Motion made, and Question proposed,
That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of—
§ Mr. James Callaghan (Cardiff, South-East)
The ordeal of addressing the House for two hours on a Budget speech is one which has not been shared by many and I would like to express to the right hon. and learned Gentleman our felicitations on the way in which he has delivered the Budget.
It is a difficult matter to prepare, as I know. There were not too many flights of eloquence in the Chancellor's speech. However, at the beginning I thought I heard the Chancellor say that sterling M3 would be swollen by unwinding the corset but that it could be accommodated within the target. I am not sure that I can do justice to that flight of fancy but I am certain that my right hon. Friend the Member for Leeds, East (Mr. Healey) will be able to do so tomorrow.
I am glad to note that there has been some feminine influence in the preparation of the Budget, exercised by the former deputy chairman of the Equal Opportunities Commission, even if that influence did not produce anything more than a Green Paper at this stage. I only wish that she might have had greater influence on some other parts of the Budget.
The right hon. and learned Gentleman has now become a Chancellor in every sense of the word. Not only has he introduced two Budgets: he has carried a Finance Bill through. That fully qualifies him to join the club. However, I warn the Chancellor. When I was Chancellor of the Exchequer in 1964, a short letter appeared at the foot of the correspondence page in The Times. It said:Dear Sir,Since the war there have been only two kinds of Chancellor of the Exchequer—those who left in disgrace and those who got out in time.When I was Chancellor, inflation was 4 per cent. per annum and wages increases were 7 per cent. per annum. We 1492 have just listened to the most depressing and pessimistic account of our position that I can remember for many years. Despite the growth in North Sea oil resources and revenues and the benefit and boom that they will bring, the Chancellor estimates a growth of only 1 per cent. per annum in our output from now until 1983–84. That includes North Sea oil.
Let us be clear. The Chancellor is really budgeting for a fall in output each year from now until 1983–84 in the non-oil sector. Only the oil gives him a growth figure. If that is not a most depressing and pessimistic account, I do not know what is. It contrasts vividly with the enthusiasm with which he approached his task last year. He told us then that it was an opportunity Budget. He said that his tax reductions were only a first step and that the Budget marked a turning point. Yes, it did, but the turning point was in inflation which has doubled in a year. There was a deterioration in our balance of payments of an incredible character considering the North Sea oil revenues and balance of payments' savings. A dramatic unemployment increase is forecast. We can expect a continuing decline in output with the highest level of interest rates that we have experienced.
The Chancellor of the Exchequer tells us that in the next three years he intends to preside over an economy which will combine stagnation, high unemployment, inflation and a deteriorating balance of payments. My right hon. Friend the Member for Leeds, East tells me that the figures which we have been given show a range for the inflation index for next year of between 14 per cent. and 19 per cent., with a halfway figure of 16½ per cent. That is the basis on which the Chancellor is going forward and on which he expects a response. He cannot expect to get one on that basis. The Chancellor has disillusioned the country with his pessimistic and dreary approach this afternoon.
Every good Budget should have a theme. It is possible to sum up the theme of this Budget. The theme is three years of austerity and industrial decline on the basis of a stagnating economy combined with shifting the burden from the healthy to the sick and from the rich to the poor.
This is certainly a consolidation 1493 Budget. It represents a consolidation of failure. It is necessary to consider not only the Government's economic policies but their attitude towards our community. Just a few actions can set the tone. Let us consider one or two of them. We are told that we should consider public expenditure on social benefits against the tax that is required to raise the revenue devoted to them. The new system of producing the public expenditure figures only after the Chancellor has sat down should be reconsidered. It is unfair that the House should have no opportunity to consider the real aspects. That applies to all hon. Members. I do not dispute that there might be a good case for debating the Budget and the public expenditure figures together. However, the House should have the opportunity at least 10 days or a fortnight before the Budget to see the documents. I ask the Government to reconsider this matter because it has caused great inconvenience this year.
I shall not accuse the Government of anything but the new system hides the real consequences of some of the cuts in public expenditure. I should like to examine the documents with great care before I come to a conclusion. However, an inference can be drawn from what has taken place.
Let us consider public expenditure and tax charges together. Last year the Chancellor reduced the top rate of tax to 60 per cent. to give the £30,000 a year man £4,000 a year more. This year he is reducing the benefit payment for the sick by a figure 5 per cent. below the increase in the rate of inflation. Is that really what the House wants? Is it really the philosophy of the modern Conservative Party? I do not believe that we have a Conservative Government any more. It is a classic nineteenth century Liberal Government. Some Conservative Members would like to turn the twentieth century Welfare State into a nineteenth century board of guardians.
The Budget does nothing to help our exporters. There was hardly a word about the necessity of exporting or the consequences of it during the whole of the Budget speech. The Budget does nothing to assist our unemployed young people. It does nothing to reduce the highest interest rates that we have ever had. It 1494 decreases output but does nothing to help it.
Last year the Chancellor made the fatal mistake of increasing VAT by about 4 per cent. just at the beginning of the union conferences. Once bitten, twice shy. He has not done that this year. He has increased the retail price index by a little over 1 per cent. If the Chancellor expects an inflation rate of between 14 per cent. and 19 per cent. in the next 12 months when the union conferences are beginning to discuss their claims for this year I can tell him from years of experience that the unions will rely upon that figure. How will the Chancellor break out? The Government repel the trade unions at every opportunity. They shut the front doors of No. 10 and the Treasury to the unions. The Chancellor should be seeking their co-operation from tomorrow to deal with the tragic situation. Otherwise, earnings will run far ahead of productivity and the position will be made even worse than it is today.
