £40 or £50 a week. They are people who are sick for part of a year; people who are on the edge of real poverty. If we look realistically at the figure, we see that a large number of people who are close to the edge of real poverty are involved.
      9.15 pm
      The poverty trap figure of 10,000 is disputed by the Low Pay Unit. It says that if we take the definition of the poverty trap as being those eligible for family income supplement, the figure is not 10,000, as the Institute of Fiscal Studies calculated, but 37,000. That is a difference of a factor of four. I referred to the absence of any real research into this matter by the Treasury. Here is a point of dispute amongst those who have

      1157
      looked into it. We would be interested to know whether the Treasury has any views on the matter. If not, it ought to begin to do more research in this area.
      We are talking about a large group of people on extremely low wages, some of whom are in the poverty trap. We know that the Government have added to the depth of the poverty trap by the increase in charges for means-tested benefits, by their failure to raise the child benefit by as much as they should have done and by other measures. All of these taken together have increased the depth of the poverty trap. That was a matter which, in their manifesto, they said they wished to tackle. " Tackle " is an ambiguous word, but I do not think that anyone who read those sentences thought that they meant that they would worsen the poverty trap.
      The final argument by the Government to justify the abolition of this lower tax band is that, in the final analysis, it is worth more to this group of people to increase the thresholds, as the Government have done, even though they are abolishing the reduced rate band. That is likely to be true in any one year. It is important to increase the thresholds as much as possible and to give the most benefit to the poorest paid in our society. I think that both sides of the Committee would accept that. The trouble is that, as the year goes by, more and more of those people are sucked back into the income tax system by inflation. Therefore, at the end of the year, we are left with everyone paying tax and a tax structure that has been made more unfair by the abolition of a reduced rate band.
      I think that it is not generally realised in the country at large that 97 per cent. of taxpayers are paying tax at the same marginal rate—the standard rate—as a result of the abolition of the 25 per cent. rate and the increase in the thresholds for the higher rate bands. In other words, the Government have almost succeeded in abolishing the progressive nature of our income tax system. We are back to 97 per cent. of people paying the same marginal rate. As a matter of historical fact, that is comparable with the situation in 1909 when Lloyd George first introduced supertax, as it was then called. As a result of the Government's measures
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      we have not progressed in terms of equity and fairness in our tax system since then.
      The argument that the abolition of the reduced rate band will not matter because so few people are involved and because it has so little impact has been overplayed. It is fair to say that we are taking the argument on its strongest ground The reduced rate band, as introduced by my right hon. Friend the Member for Leeds, East (Mr. Healey) when he was Chancellor of the Exchequer, was small in its effect. It was over a range of £750. The Government reduced its effect by the reduction in the standard rate of tax from 33 per cent. to 30 per cent. in their first Budget. The differential was then only 5p in the pound. We are talking about a reduced rate band which was extremely small in extent, but which, even then, was of significant benefit to those who found themselves within it.
      The point is that the reduced rate band gave some relief to those on low incomes, and as it stood it could have been extended. It was there, and it could have been increased. That is the burden of our amendment. The amendment proposes the extremely modest step of pushing it up by a further £250 to £1,000. If the Government had wished to follow their policies, they could have done that.
      The Government's objective is to reduce the standard rate of tax to 25p in the pound over the lifetime of this Parliament. They could do that in two ways: either by reducing the standard rate penny by penny over the whole range of the standard rate, or, if they so wish, by increasing the 25 per cent. rate band by £250, £500 or £1,000 year by year, thereby benefiting those at the bottom end of the tax scale as the years go by. They would still attain the same objective in the end. That is a path that they have not decided to pursue. Instead, they have abolished that useful addition to the equity of the tax system. In so doing they have kept to the letter of indexation, but broken the spirit. It is a mean decision, which will make life harder for many of the 3½ million who pay tax at the reduced rate. In the long run it will be a step away from the fair and equitable tax structure that I should have thought it was in the interests of all parties to achieve over the lifetime of this Parliament.
      Mr. Eggar: I wish to begin my remarks by following some of the comments made by the hon. Member for Gateshead, West (Mr. Horam). I share with him, as do many hon. Members who serve on the Treasury Select Committee, a deep concern about the inadequacy of research into tax matters by the Inland Revenue and the Treasury. I find it an extraordinary omission. I hope that it will be possible to develop a bipartisan approach on that subject. It is alarming how little we know about the way in which the structure of taxation affects individual families and taxpayers.
      There I part company with the hon. Gentleman. He talked, quite rightly, about the lower rate tax band, which benefits, he claimed, the lower paid. I wish to put two points to him. First, many of the lower-paid who were paying tax at the reduced rate band will be taken out of the tax bracket altogether. They will not be paying any tax because of the raising of the threshold and the abolition of that band. Secondly, those who are not completely taken out of the lower rate band but find that they are paying tax on a small proportion of their income at 30 per cent., while they may be paying a higher marginal rate of taxation at the top of their income, may be paying a lower average rate of taxation than they were paying at the reduced rate. Therefore, the net effect of their tax payments may be reduced.
      The argument about the reduced rate band can be put in terms of a balance. It is the argument between, on the one hand, the disadvantage, which I think the hon. Gentleman recognised, that is associated with the reduced rate band through the increased amount of administration, and the very heavy cost of enforcing and collecting reduced rate band tax. The hon. Gentleman dismissed the savings, but we are informed that when the reduced rate band is abolished it will save 1,300 civil servants, and at least £10 million—probably a great deal more—in administrative costs. That is a significant number. It is almost 2 per cent. of the total manning level of the civil servants that the Inland Revenue estimates are employed to take account of mortgage interest relief. I think, however, that the administrative arguments are well known and need no further rehearsal. That is one side; the disadvantage is the administration side.
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      What are the advantages of the band? First, as we have heard, it is argued that the marginal starting rates of taxation are too high. The second argument, as we have also heard, is that the reduced rate band is a way of helping the low-paid. I should like first to comment briefly on the marginal rate argument.
      There is a danger of confusing marginal rates of taxation and average rates of taxation. Thus the person who is just paying basic rate of tax at 30 per cent. is paying a marginal rate of 30 per cent., but his average rate of taxation could easily be well under 5 per cent. That is one difficulty. The differences are not always recognised. Then there is the so-called disincentive effect of the marginal rate of taxation. All that one can say about that is that there is no evidence whatsoever that the introduction of the reduced rate band by the previous Government in any way increased the willingness of the lower-paid to take jobs or that it gave them a net incentive to increase an already low level of pay.
      Mr. Penhaligon: Will the hon. Gentleman say what evidence there is, after one year, that the enormous tax reductions that were given to the very highly paid have increased their productivity or effort?
      Mr. Eggar: With respect, we are talking about the effect at the lower end of the earnings level. The argument across the tax band, and, in particular the higher band, is very different. It is by no means proven. I think that the admirable paper by the Institute of Fiscal Studies effectively debunks the hon. Gentleman's argument that the marginal rates of taxation have in some way acted as a disincentive.
      Mr. J. W. Rooker (Birmingham, Perry Barr): Will the hon. Gentleman give way?
      Mr. Eggar: No. I have given way on this point already. I should like to move on; other Members wish to speak.
      The second point, which possibly has rather more force, is that the taxation system and the reduced rate band in some way help those on low pay and help to end the poverty trap. As has been stated, John Kay did an analysis of people who had benefited from the reduced rate band. I shall go through the figures

      1161
      again. Some 3½ million taxpayers benefited from the reduced rate band. Of those, half were under 21 or over 60. The chances are, therefore, that they were either at the start of their earnings pattern and building up, or that they were at the end of it and were supplementing a pension, be it a State pension or an occupational pension. Of the remaining 1·8 million, 1·2 million were working wives.
      I take the hon. Gentleman's point that it may be that the households concerned depended on the income from the working wife. But even if we accept that, the argument that the hon. Gentleman was advancing was that the reduced rate band was in some way an effective mechanism for ending the poverty trap. I do not think that that is so. The argument about working wives is that we might be marginally increasing the taxation burden on a household which is relatively affluent given a comparison with the level of income we are really talking about tonight.
      9.30 pm
      Some 160,000 were full-time working wives and 130,000 were single people. I think that it is generally recognised that their outgoings are less significant than those who have families to look after. We are left with 300,000 married men who are said to have benefited from the reduced rate band. There are 10,000, or 37,000, who are recipients of the reduced rate band taxation and in receipt of family income supplement. I am not quite sure which definition the Low Pay Unit employed. The fact remains that we are spending £10 million in administrative costs to help either 10,000 or 37,000 individuals.
      Mr. Rooker: Not individuals—families.
      Mr. Eggar: We are spending £10,000, if we accept John Kay's definition, in administrative costs to help one family. By any rational analysis, that cannot be the right way to help people in need and people in the poverty trap. I share the concern of Labour Members. We have to erase the ghastly morass at the bottom of the earnings level that deprives people of incentive. However, the reduced rate band is not the way to do it. It is a measure that was forced upon a reluctant Labour Treasury team by the TUC
      1162
      as part of the pay-off for an incomes policy. It was a price that was too high when it was introduced, and it is a price that is too high now.
      Mr. K. J. Woolmer: The tax changes that the Government introduced have damaged the majority and have brought benefits to only the very wealthy. When we have finished talking about administrative convenience and percentage changes in taxes, the truth is that in discussing the amendment we are dealing with a tax being paid by the so-called 1 million.
      I have been fascinated by the ease with which Conservative Members have managed to play down the effects of an increased margin of tax on those earning £40 to £50 a week when it was so important to introduce large tax cuts for those in receipt of £400 or £500 a week. Tax cuts were to transform the economy. We were told that those on £500 a week needed a tax cut. We are now told that those on £40 or £50 a week can afford to pay a higher marginal rate of tax. It seems that they can afford to pay that higher rate and suffer a loss of benefit that will amount to between 80 per cent. and 90 per cent.
      In the end the argument turns on not having to employ 1,200 civil servants. It is an administrative convenience. Any ordinary wage earner would be appalled to hear the arguments of Conservative Members. They would be appalled to hear the way in which young persons earning £30 or £40 a week, or those of 60 or 61 years of age, can be dismissed. Conservative Members seem to be saying " Let us knock 1 million out, because they are 19 or 20 or 60 or 61. Let us dismiss those people." At the same time a handful of taxpayers are to enjoy enormous tax benefits when they are already earning between £15,000 and £20,000 a year. I find that argument bordering almost on the nauseating when I consider the point of view of the majority.
      Before the general election we heard a great deal about tax cuts and incentives. The basic rate of income tax was reduced by 3p last year. I remember Conservative Members waving their order papers. They thought that it was a breakthrough. However, the Government are now seeking to put 5p on the rate of income tax for the lowest-paid.
      Mr. Eggar: The hon. Gentleman knows that that is rubbish.
      Mr. Woolmer: I am always willing to give way to the hon. Member for Enfield, North (Mr. Eggar). Those on £40 or £50 a week will find that 5p is being put on the marginal rate of tax. Last year Conservative Members waved their Order Papers in triumph, because 3p was taken off the tax of those earning £200 or £300 a week.
      Mr. Eggar: The hon. Gentleman knows that the threshold is being increased. Perhaps he will comment on the amount by which the average rate of taxation has increased for those earning £40 or £50 a week.
      Mr. Woolmer: I shall deal with that point shortly. However, the marginal rate of tax will be increased by 5p in the pound for 2 million people. Before the election we heard that it was important to cut income tax. Is it not farcical that a worker, earning £45 a week, will pay the same rate of tax as a worker earning £250 a week? I am willing to tell the electorate that a worker earning £250 a week does not expect to pay the same marginal rate of tax. We have heard about the administrative problems involved in a fair system of taxation. That almost makes me cry. Of course it will cost money if we are to ensure that a worker earning £300 a week pays a slightly higher rate of tax than a man earning £50 a week. However, that is fairer.
      Mr. Rooker: My hon. Friend was not a Member of Parliament before the election, nor was the hon. Member for Enfield, North (Mr. Eggar). They will not know that between 1974 and 1979 the Conservative Opposition did not speak about an average rate of taxation. The argument always centred around the high marginal rates of tax. It is not insignificant that no Tory Member has said that the average rate of tax is important for the working man—whether low-paid or high-paid—and his wage packet. Tory Members have always bellyached that the marginal rate of tax was the one that hit people, and was the one that they understood. My hon. Friend is right to say that that rate has been increased by 5p in the pound and that it will affect over 2 million people.
      Mr. Woolmer: I agree with my hon. Friend the Member for Birmingham,
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      Perry Barr (Mr. Rooker). Before the election, I went round an engineering works and was told by engineers who had been fed on Conservative propaganda that it was not worth working an extra hour in order to get an extra pound or two in the wage packet, because they would have to pay so much tax. We have heard that it does not matter if a poor person, earning £40 or £50 a week, has to pay a rate of 87 per cent. in the pound. He can go to work for 13p in the pound.
      Before the election, engineering workers pointed out that the Conservative Party queried whether it was worth working an extra hour of overtime. They were not being told about an average rate of tax. In my constituency, an increasing number of workers wish that they had a job, let alone overtime.
      Mr. Nick Budgen: Surely the hon. Gentleman will agree that the Tory Party was talking about personal taxation generally and not just about rates of tax on those earning high wages.
      Mr. Woolmer: Hon. Members use smooth language when talking about taxation generally. The Budget has increased the marginal rate of tax for the 2 million people who are earning £40 or £50 a week. The Government are reducing the marginal rate of tax for those earning £20,000 a year. If a man earns £20,000 a year, a general reduction in income tax apparently means a £20 reduction in tax. If a man earns £40 a week, he will suffer an increase in taxation. Ultimately, people are interested in how taxation affects them.
      Incentives are interesting. Apparently, low-paid workers are not affected by incentives, but high-paid workers are. We see a picture where a person earning £40 or £50 a week is not affected by the incentive to work—until, of course, we begin hearing about the workshy and all the others about whom Conservatives are happy to talk. But apparently someone earning £20,000 a year needs tax cuts to provide him with the incentive to work harder.
      It is hypocrisy that workers earning £40 or £50 a week apparently are not affected by the incentive to work, whereas someone earning £20,000 a year is affected by the incentive to work. The miracle is

