BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 27 March 1980 vol 981 cc1679-787 4.27 pm

Mr. Denis Healey (Leeds, East)

I make no complaint about the style of the Chancellor's Budget Statement. The reason why it was the dreariest speech for many years is that every proposal of significance except one—the infamous increase of prescription charges to £1, of which I shall have more to say later—had been assiduously leaked to the press over previous weeks by Ministers and officials. Apart from those leaked proposals, it was a dismal catalogue of trivia, of little consequence. However, the fact that the Budget consists entirely of stale food makes it no more appetising. It is essentially another enormous dose of a medicine that has already made the patient as sick as a dog. The result will be to turn the 1980s—a decade that should have been golden with the benefits of North Sea oil—into a re-run of the hungry 'thirties.

Today ours should be the most prosperous economy in the Western world. North Sea oil is already adding 5 per cent. to our GDP. It is giving us a benefit of £8 billion to our balance of payments and adding £4 billion to Government revenue. None of those advantages was enjoyed by the prev;ous Government, which suffered a cut of 5 per cent. in GDP because of the first oil price increase on taking office and an increase in our balance of payments deficit of £2½ billion. Instead of our prospect being better than that of our competitors, it is infinitely worse. The United Nations Commission has just shown that the rest of Western Europe can expect an increase in output of 2½ per cent. this year—or 2.4 per cent. to be precise. Her Majesty's Government expect a fall in output in this country of 2½ per cent. Instead of a massive surplus on our current account the Government expect a deficit of £2¾ billion.

Even those figures appear in the forecast only after a long process of massaging by Ministers. Even if we accepted them as true, what a prospect this offers for the rest of the economy, in which nearly all British men and women must earn their living. In the rest of the economy outside the sector that involves North Sea oil there will be a fall in output of at least 5 per cent. in the coming year and a current account deficit of over £10 billion.

The main victim of this fall in output will be manufacturing industry. The fall will not be so severe in the service and distribution industries, but the fall in output in manufacturing industry is bound to be well over 5 per cent. in the coming year, and may be as high as 10 per cent.

Here I come to an interesting detail which nobody seems to have picked up. The Red Book, "The Financial Statement and Budget Report", always in the past gave an estimate of the increase in manufacturing output expected in the coming year. That estimate has been suppressed in this year's forecast. All previous forecasts have given an estimate of the breakdown between private and public capital investment. That estimate has been suppressed this year. There can be only one reason, and that is that the estimates are too horrific to he revealed.

The Government have left us no light whatever at the end of the tunnel because they have also published—greatly, I gather, to the Chief Secretary's dismay—medium-term forecasts that show the gross domestic product growing at only 1 per cent. a year for three years after this collapse in output in the year immediately ahead. In other words, after four years we shall scarcely have recovered the loss in output that the Government think we shall suffer this year, and to the extent that we do we shall owe it entirely to growth in the output of North Sea oil.

The fact is that the Government are asking the House of Commons to approve a programme for the terminal decline of British manufacturing industry. There is nothing to look forward to at the end of the tunnel except the prospect—dear, no doubt, to the Prime Minister's heart—of a £3½ billion tax give-away in an election year, and if the Government try to buy votes in 1984 by this means they know that the money will all be spent on imports, because by then large areas of our manufacturing industry will have disappeared for ever and what is left will be incapable of meeting demand, because investment will have been falling for five years; it will face the future with clapped-out machinery.

Yet this is the Budget that the spokesman for the CBI welcomed yesterday as tough but fair. I wonder when he is going to stop acting as the Prime Minister's poodle and start representing the interests of the industrial companies that form his membership.

The fact is that manufacturing industry—every hon. Member on the Government Benches who has any contacts in industrial business will know this—is now facing an asphyxiating cash squeeze and the prospect of massive and mounting bankruptcies before this year is out. Indeed, the only firms in Britain that can look forward to an improvement in their prospects are those specialising in insolvencies and those specialising in debt collection—so I was told when I attended the Institute of Credit Management's annual luncheon only last week.

Even for a devotee of market economics and monetarist dogma this prospect must be a disaster. Last year the Chancellor made what I think we all agree now was the crass error—I said so at the time—of doubling the rate of value added tax, under the impression, as he repeated the other day, that that was a once-for-all increase in prices. I hope that he has had a chance to read the Bank of England paper on this matter which was published last week and which shows how fatuous an illusion that was.

This year the Chancellor is making an even more crass error, because he is starting what he genuinely wants, I believe, to be able to see as a four-year recovery programme with a stunning karate chop to the neck of British industry from which it may never recover. The first year of this Government's presence in charge of our affairs saw a doubling of the rate of inflation, interest rates raised to an all-time record and held at that peak for longer than interest rates had ever peaked in the past, unemployment rising in the last six months by 150,000, and the worst strike record since 1926.

This reflects a policy that had scarcely been launched last year. If we look at the consequences of the Budget this year and the programme to which Her Majesty's Government are committing themselves for the next four years we see that the outlook is far grimmer than the misery that the British people have already suffered since the last general election. Indeed, if the Government believe, as they are supposed to believe, in the theory of rational expectations, I ask the Chancellor to reflect on the fact that he is presenting the British people with a prospectus of decline. How can he, on his own theories of the importance of psychology in our economic affairs, expect the supply side of the economy to grow when he has told industry that output is to collapse this year and that there will be no recovery in manufacturing output for at least four years from now?

The prospects of an improvement on the records of the last 12 months are dim indeed. The Governor of the Bank of England talked the other day only about hoping to achieve lower nominal interest rates in future years. When the Financial Secretary was questioned about this statement he said that the Government had concealed the nature of the forthcoming Budget from the Governor of the Bank of England and for that reason the latter had made a more pessimistic forecast than was justified. I should be very surprised if that were indeed the case. But the other governor, the governor of the Chancellor of the Exchequer, the Prime Minister, said only last week in an article in a German newspaper that interest rates must remain high for possibly another two years. Is this the prospect to which the right hon. Gentleman is treating a British industry that he wants to galvanise into entrepreneurship, if I may quote the words of the Secretary of State for Industry some time ago?

The fact is that these intolerably high interest rates have done nothing so far to control the money supply. Their purpose is to reduce bank lending to companies—that is what the Chancellor told us—yet bank lending to companies remains high and is likely to go higher, precisely because of the effects of the Budget itself on companies' cash flow. The only real result of the exceptionally high interest rates is to worsen industries' cash position still further by making it more expensive for them to hold stocks—they are not going to invest anyway in this situation—and make it more difficult for them to compete both at home and abroad by keeping the value of the pound far above the level that is justified by our comparative economic performance. In other words, these high interest rates are driving two more heavy nails into the coffin of British industry.

There is no disagreement, I think, on either side of the House on the reason for this appalling prospect. It is that the fiscal and monetary policy of the present Government is far more severe than any other Government in the Western world thinks necessary. The Government have so far applied their monetary policy with unparalleled incompetence. The last year before the election, up to April 1979, as the Red Book shows us, sterling M3 rose by 10.7 per cent.—about the middle of the range that I had set for it. It rose a little faster in the last six months, but was still within the upper limit of 12 per cent., according to the Red Book. It was under 12 per cent.

During the first six months after the Chancellor came to power it rose by over 14 per cent., and we have had to add to that, according to the Red Book, 2 per cent. or 3 per cent. because of evasion of the corset by acceptances, bills and other means—a practice that developed real economic importance only after May last year, according to the Red Book. [ Interruption.] I am quoting the Red Book published by the Government, and the Financial Secretary to the Treasury must take responsibility for the truth of all the facts that I have just laid before the House.

The Government are sensibly—although they have rather disguised this—somewhat relaxing their monetary targets in the Budget by rebasing the 7 per cent. to 11 per cent. range on February. As the Financial Times points out this morning, that means that the money supply will grow 2½ per cent. to 3 per cent. more than it would have done if the Government had stuck to the proposals that they put before us last November, and it will have to, because the compulsion of the corset will bring flooding back into the published figure the money that has been disguised under "acceptances" in the past.

Nevertheless, the money supply targets are far too high still for a period when the retail price index is set to increase to above 20 per cent. I do not believe that the Government will achieve these targets any more than they have achieved the targets that they set themselves over the past 12 months.

The biggest error in the Budget economically this year is the fiscal error of aiming to cut the public sector borrowing requirement in money terms at a time when inflation has risen by 20 per cent., when the economy is working far below capacity, and when the savings ratio, according to the Central Statistical Office publication two days ago, rose to 18½ per cent. in the last quarter of 1979—a staggering figure of which the Chancellor seemed to be unaware when I questioned him on it in the House last Thursday.

No intelligent monetarist would justify so rigorous a PSBR in this situation. The London Business School, from which the Chancellor has recently drawn his chief economic adviser, has published its views that the PSBR in the coming year should be set at £10 billion if the fall in output is expected to be 2 per cent., and should be set higher if the fall is expected to be greater. as indeed it is even in the Government's forecast.

It is very difficult for me and for the monetarists of the London Business School to understand why the Government should have defied this type of advice, which is coming to them from many quarters. As far as I can judge from what the Chancellor said, the reason is that he seems to think that there is a direct and predictable relationship between PSBR, the growth of money supply and interest rates. Let me tell him that that is bunk. I had a PSBR running at nearly twice the present rate as a percentage of GDP in 1974 and 1975, but I kept the money supply at 10 per cent. each year, and interest rates fluctuated between 9 per cent. and 13 per cent.

In 1978–79, the last year I was in office, which the Government now describe as one of unparalleled profligacy—I have demonstrated how much less profligate it was in money supply terms than is the Chancellor's record in his first year—the PSBR was 6.4 per cent. of GDP, 50 per cent higher than the Government are now planning, yet the money supply was kept at 10.7 per cent. and interest rates averaged about 10 per cent.

Japan has always had a fiscal deficit far larger than ours. In 1978 it was 13.6 per cent. of GDP. Yet Japan has always succeeded in having extremely strict control of her monetary growth. It is because the Government seem to be totally unaware of these facts that I describe them as being devoted to punk monetarism. People have asked what "punk monetarism" is. I will tell them. "Punk monetarism" is a monetary policy based on a half-baked understanding of half-baked dogmas. The Government are crucifying the British people and British industry on a completely false dogma, attachment to which would not justify an A-level in economics. The Chancellor would not even have got through the 11-plus examination.

The only compensation that the Chancellor offers to the business men whom he is about to bankrupt is that they will be able to start up again in their back yard a little more easily than would have been the case a year ago, or, if they happen to live in an area of great dereliction, they will be able to make a beeline for one of his new combat zones. From what he said yesterday, we understand that he is planning to set up in Britain a series of Californian mining towns in which "everything goes". He is to litter the country with Sohos. About the only advantage that we shall derive from this experiment is that it may at last become possible to get a passport to Pimlico.

I turn to the method that the Chancellor has chosen for cutting the public sector borrowing requirement. It is mainly to be achieved by further cuts in public expenditure, although what emerges from the Red Book—the Chancellor modestly concealed this from us yesterday—is that the Budget is quite highly deflationary. It involves deflation of £2 billion altogether, £1 billion through a failure to index taxes in line with inflation and another £1 billion at least through public expenditure cuts. But if his cash limits bite, as he says they will, expenditure cuts will be Eli billion, even without the cosmetic £500 million from the sale of assets, which does not convince anyone, not even his warmest supporters in the City of London.

Some of the cuts are phoney, like the sale of assets; some will not happen, like the cuts in bureaucracy that the Government promised a year ago and of which we had illustrations in Committee recently. Some—this is more serious—are indiscriminate, because by holding cash limits at a level that according to the Government's figures will be at least 2 per cent. below the level of inflation and I guess will turn out to be 4 per cent. or 5 per cent. below the level of inflation, he will force all public authorities—national, local, nationalised industries, the National Health Service, the lot—to make further spending cuts if they take his advice.

Many of those spending cuts will be achieved—such is the topsy-turvy world in which he lives—by increases in charges. It will mean another big boost to the retail price index through increases in rents, rates, fuel and electricity charges and fares, because there will be no other way in which those authorities are able to achieve the savings. We are set for another great increase in the RPI as a result of this indiscriminate tightening of cash limits—

Mr. John Bruce-Gardyne (Knutsford)

rose —

Mr. Healey

What is more serious is that in some cases these cuts in cash limits will be achieved through cuts in capital spending, which, in the case, for example, of the Central Electricity Generating Board, will mean forgoing investment in new sources of energy that the country desperately requires. The public expenditure White Paper shows that many of the cuts will be achieved by savage reductions in the standard of the public services. The local authorities tell us today that there can be no net new council building over the next four years. All the leading education authorities—not just the NUT, but the associations of head teachers and deputy teachers—say that there will be a further decline in education standards just at the moment when the Government's own strategy desperately requires an improvement.

The biggest single thrust in the public expenditure White Paper is to put the burden of savings on those least able to bear it—the old, the sick, children, the poor and the unemployed. The Secretary of State for Social Services has just explained in detail how he proposes that this shall be done.

Mr. Bruce-Gardyne

I am most grateful to the right hon. Gentleman for giving way. I should like to bring him back to the point where I was trying to intervene. He talked about the proposition that cash limits should be used to some extent to not make good the going rate of wage increases in the public sector. He will recall that his right hon. Friend the Member for Heywood and Royton (Mr. Barnett) proposed exactly the same 15 months ago and was roundly denounced by the then Prime Minister for his pains. Will the right hon. Gentleman now tell the House—he did not at the time—whether his right hon. Friend the Member for Heywood and Royton had his support in what he was doing then? If so, why does he object to a similar policy today?

Mr. Healey

With respect, the hon. Gentleman is entirely wrong in his interpretation of what my right hon. Friend said. I see my right hon. Friend sitting in his place, wreathed in his normal geniality. I have no doubt, Mr. Deputy Speaker, that his charm and ebullience will lead you to give him an opportunity of explaining to the House later precisely what he said, precisely what he did, and precisely what followed. [HON. MEMBERS: "Answer".] I have just answered.

Mr. Peter Bottomley (Woolwich, West)

rose —

Mr. Healey

I shall give way in a moment.

Sir William Clark (Croydon, South)

rose —

Mr. Healey

No, I shall not give way. Let me run over—[ Interruption]—I am well aware, Mr. Deputy Speaker, that have been running over a number of Conservative Members. I should now like to run over the ways in which the Government are planning to punish the weak and the poor.

The first example is the unforgivable further increase in prescription charges to £1 next December. We shall be debating this matter in more detail on Monday. I would merely say now that this increase, in the strictest sense of the word, is cheating the sick. The Conservative Party stated in terms, when it fought the last election and was seeking votes from whoever might be prepared to give them—I quote from a statement issued by the right hon. Gentleman, who is now Paymaster General: Lie No. 9: There are Tory proposals for higher prescription charges. Truth: 'We have no intention of increasing … such charges' says Mrs. Thatcher. There could not be a clearer example of straightforward electoral deceit than the Government's announcement on prescription charges and what they have already done twice since taking office.

The next cheat that the Government are carrying out is to cheat families by increasing child benefit by only 75p, after 18 months without any increase, when at least £1.20 is needed to keep pace with inflation. I know that the hon. Member for Woolwich, West (Mr. Bottomley) has asked for an increase of £1.40.

Mr. Peter Bottomley

Does the right hon. Gentleman feel at all responsible for this course of events? Where was he on 7 July 1975 when all the Labour Members present voted against indexation of child benefit?

Mr. Healey

We increased child benefit continuously after we first introduced it. We undertook to increase it last November. The present Government made no increase last November. We made absolutely clear that we would increase child benefits at every Budget by at least the amount by which child tax allowance would have increased had it remained.

Mr. Tim Eggar (Enfield, North)

rose —

Mr. Healey

Oh, sit down.

Mr. Eggar

On a point of order, Mr. Deputy Speaker. I seek your guidance. Is it in order for the right hon. Gentleman to refer to hon. Members in that way?

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Unusual. I would say.

Mr. Healey

I apologise most humbly to you, Mr. Deputy Speaker, for appearing to address you. As you may recognise, my remarks were addressed to another.

The refusal to raise child benefit in line with—

Mr. Peter Bottomley

You all refused.

Mr. Healey

No, we did it. We may have voted against indexing—

Mr. Bottomley

That is it.

Mr. Healey

But we raised family allowances in line with inflation. This is what matters. We were prepared to do more. We committed ourselves to do more, but the Government won the last election on a series of lies. I should perhaps say "the Conservative Party". I am not sure how the doctrine of collective guilt applies to Members of Parliament after they have been elected.

The fact is that the Conservative Party told a series of lies before the last election. The best way this can be expressed is by quoting the remarks of the Secretary of State for Social Services in June 1977 before the election in stating that his party was committed "without any ifs or buts" to a full child benefit scheme. The right hon. Gentleman 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 the poorest families in work—those who earn their poverty. 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. We agree with all those statements. We acted when in power to fulfil them. The present Government could have done so this year without any economic disadvantage to their plans. They could have raised child benefit to £1.20 simply by imposing a gentle levy on the excess profits of the clearing banks. They have chosen not to do so, although, in his voyeur capacity, the Chancellor of the Exchequer said once again that he is going to look at the matter. I ask the hon. Member for Woolwich, West not to show courage but simply to point out to the Chancellor that there is still time, while the Finance Bill is going through the House, to speed up his look at the profits of the clearing banks, impose a tax on those excess profits and spend the proceeds on an increase in child benefit. I hope that when we make this proposal he and the 60—I think that is the figure—of his hon. Friends who share his views will have the wisdom, as well as the courage, to support us.

Mr. Peter Bottomley

One point that a number of hon. Members have been trying to discover is how long it takes. administratively, to put forward an increase in child benefit. Can the right hon. Gentleman tell the House?

Mr. Healey

My own experience—I have a good deal—is that it takes about five months as a rule, although I was surprised to discover, as was the Chancellor, that it is sometimes possible to twist the arms of civil servants and get a change of this nature carried out faster. We did that in the case of the first increase in old-age pensions after taking office in 1974. We did something similar in making one of the increases in the national insurance surcharge. It may be possible, therefore, to act in a shorter time. It would certainly be possible to take a decision in the next month or so to make an adequate increase in November. There would be no bureaucratic obstacle whatever to that.

I come to another aspect of Government cheating—cheating the old. The Government have told us that they have decided that they do not propose to restore the 1.7 per cent. which the law required them to pay in addition to what they paid last year because they underestimated the increase in earnings. Secondly, they are raising the old-age pension in line with the rise in prices last year in a year when the rate of inflation will be not 16½ per cent. but something like 20 per cent. Thirdly, the effect of the abolition of the lower rate band will be to require over 1 million pensioners to pay an extra 5p in the pound on every little bit of extra income or earnings they manage to obtain. That means a severe fall in the living standards of many pensioners.

The Government are also cheating the sick and the unemployed by cutting £1.50 off the increases in sickness and unemployment benefit which they would otherwise be allowed. They are dong the same with young mothers by cutting the maternity allowances to the same extent. They are cheating those who paid earnings-related supplement in the expectation of having their unemployment pay raised in relation to their income. The result will be that the 500,000 additional men and women who will be thrown out of work in the next 12 months by the Government will see their income cut at a stroke, through no fault of their own, from £98 a week on average to £40 a week.

The final proposal of the Government in this context is to punish the families of men and women who are on strike in a way in which no Government—not even this Government—ever proposed to punish the families of murderers, rapists and thieves. I can tell the Conservative Party that the Government are doing this for no economic, social or industrial reason; they are doing it out of sheer vindictiveness.

The best proof of that is that when the proposal was put to the Conservative Party conference in 1973 the present Secretary of State for Industry, no less, said that to adopt that proposal would be to return to the social standards of Mr. Bumble and Mr. Gradgrind. He was right. If Conservative Members have no moral compunction and choose to ignore the disastrous effect on industrial relations that this proposal will have, I ask them to reflect on what the Secretary of State for Industry said to that conference on 12 October 1973 when he was appealing simply to Conservatives' sense of political interest.

I quote the right hon. Gentleman's words because they are well constructed and give a revealing insight into the general attitude of intelligent Conservatives to these problems. The right hon. Gentleman said: Withdrawing a bone from a dog's mouth has its difficulty particularly when the dog has a wife and children. This Conference would be the first to howl if we really did have pictures on television of children going hungry for lack of benefit—perhaps because their striking fathers were on low pay and had not been able to save, perhaps even because their striking fathers had not made the necessary arrangements for saving for the purpose. But this Conference would object strongly if children were shown going without food. I hope that the Conservative Party is still capable of listening to appeals of this type. If it is not, it is not worthy to represent the people of this country.

Mr. John Biggs-Davison (Epping Forest)

So that we may be able to form a fair judgment, will the right hon. Member tell us what is the position in other countries, including countries with social democratic Governments?