The Chancellor should call the unions in. He should swallow his pride and see what can be done to help us avoid a repetition of the last 12 months. The Chancellor has hung the money targets and public sector borrowing requirement around his neck. In the next two or three years he will slowly tighten the noose. If he does not, someone else will tighten it for him.
If the Chancellor feels that in the interests of his policy—a policy which we do not accept—he must make petty and mean charges, it would be far better to impose a further increase on the price of cigarettes, for example, than to charge the sick. I am sure that the country would accept that. The Chancellor reveals an improper sense of priorities in his mean and petty savings.
The Chancellor was speaking for one hour fifty minutes before he said anything about unemployment. But he said nothing about the fact that, according to the latest publications, youth unemployment may double by this time next year. There is no recognition of this in the Budget. As I know already from the public expenditure figures, the Government have cut £100 million from the Manpower Services Commission for 1979–80, and £170 million for 1980–81. Twenty per cent. of all the unemployed are now long term. The Government are closing 1495 down youth training centres and skill-centres. Every hon. Member has received a memorandum today showing that the places available for training in London for unemployed young men and women are to be cut by one-third.
Is this really the kind of Budget and are these really the kinds of proposals and priorities that the Government think are acceptable to the country? I tell the Government that they are not. We note the pathetic provision that the Chancellor is making for small workshops. I heard his hon. Friends cheer; I suppose that they had nothing else to cheer. But this provision is irrelevant in relation to the size of the problem that the Government's policy will create over the next 12 months. When I contrast it with his compassion and his detailed care for those who will have to pay capital gains tax or capital transfer tax I am bound to say that I resist and resent this kind of Budget put forward in this way.
I now turn to the question of deeming. The Chancellor told us that he intends to ensure that £12 a week is disregarded in the payment of benefits to the family of a striker. I do not know whether many people know it, but strikers are already treated worse than unemployed people in terms of social security benefits. [Interruption.] Maybe it is the philosophy of Conservative Members that they should be, but my point is that strikers are already treated worse than unemployed people.
When we look at the social security benefits paid to a striker's family, we find that the short-term benefits make no allowance for the man himself, but a deduction of about £15 a week is made. The striker is £15 a week worse off than the man who is unemployed. The Government now propose to make him a further £12 worse off than the unemployed man. This is the way in which the Government will create social tension out of all proportion—[Interruption.] I sometimes wonder whether the Government know what they are doing in these matters.
With regard to the child benefit allowance, the Government have been as mean as it is possible to be in relation to their past promises and undertakings. The Chancellor told us that the allowance was to be raised to £4.75. He is of course, raising the personal allowances—although even there he is chiselling a bit away, 1496 as I shall show in a moment. But if the Chancellor were to raise the child benefit by the same amount as the increase in inflation, the figure would have to be somewhere between £5.10 and £5.20 a week.
This is the party which said that it cared for the family. This is the Government who said that they were going over to a tax credit system. If words of mine will not persuade the Government or the Chancellor, let me quote what the present Secretary of State for Social Services said in 1977. He was explaining why the Conservatives were committed to doing this, without any ifs or buts. He said:first, because that is the way to restore the position of families. Secondly, it is the best way to ease the poverty trap. Thirdly, it is the best way to help poorest families in work.…Fourthly, it is the best way to reduce the nonsense of people being much better off out of work. Fifthly, it is the best way of reducing the dependence of families on means-tested benefits."—[Official Report, 17 June 1977; Vol 933, c.794–95.]There is an overwhelming case—and every Conservative Member knows it—for the undertakings that have been given to raise the child benefit to £5.20.
Although we have only just heard what the Chancellor said about personal allowances, I believe that I am right in saying that he has also chiselled in that respect. [Interruption.] Yes, he has. He has abolished the reduced rate that is paid on the first £750 at 25p in the pound, but he has not given full compensation for that by the increase in the personal allowances. If he had done so, the figures would have been rather higher than they are now. For example, he is raising the single person's allowance to £1,375. When the abolition takes place, the equivalent figure should be £1,405, not £1,375. For the married man, he is proposing to raise the personall allowance to £2,145, but he is making him worse off. He is abolishing the reduced rate of 25p and replacing it by the figure of £2,145, whereas, in order to start square, it ought to be £2,165. I note that there is no contradiction of this. The House will want to know—[Interruption.] Oh, the Chancellor said that he was chiselling, did he? I am much obliged.
Another group of people who will suffer much more are those who do not pay tax, or who have not paid tax, at more than 25p in the pound. They will suffer in two ways. First they will suffer because they will now start paying tax at 30p in 1497 the pound instead of at 25p in the pound, and, secondly, because they are not getting the full compensation for their allowances. There can be no doubt that the Chancellor has chiselled these allowances. He has saved something here and there and has not given the full increase to which people were entitled in this regard.
I now come to the sickness and unemployment benefit and to the taxing of the invalidity benefits. These are paid when people are at their lowest ebb. It is a disgrace for a Government to increase the invalidity benefits by 5 per cent. less than the increase in the retail price index. Conservative Members must be ashamed of their own Front Bench.
Obviously, there are some points that we must welcome. The proposal that the Chancellor makes for increasing the single allowance for widows in the first year of widowhood is one in which we should all rejoice. I am sure that we are all glad about it. I also applaud very strongly the relief from taxation in the case of gallantry awards. There is also everything to be said for ensuring that the supplementary benefits reflect the full range of price increases. There is much to be said for increasing the petroleum revenue tax from 60 per cent. to 70 per cent. The provision concerning leasing ought to go, of course, and that is quite right. The proposal concerning stock relief is probably quite right, but we shall need to look at it more carefully.