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      that so many low-paid people are willing to go to work for the pittance that they are paid. Very often they work in non-unionised small firms which Government supporters are always praising. Typical examples of this category of low-paid workers are women who are working to contribute an additional wage to the family budget.
      It is appalling to hear Conservative Members dismissing married women who go out to work, as though they can be put to the side of the equation in order to whittle down the figure of 4 million to 10,000. What alchemy is this? By what alchemy can we convert 4 million people affected by the 25p in the pound tax bracket into a problem of a mere 10,000 people? The Conservatives dismiss the married women, the young workers and the elderly workers. However, I see nothing in this Bill which says that anyone who is 60 and earning £20,000 a year will not have his taxes cut. We have heard nothing about the age of people who have high incomes. We have heard nothing about married women with high incomes. However, as soon as we come to people earning only £40 a week, Conservatives say " Dismiss married women, dismiss young people and dismiss old people."
      The fact is that 20 per cent. of our work force and 40 per cent. of working women are employed part time. In my constituency—and I am sure that the same is true over most of the country—married women go out to work not for fun but because their earnings make an essential contribution to the family budget. That is most certainly true of the textile towns where the tradition of married women working is very strong and where the average earnings of men are very low. The earnings of married women are a very important part of the family budget.
      I look forward to hearing Conservatives say before the next election to young people, married women, elderly workers and near-pensioners whom they wooed before the last election that when it came to dismissing the 25p rate band they cast them aside as people who were not too affected by income tax cuts.
      Mr. Eggar: Before the hon. Member works himself up into a lather of indignation, perhaps he will tell the Committee what will be the increase in tax on
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      the people whom he describes so dramatically.
      Mr. Woolmer: The effect on every additional £1 earned by a person on £40 or £50 a week is to knock off 5p. That was the kind of figure that Conservatives were saying was the make or break of Britain. That was the great incentive that they intended to offer. It was to reduce——
      Mr. Budgen: Will the hon. Gentleman give way?
      Mr. Woolmer: No. I must push on.
      Mr. Eggar: Answer the question.
      Mr. Woolmer: I have answered it. I shall repeat it for the last time. On a worker earning £40 to £50 a week, the effect is to knock 5p in the the pound off his wage packet. If Conservatives say that 5p does not matter to a worker earning £40, perhaps they will say why it matters so much to a worker earning £20,000 a year. Why did 3p off the standard rate of tax last year cause Conservative Members to wave their Order Papers when it benefited people earning £20,000, whereas 5p in the pound off the tax of the low-paid worker is now to be ignored?
      9.45 pm
      Over the years the tax system has become more and more unfair to the lower-paid worker. It has also increased demands on the average wage earner. In the mid-1950s the starting rate for income tax was 9p in the pound. It rose steadily until the Labour Government reduced it to 25p in the pound in 1978. It has now risen to 30p in the pound. In the mid-1950s a worker had to earn almost twice average industrial earnings to pay the basic or standard rate. A worker now starts paying the standard rate at 42 per cent. of average earnings. Increasing taxation, particularly on the lower paid, has been a steady trend over a number of years.
      The tendency has been to blame inflation and suggest that inflation has pulled people into the tax net. That is only a small part of the reason. Increasing inflation has disguised the increasing unfairness of our method of levying income tax. The real reason, however, why tax has increased for the average and lower wage earner is the increasing amount

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      taken by public expenditure, and over the years we have allowed that increasing share of public expenditure to be financed in a more and more unfair manner. Increased public expenditure has led to a better, fairer and more humane society, which has disguised the increasingly unfair method of levying income tax.
      Conservative Members suggest that it is worth doing away with a few civil servants and having a grossly unfair tax system, but that begs the question. I do not believe that the country at large endorses a system whereby 97 per cent. of wage and salary earners pay the same basic rate of income tax, which applies to someone earning £40 a week, and to someone earning £250 or £300 a week. No Government can argue that that is fair. Our tax system has become increasingly unfair.
      To reiterate what my hon. Friend the Member for Gateshead, West (Mr. Horam) said, that unfairness is the mark of this Government. At a time of reducing national income and increasing hardship they are willing to introduce a further unfairness. They have decided to increase the marginal rate of tax upon the lowest paid while at the same time giving the biggest tax cuts to the highest paid. That unfairness is losing the Government the hearts and minds of the country. They are taxing unemployment and sickness benefit but are unwilling to tax perks. They are prepared to pay up to £2 million to find the head of one nationalised industry but ignore the problems of those earning £40 a week. They leave excess bank profits untaxed while the average person suffers the consequences of high interest rates. When they need to carry the nation with them they are pushing up the price of gas faster than is necessary, when millions have been persuaded to use gas.
      It is the culmination of all this unfairness that is causing people to challenge the Government's policies. The Government tell people that wage moderation is necessary, but they have doubled VAT and are forcing up council house rents and mortgages. This amendment will at least enable the Government to show people that in seeking wage moderation and control of inflation they intend to use the tax system fairly so that those on
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      the lowest income will not be asked to bear the brunt of the tax cuts.
      Mr. Dafydd Wigiey: We seem to be getting into a tangle, because we are discussing three or four different aspects of the same problem. I regret that, because this is an important matter. I speak as a member of the Standing Committee which dealt with this question at the time of the Rooker-Wise amendment. I regret the fact that the Government should, although sticking to the letter of the law, be doing their damnedest to take away with one hand what they are giving with the other because they are required to do so.
      The four aspects of this matter are interwoven. There is the marginal impact of taxation at different levels; there is the question of which people are caught in the tax net and which are taken out of it; there is the question of the right balance in the changes made in the Budget in the tax bands at different levels; and there are the revenue implications, which we cannot escape. If the most worrying aspect is the number of civil servants who have to administer this scheme, the immediate answer seems to be to take as many people out of tax entirely rather than to push them on to a higher rate.
      I should like to take up some of the comments made by Conservative Members, sometimes from a sitting position, during the last few speeches from this side of the Committee about the effect of the changes. The indexation of the personal allowances is intended to ensure that they retain their real value. A single person's allowance has been increased by £210 from £1,165 to £1,375—an increase of 18 per cent. The effect of inflation is, regrettably, likely to be slightly higher than that—nearer 20 per cent.—so a single person will hardly retain the value of that allowance. If that is so and a single person will get nothing over the effect of inflation, it is surely wrong to say that that money is available to compensate him for the increase in the lowest level of tax from 25 per cent. to 30 per cent.—yet that, essentially, is what Conservative Members have suggested.
      It is essential that as many people as possible are taken out of the tax net, because income tax hits at an unacceptable level. After the war, I believe, income tax was first paid at a level of

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      about 110 per cent. of average male industrial earnings. Those earnings today are about £90 to £100 a week. We would therefore be talking about the income tax beginning at about £5,000 a year. That shows how the position has been eroded over the last two or three decades.
      The Rooker-Wise amendment, the indexation of the thresholds, was intended to ensure that at least one of these loopholes was closed—that whereby there was an inevitable erosion year after year, which increasing inflation had achieved since the war. It would be necessary to take specific steps to achieve any additional benefit and regain the lost ground, but at least we would not be allowing this erosion to continue and people would not be brought into the tax net who should never have been there on any acceptable and progressive system.
      Regrettably, although the letter of that amendment is being followed, people come on to a rate of 30 per cent. immediately they start paying tax. I should like as many resources as possible applied to taking people out of tax entirely, but that is not being done. The £1·8 billion cost of this change was explained away in a cavalier style. That was unacceptable.
      I turn now to the balance—and I should like to take the Chief Secretary with me on this point—between the provisions at different levels of taxation in the package of changes. In the Budget the Chancellor tried to make out that this package was very fair to people on low incomes because of the relatively greater effect of the threshold increase for them than for those on higher incomes.
      Let me compare two single people. The first last year earned £1,915; the other earned £25,000. For argument's sake, let us say that the only allowance that they both enjoyed was the personal allowance. Let us assume that both of them have a salary increase of 16·5 per cent. That means that the person on low pay would be earning £2,231—that is the £43 a week referred to by the hon. Member for Truro (Mr. Penhaligon)—and his increase in taxation would rise from £187·5 to £256·8, an increase of 37 per cent. in his tax when the increase in his net take-home pay after tax is 14·3 per cent only.
      1170
      Compare that with the man earning £25,000 a year. His tax increase is 18·8 per cent. only compared with the 37 per cent. for the man on the low income. The take-home pay of the man who last year earned £25,000 goes up by 15 per cent. compared with the 14·3 per cent. for the man on the lower level of pay. So taking the package as a whole the effect of the increase in the threshold at the lower end, together with the changes in the bands plus the change from a 25 per cent. rate to a 30 per cent. rate of taxation, is that the changes are substantially more beneficial for the man on £25,000 a year than for the man earning £1,915.
      Once again, the Government are deliberately helping those on the highest levels of pay and penalising, relatively, those on lower levels of pay. This is a highly regrettable step.
      Mr. Henderson: The hon. Gentleman has given us a specific and interesting example. Will he complete his illustration by saying what proportion of the income earned by the two categories of person he cited was left to them after tax?
      Mr. Wigley: Of course, the proportion was much larger for the man on the lower income. That is the theory of a progressive income tax system. But the change we have witnessed has eroded that. The changes hit harder the man on the lower income. He is the man who is spending his every penny on the basic necessities of life whereas the man on £25,000 a year has a little bit in hand after providing for the basic necessities to keep him in food, clothing and housing. Surely Conservative Members must accept that.
      I should have thought that hon. Members would regret this implication in the Budget. Perhaps the meaning has not yet got entirely home to them. But when this message eventually comes home surely it must be a matter of regret to Conservative Members that a person who now earns £43 a week has had to bear an increase of 37 per cent. in the tax that he pays. That must have a psychological as well as a real effect.
      Mr. Douglas Hogg: In order to complete the picture that the

      1171
      hon. Gentleman is painting, will he tell us how many taxpayers, as a proportion of the whole, are in the two levels of income that he has postulated—£25,000 and £1,915 a year?
      Mr. Wigley: Of course there are many more people at the lower end of the scale. We all know that. There are 4 million people on a low level of income, and I have no doubt that there are a few hundred thousand at a high level. So what? Is fairness governed by how many people are affected? Is that the principle on which Conservatives base their philosophy?
      Mr. Hogg: Yes.
      Mr. Wigley: We suspected that, and now we know. I hope that that goes on record and is often quoted.
      10 pm
      I turn to the revenue implication. I part company with the hon. Member for Truro. He proposes a change of £1·8 billion in Government income. I defend public expenditure because it means
      1172
      schools, houses, roads and homes for the disabled and elderly. Public revenue must be achieved. It is not enough to lump it on to the public spending borrowing requirement. Other tax increases are acceptable in order to compensate for such expenditure. I support higher rates of income tax and higher indirect taxation on spirits and tobacco. I do not think that tax increases on petrol are acceptable because petrol has gone up enough already. I am sorry that the hon. Member for Truro suggested such an increase.
      The Government must answer for the way in which they have handled the Rooker-Wise amendment. They have gone along with the letter of it but have done their darnedest to avoid the spirit of it. There is a good case for the Rooker-Wise amendment. It was accepted by Conservatives when they were in opposition. I hope that the Government will keep their eye on the purpose of that amendment. I hope that they will ensure that any relief in direct taxation will be used almost entirely, if possible, to take people out of the income tax net.
      Mr. Dalyell: I hope that the Government will not complain too much if we take a little more time, because their Back Benchers have used a good deal of the time. I have two questions to ask arising from a brief that many hon. Members have received from the Low Pay Unit and from constituency experience. Chancellors of the Exchequer have raised the nominal value of personal allowances in almost all Budgets, but their real value has been allowed to fall. The low-paid workers taken out of tax by the increase in allowances in the latest Budget will soon be dragged back into taxation by inflation. We all know what bitterness that involves.
      The Chancellor's assertion that the low-paid will be compensated for the loss of the reduced rate band by the increase in allowances is relevant only if the allowances are increased in real terms—that is, by more than enough to compensate for inflation. The Rooker-Wise indexation is not intended to increase the real value of allowances. It aims to make good the loss in value since the previous Budget. Implementation of Rooker-Wise does not reduce the number of taxpayers on overtime. It merely ensures that the numbers subject to tax in 1980–81 are the same as in 1979–80.
      The Low Pay Unit says that it is misleading to imply that the low-paid are being compensated by the implementation of Rooker-Wise. By the time of the next Budget there will be more, not fewer, low-paid workers paying tax. They will all be paying at a rate of 30p in the pound if clause 17 is accepted. Does the Treasury accept that statement from the Low Pay Unit? If it does, it has consequences for all our constituents.
      My second question is of a different nature. With my hon. Friends the Members for Glasgow, Shettleston (Mr. Marshall), Glasgow, Kelvingrove (Mr. Carmichael) and Motherwell and Winshaw (Dr. Bray), on Thursday I visited the tax centre at East Kilbride. Once again we were extremely impresed by the efficiency with which the centre is run. It was, as the Minister knows, to have been the pioneer of 10. As he knows equally well, the development at Bootle did not go ahead as many people wished at the time. The system was changed. The East Kilbride centre is, therefore, still unique in
      1174
      Britain. It is a tax centre, employing 2,000 people, with the most modern computer facilities. Anyone who sees operators examining tax returns on screens and the facility that enables telephone calls to be made to complainants within minutes must be impressed. I should like to say, on behalf of my colleagues, that we were extremely impressed by the efficiency and courtesy of the staff. I do not say that none of the complaints that were rife five or 10 years ago about Centre One still exists, but there are certainly far fewer.
      I accept that the Revenue has to take its share of personnel cuts. What is the effect of raising the threshold either in the Centre One context or in the context of the new computer lines that the Revenue is trying to introduce in most areas? This is, in a sense, a mundane, logistical question. The answer, however, would indicate the extent to which we should support the raising of the threshold simply on the grounds of saving Inland Revenue time, which will be difficult enough when the Revenue cuts take place if there are not to be concurrent cuts in the functions of the Revenue. I hope that the Minister has grasped the point of the question.
      The Minister of State, Treasury (Mr. Peter Rees): We have had an interesting debate, which carries echoes of what occurred in the last two years of the Labour Administration. I am tempted to say that the debate may have marked, if not the efflorescence, at least the re-florescence of the Lib-Lab pact. It may turn out to be of short duration and to be fragile. All things are perhaps possible in the aftermath of Wembley. To hear Opposition Members arguing so eloquently and persuasively for the restoration of the lower rate band takes me back, as I am sure it did hon. Members on both sides who had the privilege of serving in Standing Committee upstairs, to debates that took place not only on the indexation of thresholds but on the question of the reintroduction of the lower rate band.
      Mr. Dalyell: We had an interesting day at Wembley.
      Mr. Rees: I wish that I had been there. I do not think that I would have qualified for admission to that great hall.