Mr. Healey

If the hon. Member was prepared to follow me in copying the practices of social democratic Governments in other countries in all respects, I would consider following their practice in this respect. In this country an attempt to legislate in the way proposed by the hon. Gentleman—which was rejected by Conservative Ministers only eight years ago for reasons I have just described to the House—would be a disaster and would bring moral obloquy upon them. I make that prediction without any fear of being disproved in the event.

This consistent attack on the weak and under-privileged through public expenditure cuts is being carried even further in the Government's tax proposals, which involve an increase, according to the Red Book, of £1 billion in the real burden of taxation. There is not much left of the Chancellor's first Budget, is there?

The Red Book points out that the abolition of the lower rate band cuts the value of the increases in the indexing required by the Rooker-Wise amendment from 18 per cent. to 11 per cent. The whole of the tax advantage for ordinary people is cancelled out by the increase in duties on drink, tobacco and petrol. That is happening at a time when in April there will be massive increases in rents, rates, gas and electricity charges and prescription charges.

The only real benefit—and the Government's figures show this clearly—from the present Budget will go to people earning over £15,000 a year and, of course, that benefit will increase substantially in money terms for everybody above that level. It is easy with benefits of this nature to be able to afford, as could the young man I heard speaking on the radio this morning, the glass of pink champagne when one is flown to New York on Concorde. This inequity is carried further by cuts in capital transfer tax and cuts in capital gains tax, both of which give further uncovenanted benefits to the wealthy.

The most symbolic of the Government's actions is the decision to increase DHSS staff by 1,000 in order to recover a few million pounds from the people they call the scroungers on social security. It was discovered by my hon. Friends a day or two ago when questioning the Minister concerned about this that the figures the Minister had were bogus to a disgraceful degree. He was basing figures for social security scrounging on the amount of pilfering that takes place in Marks and Spencer—a store which, incidentally, none but the middle class can afford to frequent these days.

At the same time, I hear that the staff of the Inland Revenue is to be increased by 1,500 to collect tax from people who are deemed to have been paid £12 by their trade union when they were on strike. The head of the Inland Revenue staff federation, however, thinks that it will be well nigh impossible, for practical reasons, to implement that collection.

At the same time as the Government are increasing the staff in the DHSS and the Inland Revenue in order to pursue the families of strikers and those on benefit, they are cutting the numbers of staff who are devoted entirely to recovering some of the billions of pounds which are lost every year through tax evasion.

While all this agony is being inflicted on the poor and weak in our society, the Government have announced two surprising decisions in their White Paper. The first is to increase defence spending by 3 per cent. a year for the next four years in real terms over a period when there will be no real growth in our economy. When the Minister replies I hope that he will tell us—no doubt his advisers in the officials' box can scrabble for the figures immediately—whether it is not the case that, as a result of this White Paper, Britain will be spending before 1984 a higher percentage of GDP on defence than the United States.

According to the White Paper, the Government are taking no account of a reduction in our contribution to the Common Market budget. I assume that the Government have set themselves a target of a reduction of about £1,000 million—£200 million or £300 million below the net cost to us which the Prime Minister promised to get rid of.

I am sure that the Chief Secretary will view the following suggestion sympathetically. Why do not the Government announce now that a £1,000 million reduction in our Common Market contribution will form a firm basis in the Government's Budget calculations for the next four years and that they will make good any shortfall which arises in negotiations by an appropriate reduction in our VAT contribution?

The Prime Minister has already said that she is prepared to do that if she cannot get what she wants by any other means. She used the words "in the last resort." Why do not the Government give meaning to that undertaking by including that calculation in the Budget arithmetic? I cannot see anything to prevent that. I can see nothing that would more powerfully concentrate the minds of those with whom we are about, some day, somewhere, to negotiate.

I have explained why I think that the Budget will have a catastrophic effect on the economy. Its effect on our society will be no less catastropic. It contains a succession of mean, vicious and vindictive measures which are calculated to cause unnecessary suffering to the poor, the old, the sick and the unemployed. They are calculated to enrage those who are close to the poor, the old, the sick and the unemployed. The effect can be only to divide our nation at a time when we need unity; to create despair and apathy when, above all, we need hope and determination.

Until I heard the Chancellor yesterday, I thought that the House agreed, without party distinction, that the duty of any British Government is to wage war on poverty, on unemployment and on sickness. However, the Government have set themselves the task of waging war on the poor, the unemployed and the sick. It is no wonder that a Conservative Member said, at the meeting held after the Chancellor sat down yesterday, that it was a "real Tory Budget at last".

The Tory Party fought the last general election on an appeal to fear and greed. It has dropped the appeal to greed because it has nothing to offer the greedy any more. There is nothing left but the appeal to fear. I ask the House to reflect on the words of Aneurin Bevan, who said: Which is the more productive—the discipline of fear or the sustained energy of confidence? We have no doubt about our choice, and I believe that the country supports us.

5.13 pm

The Chief Secretary to the Treasury (Mr. John Biffen)

Budget debates have enduring characteristics. One of them is the contribution that we expect and receive from the right hon. Member for Leeds, East (Mr. Healey). His speech was a blend of pugnacity, foreboding and very selective charm. To that was added humour. We heard the slightly aged joke about punk monetarism. As the right hon. Gentleman elaborated his policies I felt that the judgment was coming from Johnny Rotten himself.

Another characteristic is that in the last 20 years there has been an increasing anxiety about inflation. It has come to dominate economic debates. Naturally, in the Chamber that issue underlines political differences, as it should. I should be the first to accept that a mindless consensus is the enemy of clear-sighted government. None the less, there is evidence of shared, albeit limited, assumptions, that could serve us well in the debate.

I was struck by the remarks of the Governor of the Bank of England at the recent presentation to The Guardian "Young Business Man of the Year". He said: Monetary policy cannot be divorced, any more than other forms of policy, from the hurly-burly of politics. But it is, perhaps, useful to remind you that our present monetary policy has more than an accidental resemblance to the policy pursued under previous Administration's. Of course, that is true. The watershed in post-war economic debate is marked by the speech of the Leader of the Opposition in the somewhat unpromising circumstances of a Labour Party conference on 28 September 1976. He said: We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists and that, insofar as it ever did exist, it worked by injecting inflation into the economy.

Mr. Russell Kerr (Feltham and Heston)

Sid Vicious.

Mr. Biffen

I was quoting the Leader of the Opposition and he is now reviled as "Sid Vicious". I may have to turn to the Chair for protection.

Shortly after that Labour Party conference the right hon. Member for Leeds, East said: We must, therefore, aim at a steady and continuous reduction in the size of our PSBR."—[ Official Report, 30 November 1976; Vol. 921, c. 716–7.] The following month, when the right hon. Gentleman was penning his essay to the International Monetary Fund, he said: A reduction in the PSBR will go a long way to improve our ability to control the rate of growth in the monetary aggregates, and will help to reduce the level of interest rates All that resembles a litany of economic rectitude. There was a moment when I hoped that the right hon. Member for Leeds, East would follow the traditions of that other great Yorkshire Socialist Chancellor, Philip Snowden. I feel a shade disappointed this afternoon. Despite the evident opportunism displayed by the right hon. Gentleman and the Labour Party in their release from office, I assert that there has been a broad understanding about the need to redirect taxation, public spending and borrowing as a means of reducing the rate of inflation.

The Budget is significant. It is related to the borrowing and spending issues. As Chief Secretary, it is appropriate for me to speak briefly about the public expenditure White Paper which, by coincidence, appears with the Budget. I understand that the Leader of the Opposition is worried because the White Paper appeared with the Budget. It is a House of Commons matter and the House generally should make its views known.

Let us consider some of the key spending programmes. I do not wish to be unduly provocative but I should like to reflect upon Aneurin Bevan's words. He said: The language of priorities is the religion of Socialism The White Paper is no bible of Socialism. It considers the key issues of public spending in the context of making a choice of priorities. That choice, however difficult, is the unavoidable and mature responsibility of the Government. No Government can abdicate that and have any responsibility for public spending, at whatever its level.

Mr. Eric S. Heffer (Liverpool. Walton)

Is the Minister aware of another Bevan statement, to the effect that Labour Governments have to be bold and audacious in dealing with the capitalist system?

Mr. Biffen

Yes. The hon. Gentleman was addressing me although I was the proxy for his Front Bench. Bevan also said that people who walked down the middle of the road get run over.

Mr. Helfer

That is right.

Mr. Biffen

We could have an entertaining teach-in on what messages might be provided by that great, democratic Socialist. I hone that i shall be excused if I turn to a less entertaining prospect, namely, public spending.

The right hon. Gentleman referred to defence. The expenditure White Paper indicates that the Government intend to fulfil their election commitment to increase defence spending. In February of last year, the right hon. Member for Sheffield, Park (Mr. Mulley) issued the final defence White Paper of the former Labour Government. One passage was especially striking. It read: as seen by Western eyes, the growth in quantity of the Soviet forces … together with continued qualitative improvements, has extended their capability well beyond what can he considered necessary for purely defensive purposes. With the subsequent developments in Asia, who can doubt the wisdom of those observations? It is always a matter of balanced political judgment about what premium of national security should be paid for by the defence budget. We are resolved that, in the increasingly uncertain world of today, that premium must be increased.

On health, we have stood by our election pledge to keep to the level of spending planned by our predecessors. In constant prices, the gross figure rises from £7,900 million in 1979–80 to £8,500 million four years hence. These gross amounts are partly offset by income from charges.

Since 1948 the proportion met from charges has varied. In 1969–70, the last year of the then Labour Administration, it was 3.3 per cent. In 1980–81 it is expected to be 3.35 per cent. Thus, all that the present Government have one is to return to a position barely different from that which the Labour Government left in 1970.

We wish to encourage private voluntary effort in the Health Service.

Mr. Frank Hooky (Sheffield, Heeley)

rose —

Mr. Biffen

I shall give way in a moment. The Budget speech pointed to substantial changes in the tax arrangements for charities. We hope that the Health Service will benefit fully from these concessions.

Mr. Hooley

No doubt the Minister is aware of the demographic change and the substantial increase in elderly people, who make considerable extra demands on the Health Service. Has he taken that into account when giving his percentages?

Mr. Biffen

That is a fair point, but one that does not affect these statistics. They demonstrate that a Labour Government—throughout whose life the right hon. Member for Leeds, East was the Secretary of State for Defence—had their public health spending supported by charges broadly similar to those that are envisaged by my right hon. and hon. Friends.

The Health Services Bill now before Parliament will facilitate the raising of local funds and continue efforts to streamline and make the Health Service more efficient. That could result in the release of more funds for direct patient care.

Expenditure on the fight against crime is planned to increase in real terms. Police recruitment is up following the implementation of the recommendations of the Edmund-Davies inquiry into the pay of the police. The plans allow for a continuing increase in numbers.

In the prison service we are continuing to provide for improvements in conditions and art increase in capacity.

I turn to social security. The Budget embraces both protected welfare spending, such as retirement pensions, and programmes where we have sought economies. In 1980–81 expenditure on the social security programme will be nearly £20,000 million at 1979 prices. That is 25 per cent. of total public expenditure. Ten years ago it was £12,000 million, or 18 per cent. of total public expenditure.

Making allowance for the replacement of child tax allowances and family allowances by child benefit—which distorts the picture somewhat—expenditure on social security has grown by 50 per cent. since 1970–71, while total public expenditure has grown by about 30 per cent., and national income by 15 per cent.

I recognise that that is partly because the number of beneficiaries, the pensioners and the unemployed, have increased. But the trend is worrying. It must be curbed if the social security budget is not to crowd out other legitimate public spending and impede tax reforms.

That means that we have to shape our social security policies to direct help to the old and those in greatest need. Thus, we have retained price protection for pensioners, increased the rates of supplementary benefits in line with the expected rise in the cost of living, given more to those on family income supplement and one parent families, and increased child benefits.

The increase in child benefit to £4.75 will disappoint those who wanted to see it indexed to the movement of prices—actual and expected—from April 1979 to November 1980, or those who wanted to see real improvement. My right hon. Friend the Secretary of State for Social Services gave the answer to the critics in the debate at Report stage of the Social Security Bill, when he drew attention to public expenditure costs. That is the main answer to the point.

We have responded to the widespread call for changes to curb social security expenditure. To this end, we made the decisions announced by my right hon. Friend the Secretary of State for Social Services earlier this afternoon. As the House well knows, these concern the future of earnings-related supplement and restricting the increase in the adult rates of certain benefits to five percentage points below the movement of prices. These are matters of acute controversy, and that I fully recognise. They will naturally feature in the continuing debate next Monday, when my right hon. Friend will speak.

I wish to make these observations from a public expenditure point of view. The decisions have not been taken out of atavistic hostility towards the Welfare State. They rest on a simple truth that everyone must acknowledge, namely, that expenditure on social security must be related to the nation's taxable capacity.

Even now, on current expectations, expenditure in 1982–83 on social security will be higher than at present. We have sought to check the movement upwards and have stabilised the level of expenditure. Within that, we have concentrated help on the most vulnerable sections of the community. I must repeat that the ability to spend more on social security rests on the country's ability to increase its prosperity.

Finally, in respect of the White Paper, I wish to consider some of the programmes where we have sought to make significant economies. One major programme that will provide savings is education, where the reductions are assisted by the expected fall in school numbers. There will be 800,000 fewer children in schools in 1983–84 than in the coming year, which represents a 9 per cent. reduction in three years. Expenditure on education is planned to fall from £8,500 million to £8,000 million during this period, but, because of the falling numbers, that does not imply any deterioration in educational standards.

On housing, public expenditure will fall from £4,700 million to £2,800 million over the years of the survey period. The Government attach great importance to housing, but housing conditions have improved greatly over the past 30 years and there is now a much better balance between dwellings and households. Our housing standards compare well with those of our more successful industrial competitors. In housing, more than in most other public services, we can look to the private sector to meet people's demands.

Over the past 30 years, home ownership has grown from 31 per cent. to 55 per cent. of households, and our measures will further encourage that. We are also taking measures to help the private rented sector and to encourage home owners and tenants to let or sublet spare accommodation in their homes. Therefore, there is no longer the need for a public sector house building programme of the size of the early 1970s. Indeed, under the previous Government, housing authorities already recognised that, and between 1976 and 1979 the level of new house building approvals in the public sector dropped.

While housing capital expenditure under the previous Government halved in real terms, expenditure on rent subsidies increased by about one-fifth, again in real terms. By the time the previous Government left office, council rents were a lower proportion of earnings than at any time for at least 20 years. That is why, over a period of years, a further reduction in the level of housing subsidies is both justifiable as well as necessary. These proposals make an important contribution towards two objectives—the achievement of the expenditure savings which we need and the move towards a housing market which is less constrained by political intervention and is more responsive to people's needs.

In the Department of Industry's programme, too, we are greatly reducing the extent of State intervention. Expenditure will be halved over the survey period—falling from just over £1,000 million to about £500 million in 1983–84. We intend to restrict industrial and regional assistance, and to concentrate it on those parts of the country with the most intractable problems of unemployment. We shall not be putting the taxpayers' money into the promoting of public ownership, and we have made substantial reductions in the provisions for expenditure by the National Enterprise Board.

We have also looked to the employment and training programme for a contribution towards the reductions that we require. We shall continue to support cost-effective measures, particularly those which help groups, such as the young people, which are hardest hit by unemployment. For example, we have provided for expansion of the youth opportunities programme from 210,000 entrants this financial year to between 250,000 and 260,000 in the next. But we must hold expenditure to a level which we can afford, and that involves reversing the trend of recent years which has seen the programme more than doubled in size since 1974.

We have dropped the previous Government's plans for an expensive new short-time working scheme. We plan over the next four years to reduce the total expenditure on the programme by 20 per cent.

Those comments on some of the individual parts of the total programme are only one part of the consideration of the White Paper. There is the whole question of the totality of that expenditure. I am the first to admit to my hon. Friends that this is not a White Paper which is redolent with high drama in regard to reductions in public expenditure.

Mr. Healey

Cruelty.

Mr. Biffen

I should like to compare this Government's aspirations with the performance delivered by the right hon. Gentleman. We have in prospect a projected rise of 4 per cent. in total public spending in real terms over the survey period from 1980–81 to 1983–84. [Hon. MEMBERS: "A reduction."] I am sorry a reduction. Let there be no misunderstanding on that point.

Some of my hon. Friends who are more charitably disposed to the right hon. Member for Leeds, East than I am may ask me to consider his achievement in 1977–78 over 1976–77, when he achieved a 6 per cent. drop. Indeed, there was a drop of 35 per cent. in the combined programmes of industry, energy, trade and employment, a drop of 14 per cent. in roads and transport and a drop of 11 per cent. in housing. Thus the right hon. Gentleman is a prize candidate for the Hayek award for the quick dash to freedom.

However, before I place the laurels around him, I must add that the following year he increased public spending by more than 5½ per cent. Therefore, one was practically back to where one was before dislocations of the sudden and dramatic drop of the proceeding year. That is the roller coaster approach to public expenditure. It may have its drama, and it may get its headlines—[HON. MEMBERS: "It has style."] That may be, but we are hoping for a more consistent and stable approach in the remorseless winding down of the levels of public spending.

There will be no quick dash for freedom with regard to this subject. That is because I do not believe that inflation can be killed by a cavalry charge. Even if I thought that, there are no Prince Ruperts on this Treasury Bench.—[ Interruption.] If that was a delayed action joke, I hope that punk monetarism will be interred for all time. We might call it a draw.

At the heart of my right hon. and learned Friend's programme is a very clear message, which is the necessity for this Parliament to live with and through the time cycle which is essential for the success of a sound monetary policy. The Chancellor is courageous in making that appeal, because time is the commodity most grudgingly conceded in politics. Yet I am absolutely certain that he has widespread support, both inside the House and outside, for the enterprise on which we are now engaged, and I believe that there is a deep anxiety that we persist to the end.

Obviously, there have been criticisms of this policy, as one would expect, and the House of Commons is the appropriate forum for debate and criticism. I should like to say a few words about the criticisms that have been expressed by some of my hon. Friends, and then I should like to comment on the speech of the right hon. Member for Leeds, East.

My hon. Friend the Member for Aldershot (Mr. Critchley) has, in the most elegant fashion, put his own misgivings about the policy. I think that I fairly represent him when I say that he believes that it lacks an incomes policy. Indeed, he said: We need a permanent economic machine or machinery to try to determine what incomes should be".—[ Official Report, 28 February 1980; Vol. 979, c. 1657.] That was a point which was reinforced by my hon. Friend the Member for Loughborough (Mr. Dorrell) in an interesting article in The Observer last weekend.

Although one may set out hoping that this time round incomes policies can do the trick, I must point out that we are not without experience at trying that road. We ace foolish to suppose that it can be limited to incomes and not extended to prices. That which sets out with good intentions by exhortation all too often ends with the necessities of law and an industrial impasse. What may have commenced as a summer's picnic all too often ends as a Passchendaele. We are not immediately attracted to that auxiliary to our main policy.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

In considering the history of all the previous incomes policies of recent years, is it not true that all Governments have introduced one against their wills, against their pre-election pledges and as a panic economic measure? Surely that is different from the argument put forward by some Conservative Members and others. They say that long-term incomes policy should be thought out ahead as a positive part of economic planning.

Mr. Biffen

No matter how much thought precedes the action, it is its enforceability that has always put the policy to its test.

Mr. Eggar

Before leaving that point, would my right hon. Friend comment on the idea that something could be learned from Germany's concerted action programme? Does he not agree that that might be relevant to Britain?

Mr. Biffen

That programme bears no comparison with anything that can be described as an incomes policy for the purposes of this debate.

Mr. loan Evans (Aberdare)

The right hon. Gentleman said that the Government did not have an incomes policy. The steel strike has gone on for three months. The Secretary of State for Industry said that there are certain cash limits. He has said that he will not intervene. Surely those cash limits provide the most direct form of intervention. The dispute has cost hundreds and millions of pounds to the Exchequer and has caused losses to the Coal Board, the CEGB, the Gas Corporation, British Rail and a host of other industries. Certain parts of the private sector have also had to close down.

Mr, Biffen

That is nonsense. My right hon. Friend has pointed out that he will not underwrite any pay settlement other than that specified in the Government's cash limits. He has not sought to tell management what wages should be paid.