Although there are several things that we can welcome in the Budget, generally speaking, it is a Budget in regard to which there are broken undertakings—the child benefit allowance is the classic example of that. It is a Budget in regard to which the Government are running the economy deliberately for a fall of about 2½ per cent. this year—and with an increase in inflation. It is a Budget which assumes that the decline will go on. It is a Budget which does nothing at all to relieve for months to come the burden of high interest rates. It is a Budget which ensures that the monetary targets and the effect of them will be swamped by the loss of output that will flow from fixing those targets where they are.
We need an approach to our problems that is entirely different from the approach set out in the Budget. My right 1498 hon. Friend the Member for Leeds, East will undoubtedly make a further examination of it tomorrow. It is the most hopeless Budget that we have had since the war, and in regard to the social groups it chooses for rewards and penalties it is the meanest Budget that we have had since 1931.
§ 6 pm
§ Mr. J. Grimond (Orkney and Shetland)
The more I listen to Budget Statements, the more I become convinced that the future of this country lies not in the financial or fiscal proposals of the Chancellor, of whatever party, but in the structure of our industry and the state of our industrial relations. What Budgets can do in relation to those matters is limited.
It was apparent from the speech of the Leader of the Opposition that, if there is an alternative to the Government's policy, it is a statutory incomes policy. I do not share the enthusiasm which exists in some parts of the House, and in the Liberal Party, for such a policy. However, I must tell the Labour Party that that is the alternative. If Labour Members feel that the Government's measures are bound to fail, there is no other possible choice except a statutory incomes policy.
I was very glad that the Chancellor bad an idea. As far as it went, I thought that it was a good idea. The measures that he proposed to help small industries and to encourage wider share ownership were welcome. I hope that he will have another idea next year. However, I hope that he will carry this year's idea further.
I think that the future lies mainly with small industries, not with the large public monopolies, but a great deal more must be done. We need more reform on the planning procedures. We should encourage workers not only to take shares in industry, but, through co-operatives, to run industries and to employ their own management.
The Government must curse the day when the press in this country got hold of the word "monetarism". It has come to mean a sinister torture invented by Mr. Milton Friedman in Chicago. It means no more than the elementary fact that, if people have more money to spend and there is no more to spend 1499 it on, prices will go up. Mr. Friedman did not invent that important dictum. It would be true under Socialist, Conservative or Liberal Governments.
It is certainly true that inflation will go on so long as an increasing part of this country's resources is expended on non-productive work. If that is part of their long-term thinking, I agree with what the Government are trying to do.
It must also be said that endless rises m pay, salaries and allowances of all kinds without increased productivity are the cause of inflation and poverty. They are the main trouble from which the country suffers. I consider it unfortunate that the top people in charge of the nationalised industries, many of which are far from profitable, are to get increased salaries. It is very unfortunate timing. The general clamour for higher salaries and wages is suicidal.
I want to deal particularly with North Sea oil and gas. The Chancellor mentioned this subject, but he did not tell us how it fits in with the Government's long term strategy. There is a danger that our important resources in the North Sea and the revenue from them will be wasted. It is estimated that the Government are at present getting £2 billion in taxation from oil and gas and that, by the middle of this decade, that figure will rise to about £18 billion or £20 billion. That is about half the yield of income tax and is by far the most striking feature of Britain's financial position.
What is to be done with these resources? I fear that they will be frittered away. It has already been claimed that, by selling off assets, the Government will be able to reduce public borrowing. There is a danger here of confusing capital and income and of using capital assets to reduce the calls upon income. Then there is always the danger that the revenue will go into the Exchequer and be used for general purposes—possibly to assist in reducing taxation and to excuse the Government from undertaking the cuts in non-productive expenditure, to which they are committed and which I think are essential for the future of the economy.
I hope that we shall be reassured that the oil revenue will not be used as a cover to excuse the Government from carrying out reductions in public expenditure on which I hope they will keep 1500 their mind focused. These excellent Blue Papers are produced, but they are not always put into practice as readily as promised lead one to hope. Of course, this revenue could be used to bribe the electorate by making reductions in taxation and using it for many other purposes.
Three purposes should be considered. First, Mr. Brittan and Mr. Riley have suggested that a North Sea stock should be issued so that people would feel that they had gained some advantage from our huge resources in the North Sea. There are objections too, but also great advantages in, that idea. I believe that individuals will make better use of it than Governments. It will also give the public the idea that they are gaining from their own asset.
The second purpose is to set it aside as a special fund at arm's length from the Government and use it for productive investment. I do not think that the British economy suffers purely from lack of investment. Much more serious is the failure to make good use of the investment that we have. We pour money down the drain of the nationalised industries in the name of investment and waste it. However, if we could be sure that the investment would be profitably used, we could do much more with it. I believe that we should reserve some of our North Sea revenues for that purpose.
Thirdly, it could be used to reduce the cost of energy. The Government's proposal on this issue is the exact opposite: that energy should be made more expensive as a method of conservation. I object to that. I deplore the increase in the petrol tax. Those who live in the countryside, who already pay an enormous price for petrol, will resent this increase. I cannot see the point of increasing petrol tax at this point. There is a certain tendency—from which I hope the Government do not suffer—to look at prices which have not gone up since 1977, for instance, and therefore decide to put them up now. I see no reason for increasing taxes because they have not been increased for a long time.
The least conservation conscious elements in our society are public authorities. Public buildings are over-heated. There is no sign that authorities are economising in the building of new public offices or schools. Schools are still being built which, even at present-day prices, 1501 will require £70,000 a year to heat and light.