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      I shall be studying carefully the policy document that emanates from the hon. Gentleman's great party as a consequence of those debates.
      The Liberal Party, represented by the hon. Member for Truro (Mr. Penhaligon), has evidently shied away from amendment No. 4, designed to reduce the basic rate from 30 per cent. to 28 per cent. I suspect that it acted with a certain wisdom. On a rough, crude view, the amendment would have cost about £3 billion. What is £3 billion between friends?
      The hon. Member for Truro will know that it is the stated objective of this Government, as my right hon. and learned Friend the Chancellor of the Exchequer has said on more than one occasion, to bring down the basic rate to 25 per cent. That will not completely eliminate, but it will do something to ameliorate, the problem of the marginal rate for those who pay tax. This is a real problem, which the Government recognise. We recognise it in Opposition and we recognise it in Government. We would not shy away from the problem.
      The hon. Member for Truro, representing the Liberal Party with such elegance, has chosen to concentrate his fire on the lower rate band. The hon. Gentleman presses the Government to reintroduce the lower rate band of 20 per cent. as opposed to 25 per cent., as it was last year and in previous years, on the first £750 of taxable income. The cost would be £1·8 billion, and since the hon. Member was prepared to toss £3 billion across the Floor of the Committee with such ease he is perhaps unimpressed by the cost. However, these are factors that any Administration must take into account.
      On the other hand, the Labour Party, represented by the hon. Member for Gateshead, West (Mr. Horam), with his customary persuasiveness, pressed only for a lower rate band of £1,000 at 25 per cent. The cost would be somewhat more modest, at £1·175 billion. Again, there is an administrative cost, and I can assure the Opposition, especially the hon. Member for Batley and Morley (Mr. Woolmer), that although this may not be the determining factor in our minds it is a factor nevertheless. I have heard rather more thoughtful speeches from the hon. Gentleman
      1176
      in the Standing Committee than the speech that he made this evening. Again, Wembley had obviously gone a little to his head.
      Mr. Bob Cryer: It was a good speech.
      Mr. Rees: Certainly the hon. Gentleman carried his hon. Friends with him. If he had not carried his hon. Friends, he would have carried nobody. He certainly evoked no favourable response from the Conservative Benches. I am delighted that he should have received a warm commendation from his hon. Friends below the Gangway, but it is the duty of the Committee to analyse the problem a little less emotively and more carefully than the hon. Gentleman was disposed to do on this occasion.
      I should like to set the debate in its context—which the hon. Members for Truro and Gateshead, West did not do—by reminding hon. Members how and when the lower rate band was first abolished. In 1969 there were two lower rate bands—at 4s. and 6s. in the pound. On that occasion Mr. Roy Jenkins replaced them with one rate band. He took a further step in 1970 and eliminated that.
      Without being arrogant, we can say that we are following in the steps of Mr. Roy Jenkins. I cannot see that on that occasion—neither I nor the hon. Member for Gateshead, West was in the House then, but I have studied the reports of the debates—any Labour right hon. or hon. Members saw these as steps away from a fair and equitable tax system.
      Mr. Penhaligon: Will the Minister confirm that at that time the basic threshold of tax as a percentage of average earnings was 57 per cent., whereas now, under the Government's proposal, it is 42 per cent? Does that not make a substantial difference to the argument?
      Mr. Rees: Those percentages must be set against the background of the earned income relief then provided.
      This is not the first time that hon. Members have had to debate this issue, and, as sometimes happens, there has been a remarkable turn-around in the positions adopted by Members on both sides.
      Perhaps I may remind the House of what the right hon. Member for Llanelli (Mr. Davies) said on this question, because he put his finger on the dilemma

      1177
      that often faces Governments. That dilemma, which has faced consecutive Administration, which, to put it at its mildest, have been a little short of cash, has been to decide whether to devote the money available to raising thresholds or to do something about intermediate lower rate bands. The right hon. Member for Llanelli said in 1977:
      " If the cost of the reduced rate band had to be met by keeping the tax threshold lower than it would otherwise be, it would widen the poverty trap by enlarging the overlap between tax liability and entitlement to means-tested benefit."
      On that day words of wisdom fell with great profusion from the right hon. Gentleman. He also said:
      "A reduced rate band as distinct from an increase in the tax threshold would not give most help to those on the smallest incomes For the man on the tax threshold complete exemption for a few pounds is worth more than a lower rate of tax on a larger band of income which he has not got."—[Official Report. 3 March 1977; Vol. 927, col. 747–8.]
      Those are wise words, and the sentiments behind them have informed our thinking. My hon. Friend the Member for Enfield, North (Mr. Eggar) queried the quality of advice that Treasury Ministers received. Perhaps he will recognise that there is some consistency in the advice given to Ministers on this subject.
      10.15 pm
      Up to 1977 the Labour Administration were consistent in their approach. They followed the view of Mr. Roy Jenkins, and we would not dissent too strongly from their conclusions. We believe now, as they believed then——
      Mr. Rooker: Will the Minister refresh my memory? From what he said, it would appear that in 1978, when the lower rate band was introduced, the Tories voted against it. I may be wrong, but I do not remember the then Oppositioin voting against the introduction of the lower rate band.
      Mr. Rees: The hon. Gentleman has taken part in many Standing Committees on Finance Bills, and he must know that we have consistently opposed the reintroduction of the lower rate band because we felt it was a misapplication of fiscal resources. The overall thrust of our criticisms was that the money would have been much better devoted to raising the threshold or reducing the basic rate.
      1178
      I should like to remind the hon. Gentleman and the Committee that the then Chief Secretary, the right hon. Member for Heywood and Royton (Mr. Barnett), said in 1978, when the then Government changed their position, that there was a delicate choice between raising the thresholds and reintroducing a lower rate band. For reasons that we can all now recall, the Government were under pressure from their friends on the Liberal Benches and from the trade union movement, and they decided that perhaps the latter course was a proper use of fiscal resources.
      We have formed a different view. Our view is consistent with the view that the Labour Party held until 1978. We believe that it is better and fairer to devote resources to keeping the 1,300,000 taxpayers out of tax. It is not true, as the hon. Members for Batley and Morley and for Gateshead, West whom I did not follow clearly on that point, said, that it widens the poverty trap. It is true—and I concede this at once—that for a narrow range of taxpayers it may deepen it.
      But politics—and it does not need the percepliveness of Aneurin Bevan to say it—is about choice. If resources are limited, one has to decide whether it is better to keep 1,300,000 people out of tax—I hope I shall carry the hon. Member for Birmingham, Perry Barr (Mr. Rooker) with me on that—than to fritter away these resources—I pick my word carefully—by reintroducing or maintaining the lower rate band. Compelling evidence on that—I dare say Labour Members would not take my uncorroborated testimony—was given to the Taxation Sub-Committee of the Treasury and Civil Service Select Committee by Mr. John Kay, who said:
      " We have found little substance in any of the arguments in favour of the reduced rate band. It does not help the low paid. It does not significantly increase incentives either for those in work or as between those in work and those out of work. Few of those who were in the reduced rate band were in the poverty trap, and few of those who were in the poverty trap were in the reduced rate band."
      There, succinctly and concisely and, I like to think, relatively impartially, Mr. John Kay demolishes the case for the reduced rate band. Nothing that has been deployed today has persuaded me that his evidence on that point was wrong.

      1179
      The hon. Member for Truro said that the cost of maintaining the lower rate band and, presumably, putting up the threshold could be covered by excise duties. That is a possible option. However, I think that he dismisses too cavalierly the possible impact on the retail price index. We have heard a certain amount from the Liberal Party and from Labour Members about the impact of that. Alternatively, the hon. Gentleman said that we could perhaps have a larger public sector borrowing requirement, but he did not take the Committee into his confidence about what that would do for interest rates. I do not think that he had addressed his mind too closely to some of the practical problems of maintaining the lower rate band and at the same time increasing the tax threshold.
      Mr. Penhaligon: I think that in reality the Government have honoured the Rooker-Wise amendment. The real question must be: what will they do next year; what will they succeed in abolishing next year to raise the £1,000 million that I still contend they have fiddled from the low-paid? They have paid for the Rooker-Wise amendment by abolishing the lower rate band. What will they do next year?
      Mr. Rees: The hon. Gentleman is a little ambitious and is widening the debate. Let us debate next year's Budget when it comes. The abolition of the lower rate band will find only £748 million, while the cost of increasing the threshold is over £1,700 million. The hon. Gentleman is right to a degree. It would not have been possible fully to index the personal allowances without this step unless we were to have recourse to the kind of measures that he canvassed but was not prepared to argue to a conclusion. This is the stark choice before the Committee. Those who are disposed to vote for the preservation of the lower rate band are morally obliged to ask themselves how they would find the extra £1 billion.
      I could hardly flaw the analysis put forward by the hon. Member for Caernarvon (Mr. Wigley), but his conclusion did not seem to flow from his analysis. The hon. Gentleman, who is a trained accountant, made a notable contribution,
      1180
      but he got off course when he came to his conclusion. We all know why.
      Mr. Wigley: Does the hon. and learned Gentleman accept the comparison that I made that, in the circumstances that I quoted, a man on a low income will be paying 37 per cent. more taxation this year, whereas a man on a high income will be paying only 18 per cent. more taxation?
      Mr. Rees: A feature of any progressive tax system—this point was made by various hon. Gentleman—is that, unless we tailor our reliefs in a curious way—the previous Labour Government managed it from time to time—if we give an across-the-board cut, if we raise the thresholds, those who pay tax at the highest marginal rate will derive the greatest benefit.
      The hon. Gentleman may say that we should not have a progressive tax system. I recall that a previous Liberal spokesman, Mr. Gladstone, argued strenuously against a progressive tax system, but the Government changed their tune when the then Chancellor of the Exchequer, who represented Caernarvon, introduced his Budget in 1909 or 1910. There is a respectable intellectual case for not having a progressive income tax system, but we need not debate it on this occasion. I should be delighted to do so, but that would detain the Committee too long.
      My hon. Friend the Member for Fife, East (Mr. Henderson) raised some interesting points about averaging. I hope that he will not think me discourteous if I say that they do not, strictly speaking, arise on this clause. He gave an example of a constituent earning £30,000 in one year and £800 in the next year. At least he would have benefited at some point from the cuts in the higher rates that my right hon. and learned Friend introduced last year. It would not all have been pure pain for him. My hon. Friend is right to say that in principle there are others, apart from farmers, who exhibit some of the same characteristics and who are dependent on seasonal fluctuations, such as hoteliers and boarding house keepers. I note my hon. Friend's remarks. Perhaps we shall be able to debate the matter in greater detail on some other occasion.
      The hon. Member for West Lothian (Mr. Dalyell) always produces at least two

      1181
      penetrating questions—although whether they are entirely relevant to the subject of the debate is a matter for the Chair. I shall attempt to respond to his questions. He raised certain points that he culled, I assume, from a variety of papers circulated by the Low Pay Unit. I have read at least one paper in depth. Its conclusions depend on certain assumptions about the increases in earnings. Again, it would be wrong for me to anticipate my right hon. and learned Friend's next Budget. Much will depend on the extent to which we are able to devote resources to indexing, or, more than indexing, personal allowances. We have chosen this year to concentrate rather limited resources on keeping 1,300,000 people out of tax.
      I emphasise that there has not been full indexation for the higher rates. If facile points are to be made about a bonanza for the rich—I seem to recall that the Low Pay Unit said something on those lines—it is only fair to draw attention to the fact that the higher rate bands have been indexed to the tune of 11 per cent. So much for that slightly partisan comment by the Low Pay Unit about rich pickings. We could all make that sort of comment, but it does not stand up to close analysis.
      The other point raised by the hon. Gentleman related to administrative savings if the thresholds were raised, as we proposed. I cannot estimate exactly the number of man-years that will be saved by keeping 1,300,000 people out of tax, but there will be a saving. If the hon. Gentleman wishes me to give him a specific answer I shall have an estimate prepared and will write to him. It must be self-evident that if the number of people are kept out of tax the administrative costs of running the system will be that much less.
      Mr. Hooley: The Minister keeps saying that 1,300,000 people will be kept out of tax. That depends entirely on the appalling drift of inflation and the drift of incomes.
      Mr. Rees: The hon Gentleman is not listening closely to my remarks. I am talking about this year. The Low Pay Unit's proposition depends on assumptions made about increases in wages. That is naturally one of the factors that we shall wish to consider when deciding
      1182
      by how much we can increase the thresholds next year.
      Mr. Woolmer: Will the Minister tell the Committee by how much the low-paid wage earner's earnings will have to rise to bring him back into tax?
      Mr. Rees: I am rather bad at mental arithmetic, but I estimate the figure to be about 18 per cent. Let us wait and see. It will be a factor that will weigh strongly with this Administration. I do not know whether it weighed strongly with the Labour Administration. I do not think it did, because they were faced with this choice and chose to reintroduce a lower rate band. I have given the evidence of Mr. Kay in case my evidence was not entirely acceptable to the Committee, and to demonstrate that it was largesse directed at the wrong target. It was fiscally misdirected, and it was administratively wasteful.
      10.30 pm
      In a year when there are constraints on what the Government can do, I believe that we are directing the cuts to exactly where they should be directed—to raising the threshold. We believe that that will do far more for the lower-paid, for whom Opposition Members affect, no doubt genuinely, so much concern. But the concern is not confined to the Opposition Benches. It is felt equally acutely on the Government side of the Committee. We believe that we are doing a greater service to the lower-paid than we could do by reintroducing the lower rate band.
      I hope that Opposition Members will, on reflection, see the force of what I am saying. I hope that they will not feel obliged to press these amendments to a Division, because by so doing they will have demonstrated either that they have not analysed the problem or that they are not concerned—
      Mr. Dalyell Mr. Dalyell rose——
      Mr. Rees: No, I shall not give way. I am coming to a conclusion.
      By so doing, Opposition Members will demonstrate that they are not really concerned with keeping out of tax the lower-paid and that they are not really concerned with directing fiscal benefits where they should be directed in a difficult period.