The right hon. Member for Leeds, East is clearly moving with great delicacy. He is disengaging himself from his previous stance. I was particularly interested in a speech that he made in Cardiff on 20 March. He said: The economic policy of a Labour Government in Britain must, therefore, rest on three pillars—demand management, monetary control, and incomes policy. It is precisely this combination of policies which has produced the most successful economies and the most successful Socialist parties in Europe—those of Germany and Austria. That is fascinating. I hope that the hon. Member for Liverpool, Walton (Mr. Heffer) has followed that policy development. It represents a great campaign to convert the Labour Party to some form of Nordic social democracy. Some of my hon. Friends might welcome such an evolution in our political scene. I suspect that if we thumb through the voting records in Strasbourg we shall not find that the Social Democrats of the Federal German Republic and the representatives of the Labour Party were in the same lobby too often.

I have yet graver doubts. The right hon. Member for Stepney and Poplar (Mr. Shore) has now left the Front Bench. I should have thought that he had shown sufficiently heroic insular virtues as to be not yet in a suitable state of grace for his lederhosen. The thrust of the policy rests on the idea of an incomes policy. As regards concerted action, I do not believe that that is the incomes policy in prospect for the United Kingdom. We know the existing reality.

Mr. Healey

Is the right hon. Gentleman aware that his right hon. and learned Friend the Chancellor supported that idea when the Conservative Party was in opposition? That is shown in "The Way Ahead" or perhaps "The Right Approach". The right hon. Gentleman should not be so nasty to his boss. He may find that he has not got a job.

Mr. Biffen

In being good-natured towards the right hon. Gentleman I did not imply any hostility towards my colleagues. Concerted action involves consultation. Any meeting with trade union leaders and others in a wider context forms part of the Government's communication process. If it is recognised as that, its limited value will be recognised. It is valuable, but that value is limited.

We return to the reality of that closer relationship with the trade unions. The TUC kindly provided evidence' in the form of submissions to my right hon. and learned Friend the Chancellor. It wanted a boost in public spending for retirement pensions of £7,500 million. That was just one of several items, There is no basis, on current evidence, for a counter-inflationary contract between the trade unions and the Labour Party.

The right hon. Gentleman has sought to appear as a reconstructed Keynesian, going for a less-restricted view on the PSBR as a result of the high savings ratio. He said that my right hon. and learned Friend has ignored that. He said that he had committed "the biggest Budget error". I ask the House to treat the right hon. Gentleman's enthusiasm with the utmost caution. Where is the higher savings ratio held? Are those holding it likely to convert to the purchase of Government stock? Does not the right hon. Gentleman realise that the evidence suggests that these are some of the most volatile statistics? They are very much influenced by levels of pay settlements, tax receipts and so on. As it comes from the Central Statistics Office, it is a residual statistic and the result of subtracting one set of figures from another. If he had done his homework, the right hon. Gentleman would have discovered that the original estimates have often been revised to up to a fifth of their value. Therefore, the right hon. Gentleman's hand represents the most busted flush that we have ever seen.

Mr. Healey

If the right hon. Gentleman takes that view, how can he base the whole of the Budget strategy on the PSBR? That is the biggest residual in the whole of his statistics. It is the difference between the whole flow of Government borrowing, spending and revenue. It is liable to an error of 5.6 per cent. in the GDP. In my first year the Treasury was £4 billion out on a PSBR of £3½ billion.

Mr. Biffen

The right hon. Gentleman met with very bad fortune when he was in the Treasury. That is the way things worked out. He has only to look in the Red Book to see how the PSBR has been vindicated, out-turn against forecast.

Mr. Healey

With respect, in this Red Book the PSBR turned out to be £1 billion higher than the Government had thought. That is concealed in the Red Book. There is no allowance for the fiscal change that was made by bringing forward petroleum revenue tax in order to save £500 million last November. The error in last year's PSBR was £1 billion on a forecast of under £5 billion.

Mr. Biffen

This is a good-natured debate. The right hon. Gentleman knows perfectly well that difficuties arose about the mailing of VAT as a result of the Post Office dispute. Those difficulties were anticipated. A revised figure was therefore established. If the right hon. Gentleman wishes to engage in such self-mortification, there is nothing that I can do to stop him. Under his stewardship the figures were lamentable compared with those of this Government.

I commend my right hon. and learned Friend's Budget to the House. It seeks, above all, to secure the necessary time for the success of our central policy. There are certain areas where one can already see changes that will be to our advantage. The Budget will encourage the small business sector of the economy. [Interruption.] The laughter of the hon. Member for Sheffield, Heeley (Mr. Hooley) merely indicates that many Labour Members would not recognise a small business man if they fell over one.

Already we are seeing evidence that monetary expansion has stabilised. Sterling M3 rose by just over 14 per cent. in the first four months after the June Budget. In the succeeding months that rate of increase fell to 10 per cent. Although pay settlements are still at rates that cause a good deal of concern, they should be seen in the light of the CBI data bank report that 52 per cent. of pay deals—and that figure covers numbers of people as well as of deals—since last August have involved settlements of less than 15 per cent.

Our policy is designed to reduce inflation and interest rates and to seek a stable currency. That is an essential precondition for a Tory social policy based on the concept of nation and family and the application of relevant welfare benefits through a partnership of voluntary and State agencies. It is a prerequisite for a Tory industrial policy based on free enterprise and rewarding success in an economy reflecting the consequences of North Sea oil and gas.

Ten months ago a mandate was secured for the policies that my right hon. and learned Friend the Chancellor of the Exchequer is pursuing. They are policies designed for the span of a full Parlia- ment. Time will be their judge and vindication. This Budget consolidates such polices, which will reduce inflation though the passage of time. [Interruption]. I say to those hon. Gentlemen who express hilarity that the nation will be more consolidated and socially cohesive behind policies that seek greater realism than the spurious compassion drummed up on the Labour Benches this afternoon.

The policies can succeed and the Treasury Bench is determined to attend that success.

5.52 pm

Mr. Richard Wainwright (Cole Valley)

Hon. Members from various parts of the House, and certainly from the Liberal Benches, have long urged that the House should debate public expenditure together with the Budget Statement. We hope that what has happened by coincidence this year will become a deliberate part of our procedures. The reason is obvious, and long ago penetrated virtually every other organisation in the Kingdom. It is common sense to debate spending and receipts—benefits and costs—at the same time.

Neither the Chancellor of the Exchequer nor the Chief Secretary to the Treasury has followed the spirit of that coincidence. In pressing on the House their unique version of their dogma they have not treated us to a coherent explanation of the hardships and costs, especially the social costs, of the option that they have taken. They have not had the wisdom to explain to the House the combinations of varying types of fiscal and monetary policy open to them.

That has resulted not only in confusion and a somewhat sour atmosphere in the House, even amongst Government supporters. What is much worse, the country is bewildered. We are being led into years of austerity without receiving a proper explanation of what it is for, where it is leading and how we shall get out of the tunnel. It is a recipe for disaster. I prophesy that a U-turn will be forced on the Government when unemployment reaches intolerable levels, partly because the country has not been given coherent leadership or an explanation of where it is being, taken.

Those omissions are particularly relevant to industry. Through some sleight of hand the Government have captured the top brass of the CBI, and they appear to feel entitled to ignore the ordinary run of manufacturers and medium-sized business. In the modern age those businesses have considerable overheads, and staff to whom they have a strong responsibility. They are in a state of desperation as a result of the lack of tangible relief in the Budget.

At the centre of the problem is the size of the public sector borrowing requirement target. We know that it is only a target, because the figure is exposed to the changes and chances of the ensuing 12 months. We have received no coherent explanation why the Government have settled on their highly restrictive and damaging target. The only sustained argument for this in the Budget Statement was an airy reference to other developed countries. We were told that tightening belts was a universal phenomenon.

That is an inaccurate comparison and carries the matter too far. Throughout the industrial world there is a calling-in of expansion, a feeling of need for care and fiscal caution. However, the annual rate of growth in OECD countries as a whole is still projected as at least 2 per cent. per annum. Our forecast for the United Kingdom is for minus 1 per cent. I reject entirely the idea that the Budget is simply following carefully and meticulously the example of other more successful countries.

I wish, in some ways, that that were so. I wish that the Government would introduce a cheap loan system for industry, such as that which has successfully sustained Japanese industry for many years. We hear nothing of that.

The Liberal Party believes that the public sector borrowing requirement is much too low. At this stage of the economic cycle it should be increased by at least £2 billion. I shall briefly indicate a few proposals for this in order to try to be constructive.

I come straight away to the worst piece of sabotage in the Budget—the destruction of the lower rate band of income tax. The precursor to that, amongst all the leaks of this Budget, was an inspired campaign by the Government, for which the media fell because of its ignorance of income tax matters, to represent the lower rate as a silly nuisance that caused administrative trouble and was best done away with as quickly as possible. That is emphatically not the truth of the matter.

The Government are keen on examples from other countries, so let me remind them that no other major industrial country has an initial rate of tax for the first slice of taxable income approaching anywhere near 30 per cent. On the most recently ascertained figures, the initial rate at which people pay income tax in France is 5 per cent., in Italy and Japan 10 per cent., in the United States 14 per cent., in the Netherlands 20 per cent. and in West Germany 22 per cent. By an act of sabotage the Government have put up our initial rate—the first impact of tax on extremely low, virtually poverty, earnings—to 30 per cent. Anyone with an instinct for revenue matters knows without argument and reference to statistics that that is utterly misplaced in principle.

The object of a civilised tax system should be a smooth take-up of the tax burden so that the full rate of tax is not felt until the taxpayer is enjoying a reasonably substantial income, well above the poverty line. What the Government have done will have a cruel, not simply an unfair, effect upon a large number of people who seem to be ignored by Treasury Ministers—those who, in spite of the strong financial temptation to leave work and live on benefits, continue to earn their poverty by working for low pay. Those people had at least some small solace in the reduced rate of income tax on their modest earnings. They will now incur the full 30 per cent. rate. That will also lead to substantial pay claims.

The most sinister argument for that move is that it will save 1,300 Inland Revenue staff—as if that were a decisive point. It will not have escaped the notice of hon. Members that in the same speech yesterday the Chancellor made provision for an extra 1,500 staff to deal with the admirable object of taxing unemployment benefits.

It is intolerable that we should settle our taxation policies according to the number of Inland Revenue clerks that are needed to carry them out. That should be the last rather than a primary consideration. The lower rate of tax, far from being abolished, should have been reduced to a rate of 20p in the£, and we shall try to amend the Finance Bill in that respect. If that had been done, about £1.8 billion would have been injected into the economy, which would have been of great value to industry.

Mr. Hooley

Another consequence of bringing people straight on to the standard rate of tax is that it makes it more difficult to give tax remission to people in the lower income tax bands without automatically giving disproportionate help to those at the top.

Mr. Wainwright

I share those sentiments.

I deal next with capital taxation. The Chancellor's feeble stance must have been a disappointment to hon. Members of all parties, but no doubt for varying reasons. I regard the state of capital taxes as deplorable. In common with most hon. Members, I used to deride the old death duties, because in many ways they had become voluntary taxes and were not having any marked redistributive effect. However, in spite of the Labour Government's strong statements that they were effecting an irreversible redistribution of wealth—

Mr. Heffer

That was only our party programme, not the Government's.

Mr. Wainwright

The former Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey), when he introduced capital transfer tax, said that it was a determined attack on the maldistribution of wealth in Britain. He said that in his Budget Statement in March 1974.

In 1972, the poor old tattered death duties, such as they were, raised revenue of£482 million—0.87 per cent. of GDP in that year. In the fiscal year 1979–80, all the new capital taxes raised only £430 million, and that was only a miserable 0.26 per cent. of GDP. The Labour Goverment's effort to effect an irreversible shift in wealth has failed, and the present Chancellor is simply tinkering with the duties, which will reduce the yield still further, so that it will become probably no more than 0.21 per cent. of GDP.

To Liberal Members that is a hopeless failure of a necessary measure for redistributing wealth. We shall call for an accessions tax, not by taxing the donor but by taxing the recipients of gifts according to the recipients' means at the time that they receive them. We heartily oppose the Budget measures to reduce the small re-distributive effects of capital tax.

On the positive side, there are the share ownership encouragements. With some parental affection I welcome the improvements in tax reliefs for employee share ownership. However, according to the Inland Revenue's press statement, those wider concessions come into effect on 6 April 1980. That being so, there are many schemes which, because of their dates of foundation, will issue shares and take advantage of concessions from that date. However, there is no Budget resolution to that effect, and I know from my experience that the head office or some inspectors of taxes will note that there is no parliamentary approval to operate those concessions from 6 April. I hope that the Chief Secretary will be able to say that we shall not have to wait for the Royal Assent to the Finance Bill for shares to be issued on the new terms that were wisely included in the Budget.

There is also a disappointment. Any hon. Member who has addressed audiences on the valuable subject of wider share ownership will be fully accustomed to the genuine people at the meetings who ask what tax concessions will be granted for people who do not work in profit-making industries or who do not work in industry at all. Why are those privileges to be limited to those who work in the profit-making private sector? With that in mind, we have been trying to draw the Government's attention to the brilliant success so far of the loi Monory in France, which has stimulated investment in industry. It has started well and it allows tax payers buying new shares in French industry to deduct approximately£500 in any one year from taxable income. I hope that the Government have not entirely abandoned that possibility. I am not making a partisan point on this.

The House will debate the social security sections of the Budget on Monday. They are of immense importance. I shall not trespass in detail on that subject today, in the hope that another Liberal Member may succeed in catching your eye, Mr. Deputy Speaker.

However, I refer briefly to the betrayal on child benefit by a party that is widely advertised as the party of the family. The Government are increasing child benefit by only 75p. with effect from November, by which time inflation will be raging ahead even faster than at present. This is a scandal. It should be increased by at least £1.20 if it is not to come into effect until November. Other hon. Members who are more eloquent than I am will introduce the humanitarian considerations and the considerations of fairness and justice. I simply wish to put the hard-nosed point of the good of the economy.

In his Budget Statement the Chancellor said: One of the biggest problems is the lack of balance between social security benefits and incomes in work."—[Official Report, 26 March 1980; Vol. 981, c. 1459.] The child benefit scheme is almost uniquely and admirably designed to answer part of that problem. It is untaxed and it is paid in full to those at work, but it is taken into account before social security payments are made. Almost uniquely, child benefit does not contribute to the poverty trap. Certainly during the proceedings on the Finance Bill we shall press as hard as possible for an increase of £1.20 in November.

In conclusion, the case for relying solely upon strict control of the money supply, without regard to the harm that that does to British industry and our social fabric, has not been made out. In particular, we have never had an answer to the key problem of how the Government propose to get out of the strict control.

We hear a lot of airy-fairy phrases about several years of hardship and difficulty which will lay the foundations for a return to economic growth. The Government never tell us how that can be contrived on their policies without starting the inflationary cycle all over again. It would be a great contribution to the wisdom of nations if, during these debates, the Government could explain how they hope to get back to a path of expansion and proper economic growth on their present policies without reviving inflation.

The Budget has done nothing whatever to stem the tide of cost pressures which continues to push up prices, put us out of export markets and ruin whole sections of British industry. The Budget has done virtually nothing to help the business sector, and it has increased income tax in real terms by the stupid abolition of the lower rate band. In our view, a more expansionary policy will become increasingly necessary as unemployment mounts to intolerable heights, and that will have to be accompanied by a pay policy. Perhaps this Budget is the Government's last desperate attempt to avoid a U-turn of that kind.

6.12 pm

Mr. Peter Hordern (Horsham and Crawley)

I congratulate my right hon. Friend the Chief Secretary to the Treasury on his speech this afternoon. I am glad that he opened from the Treasury Bench—he made a speech of great clarity and lucidity, which we have come to expect from him. His speech was in marked contrast to the turgid contribution of the right hon. Member for Leeds, East (Mr. Healey).

The trouble with the right hon. Member is that he lacks credibility. It is as if Horatio Bottomley were pretending to be the chief cashier of the Bank of England. Some of his remarks were proof of this. He spoke of the contribution of£1,000 million to the European Economic Community which is mentioned in the public expenditure White Paper. He chided the Government for not altering that figure and for not taking account of some reduction in it over the years ahead. That was typical of his approach to public expenditure White Papers. He always put a gloss on future events. When he was in charge of our economic affairs he always told us that growth would proceed at 3 or 4 per cent. a year and therefore we could well afford even larger increases in public expenditure, which subsequently obtained.

I think that the public expenditure White Paper on this occasion is an example of clarity and proper responsibility. It shows financial caution and rectitude, and as such I commend it. However, there are other parts of the public expenditure White Paper which I should like to comment upon now, particularly the attitude displayed towards public expenditure itself.

There are considerable divisions of opinion about the relative value of public expenditure. There are some Labour Members who feel that public expenditure should never be cut in any circumstances. They are the ones with snow on their boots. There are others, on both sides of the House, who feel that public expenditure should be cut in principle, but in practice it is always some other neck of the woods that should suffer the cuts and not their favourite area. Then there are those—and I am one—who believe that public expenditure should be cut in relation to what the nation can afford. We might be called the heavy cutters.

My right hon. Friend the Secretary of State for Industry is also in that category. A short time ago he said that the Government had lost the first six months. I agree with that view—in fact, I think that we have lost the first year in public expenditure and that we should have cut it faster much earlier.

Then there is the other category, which includes the right hon. Member for Leeds, East. Those people believe in a contortionist attitude. They believe in following either Keynes or Friedman, depending on which way the wind is blowing at the time. It is very difficult to find out the right hon. Gentleman's present attitude to monetarism, public expenditure or any other aspect of our economic affairs.

I wish to draw attention to the still considerable increase in the rate of money supply. A rate of some 10 to 11 per cent. is predicted for this year. One should compare that rate of increase with the rate of increase of money supply in other countries. In the United States, on the same measurement, it is 6 to 9 per cent. In West Germany it is from 5 to 8 per cent.

I draw these comparisons because the removal of exchange controls—of which I am wholly in favour—means that those institutions with capital can invest their money in any country they wish. Countries in which the rate of increase in the money supply is slower will become more attractive if their interest rates are favourable. Institutions will prefer to invest in those countries to supporting Government stocks. Therefore, it is not necessarily the case that the funding will proceed easily. Considerable funds may go abroad—in fact that is already happening.

I believe that not only the higher rate of money supply continue—and it is too high in my judgment—but that interest rates will remain high, not just this year, but probably next year as well. This will be necessary to attract money into the gilt-edged market. Therefore, I should have preferred a more considerable reduction in public expenditure. I know that that leaves me open to the immediate question "How would you cut it?". I should have imposed higher charges on tobacco, wines and spirits.

If this rate of a 9 to 11 per cent. increase in the rate of the money supply is to obtain, it will be difficult to attract funds to the gilt-edged market. Therefore, interest rates will remain high, and this will mean continuing, considerable difficulty for industry, not just this year, but next year as well.

At present, industry is in a very low condition. The right hon. Member for Leeds, East has been weeping crocodile tears for industry. We must not forget that he wanted to increase employers' contributions to national insurance, so his tears now leave me quite cold. But there is no doubt that industry is in a somewhat parlous condition. One has only to look at the results from com-panics. A week ago we heard that Stone Plan was making heavy losses—and that is a large exporting company; G. and J. Weir, which is also a major company in the North, made a very heavy loss; and Tube Investments is now considering its investment programme, not in this country, but in the United States. There is no doubt that investment conditions are not very attractive in this country at present. Substantial changes need to be made, particularly in the rate of interest, to make it much more attractive.

We must deal with the fact that the money supply is expected to remain high and that public expenditure is also too high. I do not believe, however, that that is the real basis or the nature of our problem. Our difficulties have gone on for much longer than that. At the heart of the matter is the de-industrialisation of our country. There has been a continuing movement and trend for many years from the private wealth-creating sector into the public sector. Between 1961 and 1978, 1.5 million people moved into the public sector. There was a 60 per cent. increase in the number employed by local government, and a 30 per cent. Increase in the number employed by the Civil Service in those years.

Although in other countries there has been considerable movement from productive to service industries, there has been no comparable increase in the public sector. I do not believe that a similar comparison can be drawn with any other country. For example, in 1965 our education service employed just under 400,000 people, some of them part-time, who neither lectured nor taught. At the end of 1979 there were not 400,000 in that capacity but 717,000, again many of them part time, who neither lectured nor taught.

In the National Health Service the number employed in 1961 was 575,000. The latest figures show that 1.175 million people are employed there. With the best will in the world, taking into consideration the fact that the number of beds in the NHS is considerably smaller than in 1961, we have not achieved the improvement in standards that we might reasonably have expected because of the considerable increase in the number of employees.

What is to be done? I know that cash limits are bound to have some effect, but I fear that they will have the effect of reducing services and not the number of personnel employed. The Government should take further action about the considerable increase in the number of administrators in the education and health services.