There is no reduction in the use of cars. Most private cars are either on expense accounts or are used by officials. Will Ministers and officials now have to pay tax on the cars which I understand they get free and untaxed? Fishermen in my constituency who travel to ports have to pay tax if they get any free transport either by sea or by road. I cannot see any difference between them and Ministers and Government officials who are not taxed.
The most striking waste of energy is the flaring of gas. Enormous quantities of gas are flared off every day from platforms in the North Sea and the terminals on shore. No attempt is made to use that gas for generation of electricity. Hydro boards and gas boards in Scotland have made no serious effort to use it.
In my constituency alone some 3 million cubic feet of gas is flared off daily. For the North Sea as a whole the figure is about 487 million cubic feet. People read in the press about the waste of gas, and find it strange to hear talk of economies. The Gas Board is proclaiming that rises in the cost of gas are "inevitable". They are not. There is no reason why we should follow world prices. The Gas Board makes a huge profit, as do to a lesser extent the hydro boards. It is exasperating, at least to my constituents, to read these advertisements of increased gas and electricity prices when such large quantities of gas are burnt in the air every day.
I beg the Government to tell us more about their long-term policy for North Sea resources. I trust that those resources will not be frittered away or used as an excuse by the Treasury for not taking action in other ways. Efforts should be made to use products such as the flared-off gas.
We should not be taken in by talk of an inevitable oil and energy shortage. The reserves in the North Sea are enormous, and there are probably new fields to be discovered. We have huge reserves of coal. We are in danger of being conned into the belief that there will be a total energy shortage. By the time that coal is exhausted, we shall surely be using solar energy. Although there may be 1502 problems in the medium term, I am less pessimistic about the long term.
I hope that the Government will not lose sight of that important aspect of our economy over the next 10 years. I am not confident that they have yet thought out their future policy for North Sea oil and gas and for the large and ever-increasing revenues that will come from the North Sea.
§ Mr. David Knox (Leek)
I am grateful for the fact that I have been called to speak at this early stage. As the first Conservative Back Bench speaker, I join the Leader of the Opposition in congratulating my right hon. and learned Friend the Chancellor of the Exchequer on the delivery and content of his Budget speech. It was a long speech, but not boring, as most Budget speeches have been over the 10 years that I have listened to them.
My right hon. and learned Friend has been Chancellor of the Exchequer for 11 months. He introduced his first Budget shortly after he came to office. This is his second. He has had only two Budgets in 12 months. Had the right hon. Member for Leeds, East (Mr. Healey) been Chancellor of the Exchequer, we should have had at least half a dozen Budgets in the same period.
Overall, the Budget is less bad than we were led to believe from press leaks in recent weeks. I welcome the increase in the retirement pension. We are well aware of the problems faced by the elderly who have to live on limited fixed incomes at a time of high inflation. I believe that all hon. Members are delighted that full allowance has been made in the retirement pension increases for inflation over the past 12 months.
I also welcome the 18 per cent. increase in personal tax allowances. Last year's reductions in direct taxation will therefore not be lost through inflation.
I also welcome the abolition of vehicle excise duty on the electric car, which will contribute to energy conservation. I hope that Treasury Ministers will consider incentives for those developing the electric car.
The enterprise zone concept is attractice. It is no more than an experiment, but I hope that it will be successful and 1503 play a substantial part in regenerating our inner city areas.
I regret the limited increase in child benefit. It is a good benefit that helps the poor and encourages hard work. I am sorry that my right hon. and learned Friend did not feel able to go further.
I regret even more deeply the decision to end earnings-related unemployment benefit. It is a good benefit and particularly important at a time of rising unemployment. I appreciate that many people are covered in other ways. However, it is difficult for a person who becomes unemployed suddenly to cope with a considerable drop in income at the beginning of that period. It may be easier after some months. That benefit also helped to promote greater mobility of labour. It enabled people moving from one job to another to have a reasonable income during that period. We have a problem in our lack of mobility of labour, and earnings-related unemployment benefit has played a part in improving this situation.
The general state of the British economy is worse today than 12 months ago. The annual rate of inflation is 18.4 per cent. as against 9.3 per cent. 12 months ago. The number out of work is 1,470,000, as against 1,455,000. The annual rate of economic growth is 1.7 per cent. as against 2.7 per cent. 12 months ago. Before the Labour Party claims that that is the fault of this Government, it is important to note that there is a time lag of 12 months or more between taking actions that affect the economy and those measures taking effect. The previous Government are responsible for our serious economic plight. It is the consequence of their actions, not the actions of this Government.
But this Government have been in office for almost 12 months now, and increasingly over the next few months the various economic statistics will represent the consequences of this Government. It is no secret that I have grave reservations about monetarism and even graver reservations about the excessive reliance that the Government place on it. This is not to deny that monetary policies have a part to play in economic management, but for a number of reasons I do not believe that monetarism is a panacea for all our economic ills.
First, it is difficult to quantify the exact 1504 increase in the money supply. Secondly, any measure of money supply inevitably excludes an increasing number of transactions which have economic significance but which do not involve the use of money. Thirdly, it is not possible to know in advance exactly what the velocity of circulation will be. Relatively small upward or downward movements can be significant.
I make these points not because I believe that monetary policy is unimportant but because it has severe limitations. It is expecting too much of monetarism that on its own it will cure inflation and resolve our economic problems. We need to use every available economic tool to achieve such objectives, including fiscal and incomes policies. To place the reliance which the Government do on controlling inflation and the economy by controlling the money supply seems to me like putting all one's eggs in a basket which almost certainly has biggish holes and which one is not totally certain has a bottom.
If there is to be an improvement in British economic management and in our economic performance it is important that the Government should use all the tools of economic management. Although my right hon. and learned Friend gave no indication of it earlier, I hope that as the Budget debate proceeds other Treasury Ministers will indicate that the Government intend to use the other economic tools of management that are available.