      1183
      On that basis, I hope very much that neither the hon. Member for Truro nor the hon. Member for Gateshead, West will feel obliged to press their amendments to a Division.
      Mr. Dalyell: Before the Minister sits down—normally I would not bother him with such a point—perhaps I may remind him that he made an offer of an assessment, in the form of a letter, of precisely what the staff consequences would be. If it were unnecessary work I would not, as he knows from proceedings on previous Finance Bills, ask him to do it. But certainly, in the light of the vist of some of my colleagues and myself to Centre One, it seems to me highly relevant that Treasury Ministers should have before them precisely this information. Therefore, I should like to accept the Minister's offer to make such an assessment and, at his convenience, to write to me.
      Mr. Rooker: I shall not detain hon. Members for long. However, we are in Committee and, therefore, it is easier in some ways for Ministers on the Floor of the Chamber to get away without the normal cut and thrust that takes place in Committee Rooms upstairs, where they have to rise again and answer questions. Ministers have been noticeably lacking in doing that today.
      We have had many bogus arguments from the Minister of State. He has not answered a single point put by my hon. Friend the Member for Batley and Morley (Mr. Woolmer) about the 5p in the pound increase on the extra £1 of earnings that the low-paid will have to pay in this tax year.
      I want to make only two points. First, I do not accept for a moment that it was necessary to abolish the lower rate band in order to pay for the amendments that Audrey Wise and I successfully moved to the Finance Bill 1977. I resent this abolition, which involves a wholly bogus argument. I can find 10 places from which the money can be obtained in tax concessions that the Government have given away in this Budget, not to the low-paid but to the better-off.
      As is well known by hon. Members, but not known outside Parliament, we cannot table amendments to the Finance Bill in order to make clear where we would obtain the money. We are prevented by the rules of the House of
      1184
      Commons from doing that. It gives Ministers an argument and an excuse to say " Where would you get the money from? You have tabled no amendments to say where." Of course we cannot put such amendments on the Amendment Paper, but that does not mean that our arguments do not have validity.
      The Minister kept referring to the numbers of people being taken out of tax. But they will be taken out for a few transient months. They will be back in again. The figure this year will be 11 per cent., not 18 per cent. The figures are there. There are more people paying tax this year than there were last year and the year before. The number of taxpayers is increasing, even though the effect of the indexation provision has existed for the last couple of years. The Minister cannot say " We have taken 1·3 million out of tax ", as the Conservatives argued on the 1979 Budget. It is a bogus argument, and the low-paid know that.
      I shall reserve other remarks on that line for tomorrow, or when we reach clause 23, because of what the Government are contemplating there. Again they will use as an excuse the so-called Rooker-Wise amendment to benefit the higher rate taxpayers, who already get a benefit from the indexation of the thresholds over and above, in cash terms, what the average taxpayer gets. Tomorrow or the day after the Government will seek to move an amendment which, if implemented, will benefit the well-off to a greater extent than I would have thought even they would have contemplated.
      The Minister has said that politics are priorities. He means that the Government have decided to screw the 10,000 or 40,000 families—he does not seem to care which it is—that we are discussing. At the end of 1979 there were 80,000 families in receipt of family income supplement. There were 63,000 paying income tax. Of the 63,000 about 49,000 were paying tax at 25p in the pound. The Low Pay Unit has estimated that 12,000 of the 49,000 will be removed from tax by raising the threshold. That leaves 37,000 families in a poverty trap that will be deeper. As the Minister said, it will be deeper and not wider.
      What are we saying to those families? The brief of the Low Pay Unit states:
      " What does this mean for those in the ' poverty trap '? Previously there were about 50,000 families "—

      1185
      I was talking of 49,000—
      " who would stand to lose 25p in tax out of each additional pound earned. That extra pound would have meant an extra 6½p in national insurance contributions together with a reduced eligibility to FIS of 50p. From an extra pound earned, the family could expect to be only 18½p better off, even if we ignore the potential loss of housing rebates and other benefits. The result of the abolition of the reduced rate band of tax will mean that for an estimated 37,000 families, an extra pound earned could mean only 13p more to spend."
      There will be only 13p more to spend, not 18½ p. These families will be paying an extra 5p in the pound income tax on every extra pound that they earn by way of overtime, extra jobs or bonuses. That fact cannot be denied. These are the people who are at the sharp end of the Government's policy. Nearly 40,000 families will have their income tax rate increased by 5p in the pound. That was not in the Tory Party manifesto. That was not in any of the speeches made by that heartless woman who is now the Prime Minister prior to the general election last year.
      We are talking of 37,000 or 38,000 families. There are 400 to 500 of these families in every constituency represented by Conservative Members as well as in the constituencies represented by my hon. Friends. They will have to argue the Government's case before their constituents. My hon. Friends and I will be able to argue the case because we shall oppose the Government's policy. It will be interesting to hear how Tory Members argue it in the years to come, or when the families concerned realise what has happened. What will be their response when the media report that income tax has been increased for thousands of such families whereas it has been decreased at the margin, and decreased substantially, for those on higher earnings?
      The Low Pay Unit states:
      " The abolition of the RRB "—
      that is, the reduced rate band—
      " will therefore intensify the effects of the poverty trap for an estimated 37,000 families. These estimates "—
      this is the issue that the Government have to answer—
      " differ significantly from other independent estimates published before the Budget, and were based on Family Expenditure Survey (FES) data. Part of the reason, we suspect,
      is that the FES is a small sample representing one in 2,000 or 0·03 per cent. of all households) which can provide misleading results. Our own estimates are based on a 10 per cent. sample of FIS recipients carried out by the DHSS."
      The estimates of the Low Pay Unit are based on a sample survey of 10 per cent. of those on family income supplement. It was carried out not by National Opinion Polls Ltd. or by the Tory Central Office, but by the Department of Health and Social Security. Those results are based on a much larger sample and must give a more reliable estimate of the number of families affected at the sharp end.
      Many Conservative Members have dismissed the 3 million people who will suffer an increase in tax of 5p in the pound because the figure includes women who work part time and youngsters of 18 and 19 years. However, many of those youngsters may be married. They may be trying to put together a home. The figure includes people aged over 60. The Tories have dismissed such people. Let us debate those who are left, the 40,000 families at the sharp end. Is that figure correct? The Low Pay Unit has used the Government's figures. It has not used the figures of some razzmatazz outside body.
      My hon. Friend the Member for Gateshead, West (Mr. Horam) made it clear that no research has been done on the effects of taxation. The Treasury says that the Inland Revenue is responsible, and the Inland Revenue says that the Treasury is responsible. Perhaps the Government have subcontracted the work to one of the fringe banks, with which some members of the Government are associated. The figures were based on Government information. The Minister should explain either today or tomorrow, why the Low Pay Unit is wrong. That is his only case. If he can prove that it is wrong, some of his words may make some sense. He will have to prove that it is wrong before Opposition Members accept the Government's arguments.
      Question put, That the amendment be made:—
      The Committee divided: Ayes 116, Noes 154.

      Division No. 329]

      AYES

      [10.42 pm

      Allaun, Frank

      Archer, Rt Hon Peter

      Bennett, Andrew (Stockport N)

      Alton, David

      Barnett, Guy (Greenwich)

      Booth, Rt Hon Albert

      Anderson, Donald

      Bern, Rt Hon Anthony Wedgwood

      Boothroyd, Miss Betty

      Bray, Dr Jeremy

      Graham, Ted

      Park, George

      Callaghan, Jim (Middleton & P)

      Grant, George (Morpeth)

      Parry, Robert

      Campbell-Savours, Dale

      Grimond, Rt Hon J.

      Penhaligon, David

      Carter-Jones, Lewis

      Hamilton, James (Bothwell)

      Prescott, John

      Clark, Dr David (South Shields)

      Hamilton, W. W. (Central Fife)

      Rees, Rt Hon Merlyn (Leeds South)

      Cocks, Rt Hon Michael (Bristol S)

      Haynes, Frank

      Richardson, Jo

      Cowans, Harry

      Heffer, Eric S.

      Roberts, Ernest (Hackney North)

      Crowther, J. S.

      Hogg, Norman (E Dunbartonshire)

      Roberts, Gwilym (Cannock)

      Cryer, Bob

      Homewood, William

      Rodgers, Rt Hon William

      Cunliffe, Lawrence

      Hooley, Frank

      Rooker, J. W.

      Cunningham, George (Islington S)

      Horam, John

      Rowlands, Ted

      Cunningham, Dr John (Whitehaven)

      Howelis, Geraint

      Sever, John

      Dalyell, Tam

      Hughes, Robert (Aberdeen North)

      Silverman, Julius

      Davies, Rt Hon Denzil (Llanelli)

      Hughes, Roy (Newport)

      Skinner, Dennis

      Davis, Terry (B'rm'ham, Stechford)

      John, Brynmor

      Snape, Peter

      Deakins, Eric

      Johnston, Russell (Inverness)

      Soley, Clive

      Dean, Joseph (Leeds West)

      Jones, Rt Hon Alec (Rhondda)

      Spearing, Nigel

      Dewar, Donald

      Kilroy-Silk, Robert

      Spriggs, Leslie

      Dixon, Donald

      Lamborn, Harry

      Steel, Rt Hon David

      Dormand, Jack

      Leadbitter, Ted

      Thomas, Dafydd (Merioneth)

      Douglas, Dick

      Leighton, Ronald

      Tilley, John

      Dubs, Alfred

      Lewis, Ron (Carlisle)

      Tinn, James

      Duffy, A. E. P.

      Litherland, Robert

      Torney, Tom

      Dunwoody, Mrs Gwyneth

      Lyons, Edward (Bradford West)

      Wainwright, Edwin (Dearne Valley)

      Eadie, Alex

      McCartney, Hugh

      Wellbeloved, James

      Eastham, Ken

      McKay, Allen (Penistone)

      Welsh, Michael

      Ellis, Raymond (NE Derbyshire)

      MacKenzie, Rt Hon Gregor

      White, Frank R. (Bury & Radcliffe)

      Evans, loan (Aberdare)

      McNamara, Kevin

      White, James (Glasgow, Pollok)

      Evans, John (Newton)

      Magee, Bryan

      Wigley, Dafydd

      Ewing, Harry

      Marshall, Dr Edmund (Goole)

      Wilson, Gordon (Dundee East)

      Field, Frank

      Marshall, Jim (Leicester South)

      Wilson, William (Coventry SE)

      Flannery, Martin

      Mikardo, Ian

      Winnick, David

      Fletcher, Ted (Darlington)

      Millan, Rt Hon Bruce

      Woolmer, Kenneth

      Foot, Rt Hon Michael

      Morris, Rt Hon Alfred (Wythenshawe)

      Foster, Derek

      Morris, Rt Hon Charles (Openshaw)

      TELLERS FOR THE AYES:

      Garrett, John (Norwich S)

      Morton, George

      Mr. A. J. Beith and

      Gourlay, Harry

      O'Neill, Martin

      Mr. Clement Freud.

      NOES

      Alexander, Richard

      Fraser, Peter (South Angus)

      Miller, Hal (Bromsgrove & Redditch)

      Ancram, Michael

      Gardiner, George (Reigate)

      Miscampbell, Norman

      Aspinwall, Jack

      Garel-Jones, Tristan

      Morgan, Geraint

      Beaumont-Dark, Anthony

      Glyn, Dr Alan

      Morris, Michael (Northampton, Sth)

      Bendall, Vivian

      Goodlad, Alastair

      Morrison, Hon Peter (City of Chester)

      Benyon, Thomas (Abingdon)

      Gorst, John

      Murphy, Christopher

      Benyon, W. (Buckingham)

      Gow, Ian

      Myles, David

      Berry, Hon Anthony

      Griffiths, Peter (Portsmouth N)

      Needham, Richard

      Best, Keith

      Grist, lan

      Nelson, Anthony

      Bevan, David Gilroy

      Gummer, John Selwyn

      Newton, Tony

      Biffen, Rt Hon John

      Hamilton, Michael (Salisbury)

      Oppenheim, Rt Hon Mrs Sally

      Blackburn, John

      Haselhurst, Alan

      Page, Rt Hon Sir R. Graham

      Boscawen, Hon Robert

      Havers, Rt Hon Sir Michael

      Page, Richard (SW Hertfordshire)

      Brotherton, Michael

      Hawksley, Warren

      Parris, Matthew

      Browne, John (Winchester)

      Heddle, John

      Patten, Christopher (Bath)

      Bruce-Gardyne, John

      Henderson, Barry

      Patten, John (Oxford)

      Buchanan-Smith, Hon Alick

      Hicks, Robert

      Pattie, Geoffrey

      Budgen, Nick

      Hogg, Hon Douglas (Grantham)

      Pollock, Alexander

      Bulmer, Esmond

      Holland, Philip (Carlton)

      Price, David (Eastleigh)

      Cadbury, Jocelyn

      Hunt, John (Ravensbourne)

      Proctor, K. Harvey

      Carlisle, John (Luton West)

      Hurd, Hon Douglas

      Rathbone, Tim

      Carlisle, Kenneth (Lincoln)

      Jopling, Rt Hon Michael

      Rees, Peter (Dover and Deal)

      Carlisle, Rt Hon Mark (Runcorn)

      Kellett-Bowman, Mrs Elaine

      Renton, Tim

      Chapman, Sydney

      King, Rt Hon Tom

      Rhodes James, Robert

      Clark, Hon Alan (Plymouth, Sutton)

      Lawson, Nigel

      Rhys Williams, Sir Brandon

      Clarke, Kenneth (Rushcliffe)

      Le Marchant, Spencer

      Roberts, Michael (Cardiff NW)

      Cockeram, Eric

      Lennox-Boyd, Hon Mark

      Sainsbury, Hon Timoihy

      Costain, A. P.