Other countries have different systems. The United States has a general accounting office. If we are not to have a similar body, which I should like to see, I believe that the Monopolies and Mergers Commission should be asked to make a proper investigation of the NHS and our education services, especially into their staffing ratios. I cannot believe that it can properly be claimed that we have had the improvement in services in either of those organisations that could reasonably have been expected when one considers the increase in the number of administrators.

The terms of service in the public sector are now very attractive compared with the private sector, not only with regard to comparability of wages and salaries, but also with regard to indexed-linked pensions. One thing that I was glad to hear in the Budget Statement yesterday was the announcement of a new inquiry into index-linking of public-sector pensions. I do not know what this inquiry will show, but, on any proper comparison, I would have thought that there should be a larger contribution than at present to justify the real protection that an index-linked pension gives. While this inquiry proceeds, I hope that my right hon. and learned Friend the Chancellor of the Exchequer will arrange for a proper examination of whether we need funded schemes in the public sector at all.

My right hon. and learned Friend knows my views about this, and I have bored the House with them already; but the Government Actuary has shown, quite convincingly, that we would be able to achieve a reduction of £2,000 million a year if we paid pensions in the nationalised industries and local authorities as they arose rather than through funded schemes. That is well worth looking at, and I hope my right hon. and learned Friend will look at it.

Essentially, our problem is to halt the flow of people into the public service—the wealth-consuming sector—and restore it to the wealth-creating sector. How can that be done? My right hon. and learned Friend yesterday mentioned an examination of corporation tax. He also said that the new exposure draft which the accountants are preparing will be ready soon. I hope it will be, because it will then be possible to have a system through which profits will be taxed in a real sense and tax will be paid only on profits as they are earned, allowing for inflation. That will mean, of course, no stock appreciation relief. But it will also mean that investment will take place based on proper criteria and, further, that it should be possible to reduce the rate of corporation tax.

I have long felt that the number of people whom we employ in the Department of Industry, the Welsh Development Agency and the Scottish Development Agency is too large. We carry with us the burden of a demand economy while trying to run the economy in a monetary sense. We have this large burden which I believe could be reduced considerably by tax incentives over a much wider area than at present. By that I mean that we should follow a system rather like that in Ireland, where there are tax-free holidays for 10 years for companies. It is a very successful system and attracts foreign firms to that country.

I know that my right hon. Friend the Secretary of State for Industry feels that a substantial Department for assessing regional aid is necessary. I do not deny that. We cannot do without regional aid altogether. However, I ask my right hon. Friend to consider the impact of having tax-free zones for companies in all the development areas. That would be a much more intelligible system for foreign firms to understand. It is no use our thinking that we can regenerate productive wealth or industry simply by taking money from successful firms carrying it through the Civil Service and giving it very largely to unsuccessful firms. Much the best way is to attract successful firms to those areas where unemployment is high. I believe that that would be a more successful policy than the one followed at present.

I am greatly interested in the experiment that is about to take place in the new enterprise zone, but if there is to be a reduction to a bare minimum of Government requests for statistical information, why cannot that be applied universally? If it is not strictly necessary to have statistical information in city centres, I cannot see why it should not be applied throughout the whole country. I hope that my right hon Friend will consider that also.

I deal next with the proposals for wider share ownership. I congratulate my right hon. and learned Friend the Chancellor of the Exchequer and his colleagues on these proposals. They are certainly an improvement on the proposals which now stand enacted and are almost as good as the proposals which we originally put forward when in opposition. However, I should have liked them to be more generous. I follow what the hon. Member for Colne Valley (Mr. Wainwright) said about the desirability of a system that would attract funds generally, such as the loi Monory in France, but the fact is that we have tried to run our economy in a Victorian financial straightjacket for much too long.

Mr. Nick Budgen (Wolverhampton, South-West)

. I fear that we are not in one now.

Mr. Hordern

The Victorian economy had this advantage: in that system there was a certain paternalism. Those who owned factories took a good deal of personal interest in their employees. The same cannot be said today. Many who work in companies today have not the slightest interest in the profitability of the firm. Similarly, those who are shareholders are concerned only with the size of their dividend cheques at the end of the year. Furthermore, shareholders can, if they wish, vote with their feet by selling their shares and getting out. When we compare this archaic system with what is a lifetime guarantee of employment in Japan, and the substantially more generous schemes for wider share ownership in Western Germany, we realise that we need to take a different view about the importance of workers owning shares in the company for which they work.

Mr. Alan Clark (Plymouth, Sutton)

I am a little anxious about the reference by my hon. Friend to the benevolent Victorian factory owner. It evokes the shades of Manchester liberalism that waft over the party from time to time—greatly to my regret. I am sure that if my hon. Friend were to read the social history of the period he would recognise not only that the good employers were few in number but that the Tory Party at that time protected, and relied on the support of, the working class, and the Liberal Party was the party of the exploiters and mill owners.

Mr. Hordern

I do not disagree with my hon. Friend, but my proposals are designed to ensure that workers in factories will support the Tory Party much more than they have done hitherto, and will do so as they did in Victorian times. I believe that they will. I see no reason why workers should not own far more of the shares of the companies in which they work. If they had greater ownership, they would have a real interest in the prospects and future of their firms, or much more than at present, which is little more than the size of their pay packets at the end of the month or week. That is an issue to which we must pay a great deal of attention.

I commend the scheme that my right hon. and learned Friend the Chancellor of the Exchequer announced yesterday, which goes a little way towards the proposals that I have set out. I wish that the Government would go further. However, apart from public expenditure, which I believe should have been reduced even further last year and again this year, I congratulate my right hon. and learned Friend on the Budget that he has introduced.

6.31 pm

Mr. Eric S. Heller (Liverpool, Walton)

I begin by referring to the speech of the Chief Secretary to the Treasury. The delivery of his speech was much better and clearer than that of the Chancellor of the Exchequer yesterday. However, I found the content of the speech equally disappointing.

Mr. Hooley

Are you relieved, John?

Mr. Heffer

I have no doubt that the Chief Secretary is relieved on that basis.

I agree with the right hon. Gentleman's comment that mindless consensus is the enemy of clear-sighted government. I could not agree with him more. We have had consensus politics and economic policy for quite a long time. It has not worked. It has worked only in the sense that if there had not been Government intervention in economic matters, the problems would undoubtedly have been greater. The important matter is that that type of consensus politics has not fundamentally solved the problems with which Britain is faced. We must learn that lesson. To that extent I agree with the hon. Member for Horsham and Crawley (Mr. Hordern). However, the conclusions that I draw are fundamentally different from and opposite to those drawn by the hon. Gentleman.

I could be classified by the hon. Gentleman as one of those with snow on their boots. That is because I have never been in favour of massive public expenditure cuts. I am in favour of some public expenditure cuts, but probably not those of which the hon. Gentleman would approve. It would be wrong to say that I never agree with public expenditure cuts. Much depends on what is being cut and the objective of the cuts.

When the previous Labour Government were cutting back on public expenditure, I and a group of my colleagues made it clear that we opposed our own Government. When we believe passionately in something, we should be prepared, if not to vote against our Government—we often find that extremely difficult—to make our position clear by not supporting them. Many of my hon. Friends did that consistently when the previous Labour Government were cutting public expenditure. We have been consistent in our attitude to public expenditure. If that means that we have snow on our boots, so be it. I do not know whether that is intended to be a reference to the Soviet Union. The hon. Gentleman knows me sufficiently well not to hint in that direction. If he were doing so, I might get somewhat upset.

We must consider the Budget against the background of the crisis in which Britain finds itself, and the crisis of the whole Western world. It is true that the Western world is in a crisis. We often hear how marvellous it is in Western Germany or Sweden vis-a-vis the situation in Britain. We hear that every country in the world is solving its problems save Britain.

We are part of the crisis in which the whole of the Western capitalist world finds itself. Our part of it is slightly worse because, within the overall crisis, we have certain peculiarities, to which the hon. Gentleman referred when he talked about deindustrialisation and because of our failure to regenerate our industry when we should have been doing so. However, even the countries that have regenerated their industries and built up new economies—they have been Johnnies-come-lately and have had the advantage of starting from our level in terms of modem technology—are faced with the serious crisis that faces Britain.

If that analysis is accepted, there are two basic but different ways of dealing with the crisis. There is the approach, which, unfortunately, the Government have taken, of placing the full burden of the crisis on the shoulders of ordinary working people. The second method is to ensure that the crisis is dealt with on the basis of equality throughout the community. I am not denying that the Government are considering the crisis in strictly capitalist terms and that an effort is being made to solve it. However, that effort is being made at the expense of ordinary working people, who will suffer as a result of the way in which the Government are tackling the problem. That is the essence of the basic divide and argument between the two main parties.

How is the crisis being solved by the Government? It is being solved by massive public expenditure cuts.

Mr. Alan Clark

They are not massive.

Mr. Heffer

Yes, massive public expenditure cuts which are bound to lead to higher levels of unemployment. There are now about 1½ million unemployed. By the beginning of next year unemployment is likely to be over 2 million. It will possibly increase much further. In the absence of a new approach and bearing in mind new technology, we may never be able to solve the problem of unemployment without the interventionist policies for which I argue.

The result of the Budget will be higher prices by direct Government policy. There is no question about that. Even the Government admit that by the end of the year inflation will increase by 2 per cent. and there will be higher prices for ordinary people. The public expenditure cuts will lead to massive unemployment.

It has been said from the Opposition Front Bench that there is real anger on this score. Yes, I am angry. I shall tell the House why I am angry. I am close to ordinary working people. When I go home at the weekend I go to my mother-in-law's house on a council estate. I meet my pals with whom I used to work on building sites, some of whom have been out of work for a year or 18 months. I meet my former comrades from the shipyards. I have a pint in the Labour clubs. I am angry at the Government's proposals, which will not. increase unemployment benefits by 5 per cent. in relation to price increases. That will mean a real cut in the standard of living of ordinary working people. Many people who have been out of work over a period will suffer as a result of Government policy.

The Government have adopted a callous and heartless attitude. I think of the prescription charges and the other measures taken as a whole. They are a direct attack on the living standards of ordinary working people. My right hon. Friend the Member for Leeds, East (Mr. Healey) was right to draw attention to what was said on the radio this morning. I heard one person say that he had gone across to New York and had had a couple of pink gins while travelling on Concorde. He said that he had had a marvellous time, that the Budget did not mean anything to him and that it was the right kind of Budget. A working woman was asked what the Budget meant to her. That is the real issue of the Budget. That is what we are talking about.

I now come to the position of the trade unions and the deeming policy. One hon. Gentleman said that he did not know what was meant by deeming. I do not care whether we call it deeming or knocking £12 off benefits. They are still benefits. It comes to this, that trade unionists' wives and families will be treated worse than criminals. It is not a criminal offence to go on strike. The legislation concerned itself with people in real need. Strikers' wives and children will be affected.

Mr. Budgen

rose—

Mr. Heffer

I shall not give way, if the hon. Gentleman does not mind.

Single strikers never received anything; nor did strikers receive anything for themselves.

Mr. Nicholas Winterton (Macclesfield)

Quite right.

Mr. Heffer

The hon. Gentleman says "Quite right". Does he know that when working people are on strike they club together to help feed the men who are without any income? They have this solidarity, one with the other. Strikers' wives and children will now suffer as a result of Government action. That puts the burden on to the shoulders of working people.

Mr. Budgen

I understand the hon. Gentleman's argument about the morality of that. However, on a practical level, is it not likely to cause increased trade union membership? People will join trade unions to ensure that they receive union benefits should they go on strike.

Mr. Heffer

The hon. Gentleman indicates that he has a total lack of understanding of the trade union movement. Not every strike is official. Many strikes are unofficial. In every unofficial strike, when there is no strike pay, workers' wives and families will suffer. What about the workers who are not members of trade unions and who go on strike from time to time? [Interruption.] I am trying to make a serious point on a matter about which I feel deeply. In the same way, right hon. and hon. Gentlemen feel deeply about their regiments when they talk about the Army. The working class and the trade unions are my regiment. I feel deeply about their problems. I am arguing their case tonight.

Allied with the Government's attitude is the so-called Employment Act and the extra money to be spent on law and order. Does that mean that the Government expect confrontation on a massive scale with the trade unions, so that the problem may be dealt with either through the method of no assistance to wives and families or by building up law and order enforcement to deal with those workers? That could possibly be the pattern of thinking of Government supporters. However, the pattern is not realistic to the Opposition.

Finally, I come to the proposal for the enterprise zones. My right hon. Friend referred to them as combat zones. I prefer to suggest that the Government have mini Hong Kongs in mind. Perhaps some Government supporters have not watched the Milton Friedman programmes. I watched them. Milton Friedman walked round Hong Kong and said "Marvellous: absolutely wonderful. They can work all the hours they like. There are no trade unions to protect them: there are no safety, health and welfare regulations". The hon. Member for Horsham and Crawley gave the game away. He said that that was a good idea. He said "We do not want planning arrangements or controls". He asked why the Government did not apply the system to the whole country. That is why I oppose the idea. Once the system is entrenched in a few areas, the demand will grow to apply it throughout the country and get rid of all planning controls. That will result in chaos in the economy. It is not on.

Mr. Hordern

I confined my approval of the Government's measures to the idea that the statistical information required by the Government would be strictly limited. I said that that part of the Government's proposals might be universally applied. It was not that I thought that planning procedures or health and safety measures would be unnecessary in the rest of the country. The Government should set up additional tax-free zones, which would be more effective.

Mr. Heffer

If I misunderstood the hon. Gentleman in any degree, I accept that perhaps I was slightly wrong. Never- theless, once these economic zones get under way, the demand for them will grow, which will result in total economic chaos.

One Government Front Bench speaker said that the Opposition would not know a small business man if they fell over him. I do not know whether he knows the Opposition. My entire family were small business people. My uncle was a fruiterer and florist; another uncle had a butcher's business; another was a confectioner; and another was a small builder. I know about small businesses.

It is rubbish to suggest that the Opposition have no understanding of the problems of small businesses. For years many members of the Opposition argued in favour of support for small businesses. My right hon. Friend the Member for Bristol, South-East (Mr. Benn) and I put forward a scheme which, unfortunately, did not see the light of day. In it we suggested ways of helping small businesses. Let us get that silly argument out of the way.

Reference was made to the "spurious compassion" of the Opposition because we are all opposed to the mean and vicious policy which the Government are introducing. Our compassion is not spurious; it is real. It is based on the fact that we come from the people who are now being screwed down by the Government.

In the long term, the Government will not get away with their policy. They might get away with it for a short period. However, the people, and especially those in the trade union movement, will be furious. My ideas have been deliberately distorted. I said that trade union strikes against Government policies would be interpreted as political strikes. In fact they will be strictly economic disputes, because trade unionists will be defending their living standards and their working conditions. That anger will grow and it will grow to such an extent that in less than two years Conservative Members will be really sorry that they are pursuing a policy such as this. Either they will have to make a U-turn or they will go down in a welter of chaos.

6.51 pm

Mr. Alan Clark (Plymouth, Sutton)

I am in agreement with the broad thrust —if I can use a word with such overtones of aggression and confidence about a Budget of which the best that has been said by its defenders on the Front Bench is that it is consolidatory. Any Budget introduced in our second year that leaves Health Service charges or the same proportion of them in percentage terms the same as in 1967 can hardly be thought to be particularly aggresive or even particularly confident.

The first sentence in the Red Book asserts our policy of reducing inflation and improving the supply side of the economy "supply side" being a very "in" concept at the moment. It means our capacity to make things. If we do not have a capacity to make things, our productivity, which is so vital, cannot increase. No one would quarrel with that sentence but a little later on, on page 20, we get a paragraph dealing with the strategy of the Budget, from which we see that the improvement of the supply side of the economy is to be achieved by removing obstacles and allowing market forces to work. Removing obstacles is one thing, but the refusal to erect barriers is something totally different. The fact is that the supply side continues to contract and will continue to contract, in my view and on all the projections of all the figures we have, until it is properly defended against the intrusion into manufacturing of competition from those who are sometimes referred to as our trading partners but whom I prefer to look upon as our economic rivals.

It is this unrestricted competition—the operation of market forces in an international context rather than in the national context in which industry in the United Kingdom functions and which I know all my hon. Friends support —this unrestricted play and operation of market forces, that still poses the greatest danger to our manufacturing capacity, our productivity, as it exists at the moment. Indeed, there is a danger that the policies of the present Government, excellent and admirable though they are, may, before they have had time to work themselves to fruition, accelerate the damage that is being done to our own manufacturers—that is, to the supply side —by permitting the unrestricted access of foreign manufacturers to our markets.

In the Red Book the uncertainties about this are very well illustrated on page 19, below table 9, where there is an all-purpose paragraph disclaiming any responsibility for any of the forecasts. It reads: Events at home or abroad could develop so as to produce a very different situation. World trade could grow faster or more slowly than assumed; the supply response of the United Kingdom economy could be very different, with consequences for productivity and trade performance; oil and other commodity prices could show different movements; and the behaviour of earnings is always difficult to predict. It might be thought that that kind of general disclaimer would be enough to get the Treasury off the hook in any of the other forecasts it makes, but further on there is a table that shows a margin of error in the forecasts, and the interesting thing is that the two items showing the largest margin of error are those relating to imports and exports. Speaking from memory, I think that the margin of error predicted for exports is 125 per cent. and the margin of error predicted for imports is 100 per cent. My own feeling is that exports will be in deficit by almost the exact amount—that is, they will fall short of the prediction by almost exactly the amount of the margin of error in the cautionary note—and that imports will exceed the prediction by almost the total amount of the margin of error that is predicted. The effect of this will be a still more devastating contraction of our manufacturing capacity.

I have wearied the House many times with the arguments for protecting our manufacturers and I certainly would not presume to do so again on this occasion. But I should like to draw the attention of the House to two things. When I first started doing this, those on the Front Benches on both sides of the House dismissed what I said in a very cursory way, simply referring to some of their own figures or predictions and saying that I did not have access to the sort of figures they had, and they knew that it was totally impossible.

Since that time, I have made a pilgrimage to the very altar of Mithras, as it were, where these rites are carried out and entrails examined. I have laid on the altar various assumptions—or runs, as they are called by those who operate the computer—and the figures that it produced, the answers that the oracle gave, certainly lent great statistical force and weight to what natural common sense would tell anyone who looked at this problem. I have published them in The Times and I have them available in greater detail if any hon. Member is interested enough to seek further enlightenment. But, having already poured some scorn on the Treasury's capacity to make forecasts, which we can assume derive from this very instrument, I do not think that particular weight has to be attached to any special set of figures. All I am saying is that I am now armed with those very weapons which were formerly used to dismiss or deride my arguments about protection.

The other thing I would say to my right hon. Friend is that I have sometimes been rather roughly treated by him and his hon. Friend in winding-up speeches and my arguments have been brushed aside in a rather perfunctory way. However, the feeling of inevitability, the feeling that this is something we shall have to turn to, is not only getting more widespread among those who devote their minds to economic matters, but is spreading, with sonic apprehension, I believe, to our foreign competitors or, as we are sometimes obliged to call them, our trading partners.

Only yesterday I was entertained in the American Embassy to a lunch which was attended by high-powered economic advisers and diplomats whose purpose was to get me to say how much support I thought there was for my views and then to try to dissuade me—which they did in turn—from holding them and to demonstrate how ridiculous and unfriendly they were. All I can say, as an ardent nationalist, is that if representatives of other countries do not like a policy and try to talk me out of it, that policy must have something to commend it.

I want to deal with two of the most familiar, often used but least thought out objections to the protectionist argument. The first is the retaliatory argument. Many people who do not want to devote their minds to this subject but think in terms of received ideas say that protectionism is unthinkable, the United Kingdom depends on world trade and retaliation would do us far greater damage than would be brought about by protecting our domestic industries.

The answer to that argument is that the United Kingdom does not depend on world trade. We are in deficit in world trade in manufactures and we are likely to aggravate that condition as the years advance. In the finality of logical argument, if world trade in manufactures were suspended, or the two items in the book were balanced, we would be better off. But there is no question of that happening.

We have to protect our manufacturing industry by a total, overall and fully conceived strategic operation. Retaliation against us, in so far as it occurs, would be piecemeal, phased and subject, if the Foreign Office is still capable of operating in that way, to diplomatic negotiation. It would not in any sense be universal, because the destination of exports is not the same as the origin of imports. They do not balance or put us in deficit either in volume or financial terms.

So in the very worst case retaliation is likely to affect only a relatively small proportion of our export trade, whereas protection, particularly on the conservative lines I originally put through the Treasury computer, would have an immediate effect by opening up markets in our domestic environment to manufacturers who at present are being excessively squeezed by the intrusion of foreign imports.