I turn to a consideration of the exchange rate, which is related, to some extent, to what I have been saying. There is little doubt that the current level of the exchange rate is damaging our industrial base. It is sustained by high interest rates and oil revenue. In terms of manufacturing costs, it is at an unrealistically high level which makes it difficult to export British products and much too easy for foreign products to be competitive in the British domestic market. Consequently, British manufacturing industry is losing ground, both at home and abroad.
That is hardly surprising when one considers that our currency stands, in real terms, 10 per cent, higher than before the 1967 devaluation of the pound. It is important that action should be taken to adjust the exchange rate so that 1505 it is at a more realistic level in terms of manufacturing costs.
That could be done by reducing interest rates—of course, it would he easier to do that if we were not so dependent on monetary policy—and by encouraging capital outflows to ensure that the short-term revenue from oil is replaced by long-term revenue from overseas investment.
In the short term, as my hon. Friend the Member for Loughborough (Mr. Dorrell) suggested in an article in The Observer on Sunday, this outflow could be created by speeding up the repayment of some Government overseas debts.
However, a readjustment of the exchange rate is not enough. It is in our interests and in the interests of world trade that we should move back towards a more stable international monetary system, with fixed but flexible exchange rates again. There is little doubt that the stability of the international monetary system in the 25 years after the war contributed to the post-war expansion in world trade.
The system of fixed exchange rates which was worked out in Bretton Woods in the mid 1940s provided an environment in which international trade could expand. Britain benefited particularly from that, because of our dependence on trade. Unfortunately, in recent years, the Bretton Woods arrangement has broken down and we have gone back to floating exchange rates. The stable conditions necessary for the maintenance and expansion of world trade no longer exist. As Britain has to export about one-third of its national income to pay for imports, the change has not been in our interests.
Unfortunately, a new worldwide agreement on the lines of Bretton Woods, desirable though it may be, is not even on the horizon. The best that we can hope for is an arrangement on a regional basis. For Britain that means in the EEC as members of the European monetary system.
It would be in Britain's interest to join the EMS, particularly if our exchange rate were fixed at a more realistic level. I hope that the Government will give serious consideration to Britain joining the EMS and that we shall do so soon. 1506 If we were to join. I suspect that our budgetary problem with the EEC would be easier to solve.
I said earlier that I thought that we should use every available tool of economic management. That includes an incomes policy. I have never believed that incomes policies could achieve perfection on their own, but then I do not know of any policy that does so.
Nor have I been blind to the defects of incomes policies. I recognise fully that incomes policies introduce a degree of rigidity into the labour market and that they tend to squeeze differentials and consequently weaken incentives for upper and middle management. I also recognise that inherent in any incomes policy is the possibility of confrontation between the Government and a powerful trade union.
However, I find it impossible to believe that home-generated inflation in Britain in 1973 would have been the lowest in any OECD country without the incomes policy of the then Conservative Government. I also find it impossible to believe that inflation would have been reduced from 25 per cent. in 1975 to just over 8 per cent. in 1978 without the incomes policy of the Labour Government.
§ Mr. Alan Clark (Plymouth, Sutton)
My hon. Friend is keen on incomes policies. Will he tell us whether he thinks that they should have the force of statute or simply be by invitation?
§ Mr. Knox
It depends on the circumstances obtaining at the time. I should prefer a statutory incomes policy in certain circumstances, but in different circumstances I should prefer a voluntary policy.
I am certain that we need some form of incomes policy. Such policies have a useful role to play. That view is further substantiated, because I do not believe that free collective bargaining is possible in the labour market in Britain today. It is neither free nor is it bargaining. It is the naked use of monopoly power in the labour market, with the biggest rewards going to those with the greatest monopoly power.
In my view, that monopoly power cannot be broken, for political and social reasons, and, on the evidence, I do not believe that economic measures are 1507 capable of weakening it. An incomes policy applied fairly to all could help to moderate wage and salary increases, which are the consequence of the use of that monopoly power and, in so doing, would reduce cost inflation.
I hope that the Government will give serious consideration to the introduction of an incomes policy. There is no doubt that the present situation is serious. Over the past 12 months earnings have gone up by about 20 per cent., compared with an increase of less than 12 per cent. in the previous year. Since I do not expect any increase in output over the next 12 months—I gather that that is also the view of the Chancellor of the Exchequer—it means that we shall still have pretty high inflation a year from now.
From time to time the Government have stated their opposition to an incomes policy, but they have said that they might, in certain circumstances, introduce a freeze. A freeze is all right if inflation is in single figures, but it is not on if inflation is running at a rate of 20 per cent.
The Government should enter into negotiations with the trade unions and the CBI with a view to getting an agreement on a maximum percentage increase in the next wage and salary round. I am not certain what the exact figure should be, but I imagine that it would have to be between 10 per cent. and 12 per cent.
I know that critics of incomes policies argue that any good that they may do is undone at the re-entry stage, when free collective bargaining is resumed. I have never understood the logic of that criticism, because it seems to be an argument for continuing an incomes policy rather than for abandoning it. In view of the seriousness of the present situation I ask the Government to look again at the whole question of incomes policies, and to do so with an open mind.
I am sorry if some of my remarks have been critical, but I should like to assure my hon. Friend the Financial Secretary to the Treasury, who is sitting on the Government Front Bench, that my remarks have been offered in a constructive and not a destructive spirit. Like him, I am concerned about the future strength of the British economy.