      Lester, Jim (Beeston)

      St. John-Stevas, Rt Hon Norman

      Cranborne, Viscount

      Lloyd, Peter (Fareham)

      Shaw, Michael (Scarborough)

      Critchley, Julian

      Loveridge, John

      Shepherd, Colin (Hereford)

      Dorrell, Stephen

      Lyell, Nicholas

      Silvester, Fred

      Douglas-Hamilton, Lord James

      Macfarlane, Neil

      Sims, Roger

      Dover, Denshore

      MacGregor, John

      Skeet, T. H. H.

      Dunn, Robert (Dartford)

      Macmillan, Rt Hon M. (Farnham)

      Speller, Tony

      Edwards, Rt Hon N. (Pembroke)

      McNair-Wilson, Michael (Newbury)

      Sproat, lain

      Eggar, Timothy

      Major, John

      Stanbrook, Ivor

      Eyre, Reginald

      Marlow, Tony

      Steen, Anthony

      Fairbairn, Nicholas

      Marten, Neil (Banbury)

      Stevens, Martin

      Fairgrieve, Russell

      Mates, Michael

      Stewart, Ian (Hitchin)

      Faith, Mrs Sheila

      Mather, Carol

      Stewart, John (East Renfrewshire)

      Fenner, Mrs Peggy

      Maude, Rt Hon Angus

      Stradling Thomas, J.

      Finsberg, Geoffrey

      Maxwell-Hyslop, Robin

      Thomas, Rt Hon Peter (Hendon S)

      Fisher, Sir Nigel

      Mayhew, Patrick

      Thompson, Donald

      Fletcher-Cooke, Charles

      Mellor, David

      Thorne, Neil (llford South)

      Fowler, Rt Hon Norman

      Meyer, Sir Anthony

      Thornton, Malcolm

      1188

      1189

      Townend, John (Bridlington)

      Ward, John

      Winterton, Nicholas

      van Straubenzee, W. R.

      Warren, Kenneth

      Wolfson, Mark

      Viggers, Peter

      Watson, John

      Waddington, David

      Wells, Bowen (Hert'rd & Stev'nage)

      TELLERS FOR THE NOES:

      Wakeham, John

      Wheeler, John

      Mr. John Cope and

      Walker, Bill (Perth & E Perthshire)

      Wickenden, Keith

      Mr. Peter Brooke.

      Waller, Gary

      Question accordingly negatived.
      Amendment proposed: No. 6, in page 11, line 10, at end insert—
      " (aa) in respect of so much of an individual's total income as does not exceed £1,000 at 25 per cent.'.—[Mr. Denzil Davies.]
      Question put, That the amendment be made:—
      The Committee divided: Ayes 115, Noes 152.

      Division No. 330]

      AYES

      [10.54 p.m.

      Allaun, Frank

      Flannery, Martin

      O'Neill, Martin

      Alton, David

      Fletcher, Ted (Darlington)

      Park, George

      Anderson, Donald

      Foster, Derek

      Parry, Robert

      Archer, Rt Hon Peter

      Freud, Clement

      Penhaligon, David

      Barnett, Guy (Greenwich)

      Garrett, John (Norwich S)

      Prescott, John

      Belih, A. J.

      Grant, George (Morpeth)

      Rees, Rt Hon Merlyn (Leeds South)

      Benn. Rt Hon Anthony Wedgwood

      Grimond, Rt Hon J.

      Richardson, Jo

      Bennett Andrew (Stockport N)

      Hamilton, James (Bothwell)

      Roberts, Ernest (Hackney North)

      Booth Rt Hon Albert

      Hamilton, W. W. (Central Fife)

      Roberts, Gwilym (Cannock)

      Boothroyd, Miss Betty

      Haynes, Frank

      Rodgers, Rt Hon William

      Bray, Dr Jeremy

      Heffer, Eric S.

      Rooker, J. W.

      Callaghan, Jim (Middleton & P)

      Hogg, Norman (E Dunbartonshire)

      Rowlands, Ted

      Campbell-Savours, Dale

      Homewood, William

      Sever, John

      Carter-Jones, Lewis

      Hooley, Frank

      Silverman, Julius

      Clark, Dr David (South Shields)

      Horam, John

      Skinner, Dennis

      Cocks, Rt Hon Michael (Bristol S)

      Howells, Geraint

      Snape, Peter

      Cowans, Harry

      Hughes, Robert (Aberdeen North)

      Soley, Clive

      Crowther, J. S.

      Hughes, Roy (Newport)

      Spearing, Nigel

      Cryer, Bob

      John, Brynmor

      Spriggs, Leslie

      Cunliffe, Lawrence

      Johnston, Russell (Inverness)

      Steel, Rt Hon David

      Cunningham, George (Islington S)

      Jones, Rt Hon Alec (Rhondda)

      Thomas, Dafydd (Merioneth)

      Cunningham Dr John (Whitehaven)

      Kilroy-Silk, Robert

      Tilley, John

      Davis, Terry (B'rm'ham, Stechford)

      Lamborn, Harry

      Tinn, James

      Deakins, Eric

      Leadbitter, Ted

      Torney, Tom

      Dean, Joseph (Leeds West)

      Leighton, Ronald

      Wainwright, Edwin (Dearne Valley)

      Dewar, Donald

      Lewis, Ron (Carlisle)

      Wellbeloved, James

      Dixon, Donald

      Lltherlnnd, Robert

      Welsh, Michael

      Dormand, Jack

      Lyons, Edward (Bradford West)

      White, Frank R. (Bury & Radclilfe)

      Douglas, Dick

      McCartney, Hugh

      White, James (Glasgow, Pollok)

      Dubs, Alfred

      McKay. Allen (Penistone)

      Wigley, Dafydd

      Duffy, A. E. P.

      Mackenzie, Rt Hon Gregor

      Wilson, Gordon (Dundee East)

      Dunwoody, Mrs Gwyneth

      McNamara, Kevin

      Wilson, William (Coventry SE)

      Eadie, Alex

      Magee, Bryan

      Winnick, David

      Eastham, Ken

      Marshall, Dr Edmund (Goole)

      Woolmer, Kenneth

      Ellis, Raymond (NE Derbyshire)

      Marshall, Jim (Leicester South)

      Evans, loan (Aberdare)

      Mikardo, Ian

      TELLERS FOR THE AYES:

      Evans, John (Newton)

      Millan, Rt Hon Bruce

      Mr. George Morton and

      Ewing, Harry

      Morris, Rt Hon Alfred (Wythenshawe)

      Mr. Ted Graham

      Field, Frank

      Morris, Rt Hon Charles (Openshaw)

      NOES

      Alexander, Richard

      Carlisle, John (Luton West)

      Fisher, Sir Nigel

      Ancram, Michael

      Carlisle, Kenneth (Lincoln)

      Fletcher-Cooke, Charles

      Aspinwall, Jack

      Carlisle, Rt Hon Mark (Runcorn)

      Fowler, Rt Hon Norman

      Beaumont-Dark, Anthony

      Chapman, Sydney

      Fraser, Peter (South Angus)

      Bendall, Vivian

      Clark, Hon Alan (Plymouth, Sutton)

      Gardiner, George (Reigate)

      Benyon, Thomas (Abingdon)

      Clarke, Kenneth (Rushcliffe)

      Garel-Jones, Tristan

      Berry, Hon Anthony

      Cockeram, Eric

      Glyn, Dr Alan

      Best, Keith

      Cope, John

      Goodlad, Alastair

      Bevan, David Gilroy

      Costain, A. P.

      Gorst, John

      Biffan, Rt Hon John

      Cranborne, Viscount

      Gow, Ian

      Blackburn, John

      Critchley, Julian

      Griffiths, Peter (Portsmouth N)

      Brinton, Tim

      Dorrell, Stephen

      Grist, Ian

      Brittan, Leon

      Dover, Denshora

      Gummer, John Selwyn

      Brooke, Hon Peter

      Dunn, Robert (Dartford)

      Hamilton, Michael (Salisbury)

      Brotherton, Michael

      Edwards, Rt Hon N. (Pembroke)

      Haselhurst, Alan

      Brown, Michael (Brigg & Sc'thorpe)

      Eggar, Timothy

      Havers, Rt Hon Sir Michael

      Browne, John (Winchester)

      Eyre, Reginald

      Hawksley, Warren

      Bruce-Gardyne, John

      Fairbairn, Nicholas

      Heddle, John

      Budgen, Nick

      Faith, Mrs Sheila

      Henderson, Barry

      Bulmer, Esmond

      Fenner, Mrs Peggy

      Hicks, Robert

      Cadbury, Jocelyn

      Finsberg, Geoffrey

      Hogg, Hon Douglas (Grantham)

      Holland, Philip (Carlton)

      Morris, Michael (Northampton, Sth)

      Sproat, lain

      Howell, Ralph (North Norfolk)

      Morrison, Hon Peter (City of Chester)

      Stanbrook, Ivor

      Hunt, John (Ravensbourne)

      Murphy, Christopher

      Steen, Anthony

      Hurd, Hon Douglas

      Myles, David

      Stevens, Martin

      Jopling, Rt Hon Michael

      Needham, Richard

      Stewart, Ian (Hitchin)

      Kellett-Bowman, Mrs Elaine

      Nelson, Anthony

      Stewart, John (East Renfrewshire)

      King, Rt Hon Tom

      Newton, Tony

      Stradling Thomas, J.

      Lawson, Nigel

      Oppenheim, Rt Hon Mrs Sally

      Thomas, Rt Hon Peter (Hendon S)

      Le Marchant, Spencer

      Page, Rt Hon Sir R. Graham

      Thompson, Donald

      Lennox-Boyd, Hon Mark

      Page, Richard (SW Hertfordshire)

      Thorne, Neil (llford South)

      Lester, Jim (Beeston)

      Parris, Matthew

      Thornton, Malcolm

      Lloyd, Peter (Fareham)

      Patten, Christopher (Bath)

      Townend, John (Bridlington)

      Loveridge, John

      Patten, John (Oxford)

      van Straubenzee, W. R.

      Lyell, Nicholas

      Pattie, Geoffrey

      Viggers, Peter

      Macfarlane, Nell

      Pollock, Alexander

      Waddington, David

      MacGregor John

      Price, David (Eastleigh)

      Wakeham, John

      Macmillan, Rt Hon M. (Farnham)

      Proctor, K. Harvey

      Walker, Bill (Perth & E Perthshire)

      McNair-Wilson, Michael (Newbury)

      Rathbone, Tim

      Waller, Gary

      Major, John

      Rees, Peter (Dover and Deal)

      Ward, John

      Marlow, Tony

      Renton, Tim

      Warren, Kenneth

      Marten, Neil (Banbury)

      Rhodes James, Robert

      Watson, John

      Mates, Michael

      Rhys Williams, Sir Brandon

      Wells, Bowen (Hert'rd & Stev'nage)

      Mather, Carol

      Roberts, Michael (Cardiff NW)

      Wheeler, John

      Maude, Rt Hon Angus

      Sainsbury, Hon Timoihy

      Wickenden, Keith

      Miscampbell, Norman

      St. John-Stevas, Rt Hon Norman

      Winterton, Nicholas

      Maxwell-Hyslop, Robin

      Shaw, Michael (Scarborough)

      Wolfson, Mark

      Mayhew, Patrick

      Shepherd, Colin (Hereford)

      Mellor, David

      Silvester, Fred

      TELLERS FOR THE NOES:

      Meyer, Sir Anthony

      Sims, Roger

      Lord James Douglas-Hamilton and

      Miller, Hal (Bromsgrove & Redditch)

      Skeet, T. H. H.

      Mr. Robert Boscawen

      Morgan, Geraint

      Speller, Tony

      Question accordingly negatived.
      Mr. Horam: I beg to move amendment No. 8, in page 11, line 14, leave out paragraph (b).
      The Second Deputy Chairman (Mr. Richard Crawshaw): With this we may take amendment No. 22, in page 11, line 16, at end insert
      " except in the case of a retired person over the age of 70 when the figure of £5,500 shall be £6,500".
      Mr. Horam: We now turn from the poor to the rich and from the reduced rate band to the investment income surcharge. In the debate that we have just concluded I said that the Government had come very close to abolishing progressive taxation in this country. The same basic rate of taxation is now paid by 97 per cent. of all taxpayers. That is certainly a higher proportion than that in any comparable country and is about the same as when super tax was introduced in Lloyd George's Budget in 1909. The Government have not abolished the surcharge on investment income but they are itching to do so, judging by the Chancellor of the Exchequer's remarks. They have reduced its incidence substantially in the two Budgets since the general election. This substantial reduction is unwarranted, particularly in view of the treatment which the Government have meted out to people at the other end of the income scale.
      1192
      My right hon. Friend the Member for Leeds, East (Mr. Healey) left investment income surcharge at 10 per cent. over a threshold of £1,700 and 15 per cent. over £2,250, with more favourable treatment for people over the age of 65. In his last Budget he indexed the surcharge. In 1979 the Chancellor raised the threshold from £1,700 to £5,000 and consolidated the rate at 15 per cent. As he said then, he set a higher threshold than Lord Barber when he introduced the investment income surcharge in 1972. He said that he was giving people who paid that surcharge a better deal than when it was introduced. At a stroke, he halved the coverage of the tax. In 1978–79, 670,000 people paid the surcharge. Last year the number was reduced to 300,000. In its coverage of the last Budget, even the Financial Times described that as a dramatic drop in the incidence of taxation.
      We are talking about wealthy people. The Government have often said that many wealthy people are elderly and deserve special consideration. That is an odd argument in view of the debate that we have just had. One of the reasons that the Government gave for abolishing the reduced rate band was that many people in that band were over 60 and therefore had lower costs than people with a large family and had reached that stage when an extra £5 a week did not make much difference to their personal standards of living. It is contradictory to