The second argument that is put forward after the retaliatory argument can be broadly described as the "quality of life" argument. It carries with it certain derogatory assumptions about conditions in British industry. That argument is that there will be bottlenecks, black markets and a rise in prices due to the tariff effect of foreign imports.

Mr. Budgen

My hon. Friend seems to be saying that the fact that the country is in deficit on its balance of payments is an indication that it does not rely upon world trade. That, I would put to him, is not so. That does not take into account the effect of the exchange rate, which ultimately causes equilibrium between the two sides of the balance of payments.

Mr. Clark

That is an esoteric argument which was also propounded very eloquently by my hon. Friend's predecessor in Wolverhampton, South-West. I did not say that we were in deficit on our balance of payments in trade in manufactures. The great advantage of redressing that is that we still have the surplus that arises out of invisibles and the oil account.

We must certainly pay regard to the quality of life argument. But allied with it is a much more insidious and disreputable argument that British industry is so run down and seedy and the work people are so bolshy that they simply would not take advantage of the lease of life they are given by protecting their market. They will not innovate or invest but will simply carry on making obsolete goods. It is said that, when, in the fullness of time, it was necessary to look again at the policy, British industry would be completely obsolete and even less able to stand up to the competition to which it would be exposed.

The long-term aim of any protectionist strategy must be to make British manufacturing industry competitive again. During that interim period, with enormously increased captive markets available, the incentive principle will start operating. It requires no more powerful and active faith to believe that the incentive system will operate within our closed but highly profitable domestic economy than that it will or can operate in an economy that is open without any restriction to the intrusion of foreign manufactures.

In an ideal situation, and as a powerful element in that ideal I count the miraculous omission of the obligation to fight general elections, if a 10-year run could be postulated for the party in power to implement its policies, it is conceivable that by exposing industry to the ruthless blast of foreign competition both management and work people might be forced into changing their attitudes and we might emerge with a new spirit and a more efficient body of corporations.

That is very risky. The damage that could be done during that period might be lethal. Certainly the base from which to build again will be much smaller and there is always the danger that in the course of this exposure there might be major confrontations or difficulties in the broad social field which would bring down the whole edifice.

I am certain that we shall have to come to this in the end. It is the only economic option left open to us. All I ask this evening of my hon. and learned Friend the Minister of State is that, in conjunction with his right hon. Friend the Secretary of State for Trade, he draws up a contingency plan and considers the various possibilities. He could, for example, examine the argument that is trotted out with such facility that retaliation is dangerous and could be disastrous. That argument will be found on examination not to have as much substance as it is believed to have by those who argue it so blithely.

Secondly, when my hon. and learned Friend examines this strategy, will he conceive it as a major and compendious economic strategy and not simply as a piecemeal approach to save individual moribund industries with only two or three years left anyway, which will be seen as such by the work force and the management? It has to be conceived as a major and long-term strategy to revive British industry and to give it back the real confidence that it needs both for investment and for negotiation with its work force.

7.10 pm

Mr. Frank Hanley (Sheffield, Heeley)

I am glad that the hon. Member for Plymouth, Sutton (Mr. Clark) has concentrated on manufacturing industry. I wish to comment on that matter myself. I wish to get away from esoteric arguments about PSBR and all that nonsense.

The Chief Secretary was interesting in revealing the Tory party's ultimate weapon in the fight against inflation. It is the passage of time. The right hon. Gentleman was precise on a great many figures, but he was not very precise about how much time would be required under Tory policy to reduce inflation to a reasonable level. The right hon. Gentleman has spoken of about three years. The right hon. and learned Gentleman the Chancellor of the Exchequer has spoken of about 10 years. I suppose that, if there were a Tory Government for long enough, inflation might come down eventually. That is hardly a politically viable economic policy.

This is the Budget of a grocer's daughter. It is petty minded, penny pinching and Poujadiste to a degree. In my view, the key aim of economic policy must be full employment. It is totally indefensible that we should run a modern industrial economy on the basis of unused resources, whether those unused resources are the physical resources of factory, plant and equipment or the human resources of our workers. It is vital to concentrate our minds on how to get the economy back on the rails and back into full employment.

One aspect of this situation—I admit not the whole of it—must be to concentrate our minds on the problem of industrial investment. My remarks may, to some extent, tie in with those of the hon. Member for Sutton. I believe that industrial investment is fundamental to the solution of our economic problems and our manufacturing industry.

Table 1.6 on page 16 of the public expenditure White Paper is very interesting. In the five years 1974–75 to 1978–79, the figures relating to industry, energy, trade, employment and the Government contribution to nationalised industries amounted to £6.4 billion in 1974–75, falling to £4 billion in 1978–79, a reduction of £2½ billion over that period. By contrast, in the same period expenditure on health and social services and social security went up from £22.4 billion to £27.2 billion, an increase of £5 billion.

In that period, public expenditure on what might be called the wealth-creating sector of our financial life declined sharply by one-third whereas public expenditure on health and social welfare, which I fully support and do not criticise, went up considerably.

The situation in the period under the control of this Government is far more alarming. In 1979–80 the Government envisage expenditure in the categories of industry, employment, trade and the nationalised industries at £4.8 billion, falling by 1983–84 to £1.2 billion, a drop of £3.6 billion, or almost three-quarters, in public expenditure on the wealth-creating sector of our economy. By contrast, on health and social services, expenditure will actually go up from £27.8 billion to £29.1 billion, an increase of £1.3 billion.

I admit that much of the increase will be caused by the terrifying increase in unemployment that the Government's policies will produce. But the really frightening aspect of the figures is the fall of £3.6 billion in public expenditure on industry, trade and the nationalised industries. This means that the Government will very nearly opt out of their contribution to the wealth-creating sector of the economy.

The short answer from the Government will be that they do not believe in public expenditure in the wealth-creating sector of the economy and that this is the business of the private sector. They will say that they do not believe in putting public funds into public corporations, that they do not believe in the NEB and that they do not believe in schemes for training and retraining through the Manpower Services Commission and the promotion of trade by public effort.

I invite the House to study page 9 of the 1979–80 Red Book and what is set out there by way of progress in industrial investment in the private sector. It is stated: The recent high level of interest rates cannot, however, be favourable to investment". That is fair enough. It goes on: On balance total private sector investment is forecast to be roughly constant over the period of the forecast. So there was to be no increase in the private sector of industrial investment and a system of high interest rates would discourage it. In terms of forecasts for the economy as a whole, the same 1979–80 Red Book states that gross domestic product would fall by 1 per cent. That was hardly a factor to encourage private enterprise to invest.

What happens when we come to the Red Book for 1980–81? My right hon. Friend the Member for Leeds, East (Mr. Healey) was right in saying that the Red Book is extremely cagey about industrial investment in 1980–81 and shirked giving any clear forecast about what would happen in that sphere. A tiny little hint appears on page 26. It is stated: A significant cyclical decline in manufacturing investment is also likely". Under the Government's policies there is a deliberate reduction in public expenditure in any sphere of industrial investment or investment in the wealth-producing sectors of our country, industry, energy, trade, the training of people through employment policies and investment in the nationalised industries. That, according to the Government, is not on. They will not have it.

At the same time, the Government say that, even in the private sector—the sector that is supposed to be the great salvation of the economy under their policies—there is to be a significant decline in manufacturing investment. The Government are also forecasting that the gross domestic product will be down by 2½ per cent. this time. The Chancellor is doing better and better. The right hon. and learned Gentleman has increased the rate of decline of GDP by 150 per cent. after only 12 months in office.

It is not likely that we shall get substantial investment in our manufacturing industries on the policies being pursued by this Government. Lunatic interest rates are maintained for months and months. Now, according to a comment made in the debate, I understand that the Prime Minister is thinking in terms of present interest rates persisting for another two years. Who will be able to invest in manufacturing productive industry with interest rates at 17 per cent.? This is not a crisis measure or a short-term measure. I accept that my right hon. Friend, a year or two ago, had to push up interest rates to about 14 per cent. for a few weeks. We have now had 17 per cent. for several months and the Prime Minister tells us that this is to go on, not for a few months, but for years. I think that the period is now two years at least.

What incentive or practicability exists for investment in our basic wealth-creating manufacturing industries? How on earth will the unfortunate small business man, about whom Conservative Members are always clamouring, finance his business, or even maintain ordinary cash flow, let alone invest in new machinery or new equipment, with interest rates at 17 per cent?

The Government are compounding that by another foolishness—the high exchange rate, which is making it increasingly difficult for manufacturing industry, even the major and most efficient companies, to export successfully. A recent article in The Guardian pointed out that the rise in the value of sterling plus the depreciation of the yen has meant that the real price of British goods in the Japanese market is now 40 per cent. higher than it was two years ago. What manufacturer can sell his goods when their price in real terms because of the, fluctuation in the exchange rates—not because of strikes or incom- petence—means that he must sell at a price 40 per cent. higher in a highly competitive and sophisticated market? That is one example. Other markets have the same problem. The manufacturer has thus to contend with high interest rates and a high exchange rate.

There is also the problem of the outflow of capital. The Government, by demolishing exchange controls, have demonstrated that it is not important that people invest in British industry any more. As far as I can see, investors are being positively encouraged to send their money to South Africa, Latin America, Australia or wherever else they can get a return. There is no suggestion of priority for investing in British manufacturing industry. On the contrary, there is a positive incentive to send money abroad. Thus, our valuable capital resources flow out without restriction, creating enormous opportunities for tax evasion and all kinds of fiddles in offshore tax havens such as the Bahamas.

Mr. Alan Clark

It lowers the exchange' rate.

Mr. Hooley

It has not lowered it yet, and I doubt if it ever will. That is the third item on the debit side of Government policy.

The fourth item was mentioned by the hon. Member for Sutton. The Government have taken virtually no steps to curb import penetration. I do not want to go into the arguments about import controls and tariffs, but, whatever the economic arguments about the control of imports, the political arguments will soon be overwhelming. Neither manufacturers nor trade unions will sit back much longer and watch industry after industry destroyed by uncontrolled and unchecked foreign imports. There appears to be nothing in the Government's economic policy to deal with that problem.

By demolishing the Community Land Act 1975 and by cutting down on development land tax the Government are giving the green light to speculation in land and property. When they last did that—in 1972–73—they almost destroyed the entire banking system. If people can gamble and make fortunes in land and property speculation, they will not invest capital in the more difficult and long-term activity of industrial manufacturing. There is no incentive to build up our manufacturing industry. On these counts, Government policy is adrift.

The comparison with other countries is frightening. The Library has supplied me with figures for 1978 in relation to gross fixed capital formation. I accept that this goes much wider than manufacturing industry. Nevertheless, as an interesting index of capital formation the figures are: 1978, United Kingdom, £29 billion; France, £46 billion; Germany, £62 billion; and Japan, £320 billion. The figures as a percentage of gross domestic product are: United Kingdom, 18 per cent.; France, 24 per cent.; Germany, 21 per cent.; and Japan, 30 per cent.

How on earth can we compete successfully against our major industrial competitors when the level of our investment in productive industry varies by such enormous factors? I believe that massive and sustained industrial investment should be led by public expenditure. Of course, Conservative Members will not follow that particular line of reasoning. The argument is sometimes put forward, "Though we recognise the need for industrial investment, we are not sure what we shall be selling and in what context investment will take place."

That if a fair comment, and I intend to give one or two brief answers to it. We could invest in the energy industry, which includes energy conservation, new sources of energy, energy efficiency and techniques using combined heat and power which demand considerable capital resources. That capital would be used for new equipment and for the financing of engineering techniques. There would be a real return in economic terms because if these activities were successful—as I believe they would be—they would encourage us to economise on our use of North Sea oil and gas. Those resources could be saved for future generations or used to produce a better yield for us in our current financial position.

Waste and waste products and the recovery of valuable metals such as tin, lead and zinc could form the basis for profitable investment. Recovery of such metals is important in view of the rising price of commodities.

There are vast new possibilities in genetic engineering. The structure of the living cell was unravelled by British scientists in Cambridge. That profound scientific discovery has led, in the United States and elsewhere, to new industries based on the manipulation of recombinant DNA. We are hardly beginning to venture into that activity in this country.

However, given the effort and the money, we could build the great new industries which are precisely what this country needs. We need a high degree of value-added expertise. We do not possess indigenous raw materials other than fuel. There is the data processing industry, of which the Post Office is making good use. There are telecommunications, satellite technology, optical fibres, microelectronics and offshore and seabed technology. There are vast technological areas in which this country possesses the necessary scientific and engineering capacity. They could be exploited if money were invested in them. If the investment is made, it will be supported by the requisite skills and scientific knowledge.

Until now investment, public and private, has been lacking to develop those skills that would enable this country to develop new industries. I believe that a huge and sustained industrial investment programme in the order of £5 billion or £6 billion—over and above our present efforts—is essential to the restoration of the industrial health of this country as a great manufacturing power. If we had that, I would agree with Conservative Members that import controls by themselves, though they might be a useful mechanism, would not solve the problem.

We must have investment in our existing manufacturing industry and in new industries to make sure that we can compete in world markets though it may prove politically essential to protect our own industries in the short term whatever the economic disadvantages.

I turn to a profoundly worrying aspect of the public expenditure White Paper. The Government have taken a squalid decision to cut our overseas aid programme. In the five years between 1974 and 1979 the cost of our aid programme rose from £628 million to £795 million—an increase of 22 per cent. That is way below the international target of 0.7 per cent. of GDP which we promised many years ago, but it was achieved in difficult financial circumstances. In the period 1979 to 1984 our overseas aid will fall from £795 million to £680 million—a decrease of 14 per cent. in the modest aid which we give to the poorest and most deprived people in the world.

Many of my hon. Friends have referred to the attacks on social services. I support their criticisms, although I have not dealt with them in my speech. We must accept that even the poorest people in the United Kingdom do not approach the level of poverty, destitution and malnutrition from which millions of people in the Third world suffer. Cutting the aid programme is not only a curious irony in the light of the Brandt report; it is crass economic stupidity. There is little doubt that the economic prosperity of the West—or the North—is linked to the possibility of economic prosperity in the Third world, To cut the money allocated to help to promote, even in a small way, greater economic prosperity in the Third world is not only morally squalid but economically stupid.

The Budget has many deficiencies. It would take a long time to detail them. Its fundamental economic failure is its failure to grasp the importance of industrial investment and lack of steps to develop that investment. But the most squalid act by far is the petty cut in overseas aid.

7.32 pm

Mr. Kenneth Carlisle (Lincoln)

I am grateful for the chance to take part in the Budget debate. In my short time as an hon. Member of the House I have been struck by the deep wish of many of my constituents for a long-term future for Britain. They have been disillusioned by short-term measures and hollow promises designed to win electoral popularity rather than to solve our deep-seated problems.

The real merit of the Budget is that it offers a long-term programme for Britain. In the next few years Government borrowing will fall significantly and Government spending will be held tightly in control. For the first time for many years we shall live within 'our means and spend only what we earn. As a country we shall cease to be profligate. As a result, we can offer the British people the prospect of an end to the nightmare of continuing inflation and growing debts. We can give them real hope of rising living standards after a further two years of adjustment. The people want that certainty, and the Chancellor is wise to seek to give it to them.

We must recognise the considerable economic constraints within which the Budget is formed. Until the country produces and earns more, nobody can be better off. The Chancellor is right to spread the burden fairly. Not only is the Budget realistic but it is fair. Those least able to help themselves—the elderly, those receiving supplementary benefit, widows and single-parent families—are being protected from inflation. I am sure that the House will welcome that support, especially for the elderly. We have a particular responsibility to ensure that the elderly are protected.

It is realistic to accept that we cannot provide all the benefits that we wish to give everyone until the country creates the necessary wealth. I draw special attention to two aspects of the Budget—profit sharing and child benefit. Both encourage people to work and can help to foster the extra production that we seek. The hon. Member for Sheffield, Heeley (Mr. Hooley), called for greater investment. That can be achieved only by increased production and profits. They are essential.

The current profit-sharing scheme was introduced in the 1978 Finance Act. The concept of profit sharing has always had all-party support. It is right for employees to share in the profits which their work helps to create. Tax incentives should be introduced to encourage such schemes. However, it is generally recognised in industry that the 1978 Act provisions were not sufficiently attractive. About 200 companies have applied to participate, but profit-sharing schemes are available only to a tiny proportion of the working population.

The raising of the cash limit to £1,000 and the reduction of the retention period from five years to two years, with the shares available tax free after seven years, are steps in the right direction. However, one is bound to ask whether the concessions will bring a rush of new companies to profit sharing. I have no doubt that they will help, but I believe that they will not have the dramatic and fundamental effect that we wish. More incentives are needed if we are genuinely to spread the idea and actively encourage the wider ownership of shares. I hope that the Government will regard the concessions as the first steps in a long pilgrimage.

I am at one with many of my colleagues on the subject of child benefit. I am sorry that the Chancellor found it impossible to raise the benefit substantially. I recognise that to do that he would have had to make cuts or impose further duties elsewhere. I know that one cannot take money out of the air—it has to be raised. I want child benefit to be raised because that benefit clearly supports our aims. Child benefit makes it more worth while to work. It attacks the poverty trap. It is a move towards a tax credit system, and thus towards a simplification of our tax labyrinth. Above all, it recognises the importance of the family, on which so much Conservative thinking is based.

I understand that the Chancellor of the Exchequer has had to work within great restraints and that he has good grounds for his actions in the Budget. I urge him to consider carefully in the next few months the role that child benefit must play in the evolution of Conservative policy. I am wholly behind the Chancellor's strategy. Above all, the Budget is realistic and fair. It gives hope to the country beyond the short term and it has my support.

7.38 pm

Mr. Tam Dalyell (West Lothian)

The hon. Member for Lincoln (Mr. Carlisle) will acquit me of discourtesy if I do not follow the theme of his speech. I wish to take up where my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) left off. In the debate on the Brandt report tomorrow we shall no doubt hear a powerful oration from the right hon. Member for Sidcup (Mr. Heath), while a number of other hon. Members will make pious speeches of support. However, the Government and the Western world will not follow it up and little will be achieved. My hon. Friend the Member for Heeley was absolutely justified in his final remarks.

I intend to ask the Financial Secretary a number of critical questions. However, it would be churlish of me not to say what is good about the Budget. I am pleased about the decision to remove electric cars from tax. Many hon. Members have argued continually during the passage of Finance Bills that the fiscal and tax systems should be used to conserve energy and to avoid pollution. This move is not a great measure, but it is a step in the right direction. I hope that we can return to the subject during proceedings on the Finance Bill. Do the Government now accept the principle that the fiscal system can be used for anti-pollution measures and to save energy?

It would be churlish of me not to acknowledge the statement on the National Heritage Bill. I look forward to discussing that in detail on the Finance Bill.

I wish to confine myself to one subject. I return to the topic that was touched on by my right hon. Friend the Member for Leeds, East (Mr. Healey), namely, tax fraud and the so-called black economy. Some hon. Members find that peculiarly odious. We have a contrast of two facts. First, the Inland Revenue has sufficient staff only to investigate properly the affairs of 2.7 per cent. of companies and under 1 per cent. of wealthy individuals. I am talking about detailed investigations. So-called savings in Inland Revenue staff will make the position worse.

The second fact is that 1,000 extra social security staff are to be employed to look into alleged social security fraud. I gather that, at most, £50 million is involved. How do the Government justify a system of priorities in which a great deal of attention is given by investigators to some wretched woman, probably living on the edge of poverty, who may be cohabiting with a man, and less attention is given to those in the wealth bracket affected by capital gains tax and substantial estate duty? Is it the Government's policy to employ snoopers to spy on the less-well-off and to reduce the qualified Inland Revenue staff who deal with the affairs of the rich? That is an odious state of affairs.

As a constituency Member of Parliament doing a run of the mill job, I beg leave to doubt whether there is anything like £50 million of fraud involved. I have an excellent relationship with the social security office at Bathgate. My day-to-day experience is that the office is extremely careful. The manager and her colleagues are meticulous in the work that they do on any case in which I am involved. I do not believe that there is anything like the extensive fraud that is claimed.

I admit that, possibly, the position is more difficult for social security offices in great urban areas. But I suspect that the efficiency of the social security offices is very considerable indeed. I take this opportunity to praise the Bathgate office, which I know best. I take this opportunity also to praise the tax office, Central 1, East Kilbride, partly because it receives a great deal of adverse criticism and partly because, in the many dealings that I have had with it day by day and week by week, I have found its staff nothing but scrupulous and careful. I very much doubt whether, in ordinary tax cases, there is anything like the avoidance that is claimed.