§ Mr. Jack Straw (Blackburn)
I wish to thank you, Mr. Speaker, for calling me so early in the Budget debate. I congratulate the hon. Member for Leek (Mr. Knox) on a courageous and perceptive speech, though I fancy that it is not the sort of support that Ministers were hoping for.
This is a vicious and wicked Budget, and the callousness with which the Government have disregarded the consequences is best illustrated by the fact that among all the welter of figures that we heard there was no mention of the consequencies of the Budget on unemployment levels this year and next year, despite the fact that The Economist intelligence unit, using the Treasury's own working model was predicting that unemployment would rise to 2,100,000 next year and 2,450,000 in 1981. For a Government who preach the idea of open government it is curious that when comparing last year's Red Book, which was not effusive in its figures, with this year's one sees that there is a major omission in the table on page 27. Last year the Government at least had the honesty to give us a figure about the level of manufacturing production, which was forecast to go down by 2½ per cent. This year, looking at the table on page 27, I note that no figure is given for manufacturing production. If there is an explanation for this, I shall be happy to give way to the Financial Secretary. I fancy that the explanation is that the Government know that manufacturing production will decline so much that they do not want to admit just what the figure will be.
During the speech of the Chancellor of the Exchequer we heard a good deal about the need to create incentives. We heard the same last year. It is instructive to compare the words of the Chancellor with the cold print of the Red Book that was produced last year, to see just who is right. The Chancellor told us last year that his Budget was:designed to give the British people a greater opportunity than they have had for years to win a higher standard of living—for their country and for their families as well as for themselves. I dare to believe they will respond to the opportunity that I have offered them today".—[Official Report, 12 June 1979; Vol. 968, c. 263.]When one turns to the forecasts in the Red Book, one sees that what was offered was very different. Instead of opportunities and incentives we were told that 1509 there would be a decline in the GDP of 1 per cent. and in manufacturing production of 2½ per cent. Who was right? Before saying who was right it is worth making the point that in his last desperate effort to ensure that hope at last could triumph over experience the Chancellor, in a commentary to the Red Book, dismissed these forecasts. He said:The forecasts are largely based on economic relationships fitted to the historical data of the last 10 or 15 years…it remains a possibility that large changes in policy will affect the economy in ways which are not foreseen. It is particularly difficult to take account of possible changes in confidence and expectation or, for the slightly longer term, of the effect of incentives on supply side relationships.The truth is that in this battle between the dreamland that the Chancellor seems to inhabit and the colder reality of the Treasury's computer, the computer won hands down, because the forecasts, far from being wrong or over-pessimistic, were understated, as hon. Members will be able to see by looking at the tables in the Red Book. On every indicator, comparing the forecast last year with outturn to date, the forecast was either on target or the outturn was worse, and that applies especially to imports and the level of inflation.
The situation has become worse partly because the recession is a good deal worse but also because the Government have added to that recession by their deflationary policies. At the root of the difficulties that the country now faces and the policies of the Government producing these difficulties is the Government's obsession with the money supply and, above all, the level of the public sector borrowing requirement.
The hon. Member for Leek said much of what I would have said about monetarism. Having read the recent consultative document on monetary control, I was astonished to hear the words of the Chancellor this afternoon. Though Government officials in the Bank of England evidently understood that the relationships between the money supply and inflation were very difficult and complex to measure—there are references to that in paragraphs 3 and 6 of the consultative document—it was perfectly plain that the Chancellor had a simplistic view of these relationships. He believes that if he can control the money supply inflation will 1510 fall, without any serious or adverse consequences.
Worse than the direct obsession with the money supply is the Government's belief that the level of the PSBR is the key to the level of interest rates and that in order to reduce interest rates and reestablish profitability in manufacturing industry large cuts in public expenditure are required. Of course, the level of the PSBR has some effect on the level of interest rates; no one would deny that. But the relationship is less definite than the Government would have us believe.
In a perceptive article on 9 March in The Sunday Times, Malcolm Crawford, the economics editor, who in the past has certainly been no friend of the Labour Party or Labour Governments, said:A high PSBR has not raised interest rates except very briefly. Indeed, according to the Bank of England's model of the financial system, a rise in the PSBR of 1 per cent. of GDP moves interest rates by less than 0.2 per cent.He goes on to say:but even so, it supports the contention that the effect is small.Earlier Mr. Crawford had said:but Ministers and the Tory back-benchers who are prodding them greatly exaggerate the effect of Government borrowing on interest rates.I hope that Ministers will look carefully not so much at what Mr. Crawford had to say but at what the Bank's own economists had to say about the relationship between the PSBR and interest rates, because it is clear that they have not taken full account of it.
What is affecting the level of interest rates—and what has undoubtedly done so during the time that this Government have been in office—is the establishment by the Government of money supply targets that are totally out of phase with their fiscal policy and inflationary expectations. That led the City to believe that those targets would be exceeded and that interest rates would be forced up as the result of the establishment of those unrealistic targets. If anyone is to blame for the level of interest rates it is the Government, because of their simplistic monetary policy.
In their defence of Government policies over the last year we have heard repeatedly from the Prime Minister, the Chancellor of the Exchequer and the Paymaster General—who, I think, is living 1511 proof that there is life after death—that there is no practical alternative to the present policies of the Government. Indeed, the Chancellor today described those policies as necessary. He said that there was no real alternative to the policies that he had outlined.
It is curious that having been elected on the basis of offering a new choice to the country, and that there was a different way, the Government now claim that there is no choice and that there is only one course to follow. In my view nothing is more pernicious, subversive or more destructive of a democratic society than to deny that there are alternatives and choices. Unquestionably there are choices. This afternoon the Conservatives have chosen a road that will lead to more bankruptcies, rising unemployment, increasing poverty and open class warfare. This afternoon we had the meanest and most wicked budget that we have had since the 1930s As I said earlier, if Conservative Members do not believe that, they should look at the forecasts for unemployment that The Economist intelligence unit has already produced. That forecast predicts a rise of about 1 million within the next two years.