      1193
      adduce an argument about the elderly when considering the wealthy and not use it for the poor. It contrasts with the mean treatment that the Government are giving the pensioners with the two-week delay in paying the pensions increase in the autumn.
      Many people with investment income are elderly, but about half are not retired and often have a large earned income as well as a large unearned income. A man earning £30,000 a year gained £355 a month from the Government's first Budget. A man whose income is composed of £25,000 earned income and £5,000 investment income gains £389 a month from tax handouts. The Institute of Fiscal Studies said that, compared with last spring, a person receiving £30,000—some earned and some unearned—is £60 a week, or 21 per cent., better off than he was three years ago. These are the people who have benefited, as no one else has, from the Government's actions.
      Is it right to maintain these huge benefits when the Chancellor admits that he cannot protect the vast majority of taxpayers against the rate of inflation? The Government have been unable to fulfil the spirit of the indexation as set out in the Rooker-Wise amendment. They have had to renege on that. The protection is to the extent of only 11 per cent. rather than the 18 per cent. that should be the case.
      Is it right that such a situation should exist in present economic circumstances when the Government, despite their belief in monetary policies, are forced to appeal increasingly to trade unionists to exercise restraint and to reduce their living standards during the next round of wage settlements to help the country while, at the same time, those putting this request to the trade unionists are managing directors on income levels, to which I have referred, who benefit from enormous tax handouts from the Government? Are not the Government aware that this is bound to sour the atmosphere for the critical negotiations that are important for the success of their economic policy? Do they feel it is right to go ahead with these increases? It is morally wrong and economically foolish.
      Mr. Bruce-Gardyne: I hoped that the hon. Member for Gateshead, West (Mr. Horam) would explain the purpose of the amendment. I understand that, if the
      1194
      amendment is approved, it will abolish the investment income surcharge. The hon. Gentleman shakes his head. He might have done the Committee the honour of informing us what other conceivable purpose the amendment has. The amendment, as it appears on the Amendment Paper, is designed to abolish the investment income surcharge. It is no good the hon. Gentleman shaking his head. That is what it would do.
      If the hon. Gentleman seeks to divide the House, I think that some of us may have difficulty in voting against him. Some of us believe that the investment income surcharge represents nothing more than the politics of envy. It has nothing to do with the management of the economy or the generation of income for the Government. The hon. Gentleman might at least have offered an explanation for inviting the Committee to vote in favour of its abolition in the light of the argument he advanced.
      Mr. Horam: The hon. Gentleman has been a Member long enough to know that the rules of order sometimes restrict what hon. Members, can achieve through amendments. The amendment is clearly a probing amendment designed to extract from the Minister his reasons for maintaining the enormous benefits given to this group of people over two Budgets. The amendment may not be expertly phrased in putting forward that point, but we are limited in what we can propose.
      Mr. Bruce-Gardyne: The amendment is expertly phrased to achieve precisely the opposite purpose the hon. Gentleman advocated. The dilemma he places before the Committee is that those hon. Members who have the strongest objections to the investment income surcharge for reasons that I shall advance would find it extremely difficult to oppose the hon. Gentleman's amendment in the Lobbies.
      11.15 pm
      The argument against investment income surcharge, I understand, is that it is based on the assumption that there is something intrinsically worthy of penalisation about direct investment by individuals. The case I wish to put—I hope that my hon. and learned Friend will deal with it—is this. If I won £150,000 on the football pools, which I do not think I have either the skill or knowledge to accomplish, I would have the choice

      1195
      of putting that money into a large and luxurious house or into the purchase of shares in ICI. If I bought the house, I would enjoy the benefit of the £25,000 mortgage interest relief. Provided I used the house as my principal residence, I would get the benefit of exemption from capital gains tax liability. In addition, my asset would appreciate inexorably, at least in pace with inflation and, over the years, judging from past experience, a good deal more.
      If, however, I put the £150,000 into shares in ICI, not only do I take the risks of the market as to how ICI may perform—the value might rise or fall—but I know for certain that if it rises I shall face a liability to capital gains tax on the value of the appreciation of those shares, regardless of the impact of inflation during the period between purchase and disposal. In addition, I shall face investment income surcharge on the income from the investment.
      I cannot see that it is in the interests of the British economy that I should be encouraged to divert that £150,000 into the purchase of a house rather than into investment in ICI. On balance, the interests of the economy must be served in the opposite direction. I should put the money into a major industrial company rather than into a house which does not add to the cumulative stock of industrial and manufacturing wealth in this country.
      Mr. Budgen: The probability is that anyone who has £150,000 to invest does not invest it in such a way as to attract the investment income premium. The right hon. Member for Llanelli (Mr. Davies) will be able to explain that very well. The rich, on the whole, avoid the effect of the investment income surcharge. It is the poor who pay it—the relative poor who have perhaps £50,000 to invest and who perhaps have their wealth knocked about by inflation more than any other group in society.
      Mr. Bruce-Gardyne: I agree to the extent that, if one had won £150,000 on the pools, under the present tax arrangements, including the investment income surcharge, one would be out of one's mind if one put the money into a direct personal investment in shares in ICI.
      Mr. Derail Davies: I wish the hon. Gentleman would be more precise. He is
      1196
      not talking about investing £150,000 in ICI. He is buying a piece of paper—a share certificate—and the money that he pays for those shares does not go into ICI. We get these speeches from Conservative Members about investing in industrial companies. There is no investment in ICI.
      Mr. Bruce-Gardyne: I am surprised that the right hon. Gentleman, who has considerable knowledge in these matters, should advance such a proposition. To the extent that I am prepared to place £150,000 which I have realised from the winning of a football pool at the disposal of ICI—
      Mr. Douglas Hogg: We all agree that it is a rights issue.
      Mr. Bruce-Gardyne: It does not matter whether it is a rights issue. The availability of my £150,000 will reduce the cost to ICI of additional capital for manufacturing purposes. I submit that it must be more to the advantage of the United Kingdom economy as a whole that I should do that than invest in a house, which I should logically do under the present tax structure.
      I do not wish to make a long speech, but I was provoked by the manner in which the hon. Member for Gateshead, West sought to shoot down his amendment and by his failure to explain why he was doing so.
      If I seek to make provision for my old age—if I ever get that far—and I choose to do so through an employee pension scheme, when I receive the benefits of that scheme they will be treated as so-called earned income. If I make arrangements to purchase insurance annuities to provide for my old age and make that investment through an institution, similarly the income that I receive will be treated as so-called earned income. But if, instead, I choose to make provision for my old age through direct investment in British industrial companies, the income, when I receive it, will be subject to the investment income surcharge. That is utter nonsense in economic terms, because it diverts investment more and more into institutional hands. That is highly undesirable.
      I have heard some of the mandarins of the institutional investment industry explaining how they are so much more

      1197
      sophisticated than the private investor, and how they give greater stability to the market for industrial shares. I believe that the reverse is true. All the evidence suggests that the institutions act like lemmings—and they move in both directions. Invariably they buy at the top of the market and sell at the bottom. They are more inclined to do that than private investors. I should like us to move to a tax regime, and the sooner the better, which treats all forms of investment neutrally and which allows people to choose.
      I accept, if this is the point that the right hon. Member for Llanelli is trying so vociferously to make, that we should eliminate the privileges which at present attract investment in, for example, housing. But the counterpart of that is that we want to get rid of the investment income surcharge. It has no economic justification. It diverts and distorts the patterns of investment, and the sooner we get shot of it the better.
      If the hon. Member for Gateshead, West wishes to press his amendment to a Division, I shall find it difficult to oppose it.
      Mr. Hooley: I admit that I was a trifle baffled by the amendment, but I accept that my hon. Friend the Member for Gateshead, West (Mr. Horam) was endeavouring to attract a debate on a matter of concern to all—the general question of the investment surcharge.
      In my naive and unsophisticated way, I have endeavoured to table an amendment which means what it says. I have no intention of abolishing the investment surcharge—indeed, there is probably a good argument for increasing it—but I think that the Government need to have rammed down their throat the effect on the elderly of their incompetence in dealing with inflation, even if those elderly people are comparatively well-heeled and much better blessed than the categories of people whom we were discussing on the previous amendment.
      My amendment seeks to give some slight compensation to the over-70 victims of Tory inflation who rely to some extent on investments for their income. People who are following a vocation, profession, or whatever, can be expected to work harder, or whatever the Tory objective is, if they want to increase their
      1198
      income and should not need to rely on investment income. But, by definition, the retired, particularly the older retired, the over-70 retired, are presumably not in a position to offset the ravages of inflation under this Government by increasing their earned income. Therefore, it is perhaps appropriate that they should be given some modest additional defence, as proposed in my amendment, against the ravages of inflation, by a slight adjustment to the investment income exemption. I hope that I have got it right. On my calculation, it would give them £150 a year extra. That is certainly a lot by the standards of most retired people. It would undoubtedly go a little way to offset the ravages of inflation which the Government have set in train. It would not offset it altogether, but it might help a little.
      The hon. Member for Knutsford (Mr. Bruce-Gardyne) must support my amendment if he supports the one moved by my hon. Friend the Member for Gateshead, West, because its purpose is to single out a precise but small group of people who will need help and protection against the ferocious rate of inflation that has been set in motion and to which we can see no end. [Interruption.] If some Conservative Members had been here earlier in the evening they would have heard the Chief Secretary say that he saw no end to the present troubles for two years, three years, or the whole of this Parliament. The Chief Secretary, quite cheerfully, said that the problems which they seem to think will disappear in a few months will do no such thing. They will be with us, according to the Chief Secretary, for two or three years or five years and, according to the Chancellor a little while ago, for 10 years.
      Conservative Members must square up to the taxation implications of the incompetence of the Government's policy objective. The central objective of their policy, proclaimed from the rooftops, in their manifesto and in every speech from the Front Bench, is to reduce inflation. Of course, as we know, exactly the opposite has occurred, with incalculable damage to the standard of living of the elderly, who cannot defend themselves against it because they have no bargaining position to increase their income.
      I have no special affection for people who rely on investment income, and I do

      1199
      not go along with the rococo argument of the hon. Member for Knutsford, but, in all fairness, the Government should face the consequences of the incompetence of their policy and say to the group of people, who I suspect are by and large among their supporters rather than ours, " We have bungled this inflation business. Our Chief Secretary tells us that it will go on for another year, three years or perhaps for a whole Parliament". He said that the austerity and the problems would last for the whole of this Parliament. Those are not my words, but——
      11.30 pm
      The Second Deputy Chairman: Order. This is not a debate on the economy. The hon. Gentleman should address himself to the amendment.
      Mr. Hooley: I am addressing myself to this specific amendment, which relates directly to the problem of inflation and its impact on a person over the age of 70 who relies on investment income for a substantial part of his standard of living. My amendment seeks to offset to a modest extent—nothing drastic—the ravages of inflation on the standard of living of a person in that situation. I was endeavouring to point out, no doubt in an incompetent manner, to those Conservative Members who pretend that there is no problem, or that any problem will be over in a short time, that the Chief Secretary said the opposite this evening. I am sorry that some hon. Members did not bother to come to the debate at an earlier stage to listen to the right hon. Gentleman's remarks, but that is what he said. If hon. Members do not wish to take my word for that, they can read it in Hansard tomorrow. If I have made a mistake, I shall happily withdraw the remark.
      The incompetence of the Government's policy has placed people, especially the elderly, in an extremely damaging and difficult position if they rely entirely on a relatively fixed source of income. I am endeavouring to give a modest and simple relief to a category for whom I should have thought Conservative Members would have a certain affection. I am sure that the Minister will tell us how many millions the proposal would cost—not very many, I suspect. That is the only purpose of the amendment. I am
      1200
      sure that it will attract support, at least from the hon. Member for Knutsford.
      Mr. Douglas Hogg: I support the remarks of my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne). He suggested that the investment income surcharge had the effect of diverting investment away from manufacturing industry. The right hon. Member for Llanelli (Mr. Davies) denied that and suggested that an investment in share equity was not, in any sense, an investment in manufacturing industry. I am sorry that the right hon. Gentleman is not in the Chamber, but he is wrong in a number of material respects. He entirely ignored rights issues, loan stock secured by debentures, new issues designed to raise new capital and, most important of all, direct investment in private companies, often in the manufacturing sector. Those are areas in which the investment goes directly into the wealth-creating sectors of the economy. I have little doubt that the investment income surcharge diverts investment away from those sectors. The point made by the right hon. Gentleman that an investment in equity does not have that effect shows a remarkable ignorance of economic reality.
      Mr. Budgen: Will my hon. Friend, on reflection, agree that our hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) did not say that it prevented investment in manufacturing industry? He merely said that it distorted all forms of investment. I hope that my hon. Friend will not say that manufacturing industry is a preferred form of investment. We want a neutral system, not a favoured system.
      Mr. Hogg: As I would expect from my hon. Friend, that was a valuable intervention. The point that I wish to make is that we should encourage investment in the wealth-creating sectors. That could be manufacturing, retail or investment itself. We should not support a tax system that diverts investment away from the wealth-creating sectors of the economy. That is what I understood my hon. Friend the Member for Knutsford to say. I am certain that the right hon. Member for Llanelli denied that proposition. For that reason, I support my hon. Friend's comments.
      Mr. Peter Rees: We have had a particularly interesting debate, not least