The purpose of my speech is to elucidate the facts. In yesterday's Budget debate, the Chancellor said: The numbers employed in the Revenue departments had grown from 87,000 in 1970 to 113,000 when we took office. At that rate, by the year 2000 there would be 175,000 tax collectors, which is more than there are soldiers in the Army. That process of expansion is now being reversed. In 12 months' time the staff of the Revenue departments will be over 10,000 fewer than when we took office—a reduction of about 8½ per cent. I do not think that the Chancellor should have put forward that projection. We all know that there is no question of there being 175,000 tax collectors. No one in the House, least of all the Chancellor, does his case any good by exaggerating in that manner.

The Chancellor then said: The tax measures that I am proposing this year will in themselves enable me to make eventual net savings of 1,700 staff in my departments." [Official Report, 26 March 1980; Vol. 981, c. 1455.] A statement has come from the Civil Service unions to the effect that they are trying to persuade the Government to recruit more tax inspectors rather than employ 1,000 extra staff to stamp out social security fraud. The five Civil Service unions involved claim that while frauds are costing £50 million a year, the cost of evasion of tax and VAT is between £5,000 million and £11,000 million a year.

Mr. Gerry Gilman, the general secretary of the Society of Civil and Public Servants, said in a recent article in The Times: It may be that the Government is paying its political debts, but I think what it is doing is morally reprehensible. The article continued: The unions believe that the employment of an extra 1,000 income tax inspectors and 1,000 VAT inspectors would yield at least £500 million. Is Mr. Gilman right, or is he wrong? I shall quote Mr. Anthony Christopher from the same article. I checked the matter personally with him yesterday. He said: Between £1,000m and £3,000m of tax is not collected each year. The lower figure is precisely the figure that Mrs. Thatcher is trying to recover from the EEC. The article continues: If that money could be collected it would be sufficient to allow for a cut of 5p in the pound in the basic rate of income tax. The Government claim that the extra resources that they are devoting will save £50 million, only a small proportion of which is attributable to fraud. That figure is tiny in comparison with the total benefits paid each year, and dwarfed by the amounts lost through the so-called black economy.

A recent Inland Revenue prosecution involved a self-styled accountant who used stolen documents to swindle the tax man out of more than £373,000. It is interesting to note that in that case when passing sentence the judge said that the Revenue was losing millions of pounds a year from that type of offence. That is a statement not by me but by a judge in a court of law when passing sentence. Is the judge right or wrong?

The Inland Revenue Staff Association, in a recent pamphlet, states: It is officially estimated that between £5,000 million and £11,000 million each year escapes taxation through the 'Black Economy' —tax evasion, moonlighting, unrecorded dealings and other activities. This 'Black Economy' is a growth industry, one of the few success stories of British business. But what it really comes down to is fiddling the tax man at the expense of the honest taxpayer. And it costs the country up to £3,000 million a year in income tax—every year. It means that at least £750 million of VAT revenue is lost each year. Had this revenue been collected, the recent cuts in public services would not have been necessary. As what I am saying can be questioned, I should add that I am aware of the answer which was given in the other place by the Minister of State, Treasury, Lord Cockfield, on another aspect. That concerned the sheer delay in collecting tax in its more complicated forms. Can the Financial Secretary get any kind of statement tonight from the Minister of State, who will be winding up the debate, with regard to the question of delay? I should like to read into the Official Report what Lord Cockfield said: Some £1,600 million of assessed income tax (that is, excluding PAYE tax deducted and payable by employers to the Inland Revenue) was outstanding at 7th March 1980. This included some £1,050 million"— These figures are mind-boggling, when one compares the £1,050 million with the wretched £50 million for which the less well-off will be snooped around. Yet they are the comparison with which we now have to deal. The answer continued: for which collection has been postponed pending agreement of the liability. The amount of PAYE tax outstanding from employers is not known precisely, but in the case of those employers whose monthly payments of tax and national insurance contributions normally exceed £2.000 it is estimated to have been in the region of £200 million at 26th February. I regret that it is not possible to make any reliable estimate of the tax which will ultimately be irrecoverable".—[Official Report, House of Lords, 24 March 1980; Vol. 407, c. 600–601.] Are those arrears as serious as is made out? If so, how will the position be improved by cutting the number of qualified tax officials, which the Chancellor announced to the delight of his own Back Benchers in his Budget yesterday? Will the Government employ more people to reduce the huge, criminal, loss of tax evasion? The answer is that they will not. They are cutting substantially the number of staff working for the Inland Revenue. Despite the rise in VAT to 15 per cent. which, incidentally, is bound to increase attempts at VAT evasion, they are even cutting staff in Customs and Excise. More money spent on ensuring that all income is assessed for tax and that all tax is collected would yield many times the amount spent in revenue collected.

For example, the Inland Revenue employs 300 specialist staff who are dedicated to cutting back on tax evasion. I understand that in 1978 those officers recovered about £70 million in tax, at a cost of only one-fiftieth of that amount. I am told that a VAT inspector detects at least two discrepancies in every five visits, recouping his salary dozens of times over. Any comment on the effectiveness of the VAT inspectors would be welcomed.

The 1,505 extra fraud staff who are being employed in DHSS are expected to save only £50 million, and the emphasis is on the word "expected". Yet a similar number of staff employed in both Inland Revenue and Customs and Excise could recoup tax from fraud and evasion worth over £500 million—10 times as much. Are my statements right or wrong? Extra DHSS staff employed in visiting claimants would help to ensure that people receive their proper benefits. But that staff has been cut by thousands in the last few years. Did my right hon. Friend the Member for Llanelli (Mr. Davies) want to intervene? I shall gladly give way.

Mr. Denzil Davies (Llanelli)

No, I was just muttering.

Mr. Dalyell

I hope that my right hon. Friend was muttering agreement, because he is a tax lawyer.

Mr. Davies

I assure my hon. Friend that I was muttering agreement.

Mr. Dalyell

To illustrate the kind of case with which one has to deal, I should like to point out that a Warwickshire business man was gaoled last year for a £40,000 VAT fraud. For two years he had been claiming tax repayments on goods which he had falsely claimed to have purchased and exported. By thus hijacking public funds he managed to support a standard of living which can only be described as well above average.

The difficulty arises when we look at the Government's attitude. In a written answer, the Minister for Social Security said: Efforts to control fraud and abuse have have been inadequate for several years. Excellent work has been done by the staff working on these problems, but their numbers are insufficient. That is the Financial Secretary's own colleague. He added: The main problems are people who work but purport to be unemployed, people who avoid taking work or mis-state their assets, income or family circumstances". At the end of his answer he said: There will be an extra 170 liable relative officers and a further 270 fraud specialists. Special arrangements have been made to monitor the results of this extra effort".—[Official Report, 13 February 1980; Vol. 978, c. 710–11.] I suggest that that extra effort is put in, entirely the wrong place. People who work for the Inland Revenue and Customs: and Excise are anxious to ensure that staffing levels are adequate for the job, because the honest taxpayer has an interest in fighting the black economy. We should take far more of an interest in fighting the black economy than in fighting petty fraud. Tax fiddling—again, this is an Inland Revenue Staff Association assessment—costs as much as £3,750 million a year. That is about £75 a year for every man, woman and child, or £6 a week for an average family. Therefore, when one complains about the stoppages from one's pay packet, it should be remembered that if everyone paid his fair share of tax, one could be much better off.

Honest traders suffer by having to compete against those traders who either ignore VAT and so charge lower prices or charge VAT to the customer and pocket it instead of passing it on. In the face of such subsidised competition, the pressure on an honest trader to defraud must be immense, and we know that that happens. Indeed, fraud by two groups of related companies led to £265,000 of profits missing the Inland Revenue's scrutiny. After court proceedings to recoup unpaid tax and interest owed on it, almost £250,000 was recovered.

Those figures must be compared with the problem of the people about whom my hon. Friends and Members for Liverpool, Walton (Mr. Heffer) and Heeley referred.

Mr. William Waldegrave (Bristol, West)

I sympathise greatly with the case that the hon. Gentleman is making. However, in order to right the balance, perhaps I should add that this does not relate only to companies or large organisations which may defraud the tax man. Every citizen who pays a plumber in cash is probably adding to the problem of the black economy. This is not just a problem of distant organisations. It is a problem which all of us face from time to time.

Mr. Dalyell

I accept that. Of course, as people begin to realise that the big fish in the pool are not being dealt with, there is a natural human reaction among smaller fry to ask "If the big fish get away with this, why should we be honest, as we have been in the past?" I believe that is very serious for the fabric of society.

The self-employed and directors of private companies need more attention from the Inland Revenue to ensure that they pay the right amount of tax. To assess them properly for tax requires much checking of payments, receipts and so on. Any cutback in Inland Revenue numbers inevitably means less checking of tax bills of the self-employed, who have a greater opportunity to avoid paying their fair share, while those who work for an employer continue paying their tax under PAYE.

I shall cut my speech short because I know that others of my hon. Friends wish to speak. I could go on, but I hope that I have made my case. I should like to say one further thing. A report in The Guardian, under the byline of Tom Tickell, states: A confidential document has gone out to district tax inspectors telling them that they will get less information about bank savings and sales of property…The document, which was sent out last week, says tax inspectors will get no details about interest paid on bank deposit accounts if it comes to less than £150 a year. This figure is six times higher than the previous £25 limit. There have been changes on the same scale covering National Savings Bank returns and interest elsewhere. Details of property sales will only reach the taxman if they are worth 00.000 or more. Until now the limit has been £12,000. The new limits are part of the Inland Revenue's attempt to cut staff in line with Government orders. More than 2,000 people are to leave over the next two years as a result of changes in administration. About a quarter of those jobs will disappear in the office which produces detailed information for tax inspectors. Between £1,000 million and £2,000 million of tax are lost through tax evasion each year—and the figure is arising. Changes were made in the checking system two or three years ago. Instead of a detailed look at every account, tax inspectors now concentrate on 4 or 5 per cent. each year, particularly among the self-employed. They have power to demand accounts of all payments made in the past seven years. Where they suspect that there has been fraud or wilful neglect their inquiries can go back before the war. The Inland Revenue claims it gets extra payments in most cases. There have been other schemes for cutting down tax frauds. One of them, the Leeds Experiment, involving cooperation in individual cases between tax inspectors and Customs and Excise staff who handle VAT. It is very unwise to stop that type of experiment. The article continues: The Inland Revenue wanted to extend it across the country, but plans have been postponed. Have they been postponed? If so, why? The Minister of State told the House in January that no decision would be taken until an official committee, looking into the powers of those two bodies, had reported. Has that official committee reported? The article continues: Commenting on the decision to cut information, Mr. Tony Christopher, general secretary of the Inland Revenue staff association, said last night: Far from reducing the Inland Revenue's resources, we should be redeploying them to cut tax fiddling. The fuss over Britain's contribution to Europe on the size of the public sector borrowing requirement would subside if we even collected half the tax which people should pay—but we don't'. The Minister of State, Treasury will remember that some of us listened to his speech with interest the other night when he discussed the question of the European budget. Those of us who have had dealings with Mr. Christopher know that he is a highly responsible man. Is he right or wrong? We are dealing not with trivial amounts but with vast sums. The story goes on: A London tax inspector commented: 'This decision will cut out information on which we rely to bring half our present cases. These details are known as "can openers" in the trade—because one lie usually implies others. If we know that someone has bought a house for £20,000 when he claims he has no money, there's obviously something to investigate. Big properties are not where people give themselves away. "Some cash traders can put £1,000 of undeclared profits into a whole series of banks without us knowing. He can use the interest from all of them to buy a small property without us knowing. And he can lease it out without us knowing. Finally, he can sell it again—for £50,000—without us knowing. It's a tax fraud charter'. One could go on for a long time. I do not mind whether the Minister answers my question on Monday or Tuesday. I shall attend the debates and I shall listen.

I hope that the Minister will give serious scrutiny to the case that I have deployed. If the Inland Revenue staff federation is talking through its hat, and if other inspectors are wrong, let that be proved on the Floor of the House. Let Ministers say that words of the hon. Member for West Lothian are all factual nonsense. If, by chance, my remarks are not factual nonsense and if my case is close to the truth, this will prove a serious issue.

The Government should stop trying to get social security inspectors to harass people who already have endless problems. Every Member of Parliament knows that such people live on the margins of poverty. The Government should concentrate their minds and their expert resources on the type of people that I have been talking about. The sooner they do so, the healthier it will be for the British economy.

8.5 pm

Mr. Nick Budgen (Wolverhampton, South-West)

I agreed with the remarks of the hon. Member for West Lothian (Mr. Dalyell) to a limited extent when he referred to the frauds perpetrated on the tax system. No Conservative Member would wish to support such frauds. We are aware that any fraud leads to an increased tax burden for the rest of our fellow citizens—and ourselves—who pay their taxes honestly.

My right hon. Friend the Chief Secretary to the Treasury said that the Government's principal aim was to reduce the rate of inflation. Perhaps he would say that they want to kill it. He said that it would be impossible to do so by means of a cavalry charge. I assume that inflation is to be slowly ground down at a long slow trot over a period of about four years. But I believe that a cavalry charge would engage the interest and support of the public. Indeed, it might do so more effectively than a long slow trot. The danger in the Government's Budget is that they may have placed too much, emphasis on the medium and long-term, and too little on what the Budget can achieve. It is easy to say that the money supply will be controlled in two, three or four years. It is easy to find reasons for not controlling it this year.

I am a staunch supporter of the Government's general strategy. I have consistently urged them to publish medium-term forecasts for the PSBR and the money supply. However, excellent though the publicity given to those forecasts is they are no substitute for action today. I note that just as the Red Book says that there can be changes in the tax take, and unexpected changes in commodity prices, so there can be unexpected changes in political actions. To sustain declining public sector borrowing., requirements, declining monetary targets over four years will need a great deal of political will. I am a supporter of the present Government, I believe that the main thrust of all economic activity should be devoted towards reducing the rate of inflation. The more one hears Members such as the hon. Member for Liverpool, Walton (Mr. Heffer), the more one knows that there are many who regard unemployment as at least as great, and arguably a greater evil than inflation.

That view is not found only on the Labour Benches. Understandably and rightly, it is felt to a lesser extent throughout the country and on the Government Benches by some of my hon. Friends. We shall have to sustain popular support for an unpopular fight over about four years. I sincerely hope that it will be possible to do so, but I should like to see a bit more activity this year.

It is easy to approve of a reduction in the money supply in 1983. However, if that request had to take immediate effect, strong and specific reasons would be put forward why it was not convenient to pay that price at that time.

I do not wish to be over-critical, but I invite the House to consider what has happened to the money supply recently. We have had a slight re-jigging of monetary targets. At paragraph 6 on pages 20 and 21 the Red Book says that in the period up to mid-February of this year the money supply as measured by sterling M3 was growing at 12.1 per cent. However, that did not stop the Government from putting a further £1½ billion of liquid funds into the monetary system, at a time when it is generally agreed that, because of the effect of the corset, the figure of sterling M3 underestimates the amount of money in the system. Without the distorting effect of the corset the money supply figures would probably have run at 14 or 15 per cent.

We were told at the time that the £1½ billion was put into the system that it was not appropriate to allow interest rates to rise before the Budget. No further explanation was offered. I do not know why it was not appropriate to allow interest rates to rise, but they did not rise. To concentrate on the next two, three or four years is not an adequate substitute for introducing immediately the harsh measures necessary to bring back sound money into our financial affairs.

The Financial Secretary to the Treasury (Mr. Nigel Lawson)

I always listen to my hon. Friend with a great deal of interest, but he is not quite right. We at no time said that the arrangements in the money market were made to avoid interest rates going up before the Budget. We were dealing with a situation of technical tightness produced by a combination of the tax collecting season and heavy sales of gilt-edged securities.

The money supply over the first four months from June had gone up by 14 per cent., as opposed to by sterling M3, with a little bit extra for disintermediation. The rate for the succeeding four months has come out at about 10 per cent. without any significant disintermediation. There has been a marked deceleration in the money supply.

Mr. Budgen

I hope that when the money supply figures come out they will prove me wrong. I cannot immediately turn to the passage in the Official Report where my hon. Friend produced that technical argument, which I concede he did. However, I remember when the question of the increase in the money supply was first put by the right hon. Member for Leeds, East (Mr. Healey) to my right hon. and learned Friend the Chancellor of the Exchequer. My right hon. and learned Friend said that one reason for putting extra funds into the market was that it was not appropriate to allow interest rates to rise before the Budget. There may have been a number of reasons, but that was one.

The money supply figures will come out, and I hope that I am wrong in saying that the money supply was technically increased. The way that the Chancellor has rolled forward the target, as set out at column 1444 of the Official Report, has increased the target by about 2 per cent. My simple proposition is that it is extremely easy to propose to do something in two or three years' time but often difficult when the time comes for it to be done.

Mr. Denzil Davies

Does the hon. Gentleman agree that if his hon. Friend is right—that this release of money to the banking sector, especially the £500 million in relation to gilts, was merely a tech- nical operation—the Government will call back that money quickly?

Mr. Budgen

I expect so, but in time all will be revealed. We shall find out who is right. It is not reassuring to see that the target has been rolled forward, as the Chancellor says.

I continue the same argument. I wish that the public sector borrowing requirement this year had been a good deal smaller. I do not wish to baulk the issue. It would lead to disagreeable measures. It should have been possible to introduce Health Service charges for visiting a doctor. The Government could have introduced "hotel charges", as they have been called, for people in hospital, with proper mitigation if the patient could not afford those charges. There is a strong case for indexation of the specific duties on petrol, cigarettes and drink. I regret that a preoccupation with the retail price index has probably dissuaded the Government from increasing those taxes.

Mr. Nicholas Winterton

Does my hon. Friend agree that the precedent has been set for a food charge for people in hospital? Retired people, who are a deserving sector of the community, have a sum deducted from their pensions to take account of the benefit that they receive from being in hospital.

Mr. Budgen

A precedent has also been set in prescription charges. There is no great difference between charging for medicine and charging to see a doctor. I see no difficulty there, and I wish that the Government had been slightly more aggressive.

Substantial sums could also have been saved by increasing rents in the local authority sector. I accept that that would be unpopular. I note that in 1979–80 the Government subsidy was running at about £1½ billion a year. I should have thought that some increase in rents was probably necessary in order to encourage sales to sitting tenants. However, the Government have decided not to do that. I understand the arguments against those specific proposals, but none the less I regret them.

I regret particularly that the sale of public assets seems to have stopped. I concede that the sale of public assets should not be described as a reduction in the public sector borrowing requirement. It is a means of attracting money into the public purse by other means.

It is said that we are laying up for our children and our grandchildren a vast burden by selling gilts on a 15 per cent. coupon on which the interest has to be paid for many years, and that any change in the conditions upon which that money is funded is likely to lead to difficulties in the gilt market. In that case, why do we not sell other forms of paper? That would be a way of overcoming a temporary funding problem. I am sorry that the right hon. Member for Down, South (Mr. Powell) has left the Chamber. He would be in favour of selling some of our gold reserves. Other people would be in favour of selling more shares in BNOC. The principle is the same.

Mr. Waldegrave

Will my hon. Friend urge the Minister—who I suspect is sympathetic—to reconsider the idea of selling floating rate Government stocks?

Mr. Budgen

That might be a possibility. I do not pretend to know what forms of stock are attractive to the gilt market, and it is not necessary for me to inquire into the details of that. However, if it can readily be seen that those who hold gilts have been buying stock which gives them a 15 per cent. return into the next century, some method must be found that reduces the attraciveness of those gilts. There may be a hiccup in the market, but we must find a way to reduce the attractiveness. Perhaps my hon. Friend the Member for Bristol, West (Mr. Waldegrave) has a good idea.

Mr. John Browne (Winchester)

The unattractiveness of the floating rate gilt is that major institutions, which are the main buyers of gilts, already have bank loans that float, and many institutions have fixed obligations on the other side.

Mr. Budgen

That may be an argument against the suggestion of my hon. Friend the Member for Bristol, West, but I am not competent to decide.

I regret that the Government have not carried out their promised reform of capital taxation. They are sincere in their desire to encourage wider share ownership, and I approve of their proposals for making share ownership easier and more attractive to employees, but surely we want people to find it easier to buy and hold shares so that they take a real interest in the companies in which they have invested their money.

We now have a well-housed nation and a nation in which housing has become a major investment for most of our citizens. However, there has been a major decline in the share of wealth employed by individuals and invested in equity shares. The two principal disincentives for share ownership are the investment income surcharge and capital gains tax. Until the Government change those taxes there will never be a vibrant share market in which private individuals invest directly. A market in shares that is dominated by the institutions is bad for the country. I take a different view about speculation from that taken by Labour Members. I believe that speculation based upon differences of view stabilises the market and helps it through the recurrent crises that are an inevitable part of the way in which our economy is managed by politicians.