Lest there is a belief on the Government Benches that there is no real choice, let me briefly tell the House of two runs on the Treasury's economic model which my hon. Friend the Member for Battersea, South (Mr. Dubs) and I did with the help of the Library and The Economist intelligence unit over the last month. Both those runs illustrate that there are alternatives that even this Government could follow.
I will deal first with the more contentious run, which is the imposition of import controls. Under this simulation we placed a tariff of 20 per cent. upon half the imports of manufactured goods. We also assumed an incomes policy of earnings of 13 per cent. in 1981, 11 per cent. in 1981–82 and 9 per cent. in 1982–83. Given the push on the balance of payments that import controls provided, we expanded the economy in this simulation by £2½ billion in 1980–81 and by a further £2½ billion in the two years followed.
What emerged from the simulation was that as a result of this, unemployment would have been reduced from the base 1512 level that I have mentioned by 130,000 this year, by 400,000 next year and by 750,000 the year following. For those who say that retaliation is a major problem—I do not deny that it is some problem—the interesting thing about the simulation was that the absolute level of imports was no less by 1982 than it would have been under the run-on present policies.
Then we fed in a simulation of the position in which the country would be today if my right hon. Friend the Member for Leeds, East (Mr. Healey) had been Chancellor and had produced a cautious and pessimistic Budget last June. We accepted that whether or not we liked it he would probably have increased VAT to 11 per cent., would not have reduced income tax, and would have cut public expenditure. Even so, the simulation indicated that unemployment would be 73,000 less today than it is under the present Government's policies, 233,000 less next year, and about 400,000 less in 1982.
If any hon. Member wants copies of these simulations, my hon. Friend the Member for Battersea, South and I will be delighted to provide them.
I mention those simulations to bring out the fact that there are real choices available to the Government. Let us therefore hear no more from the Government that they had no choice other than to pursue these policies, because that is the last refuge of the bankrupt. Of course the Government have choices. The present Government have chosen to make the rich richer and the poor poorer. They have chosen to break the power of the trade unions, which are the only institutions left to defend the interests of working people.
In pursuit of those policies, the Government have chosen measures that are more hateful and more evil than any that we have seen since the war. When economic disaster and social breakdown in many areas are the result—and they will be—let Conservative Members turn not to others to whom to attach blame, for the responsibility for the economic and social chaos and destruction that will follow from these policies will be theirs.
§ Mr. James Hill (Southampton, Test)
I congratulate my right hon. and learned Friend the Chancellor of the Exchequer 1513 and his Treasury team on a most courageous Budget. It is a Budget that the country was expecting. At no time have we pulled our punches. We have told the country exactly what the necessities are.
The brink over which the country could well slip has been at least pushed further away. When the Chancellor opened his speech with the statement that the Government cannot spend their way out of trouble it was obvious to all those on both sides of the House who have common sense and a feeling for the national situation that they would be the first to agree that the public sector borrowing requirement has been too large, has in some years run red-hot with promissory notes—not only the Clegg report but many other promissory notes that were in the pipeline—and that the Chancellor had taken a very courageous stand in hoping that in the 1980–81 period the PSBR would be able to be contained at £8½ billion.
All the cuts, of course, whether real or fictional—the local and national newspapers have fictionalised some of them—cause concern to many constituents of Labour, Liberal and Conservative Members.
The forecast growth of 1 per cent. per year for the next three years must mean that there will be a time during which we must all make sacrifices, and sacrifices only with the hope that the future will be brighter. I think that the Chancellor was wise not to forecast any lights at the end of the tunnel in 1980. He laid it on the line that forecasting this 1 per cent. growth was better than, as in the past—and Chancellors of both major parties have done this—talking about 2½ per cent., 3½ per cent. or 4½ per cent. growth figures and misleading hon. Members and the country.
Of course, the Chancellor is obligated. There is social concern—we all get evidence of that in our postbag or through the advice services that we give—about social benefits and our social security system. However, I was glad to read that the Chancellor expects an increase of 4 per cent. in social security payments over the years up to 1983.
We are all concerned about overstaffing, not only in the Civil Service but in local authorities. I was very glad to hear that 1514 the cost of the Civil Service was only one-fifteenth of total Government expenditure.
The message must go out from this House loud and clear from all Members, of whatever political colour, that local councils cannot spend when the rest of the community are having to cut, and they cannot increase their staff when the sheer necessity of containing the PSBR means that surplus staff must be phased out in the most humane way.
The promise to pensioners was well received by the House. There was some laughter from the Opposition Benches about the £10 Christmas bonus, but probably Opposition Members who laughed were not aware of how desperately this bonus was missed and how positively people react each Christmas to what may seem to some hon. Members to be a matter of merely a small bit of paper but what to them, as pensioners, means the added few luxuries that give them the feeling that it is Christmas and they are not being neglected. I do not think that I can state too often that any genorosity to pensioners is more than reciprocated in their good will to politicians of all denominations. Therefore, I was rather astounded that there was laughter at that stage.
We have had a lot of laughter this afternoon. The Budget was not of a sort that created complete gloom. The only gloom that I could detect was on the faces of some Opposition Members when it was announced that there was to be an extra 2p on a pint of beer, which created a certain ripple, an extra 8p on wine and an extra 50p on whisky.