      1201
      because we discovered at a rather late stage that the amendment in the names of the right hon. Member for Leeds, East (Mr. Healey) and his right hon. and hon. Friends was a probing one. I say in response that I think we are entitled to probe the intentions of the Opposition Front Bench because, as my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) perceptively pointed out, the consequence of the amendment would be to abolish the investment income surcharge. Like all facets of income tax, it is an annual charge, and on this occasion it is imposed by clause 17(1)(b), which the amendment is designed to repeal. We could have an interesting debate on that.
      My hon. Friends are right to say that the investment income surcharge builds in a meaure of distortion, and in some other year, when we are less constrained financially, it will be important to review radically the whole area of capital taxation and we shall not hesitate to do it. As my right hon. and learned Friend explained in his Budget speech, with the financial constraints within which we are operating it would obviously have unbalanced the Budget had we done what we set out to do, what was clearly marked out in our manifesto and what we hope to do over the lifetime of Parliament in the matter of capital taxation.
      Until I heard the rather lame explanation of the hon. Member for Gateshead, West (Mr. Horam), I was delighted to see what I thought was a change of heart in the Labour Party. I thought that this again must be the aftermath of Wembley—that it, too, was going to abolish investment income surcharge—and I was disappointed when I heard that it was only a probing amendment.
      I heard trembling almost on the lips of Labour Members "massive handouts to the rich ". In fact, we have done something rather modest this year. We have valorised by 10 per cent. the threshold for investment income surcharge. I say to the hon. Member for Sheffield, Heeley (Mr. Hooley) that the point that he made does not have to be rammed down our throats. It was one that we made with great consistency during the years that we were in opposition. We are acutely aware of the plight of those who have built up a small investment portfolio over the years and perhaps have not seen it
      1202
      perform too well latterly and have seen the real value of the return diminished very sharply. On top of that they have had to carry a swingeing burden of taxation.
      I have great sympathy with the sentiments expressed by the hon. Gentleman. Indeed, as I said, I made comparable speeches in opposition. On this occasion we have felt it possible—and some of my hon. Friends may feel that it is not enough, but I hope they will bear with us—only to revalorise by 10 per cent. and put up the threshold from £5,000 to £5,500. I assure the Committee that this is an area to which we shall, and indeed must, return.
      I conclude by saying to members of the Opposition Front Bench that they, or the organisations which they affect to represent, all too often press for greater investment in British industry and yet in the same breath are prone to discriminate against the investor. I hope that that is not an inconsistency of which we shall ever be accused, because I remind the Committee that, as the hon. Member for Gateshead, West casually pointed out, last year we raised the threshold for investment income surcharge fairly substantially.
      I hope that I can reassure the Committee, those who are involuntarily pressing for the abolition of investment income surcharge, those who want its amelioration for the retired and those who, like my hon. Friends, feel that it is necessary to take a far-reaching and radical look at the whole area of surcharge that we shall come back to this. I hope that on that basis the Committee will not feel it necessary to vote on this group of amendments.
      Mr. Horam: This has been a brief but rather happy debate, and I feel that my small probing amendment has achieved its purpose.
      The hon. Member for Knutsford (Mr. Bruce-Gardyne) put a fair point when he said that investment in any sphere should be treated in the same way, and that there should be no distortion as between housing, industry, and so on. I entirely agree with him about that. I was delighted to find that there was some accord between us. Needless to say, Knutsford having united us for once, Wolverhampton came

      1203
      along in the nick of time to divide us once again.
      I am afraid that I could not agree that the system should be wholly neutral. Indeed, if I had any preference at all, I should be in favour of commercial investment as opposed to other sorts of investment, whether it be in housing or anything else. The economy has for too long been adversely affected by excessive investment in housing as opposed to poor investment in other spheres. That is something which I hope the Government will tackle much more toughly than they have done so far.
      However, I think that all who have participated in this brief exchange will recognise that this is a subject that goes far wider than the investment income surcharge. One is dealing with a whole range of economic matters here, which have to be got right if this sort of distortion, which has been prevalent for many years under various Governments, is to be changed in a way that will help the economy. Equally, however, it is fair to say that if one wants to do something about that, it does not imply any change in the differential between unearned and earned income. It simply means that one should have horizontal equity between different types of investment. That is all that one should have.
      Mr. Budgen: What on earth does that mean?
      Mr. Horam: It simply means that one treats all types of investment in the same way for tax purposes.
      Mr. Douglas Hogg: Will the hon. Gentleman give way?
      Mr. Horam: No, let me finish the point. [Interruption.] I think that the hon. Member for Wolverhampton, Southwest (Mr. Budgen) simply does not understand the point. The hon. Member for Knutsford was making the point that there was distortion in the system as a result of the way in which it operates now. All that I was saying was that that does not mean that one should change the arrangements as between unearned and earned income. It simply means that one gets the system for unearned income on the same basis for all types of unearned income, wherever it
      1204
      may be disposed. That is the simple point.
      Mr. Budgen: I see.
      Mr. Horam: I am glad that the hon. Gentleman understands these Byzantine arguments.
      It should also be said, in reference to what the Minister of State said, that Lord Barber as he now is thought fit to carry on with some differential between unearned and earned income when he looked at the whole system of taxation in 1972. He was not persuaded, therefore—and nor, presumably, have any Conservative Government so far been persuaded—that it was right to abolish the differential about which we are talking. The Conservatives have recognised therefore that, whatever minority views there may be, there is justice in taxing unearned income more heavily than earned income. That is surely right.
      I was sorry, none the less, that it was made plain that the Government intend to embark on a further series of reliefs for these people. We are talking about people who have very considerable wealth, and in the final analysis we are talking about an equitable taxation system, as we have been for the last three or four hours. I am sorry that the Minister of State did not address himself to this point. I know the arguments that he has put in the past about the considerable effect of inflation, for instance, on the incomes of people with small amounts of investments. That is a fair point. None the less, there is a wider point, to which he simply failed to address himself, about the treatment of people in this category and those who have no investment income at all, who are the vast majority, and the sort of lifestyle that they have to adopt as a result of the tax changes made by the Government.
      Mr. Budgen: I should like to take up the hon. Gentleman's point about this being concerned with people with considerable wealth. Does he agree that people with considerable wealth are able to avoid the effect of the investment income surcharge? We are talking about people with modest capital sums, perhaps £50,000 at most, who cannot therefore avoid the effect of inflation and are very much affected by it.
      Mr. Horam: The hon. Gentleman cited £50,000 as the modest sum that he had in mind. Offhand, I do not know what proportion of my constituents have £50,000 of capital. It is certainly less than 1 per cent. Even if one accepts the point that many very rich people avoid this tax to a considerable degree, the fact it that many affluent people pay it, and rightly so.
      When this part of the Government's policy is set against that which they felt unable to do on the reduced rate band and the taxation of income at the lower end of the scale, the contrast is great. The Minister did not address himself to the issue of equity.
      11.45 pm
      We do not intend to press the amendment, for the sensible reasons that have been given. It is impossible under the rules of order to increase taxation, which is what we want to do. It was not our wish to revalorise the investment income surcharge and we were not able to table an amendment that set out that which before us has stimulated a sensible debate and I am sure that we shall return to it subsequently. I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      Clause 17 ordered to stand part of the Bill.

    Clause 18

      CHARGE OF CORPORATION TAX FOR FINANCIAL YEAR 1979
      Mr. Dick Douglas: I beg to move amendment No. 27, in page 11, line 27, at end add—
      ' (2) In subsection (3) of section 10 of the Finance Act 1974 (relief for industrial and provident societies, housing associations and building societies) there shall be substituted the words "shall for the financial year 1979 and subsequent years be 38 per cent ".'.
      The amendment is sponsored by some of the Co-operative-sponsored Members. Its purpose is to discuss the position of building, housing and co-operative societies now that the rate of corporation tax payable by small companies is to be reduced from 42 to 40 per cent. by a subsequent clause.
      We support the help given in the Budget to small companies, not only in their rate of corporation tax but in other significant ways, because we believe that
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      they play an important part in our economy. The previous Labour Government also gave assistance to small companies, such as the mitigation of corporation tax liability in the Finance Acts of 1977 and 1978, a number of easements in respect of retirement annuity premiums in 1977 and concessions on capital gains and transfer taxation in 1978.
      Nevertheless, we have to acknowledge that, we hope, small companies are both private profit-making and personal capital gains-creating organisations, whereas the organisations that we list in the amendment—building societies, industrial and provident societies and housing associations—do not and cannot act in this way on behalf of their investing members. If they attempted to do so, apart from being in breach of the principle of mutuality, it is doubtful—indeed, highly improbable—whether the Chief Registrar of Friendly Societies would allow their registrations to go unchallenged.
      The aspects of being fixed-interest rate and non-capital gains-creating bodies doubtless influenced the Government to ask such societies to pay a lower rate of corporation tax than profit-making bodies. The purpose of the amendment is both to preserve that status and to encourage it. Companies can always convert themselves into industrial and provident societies if they wish, and this may help the growth of organisations such as worker co-operatives. The modest concession that the amendment seeks to make could be open to all.
      Industrial and provident societies are especially vulnerable to inflation. As they are both fixed interest and non-capital gains creating, their ability to borrow money is impaired. Although offering security, lenders are not able to participate in their equity, and consequently they require higher rates of interest on loans. The effect of that is to compel industrial and provident societies to rely on members for capital, in addition to ploughing back undistributed surpluses. Needless to say, the effect of inflation is to require more capital to remain in business let alone expand.
      Co-operatives are essentially small savings institutions. Their share capital can be withdrawn on demand, or at very short notice. The result is to force

      1207
      societies to compete with other bodies for capital, including various Government schemes. Scope for getting more capital from members is extremely limited. In addition, co-operatives need to maintain a high liquidity ratio, because their share capital can be withdrawn. That inhibits their ability to use all their share capital within the business. Cooperatives can best finance themselves by retained profits, even if corporation tax must be paid.
      A 2 per cent. reduction in the rate of corporation tax payable would be helpful, and would represent an incentive. I do not have statistics on how much this would cost the Treasury in terms of loss of revenue. However, there would not be a great reduction in revenue, because price competition in the market place forces down the profits which co-operatives hope to earn. Secondly, societies return half of their profits, after depreciation, in the form of dividends or dividend stamps, to their members.
      There is a further important point about the reserves of industrial and provident societies. Apart from protecting the shareholdings of members, they do not enhance the value of the shares. It could be argued that allocations by co-operatives to their reserves should be free of tax. However, we do not seek to put that proposal before the Committee. We suggest that the Government should reduce the rate of corporation tax from 40 to 38 per cent.
      The Government have expressed a desire to see an extension of workers' cooperatives. That is in harmony with encouraging small firms. The modest tax concession sought in the amendment will help newly-formed workers' co-operatives to establish themselves on a sound financial base by the creation of reserve funds. That view is supported by the Co-operative Development Agency, which does not have financial resources with which to assist the setting up of workers' co-operatives. Shares in productive co-operatives cannot be withdrawn. That makes them less attractive to worker shareholders. Consequently, reserves are even more important to them.
      We also concede that building societies would benefit from such proposals. Although criticisms may be made of the building society organisation, I hope that the Government will agree that it is in
      1208
      their interest to continue to give support to building societies. Higher reserves should enable building societies to lend more money to borrowers. The existence of large reserves should enable building societies to reduce marginally, or at least to refrain from increasing, borrowing rates. That would be beneficial to all. Building societies do not capitalise their reserves. They therefore satisfy the test of being non-capital gains-creating organisations. Encouragement of the expansion of building societies can still be a desirable feature of British life. It will help the building industry, which is now in a general state of recession.
      The cost of reducing the rate of corporation tax to housing associations will be minimal and, I suggest, insignificant. Against this, the value of encouraging their expansion, especially at a time when the cost of borrowing and of land makes expansion difficult anyway, cannot be overstated. The development of this middle way in housing has all-party support, and the amendment represents a modest practical concession to this end.
      The amendment is designed to encourage the concept of self-help, which is in keeping with the professed aims of the Government. It will do so at a modest cost to the Revenue while strengthening reserve funds of the non-capital gains-creating enterprises which I have mentioned. I trust that the Minister will give the amendment favourable consideration, and I await his response.
      The Financial Secretary to the Treasury (Mr. Nigel Lawson): The hour is late, and I do not wish to detain the Committee.
      Although deserted by his fellow co-operators whose names appear on the Amendment Paper, none of whom is present for this debate, the hon. Member for Dunfermline (Mr. Douglas) read his brief very nicely, and I listened to it attentively.
      Mr. Dalyell: With great understanding.
      Mr. Lawson: Yes, he showed some understanding of what he said. He asked what the cost of this amendment would be. It would be of the order of £5 million if it were accepted, which is not a negligible sum.
      I detected a strange difference between what the hon. Member for Dunfermline was saying and what the hon. Member

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      for Gateshead, West (Mr. Horam) said a short while ago. The hon. Member for Gateshead, West said that if there was any bias in the tax system, it should be in favour of commerce, trade, industry, and so on, rather than housing. However, the bias in favour of housing was implicit in the system until this Finance Bill. The small business rate was 42 per cent., whereas the rate of corporation tax payable for housing associations, building societies and co-operative societies was 40 per cent. What is done by a combination of this clause and clause 20 is to bring the two rates together.
      It was not intended originally that the two rates should be different, although slightly different considerations apply in the two cases. When the imputation system of corporation tax was introduced originally, it was intended that small businesses, which on the whole retain their profits and do not distribute them, and building societies, co-operative societies and housing associations should retain the old rate of 40 per cent., whereas a new rate of 50 per cent. should be introduced for the imputation system of corporation tax generally.
      In 1974 the right hon. Member for Leeds, East (Mr. Healey), who introduced the new rate of tax, increased it to 52 per cent. for corporation tax generally, and to 42 per cent. for the small company rate, but kept it at 40 per cent., as originally intended, for the building societies, housing associations and co-operative societies. He thus introduced, in a sense, a discrimination against small businesses.
      We felt in the present circumstances that that was wholly unjustified and that, as part of a package to help small businesses, this rate should be brought down from 42 to 40 per cent. In common with the hon. Member for Gateshead, West, I think that if there were any difference in the rate, it should be on the basis that the small business rate was lower, rather than higher, as the hon. Member for Dunfermline wants, than the rate paid by housing associations, building societies and co-operative societies.
      Nevertheless, we have a high regard for the value of the work of building societies, co-operative societies and housing
      1210
      associations. We have therefore kept the rate of tax at 40 per cent. which is the rate that has always pertained, and which is the rate set when the imputation system was introduced by the right hon. Member for Leeds, East. On that happy note of bipartisanship, we should leave the matter there.
      12 midnight
      The hon. Gentleman does not wish to attack small business, and, as he said, he does not disapprove of the fact that we have brought down the rate from 42 to 40 per cent., which makes it the same as originally intended and the same as that which applies to this other group, about which the hon. Gentleman is rightly concerned. I hope that in the light of that the hon. Gentleman will ask leave of the Committee to withdraw his amendment.
      Mr. Douglas: With great respect, the Minister's response was inadequate. The amendment was moved generously, in no attempt to react in hard party political terms or to castigate small business. In any tax system there are advantages and disadvantages and bias. No Government can run a perfect system of revenue raising, least of all this Government.
      The amendment seeks to indicate why certain organisations, because of their revenue-raising difficulties and the fact that they are non-capital gains-creating organisations, should have the differential in terms of corporation tax. I appreciate that the Government cannot afford £5 million, because of their overwhelming desire to curb inflation and cut the public sector borrowing requirement. I have some understanding of their difficulties. I wish that the difficulties could be removed. I wish even more that the Government could be removed.
      However, I beg to ask leave to withdraw the amendment.
      Amendment, by leave, withdrawn.
      To report Progress and ask leave to sit again.—[Mr. Biffen.]
      Committee report Progress; to sit again this day.