The investment income surcharge should be abolished so that people do not suffer a disincentive when they invest directly in shares. It is wrong to distort the market in shares in favour of any one class—whether directors, employees, or any single group. This major indiscriminate disincentive should be abolished.

I agree with the Chancellor of the Exchequer in wishing to see the disaggregation of vast conglomerate companies which, because of their profitability in one sector of the economy, are able to gobble up other successful companies. One of the reasons is that when a company makes vast profits and finds itself sitting upon a cash mountain, it is difficult for that company to disgorge the profits. It is to the disadvantage of the company, and to the disadvantage of the shareholders, because in the hands of the shareholders the disgorged capital is either eaten away by income tax—if it results in the form of an income payment—or, if it is disgorged by way of capital note—as occurred with GEC some years ago—the funds paid out under the capital note may be subject to capital gains tax.

I hope that in the next Budget we shall move towards the abolition of capital gains tax. That must be done in the next Budget, because I believe that the political will to make such a major reform will be impossible as we approach the next general election.

8.29 pm

Mr. David Winnick (Walsall, North)

Let me offer some hope to the hon. Member for Wolverhampton, South-West (Mr. Budgen). The way the Government are going it is likely that the charges that he would like to see will be introduced. In the meantime, perhaps the Labour movement will ensure that greater publicity is given to the hon. Member's remarks so that we can explain to people throughout the country what he and other Conservative Members would like to do.

The Budget is a recipe for a substantial increase in unemployment. Undoubtedly one of the most beneficial gains in Britain during the post-war years was the elimination of the kind of unemployment that was suffered by so many people before the war. The misery and all that went with large-scale unemployment was virtually eliminated in post-war Britain. Now, once again, in the 1980s we see people rotting in the dole queues and the Government admitting that unemployment will get worse.

It is easy to talk about unemployment. The House should remember what it means in human terms. We should bear in mind how it feels to leave school and not find a job. That is happening to many young people in many parts of Britain today. They have a feeling that they are not wanted. It is not very pleasant to spend the first few years of one's working life on the dole, unable to find a job.

At the other end of the spectrum there are men in their forties or early fifties who have been made redundant and who cannot find another job. Many of them know that they are not likely to find any further employment before their normal retirement. They will spend those years in a vain search for employment. I had hoped that we had seen an end to that type of misery and humiliation.

The Government do not say that they must do whatever they can to eliminate unemployment. Instead they say that it will increase. Both the Prime Minister and the Chancellor of the Exchequer have said so. For the first time since the 1930s the Government say that unemployment is inevitable and acceptable—that is what it means in ordinary terms. The position is made worse by the fact that the Government intend to phase out and then abolish the earnings-related unemployment benefit. In other words, they intend to punish those who are made jobless. They want to make the position even worse. This offence of undermining the position of the unemployed by taking away the earnings-related unemployment benefit is something that millions of people will never forget or forgive.

The fact that we shall have hardly any growth during the next few years is also a matter for concern. That is why I have described the Budget as a recipe for a substantial increase in unemployment. There is despair in many parts of Britain about the position in the various regions, and the trade union movement will fight as hard as possible against a return to the conditions of the 1930s.

I declare an interest in that I am, and have been for many years, an active trade unionist and I am proud of that fact. Conservative Members have complained about the TUC's call for a "day of action" on 14 May. Conservatives should be very careful unless they provoke the trade union movement and the organised working class of this country into a general strike.

The withdrawal of a good part of the social security benefit for families of those on strike will be rightly seen as a continuing campaign of hostility against the trade union movement. The Tories have said on so many occasions—both from the Front and Back Benches—that they are not against the unions. However, it is interesting to see that time and time again when they are in office they bring forward every measure possible against the trade union movement.

Those who go on strike, officially or unofficially, know that at present no benefit is paid to the striker himself. A sum of f15 is deducted Now another £12 will be taken away, and the families of strikers will be virtually starved. I suppose that Conservative Members will say "They should not go on strike in the first place", but this is a free country; and it is interesting to note how selective the Conservative Party is about ballots. As long as we remain a democracy, working people have a fundamental right to withdraw their labour, but it is clear that the Government intend to cause as much difficulty and hardship to those who exercise that right, and the hardship will be directed at the families. It has been said that if someone is convicted of an offence and goes to prison, his family, in many cases, is supported. But, apparently, that policy will not be exercised on behalf of the families of those who withdraw their labour.

I turn now to imports. I believe that the hon. Member for Plymouth, Sutton (Mr. Clark) was on the right lines. It is necessary to control excessive imports into the United Kingdom. Let me briefly outline the position as it was last year. Imports of manufactured goods rose 10 times as fast as exports. The export of machinery of all kinds fell by 1 per cent. while imports rose by 20 per cent.

Mr. John Browne

Are not many of the imports at the moment coming in because of lack of availability in this country? Therefore, if we increase import controls, the rate of inflation will be increased because there will be shortages.

Mr. Winnick

I am familiar with that argument, and other arguments have been used and were quoted by the hon. Member for Sutton. Regardless of the problems, I am not suggesting that this is a panacea for all our economic ills. It would be foolish to think that. But if we are to give effective protection to our manufacturing industry, import controls are necessary on a far wider scale than at present.

In my part of the West Midlands we have faced many problems following redundancies and closures. Like so many in the region, I take the view that import controls should be on a wider scale. The difficulty of imposing import controls late in the day was illustrated by what happened in the textile industry. Controls can be brought in too late and at a time when they possibly will not do much good because the industry has reached such a state of decline. I hope that that will not happen in the manufacturing industries generally and certainly not in the engineering industry.

To export has been made more difficult by a very unrealistic exchange rate. The present exchange rate is causing tremendous difficulty in manufacturing industries and I think that that is recognised throughout the House.

I want to deal with one matter that was announced by the Secretary of State for Social Services earlier today. I have been involved in trying to ensure that people on low incomes receive assistance with paying their fuel bills. I brought in a Ten-Minute Bill, which was not opposed. It seems to me to be right and proper that people on low incomes should receive some assistance in view of the substantial increase in fuel prices. The price of electricity has increased very substantially, and the price of gas is to be increased by 30 per cent.

I was disappointed in the measures announced by the Secretary of State earlier today. Undoubtedly they will help those on supplementary benefit. Those who receive social security will receive greater assistance. That is right, and I accept it. But not a penny will go to any pensioner or anyone on a low income who is not receiving supplementary benefit or family income supplement.

I received quite a few letters arising from my Ten-Minute Bill. Pensioners wrote to me to explain the problems that they face in trying to keep their homes warm. Many of those pensioners will not receive any help because they are not receiving supplementary benefit. This may not be the most appropriate occasion on which to repeat my argument that it is necessary to introduce a national fuel rebate system so that those who are on low incomes, but not necessarily on social security, are able to receive some help in paying their fuel bills. If such a system is right for rate and rent rebates, why should we not have the same system for fuel bills?

The Budget comes as no surprise after all the leaks. No doubt Conservative Members who take a more liberal position on social policy, unlike the hon. Member for Wolverhampton, South-West, will be somewhat disappointed. We shall see how far they are willing to register their disappointment when it comes to a vote on child benefit. We shall see whether they are willing to be as strong over their principles as some of my hon Friends and myself when the Labour Party has been in office. Labour Members have been willing to abstain or to vote against Labour Governments.

The Budget will be a tremendous disappointment for millions throughout the country. It will signal more unemployment, more misery and more poverty. It is a Budget that should be totally unacceptable to the House. One hopes that there could be a majority to reject it on Tuesday night.

8.42 pm

Mr. John:Browne (Winchester)

I believe that history will record this Budget as a Budget of opportunity. I hope sincerely that the House and the country will recognise it as such before it is too late.

This Budget of opportunity has three basic characteristics: it is enlightened, realistic and well balanced. It is enlightened because it spells out a medium-term financial strategy rather than the short-term expediency plans that we have had in the recent past, most of them clouded in mystery. At long last, business men will be able to plan within a national strategy. This will surely he welcome as a new luxury.

Secondly, the Budget takes an enlightened view and action on the difficult task of rejuvenation of our inner cities. That plan will be examined with great interest by other Governments in other industrialised countries.

Thirdly, the Budget will take enlightened action towards new and small businesses, the one certain source of new products, new profits, new profitable jobs and a real increase in the standard of living for us all as a nation.

The Budget is realistic, first, because it accepts the realism and the awesome impact of the present world recession—a world in which Britain now has, regrettably, a relatively small influence but in which, if we are successful, we could regain great influence.

Secondly, the Budget is realistic because it faces the paralysing effect on our economy of 20 or 30 years of Socialist policies—policies in which arrogance has reigned supreme. That is the arrogance that says that the State knows better than the public what is good for us, what products we should produce, how and where we should work and at what price we should buy and sell. That arrogance has killed the incentive to work, to sell or to take risks. It has left us with an under-motivated, over-employed and outdated industrial economy—and that in an age of technology.

The Budget accepts these sad facts and the low growth that we can expect over the next year or so. It is realistic in that it accepts that a policy of reality, of restoring sanity, profitability and sound money, will expose much employment. Labour and Liberal Members may not like to accept it, but monetarism in itself does not create unemployment. It exposes rather than creates; it exposes over-manning; it exposes unprofitable companies, industries and jobs; it exposes latent unemployment—unemployment which is already in the system but which has been kept from public view by Government subsidies, financed by high taxation and Government borrowing—in short, employment subsidies subsidised by inflation.

Unemployment is a massive world problem. In reality, we shall certainly have our own fair share of it. However, the Budget faces the facts realistically by its balance and its concentration of social benefits upon the truly needy. The balance of the Budget is shown by the fact that, first, it accepts time lags. The contraction of the money supply under the Budget is gradual. It is much more gradual than many people would wish it to be. However, it faces the recessive effects of past cuts in planned spending. It faces the fact of a world recession of major proportions. Therefore, it will avoid a depression in place of a recession, and it will avoid industrial anarchy in place of industrial tension.

Secondly, the Budget exposes more latent unemployment, regrettably, to add to that which we already have. I therefore welcome the boost to new and small businesses and to city centres. It will create not just jobs but more profitable jobs and so help to balance the side effects of reverting to sound money.

Thirdly, the Budget appears to accept that the Government must help the genuinely unemployed in the agonising national transition from outdated indus- try to developed technology, from unreal to real jobs. Therefore, although some of the £20 billion spent on social services had to be cut, I am pleased that the net effect of the cuts and increases will be the establishment of a new safety net for the needy—a net increase of approximately 4 per cent. for the needy and their families. To me, that is balanced, humane and fair.

Finally, I believe that the Chancellor struck an excellent balance in his policy towards taxes. Remembering that our main aim is to kill inflation and that people's expectations are absolutely key in the inflation equation, it is vital not to boost the retail price index. Therefore, although many of us expected, and indeed would have willingly accepted, greater increases in customs duties, I was glad not to see them. I was also glad that VAT was not increased. But we must remember that the price of holding down any increases will be a reduction of further Government spending.

This was a long Budget. Therefore, in consideration of others who wish to speak, I shall comment briefly on specific points from now on. I welcome the provision for defence and law and order as a necessary insurance. I should have preferred more provision. However, I realise that we cannot—and that, worse still, as a nation we will not—afford it.

The corset—here I declare an interest as a banker—was not working effectively, especially after the lifting of exchange controls. It certainly lost credibility after the Government intervention with the purchase and sale of gilts, which my hon. Friend the Financial Secretary referred to as a certain "technical tightness". Therefore, I welcome the abolition of this item, which at best discriminated against British banks in a very competitive international market.

I refer now to the cuts in bureaucracy. I was impressed that the Chancellor concentrated not just upon reducing the numbers of Government employees but upon the simplification and streamlining of bureaucracy. However, much more must be done to cut numbers and to sell off Government office space. Only when I see the "For sale" boards outside Government offices will I believe that the Government's policies have been effective in this respect.

On the subject of strike pay, I welcome the reduction in the present Government-taxpayers' subsidy to strikers as regards their family responsibilities. However, at a time of deep recession, high inflation and high taxation, is it really morally justifiable for men or women who withdraw their labour voluntarily to expect their fellow countrymen to subsidise them with their sweat? I believe that the unions should pay the whole sum, as they did before 1964, and that unionists should face this responsibility, as all the rest of us have to face it.

Mr. Winnick

The hon. Gentleman began by saying that he was a banker. Now he is telling us how right it is that strikers' families should be penalised. Is it not a fact that in the banking world it took years and years before the unions received any recognition at all from the employers? The hostility of bankers generally to trade unionism is well known and established.

Mr. Browne

I was not trying to say that it was right for the Government to hurt the families of strikers. All I am trying to say is that the responsibility is on the people who withdraw their labour. It is voluntary unemployment, not unemployment that has been induced by the collapse of an industry or a company. That is the crucial point.

Mr. Winnick

Answer the question.

Mr. Browne

I cannot honestly remember the exact details of union recognition in the banks, so I really cannot answer that question. But I do not see that it has any real relevance to what I have just said.

I have already mentioned the inner cities, but I must add that I welcome the restriction of tax reliefs to taxes on property, because I think that this will make it possible to avoid industrial piracy. I also believe that if the Government are successful in gaining the support of the local authorities, which are of key importance in this, in providing the basic infrastructure—roads, electricity and water—and also the support of the banks and others like them in lending to the entrepreneurs—in short, if this plan is accepted as an opportunity by these people—these areas will become microcosms of successful free enterprise and major creators of profitable employment.

I believe that the Government's expenditure of £160 million on incentives for small business is long, long overdue and that this money is very well spent. Healthy new and small businesses are vital if we as a nation are to achieve a technological revolution such as is already being experienced in the United States, Germany, Japan and Switzerland. We must follow if we are to become a developed technological nation rather than, as we are rapidly becoming, an underdeveloped industrial nation.

Therefore, I welcome the provisions that this Budget has made for small business. I was going to expand on these but, to be brief, I think basically that the most important one besides CTT and VAT is the "de-merging," as the Chancellor called it. I very much welcome this. If we can combine it with the Department of the Environment urging local authorities to be more liberal in the change of usage of farm buildings, it will have a major impact on restoring vitality to the rural areas.

As I said, I welcome the Budget. However, I am very concerned at not seeing in the package for small businesses the removal of the discriminatory national insurance stamp for the self-employed. Here I must declare another interest as a small business as a self-employed man. I am also very concerned not to see some provision made for companies to repurchase their own shares in the form of Treasury stock, as is done in the United States, because I believe that this would be a further incentive for capital to be attracted into new and small businesses.

In closing, may I say that I think this is an excellent Budget in the circumstances of today. However, as I tried to indicate in my question this afternoon to the Prime Minister, I do not believe that monetarism will work effectively unless there is a free market.

In Britain today a free market does not exist. We have two giant cartels—the trade unions, particularly those operating a closed shop without secret ballots, which can demand, and public employers which can pay wages and prices out of all relation to the market place. That is certainly no free market. Between these two giant cartels, private business, particularly small business, is often squeezed out, and will continue to be so despite the financial incentives contained in the Budget.

I therefore beg my right hon. and learned Friend the Chancellor to impress upon his colleagues in the Treasury and the Cabinet the urgent need to make further real cuts in bureaucracy, to increase greatly the programme of denationalisation, if necessary by packaging profitable and unprofitable companies into conglomerates to make them more attractive to sell off to the private sector, and to restore true democracy to the trade unions for ordinary working men and women, particularly in respect of the closed shop and secret ballots.

If this is achieved, I believe that his tory will record this Budget as one of great opportunity, a Budget that signalled the time when, at long last, the British nation had the good sense to wake up and had the wisdom to face reality and the courage to act upon it.

8.56 pm

Mr. Nicholas Winterton (Macclesfield)

I am pleased to follow my hon. Friend the Member for Winchester (Mr. Browne) and to join him in warmly welcoming the announcements made by my right hon. and learned Friend the Chancellor of the Exchequer on the encouragement that will be given to de-merging and on the incentives that are to be given to the small business. Beyond that, I hope that my hon. Friend will forgive me if I do not follow him in his well-thought-out and concise speech.

I am sure that the lion. Member for Walsall, North (Mr. Winnick) will be interested to hear that I agree with his approach to import controls. Before long, I believe, the Government, even this Conservative Government, will be forced to go along that path.

I am sure that my hon. and learned Friend the Minister of State will expect me to say that I consider this an excellent Budget and that I have no complaint of any kind about and nor do I cavil at its contents. I apologise to my right hon. and learned Friend for not being able to go that far, although I believe that the Budget has been well considered. It is a sober Budget that has been welcomed in the House and in the country. If the instant reaction that I have received from my constituents is anything to go by, the overall content has been very gratefully received.

The people who are in a position to provide investment believe that the Government have got their sums about right and that there is not just a flicker of flame but a glimmer of firm light at the end of the dark tunnel. Although we undoubtedly have two hard years ahead of us, the nettles have been grasped. The monetary supply is to be brought under control, but monetarism in the purist sense is not necessarily to have its way, for in many respects the Budget has gone off the total monetarist line. The supply of money must be reduced, public expenditure as a percentage of our GNP must be brought under control and the steps that the Government are taking will direct us down that solid if difficult path so that we shall achieve genuine prosperity before long.

I particularly welcome the increased expenditure on law and order. In my constituency, which has suffered some of the most brutal murders in recent years, in Prestbury and elsewhere—and just outside my constituency there was the boarded barn murder—I am confident that the increased expenditure on law and order will be warmly welcomed.

I also welcome increased expenditure on defence. Defence is the first priority of any Government, of whichever political party they are comprised. If a country is unable to guard against external aggression, what is the point of the most expensive social policies? We shall not be in a position to enjoy them. I also appreciate the 2 per cent. increase in health expenditure, announced in the Budget, over the immediate years ahead. My constituency has the benefit of a new hospital. Such facilities are urgently required in other areas of the country.

I should like to refer to the concise and thoughtful contribution of my hon. Friend the Member for Lincoln (Mr. Carlisle), who gave a sincere message to the Secretary of State for Social Services indicating how many hon. Members on the Conservative side feel about child benefits and their importance in helping the family. Many of my hon. Friends believe that this is the most effective and positive way of helping the family. We hope that in future years, when prosperity improves, a greater increase will form part of the Budget package. The percentage increase that has been announced is helpful. I am happy that the increase has been announced, although I should like to see a greater amount. Within the funds available, the Government have done as much as they can, and I hope that my hon. Friends who feel even more strongly about this matter than I do will give the Government their support for the overall package that has been announced to help families.

I should also like to refer briefly to the speech of my hon. Friend the Member for Plymouth, Sutton (Mr. Clark), who presented an excellent case for import controls. I take up the point made strongly by the hon. Member for Walsall, North. His speech was relevant, just as it was provoking. I find myself in considerable agreement with him. I share his view that the Government will have to take steps along this path before long if we are not to destroy the major part of our manufacturing base or, to use Treasury jargon, the supply side of our economy.

For example, if the textile, paper and board industries are to be saved from virtual extinction, selective import controls are vital. I believe that we should encourage the workers at Leyland to continue to support the package announced by Michael Edwardes and give him and the company a real opportunity to put Leyland on a sound footing. This is vital for the future economy of the country. For a short period, even in the car industry, limited import controls, I believe, are vital.

There were massive imports last year of greetings and Christmas cards from the Soviet Union. Together with other commodities in the paper and board sector, this huge amount of imports is putting good, moderate and responsible working people in this country out of a job. Bearing in mind Soviet aggression in Afghanistan and the serious nature of that invasion, we should take all possible action in the economic and trading spheres against the Soviet Union and other Eastern bloc countries that support its action. It is wrong that skilled and moderate workers who have served their companies and their industries well should be placed on the dole and made redundant as a result of what I can only describe as subsidised imports into this country.

Since the beginning of the year an average of one textile mill a week has closed. Woodrow Universal, in my constituency, has announced that it will close entirely. Having declared a few workers redundant a couple of months ago, the company now finds itself in an impossible position because of the level of unfair, subsidised competition from abroad. This means that 100 people in my constituency will be placed on the dole. That is very unfortunate.

I have raised in recent weeks a number of matters with the Department of Trade. On behalf of the clothing and textile industry, the hon. Member for Bradford, North (Mr. Ford) and f wrote a strongly worded letter to the Secretary of State for Trade. He replied in due course and has been as helpful as he can. He says that low or falling demand for some products and the fact that the artificially high value of sterling has had the effect of encouraging imports and stemming our exports are the major reasons for the problems in the textile industry.

Perhaps he is right and these matters go to the heart of the problem. Perhaps British industry is suffering from the effects not only of a world recession but of a sudden change of course in Government economic and monetary policies. The immediate result of those policies has been a high level of inflation, a squeeze on credit and a considerable reduction in consumer spending power. That, inevitably, has affected industry.