I am not sure whether I caught the feeling of Conservative Back Benchers, but I felt that these were very moderate increases. We were expecting more. We thought that in this respect the Chancellor had not got the pulse of the country. During my right hon. and learned Friend's speech I said to one of my hon. Friends that there did not seem to be a real hair shirt in the whole Budget. We were expecting to be forced to wear some such garment, which would create a great deal of discomfort. However, I do not think that anyone, even heavy imbibers of alcholic spirit, can say that the Chancellor has today been unnecessarily harsh. As a non-smoker, I would probably have appreciated a 1515 little more duty on cigarettes, but a 5p increase, again, seems to be very moderate.
I certainly support the Chancellor in taking at least two and a half times more of the profit made in casinos, because I feel that they do not help the social farbric of our society. At times I think that they destroy some of the finer elements in our society. If people lose vast sums of money in casinos it could well bring heartbreak to their families.
I was expecting a greater increase in the vehicle excise duty. It has been £50 for a considerable time, and I expected it to be increased to £75. My right hon. and learned Friend has taken a moderate line. for which we are all grateful. Those of us who love to drive must be affected by the extra 10p per gallon of petroleum essence. However, that increase is surely better than a rationing programme that could be abused by all types, and create a black market influence.
I am fairly happy with the private car excise duty, but I am slightly worried about any further increase in the duty payable for heavy lorries. I know that they are considered to be the bad boys on the roads these days. However, they play a useful part in our economy. They provide transport in areas where there may be no other form of transport. The operators suffer excise duty on the petroleum or oil fuels that they use. I hope that in future Budgets the Chancellor will not continue to increase taxation on lorries that are used on our roads. That policy goes against the small business man who runs only one or two lorries and who is a useful part of our transport system.
We had a bit of a laugh about the Chancellor's decision to levy no duty on electric cars. I do not think that many electric cars come into the House of Commons car park, but there may be some, for all I know. However, my right hon. Friend is thinking along the right lines for the future. Any proviso that will help us to move away from using energy sources that in many instances have to be imported can do only good. The same can be said for anything that increases the possibility of having the electric car in the future.
We used to have a lower excise duty on liquefied petroleum gas. I know that not sufficient liquefied petroleum gas was 1516 produced to keep all our cars on the road. I had a car fitted with the means of using liquefied petroleum gas. Its use became a commercial possibility because the duty payable on the gas was only half that payable on petrol. However, the duty was increased and increased. Liquefied petroleum gas has been priced away from the man who might have used it.
The moment of discord was registered most when my right hon. and learned Friend stated that social security payments to the families of strikers would be adjusted, as it would be deemed that each family had received £12 per week from some other source. I accept that £12 is a lot of money. However, my right hon. and learned Friend said that taxpayers have paid out about £8 million during the present steel strike. It would be interesting to know how much has been paid out in the form of supplementary benefit to support strikes over the past five years. The total might raise a few eyebrows.
It is apparent from my postbag that there is a feeling that the striker has a duty to provide at least in part for his family. My right hon. and learned Friend will obviously receive much stick over this issue, but I do not think that that will be in line with public opinion. I feel sure that public opinion is that a responsible trade union which calls out its members on strike should pay some of the burden of maintaining the strikers and their families.
My right hon. and learned Friend has brought forward two imaginative schemes. I, in my urban seat of Southampton, welcome both of them. I especially welcome the small workshop scheme. There are many small business men working in converted garages, in lofts or in lean-tos on the sides of their house. They desperately need small units of between 1,000 sq ft and 3,000 sq ft. Anything that will provide an allowance along the lines that my right hon. and learned Friend has in mind should be viable for the small business men in my area, and I should welcome it.
The proposal to introduce enterprise zones is even more imaginative. Some years ago, when there was a Labour Minister of Transport, I was chairman of Transport for Europe. I tried to talk the Minister into forming a customs-free 1517 zone—the House will never guess where—in Southampton, of all places. My idea was that ships from all over the world with their container traffic would come into the customs-free zone and, as it were, restuff the containers in Southampton for distribution throughout the rest of Europe. It seemed on the surface to be a progressive idea and a necessary provision. However, it was not received with any great acclaim.
Now, if I understand my right hon. and learned Friend aright, we are to have enterprise zones. I think that he may have sized them too large. After all, 500 acres is a bit too much for most cities. There are very few parcels of 500 acres in the middle of our cities. In Southampton I doubt whether we have more than 100 acres that could be used as an enterprise zone.
I am sure that my right hon. and learned Friend has already investigated the six sites. If he does not find the right sites he will no doubt think further of smaller parcels of land for smaller enterprise zones.
I diverge from the Treasury team on the constant need to reduce the standard rate of tax. It is proposed to simplify it again. The lowest rate is now 30p. The Treasury has told me in the past that it would like it to be 25p.
In 1974 the then Conservative Government were keen on the abolition of the domestic rate. It is a most unfair tax. It could be phased out over a number of years. I received replies to written questions and it seemed that if it were phased over five years the total requirement would be an additional 5p or 6p in the standard rate of tax.
As the economy becomes more and more balanced, as I am sure it will after the Budget, there is no reason why we should not begin to think of a phasing out of domestic rates over a period of years, so that there is an obligation on the next Government to continue the phasing I am talking of only about one-sixth of the total rateable income of a city, and if my right hon. and learned Friend were to look in that direction I should be happy to support him in his next Budget with even more fervour than I have today.
Thank you very much, Mr. Deputy Speaker, for extending your courtesy to 1518 me. However, I think that my time is running out. I have been told to keep talking for a few more seconds, as everyone has enjoyed my speech.
§ It being Seven o'clock, and there being private business set down by The CHAIRMAN OF WAYS AND MEANS, under Standing Order No. 7 (Time for taking private business), further Proceeding stood postponed.