DIPLOMATIC IMMUNITY
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Boscawen.]
12.3 am
Mr. Ivor Stanbrook: I wish to raise the subject of diplomatic immunity in the United Kingdom. The recent violence at the Iranian embassy and the even more recent bomb outrage at the Kuwaiti office in Bond Street at the weekend show that such incidents are increasing and that London is fast becoming the battlefield of contending factions in wars, disputes and grievances which have no connection with the people of this country but which put them in great danger.
The danger that the abuse of diplomatic immunity arouses for our people is componded by the comparative liberality of our laws and the width of the immunity. Correspondingly, there is a great deal of abuse of that immunity. Diplomatic immunity has existed since ancient times. It has been recognised by civilised States as almost the first step in international comity. The benefits of international trade, traffic and communications flow from such arrangements, whereby States may seek representation in each other's territory for the mutual progress of mankind.
Thus, an outrageous breach of civilised standards occurred last year in Iran and is continuing there. It has been nine months since the taking of the hostages in the American embassy, and the position seems to be getting worse. Every rule applying to these wretched people has been broken and, apparently, nothing effective is being done.
All States have an interest in respecting diplomatic immunity. The USSR and those other nations which seem at the moment to be standing on the sidelines of this dispute have just as much to lose as the United States or any other country. They are just as vulnerable to such legal action. In other words, there should be international action against those responsible for this outrage. It should not be a matter for the West alone.
Because of the polarisation of international politics, once the West takes up an issue it becomes a part of power
1212
politics and the struggle between East and West and loses its true international aspect. The United Nations, par excellence, is the institution to resolve this problem. It is ideally cast as the forum for the expression of world anger at this breach of the principle of diplomatic immunity.
I want to raise some questions about apparent breaches of diplomatic immunity in London. How extensively is it granted in this country? There are about 125 resident and 14 non-resident missions here. When I last asked a question on the matter, I was told that more than 20,000 diplomatic agents were accorded diplomatic immunity. That is a large enough figure, but how many others are covered by the ancillary provisions of the Vienna convention? Especially, members of the families and domestic staffs of the diplomatic agents are entitled to immunities. There are varying grades of immunity, but the total number of those exempt from this country's jurisdiction must be huge—possibly as many as 100,000.
If that is an exaggerated estimate, I hope that the Minister will correct it. All those people are immune from arrest, from our taxes and from many of our laws in respect of their personal conduct and their own property. Are we satisfied that only those are here who are needed to do the diplomatic jobs in this country?
There have been outstanding examples of diplomatic immunity having been abused in respect of espionage. I think that it was the Conservative Government of 1971 who declared about 100 citizens of the Soviet Union in this country as diplomatic agents to be persona non grata. As a result, they were sent home.
It came as a surprise to many people that there were as many as 100 people who could be sent home. The total number must have been so great that 100 people could be sent home and still the diplomatic activity of the Soviet Union could go on in this country, apparently unimpaired. Secondly, it must have been surprising that there could have been grounds—as there obviously were—for supposing that those people had been acting unacceptably and had been involved in espionage.
The difficulty is that London is a key diplomatic city for these purposes. The

1213
Iranian embassy at Princes Gate was chosen, according to one of the hostage takers, to attract attention to their cause because of the publicity which it was known BBC television, the broadcasting authorities and the media generally in this country would give them. They knew that they would get the greatest possible publicity from carrying out their evil deeds in this country. They were representatives of a minority group in Iran whose grievance was against the central authorities there. Their grievance was centred there and had nothing whatever to do with this country.
It is perfectly true to say that the BBC, and the media generally, are always willing to give publicity to terrorists. Indeed, if they observed British interests in Northern Ireland more and refused to cooperate with the publicity-seeking methods of the IRA the menace of the IRA in Northern Ireland would not be nearly as great as it is.
In recent times, the most notorious case of abuse of diplomatic immunity concerns the Libyans. Colonel Gadaffi has openly thereatened violence to Libyan exiles outside his own country. In effect, he has sentenced some of them to death. It appears that the assassination squads have been about in the world and that the Libyan embassy in London has had some responsibility for their organisation and for their operations here, resulting in the killing of two of Colonel Gaddafi's political opponents.
It is good to know that the Government decided that some people in the Libyan embassy should be required to leave because of their unacceptable activities, but of course the real menance is that any diplomatic mission can be used—and perhaps more than one—to promote causes involving violence, and even murder, in this country.
The Libyans, in particular, are playing a rather curious game in designating their missions as people's bureaux. As far as I know, there is no such thing in diplomatic practice. There might be a mission, in which there is an ambassador, a high commissioner or a papal nuncio, but one has never heard of a secretary of the people's bureau. I hope that the Government will insist that by whatever name these missions are called they still observe the rules that entitle them to diplomatic immunity.
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What can we do about all this? There are two aspects to the problem. The first concerns control over the individuals who have been misbehaving. I hope that the Government will make greater use of the powers to declare persona non grata individuals against whom there is any evidence whatever of misbehaviour and send them back to their own homes and away from this country. I hope, too, that the Czech diplomat who was obviously the worse for drink when driving in Kilburn recently, and who alleged that he was beaten up by the police—which I am sure was a patent falsehood—will be sent home. Obviously he abused our hospitality. Where there is the slightest evidence against a diplomatic agent, I hope that there will be no hesitation in sending him home and communicating with the Government concerned for that to be done immediately the evidence is in possession of the British Government.
The suspicion is that many of the weapons and explosives used in Britain in recent violent incidents were brought here in diplomatic bags. One can wonder about that, because there must be over 100 lawful points of entry for goods. Firearms can be imported in crates of fruit and other apparently normal imports, but the diplomatic bag is inviolate. Article 27 of the Vienna convention provides that a properly authenticated diplomatic bag is not to be opened or detained. To what extent are we entitled to ensure that the duties incumbent on a mission in importing goods in a diplomatic bag are being observed? Should there be some form of electronic scan or X-ray to enable us to ascertain whether firearms are in a diplomatic bag?
It is alleged that the use of such a device could be regarded as a constructive opening of the bag. If that is so there is a strong argument for amending the Vienna convention. After centuries of diplomatic practice it is now possible, with the sophisticated devices available, for many items to be brought in through the diplomatic bag, unknown to the metropolitan authorities, which were not contemplated when the convention was agreed. If it is possible to amend the convention to give power to check on the contents of diplomatic bags, that should be done by the British Government. The Vienna convention also allows for some

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examination of the personal baggage of diplomatic agents. The Government are obliged to ensure that the terms of the convention are complied with. The spread of terrorism here and abroad is so great that urgent action is needed to protect the citizens of this land. I hope that my hon. Friend and the Government are taking the problem seriously.
12.19 am
The Minister of State, Foreign and Commonwealth Office (Mr. Douglas Hurd): My hon. Friend the Member for Orpington (Mr. Stanbrook) is right to raise this matter, and I am grateful for the thoughtful manner in which he has done so. I associate myself entirely with his remarks about the American hostages in Tehran.
The whole question of diplomatic immunity, and the use made of it, has aroused considerable concern in this country in recent weeks and months. The points that my hon. Friend raised deserve careful scrutiny. The problem arises because London is one of the great diplomatic capitals of the world. There are 139 diplomatic missions in this country, employing 2,388 diplomats and 3,077 administrative and technical staff who are entitled to full immunity. There are other people, service staffs, and so on, who are entitled to partial immunity in their official acts, and there are also dependants. The total, although falling short of my hon. Friend's estimate, is substantial.
We have lived through a period of rapid rise in the number of nation States. I do not think that there is likely to be much further expansion, but the increase has meant a dramatic growth in the number of diplomatic missions here. On balance, we benefit from that fact. The Government would not like to see London dwindle away and embassies based elsewhere, simply sending someone here from time to time on particular pieces of business.
There is one other aspect that I should mention. We not only entertain diplomats here. We maintain a powerful diplomatic service—powerful perhaps in quality rather than total quantity—and the effectiveness of that service is important in the success of our undertakings.
In considering the question of diplomatic immunities we have to consider also
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our own diplomatic service and its needs. Our diplomats are enjoined and required strictly to observe not only the Vienna convention but the laws and regulations of the receiving State in which they happen to serve.
My hon. Friend rightly drew attention to certain aspects of the Vienna convention. He did not fall into the error, which one does sometimes see conveyed, that diplomats, through the convention and through their immunities, are absolved in some way from respecting the laws of the country in which they serve. That is not so. Article 41 of the Vienna convention is specific on that point. It states:
" Without prejudice to their privileges and immunities, it is the duty of all persons enjoying such privileges and immunities to respect the laws and regulations of the receiving State."
It is our intention to make it clear that that article must be respected in this country. We do not intend to allow embassies in London to become a haven from which illegal acts can be worked out and devised and from which such acts can be equipped and carried out by mischievously disposed persons. I hope that we showed that clearly in the action that we took, to which my hon. Friend referred, in the case of the Libyans connected with the Libyan embassy. From this point of view, as he rightly says, it makes no difference what they call themselves at the present time.
We asked that these four people should be withdrawn because we believed that they were carrying out activities that were incompatible with their functions. As my hon. Friend will know, there was no suggestion that they were connected with the murders, which are sub judice, and for which other people are in police custody.
I hope that the action that we took in respect of the Libyans will be clearly understood by all those concerned. As my hon. Friend remarked, we have power to declare diplomats persona non grata. That power exists under international law and we shall not hesitate to use it when we think the circumstances justify it. We shall not hesitate to take any action open to us under the law that we believe is needed to ram home this particular lesson.
In the sixteenth and seventeenth centuries London suffered acutely from affrays between different ambassadors and

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their retinues. We have no intention of allowing such affrays to be repeated with the much more terrible weapons of today, let alone allowing embassies in some way to be used as headquarters from which foreigners peacefully living here and going about their lawful occasion can be intimidated and harassed.
My hon. Friend referred rightly to the question of firearms, which obviously exercises us a great deal. It follows from article 41 of the Vienna convention, which I have already quoted, that diplomats here, all members of embassy and consulate staffs, are subject to the provisions of the Firearms Act 1968. That is to say, they need a firearms certificate in respect of any type of firearm and ammunition, except shotguns for sporting purposes. For those they need a shotgun certificate.
Diplomatic missions here have been reminded of these facts several times, most recently last month, and they have been told again that no firearms certificate—this is an important point—will be granted by the police in respect of weapons intended for purposes of protection. That is to say, a certificate will not be granted simply on the ground that the person owning the weapon wishes to use it to protect himself. We regard it—this is sustained by international law—as the duty of our authorities in the United Kingdom—the police—to protect diplomatic missions. I think that we gave evidence of our determination of this fact in the siege at Princes Gate.
If there were to be firm evidence that firearms were found either in the possession of diplomatic missions, as such, or of their staffs, or that firearms had been passed to others through diplomatic missions, that would be a very serious matter, of which we would take a very grave view. I choose my words carefully, but I hope that they will be noted. It is the duty of anyone possessing such firm evidence to let us know, so that the necessary steps can be taken.
My hon. Friend referred to the possibility of the scanning of diplomatic bags in an effort to make sure that this abuse could not occur. He quoted, appositely, article 27 of the Vienna convention, which does not specifically prohibit scanning but says that diplomatic bags shall not be " opened or detained ". There is a practical
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point here which I have not seen mentioned in the press. I am advised that scanner would not necessarily pick up a weapon in a diplomatic bag. Weapons can be stripped down and concealed in containers which the scanner might show to contain peaceful and legitimate equipment—for example, spare parts for some piece of official equipment.
It is not clear, therefore, that the introduction of scanning would provide some total magic cure to this possible problem. Here again, I say that diplomatic bags may be used only for carrying objects or documents that are intended solely for official use by a diplomatic or consular mission. If there is hard evidence of malpractice in this respect which comes our way and satisfies our investigations, we shall not hesitate to take the necessary action.
My hon. Friend concluded by asking: why not amend the Vienna convention to tighten up these particular provisions? He will know from his professional experience that the convention cannot be amended unilaterally. One would have to reopen negotiations to secure agreement. A number of countries have proposed that the Vienna convention should be amended, but the design of those countries is that it should be amended to give more protection to the diplomatic bag and to the diplomatic courier. Those proposals are being mulled over by the International Law Commission. We have expressed the view—I think that my hon. Friend would agree—that sufficient protection is already given to the diplomatic bag and to the diplomatic courier, and that we should not seek to add to the protection. But the efforts to amend the convention are in the opposite direction to that suggested by my hon. Friend.
The Vienna convention is a relatively modern and well-thought-out international law. The fault lies not in the convention but in its imperfect observance. We are clear that with regard to this country and to our diplomatic service overseas the convention must be observed. We shall be resolute—I hope tactfully—in making sure that it is observed in regard to missions in this country. It would be unfortunate if, as a result of something that occurred, some sort of popular feeling was stirred up against diplomats or embassies in London. The vast majority behave in a way that my

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hon. Friend and I appreciate, and then-presence here is welcome. But where there are lapses and breaches of the convention and breaches of our laws, and where clear evidence is available of such breaches, it is part of our duty as a Government in the securing of law and order to ensure that those breaches are met by the action that is available to us under international law.
We have given evidence of our determination in this respect, both as regards the Libyans and the siege at Princes Gate and the different conversations and discussions that took place in the context
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of that siege. I am glad that my hon. Friend has raised the matter in the House. It is one that has aroused greater public interest than the number of hon. Members present in the House would indicate. I hope that my hon. Friend will keep us up to the mark. He can be assured that in the Foreign Office and in the Government this is a matter to which we are giving a good deal of thought, and on which we shall not hesitate to take action if the circumstances require it.
Question put and agreed to.
Adjourned accordingly at twenty-eight minutes to One o'clock.