I do not believe that we should allow our manufacturing base to be further eroded, particularly when the Secretary of State goes on to say in his letter that one of his duties is to maintain an open market for United Kingdom exports. But what is the point of maintaining an open market for United Kingdom exports and at the same time offering an open market to imports if many of the countries to which we are exporting exercise controls against us as and when necessary?

I am grateful to the hon. Member for Gateshead, West (Mr. Horam) for allowing me time, but I shall take only one more minute.

I welcome the measures on small businesses. I hope that I do not echo too many hackneyed phrases when I say that oak trees from little acorns grow. I respond to the speech made by the hon. Member for Sheffield, Heeley (Mr. Hooley) by saying that new ventures are vital if this country is to survive. Those ventures must make profits, because profits create further investment and further investment creates jobs.

Surely at this time, with unemployment coming up to 1½ million, we must encourage profits so that there is investment, which in turn will afford many of those people who are, unfortunately, unemployed the prospect of gainful work in the future. Unlike the hon. Member for Walsall, North and the hon. Member for Liverpool, Walton (Mr. Heller), I welcome the announcement by the Government that when a man is on strike, it will be deemed that his union will pay the first £12 of benefit of that his family will receive that amount of benefit from some other source.

That announcement has been warmly welcomed in my constituency, not just by non-unionists and employers, but by many trade unionists. I have seen some of those trade unionists today, and they believe that this measure will ensure that many more ballots are held before strike action is called for in future. I believe that the Government have acted in the best interests of the country.

I warmly welcome the tremendous improvements in benefits for the elderly and the retired, and the increase in the mobility allowance. I welcome also the improvement made by the Government in the position of widows and widowers in the first year of bereavement.

Though I welcome the increase in duty on cigarettes, wine, spirits, and to a limited extent on beer—I declare an interest as non-executive chairman of CAMRA (Real Ale) Investments Ltd.— I strongly oppose the increase in duty on hydrocarbon oil. I tell my party that I shall not vote with it in the Division Lobby on the increase in duty on hydrocarbon oils. That increase has a direct impact on inflation not only for the ordinary domestic consumer but for industry. Bearing in mind that oil prices have doubled in the last 12 months. I believe that the Government might have held fire for the moment, since they will get considerable income from oil in other ways.

This has been a courageous Budget, and I give the Government almost my full support. The Government have the support of the country, and I am sure that the Budget will cure the basic evils of inflation and the excessive public service borrowing, which has contributed to the inflation, that has dogged this country for far too long.

9.10 pm

Mr. John Horam (Gateshead, West)

I was happy to give a little time to the hon. Member for Macclesfield (Mr. Winterton) because it enabled him to say that he would vote against the Government. That is the first sign of a move from the decorous revolts of the past to more serious action on the Finance Bill and other issues.

The striking feature of the Chancellor's statement was the way in which the optimism vanished. Last year he said that he dared to hope that the people would respond to the opportunity that he was giving them. This year he said that there was no alternative to the grimmest picture that any Chancellor has presented in the post-war era. That was reflected in his tone. He made a limp and over-detailed speech. As my right hon. Friend the Leader of the Opposition said, there was no central theme.

Budget Statements are never remembered for long. More than most Ministers, Chancellors of the Exchequer are judged by their deeds. Even Lloyd George, when he was introducing the first of his historic pre-First World War Budgets, bored the House. He spoke for four and a half hours. The present Chancellor spoke for only two hours. In the catalogue of easily forgettable speeches, yesterday's Budget Statement ranks high.

On the surface the Chancellor was more cautious than he was last year. He gave a little here and a little there. A certain mean-minded balancing was the superficial tone of the Budget. Perhaps that indicated a greater influence by civil servants than was evident last year.

At a deeper level the deflationary strategy was not only confirmed but strengthened. The huge gamble of monetarism was increased. That is mistaken in theory and damaging in practice. That policy is being pursued with a disregard for the poor, the disadvantaged and ordinary families. That is divisive and insensitive.

Anyone who represents Gateshead does not find it easy at the best of times to forget the face of poverty. Poverty is being strengthened and deepened. That is the most alarming and worrying aspect of the Budget. I find it difficult to forgive the Government for that.

There are alternatives, not only to the Government's economic strategy but to their social strategy. The Government are attempting to mislead the House and the public on the financial facts of Britain's position. I hope that the Minister will deal with the subject of revenues from the North Sea. We all read the occasional reports by Wood Mackenzie which forecast Government revenues from the North Sea. The latest indicates that the revenue would be about £15 billion by the mid-1980s. In 1983–84—the last year covered by the Red Book—the revenue from that source will be about £13 billion.

My hon. Friends will recall that when we were in power we published a White Paper on the challenge of North Sea Oil and in it we said: The Government has decided that the right course is to present an annual progress report giving details of the revenues received from North Sea oil in addition to the other sources of revenue and of the effect of their application to further the objectives of this White Paper. We spelt out the various alternative courses that it would be possible to pursue with that available cash asset.

The Government have devoted merely one paragraph on page 18 of the Red Book to the whole subject of North Sea oil and the unique cash bounty that the Government and the country will receive. They have reneged on the undertakings that we gave, which they should fulfil as an obligation to us as parliamentarians. They should give the House full information about this money. The riddle is deeper than that. Wood Mackenzie predicts about £13 billion revenue from North Sea oil by 1984. If the £4 billion revenue this year is taken away from that figure, that leaves a net increase of £9 billion between now and then.

In the sole paragraph that the Government have devoted to the subject, they say: Between 1979–80 and 1983–84 the total government receipts are projected to rise by £5 billion with the contribution from North Sea oil revenues accounting for about half of the increase. Adjusting slightly for the years, it appears to me that the £7 billion which will accrue to the Government is not accounted for as tax receipts. That can mean only that the Government will give the money away in tax reductions. If they were not giving it away as tax reductions, it would be included in that paragraph as an increase in revenue.

If there is some other explanation for this huge amount of missing money, I would be interested to know what it is. I hope that the Government will enlighten us. Not only are they not giving the House proper information about the money, based on the best available estimates, but they are taking decisions already about the future disbursement of the money.

As it is of utmost importance that we should be informed, and that the public through us should be informed, I wish for more information on that subject. It is crucial.

In the previous Budget Statement, the Chancellor said that he was giving us an opportunity. In truth, the opportunity is his. We all know the nature of the problems that we face. We discussed them at great length in our economic and financial debates. We all wish to solve the problems. At the same time as these problems are reaching a critical stage, we have this unique asset arising from North Sea oil. The Government have an opportunity to use this money wisely to improve our social and economic position and to give the people hope that there is a strategy that will give them a glimmer of light at the end of the tunnel. They would then realise their creative energies so that the problems could be solved.

The Government are not seizing that opportunity as they should. They are relegating the matter to one paragraph in the Red Book. That is a dereliction of their duty.

I wish to deal with a subject with which I have long wished to deal but have never had the opportunity, namely, some of the basic assertions which spring from the Chief Secretary's mouth. I will make a deal with him: if he will cease to make such assertions, we shall cease to talk about punk monetarism. Perhaps he will feel that the deal is rather one- sided, but I would settle for his refusing to use one of two of his assertions.

The first assertion contained in the White Paper of last November was that public expenditure was at the heart of our economic problems. That is not true. The size of the public sector in Britain is comparable with public sectors elsewhere. In West Germany and Austria in 1977 general expenditure as a percentage of GDP was about 44 per cent. It was about 44 per cent. in the United Kingdom. Ten years ago, the figures were roughly 38 per cent. in all three cases. The situation here is comparable with what it is elsewhere. The problem is not the size of our public sector; it is the inefficiency of our private sector. That is the issue.

The second assertion is that at all times the solution to our inflationary problems has top priority. It may be more controversial to say that I do not believe that, and I may not always carry all my hon. Friends with me. However, I believe that any Government at any moment must pursue a balance of objectives. They cannot give total priority to one objective over all others. Indeed, the danger of giving priority to solving the problems of inflation is that it leads straight to the sort of deflation on the scale that we have today.

If we want a better view of proper objectives in economic policy, it is right to maximise the growth in our annual GNP. That is a better objective than trying to deal with inflation per se, and it is also an objective which competitor nations have followed over the years more consistently than we have.

The third assertion to which I object is that inflation is a matter of the money supply. If it were, by now we should have some positive statistical evidence that it was related to variations in the supply of money. There is no such positive statistical evidence. Indeed, as we know, inflation can be caused by other factors, one of which is Government action.

Ignoring that common sense point of view sometimes leads members of the Government into the most odd positions. For example, the Secretary of State for Trade said only the other day that an increase in VAT had nothing to do with inflation. That attitude may be very pure. I do not know whether the right hon. Gen- tleman is one of the gang of six—[HON. MEMBERS: "He is."]—but I am sure that the Chief Secretary, with his feeling for rural people in the West Country, where he came from, knows that it is ridiculous to argue that an increase in VAT has nothing to do with inflation. It strikes ordinary people as ridiculous. It makes the Government look ridiculous. Clearly, it is palpable nonsense, especially when we know that they know that the transmission mechanism for inflation is all about expectations. Therefore, it is about time that members of the Government stopped making such wild assertions.

The final assertion which troubles me most of all, and it comes most often from the Chief Secretary's lips—although during the debate it came from the hon. Member for Lincoln (Mr. Carlisle)—is that we must live within our means. I think that the Chief Secretary, in his speech in our penultimate economic debate last year, brought that out as one of his deepest thoughts resulting from his understanding of what he attributed as peasant wisdom.

Mr. Biffen

We have a darn sight more wisdom than Labour Members.

Mr. Horam

I would not agree. There is no doubt wisdom on both sides of the House, but it does not reside solely in the Treasury. The truth is that, while that may be a sensible motto on an individual level, when applied to the nation's finances it is the short way to disaster. Indeed, it was precisely that sort of conventional wisdom as applied to the economy which led to the great depression. Indeed, Lord Keynes's great contribution to economics was precisely to point out that we can live beyond our means and that we can get out of the troughs of a trade cycle precisely by living on credit for an extended period—in fact, almost indefinitely. It was his view that that was the way to balance the trade cycle which would otherwise persist.

Therefore, it is absurd to go on peddling that point as though it were some kind of economic law when all recent economic history indicates precisely the opposite. Those who subscribe to that point of view define conservatism to the exclusion of Keynes. They define it so narrowly that they do not allow any intervention in the economy in order to balance the trade cycle.

I detect—no more than that—that that alarms some Conservatives. For example, some Conservatives write newspaper articles that are not always signed. Some of them worry that the Conservative Party might be harking back to Manchester liberalism. Fortunately, the official Liberals are too sensible to follow that path. I am sorry that the Conservative Party has taken over so many Liberals that it is now addicted to notions that Liberals rejected a long time ago.

Mr. Kenneth Carlisle

Is it possible to live beyond our means—to go bankrupt?

Mr. Horam

It is possible to go bankrupt. It is also ridiculous to live within one's means if the Government continually cut down those means. One becomes involved in a vicious circle at the end of which lies bankruptcy. The hon. Gentleman will find that there were far more banruptcies during the great depression, when credit was restricted, then in the post-war years when credit, by definition, was continually increasing.

If we look at America where the savings ratio is about 3 per cent.—Americans live in a sea of credit—we can see the difference between the sound position that is good for industry and the type of position to which the Government subscribe. The Government have based themselves on false nostrums. Their policy flows from them. They believe in reducing the sterling M3 and the PSBR in cash terms. They hope to squeeze inflation out of the economy in that way. The cost is appalling.

The Government's Red Book contains a prediction of a 2½ per cent. fall in the GDP. As my right hon. Friend the Member for Leeds, East (Mr. Healey) pointed out, they are doing that at a time when the rest of Western Europe is hoping for an increase that averages 2½ per cent. We are going in the opposite direction. Perhaps the Minister would clarify two further points raised earlier by my right hon. Friend the Member for Leeds, East. First, there is an omission of any separation between public and private sector investment in the Red Book. Secondly, perhaps he would clarify the position of manufacturing production in the Red Book.

If GDP falls by 2½ per cent. in the course of the year, that fall will contain an increase in the oil sector. Therefore, the non-oil sector will be falling faster than 2½ per cent. That sector is divided between the commercial and retail side, and the manufacturing side. I doubt whether the commercial or retail sector is falling. Therefore, the manufacturing side will fall yet further. That fall may well be of the order of 6 per cent. or 7 per cent. That is a fantastic prospect for the manufacturing sector of that industry. It presages the de-industrialisation that has been even on the lips of Tory Members during the debate.

The cost in unemployment terms is clear. Unemployment has increased by 150,000 in the past six months. All the forecasts suggest that it will reach about 2 million in the near future. Some forecasts make much worse predictions. It will also lead to high interest rates. The Secretary of State for Trade—as well as the Prime Minister—has been quoted as saying that interest rates will remain at the present high level for at least 18 months. I do not believe that anyone can make such an accurate prediction. However, that is generally the prospect.

As has been pointed out, high interest rates mean a high pound, despite a strong dollar. That position is likely to persist during the year. In turn, that means high imports and a struggle for our export industries.

If there is a victory against inflation, it will be a Pyrrhic victory. The battlefield will be littered with the slaughtered remnants of our industrial army, factories and greatness. That is the price that we shall have to pay for the course that the Government are pursuing.

When the Government are criticised for pursuing pessimistic and almost defeatist policies, they say that there is no alternative. That is an inherently ridiculous assertion. There are always alternatives, and in this case there are a number, some of which involve radical changes. General and selective import controls have been mentioned. Certain hon. Members advocate a manipulated devaluation, and others a formal or informal incomes policy.

Even if one sticks with the orthodoxy of the Government and does not adopt those measures, other alternatives remain. First, the Government could have maintained a high level of public expenditure. Immediately Conservatives will argue that that would lead to a higher public sector borrowing requirement. The Chief Secretary will be the first to concede that that does not necessarily follow. It depends on the level of activity.

I happened to feed through the Treasury computer the figures for a continuation of the previous Government's policies, minus £1,000 million. My hon. Friends the Members for Blackburn (Mr. Straw) and Battersea, South (Mr. Dubs) worked out the figures, which indicated that, had those policies been pursued, the PSBR would have fallen with a higher level of public spending than we have now. The PSBR will not necessarily be higher with a higher level of public spending.

Even if the PSBR were higher as a result of a higher level of public expenditure, as the Government are aware, that is not necessarily bad. The London Business School suggested that £10 billion would be a reasonable level for the PSBR with a 2 per cent. fall in GNP. It could be higher than that for a larger fall in GNP, and therefore higher than £10 billion, given that we are anticipating a 2½ per cent. fall in GNP.

In his January speech to the Euromarkets conference even the Financial Secretary indicated that the PSBR need not decline as a percentage of GDP in a time of recession. Even the hon. Gentleman, within his larger lunacy, shows streaks of sanity. Perhaps he is, after all, a secret "wet" or perhaps only a slight downpour.

Even within the Treasury team there is diversity over the appropriate level for the PSBR. It could be higher and still be advantageous to the economy.

The Government will argue that a higher PSBR will lead to high money supply figures and high interest rates. That again is not necessarily so. My right hon. Friend the Shadow Chancellor today made the point familiar to Government Members about the position during the early years of his Chancellorship.

Even if a higher PSBR leads to a more relaxed money supply, that is no bad thing. My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) and other hon. Members have followed the debates with Professor Milton Friedman, including that involving the Chancellor and the Shadow Chancellor, when Professor Friedman argued that the money supply could be a little more relaxed. A money supply target of 11 per cent. to 7 per cent. is inherently extremely tight when inflation is running at 19.2 per cent.

The non-credibility of the money supply targets led to the interest rate hike in the autumn. People did not believe the Government. The Government tried to take a corner too sharply, and they fell off. That made the problem worse. The OPEC inflows that resulted from the high interest rates have added to the reserve base of the banking system and have made monetary control even more difficult. Interest rates have also led to a stronger pound. The pound will remain strong throughout the year.

It is ridiculous to argue that high interest rates in Britain are a result of high international interest rates. If that were so, interest rates in Britain would have risen again when American interest rates went up, and they would rise further when European interest rates caught up with United States rates. I do not believe that that will happen. I believe that they will remain at their present level. The cause of the high interest rates is the unnaturally tight money control operated by the Government.

There is a case for higher public expenditure, a higher public sector borrowing requirement, and a more relaxed approach to the money supply, leading to lower interest rates and a less strong pound. That would be preferable for our long-term economic objectives.

In his peroration, the Chief Secretary said that the Government were pursuing a Tory policy of helping the nation and the family. As a sensitive man, he must understand that many people believe that the Government are dividing the nation. Why else would Lord Butler of Saffron Walden talk about the need for a more moral and civilised society? In his inimitably subtle way, that was a rebuke for the Government's policies. The Chief Secretary cannot deny that the Government have ignored their pledges to the family. They are increasing family poverty by their Budget proposals.

The Chief Secretary also said that he was pursuing a Tory policy of private enterprise and sensible use of North Sea oil, but he has said nothing about the sensible use of North Sea oil. I hope that the Government will be more forthcoming about the use of North Sea oil revenues. They are not doing very much for public enterprise, and it can hardly be said that they are doing anything for private enterprise.

In making his call to the nation the Chief Secretary is likely to find that his cry will fall on deaf ears. He wants the new realism, but I believe that he is talking about the old deflation. It will not work now, as it did not work then.

9.39 pm

The Minister of State, Treasury (Mr. Peter Rees)

We have had an interesting debate and I am sorry that the quality of the speeches has not commanded a better audience. It is surprising, when we have been told that this is the meanest, most vindictive Budget since 1931 and the most hopeless Budget since the war, that the Opposition Benches have been singularly bereft of Members, leaving aside some honourable and distinguished exceptions.

The burden of attack has come from the Opposition, but it has not been sustained by numbers even if it has been sustained by the quality of the interventions. I apologise to the House if, in 21 minutes, I cannot do justice to all the points that were made in the interesting speeches this afternoon.

There has been a slight contrast between the press comment on the Budget and Opposition speeches. It is not the difference between praise and blame. I have been in this House for 10 years and I know that no politician really expects praise from the Opposition, particularly for a Budget. However, the difference has been between a thoughtful, if critical, appreciation of the position of the country and what the Government are trying to do in the lifetime of this Parliament and the powerful, if slightly ritualistic, incantations which have been full of the slogans of class warfare.

I turn now to the individual contributions. I come first to the hon. Member for Colne Valley (Mr. Wainwright) representing the views of the Liberal Party. He, with unexpected relish, forecast a U-turn in our policies. I am never quite certain in which direction a U-turn, in the political sense, is designed to take us, but I suspect that he feels that we shall be forced to impose, by statute, some kind of prices and incomes policy. He has not been able, and nor have others who, on other occasions, have advocated this course to explain to my satisfaction why other prices and incomes policies have failed and why their breakdown has been so painful and so expensive for this country.

I admit at once that previous prices and incomes policies have not always emanated from the Labour Party. Indeed, the Conservative Party has flirted with them. But we have learnt from our mistakes. The only difference that the hon. Member for Colne Valley was able to advance on this occasion was that a prices and incomes policy such as he envisaged could be considered and introduced at leisure and without the pressures of inflation.

It is not the circumstances in which the policy is introduced but the pressures to which it is subject after at least two years that one must take into account. I am not persuaded by the experience of past Administrations—I did not have the privilege to serve in any of them, I was merely a Back Bencher observing the scene critically and realistically—that, even if a prices and incomes policy were launched with the good will of the Liberal Party, the Labour Party and my right hon. and hon. Friends, and even if it were thought out carefully in time of peace, it would necessarily endure the wear and tear and the kind of pressures that would be put on it as the years rolled by.

I wonder whether the hon. Member for Liverpool, Walton (Mr. Heffer), so admirably representing the strain in our national character epitomised on certain occasions by Jack Cade and Wat Tyler, would really lend all his moral support and intellectual acumen to a prices and incomes policy, even if it were introduced by his own party. I single out the hon. Member for Walton because he represents a special and long-established historic tradition in British public life. It is not one with which I agree on many points. Perhaps the hon. Member for Colne Valley should take the hon. Member for Walton outside, talk to him quietly and ask about the practical possibilities rather than the theoretical interests of this solution.

Mr. Richard Wainwright

Will the Minister deal with my point about the fact that there is no Budget resolution on the profit-sharing concessions?

Mr. Rees

That is a highly technical point and it is covered by the alteration of the Budget law resolution. I think that the hon. Member is mixing up the Provisional Collection of Taxes Act with the concept that he has in mind. It will always be open to a person to introduce a new share incentive scheme, make it retrospective to 6 April and it will then be perfectly effective for tax purposes. Therefore, the hon. Member should have no fear; provided we carry the House with us on this, his friends will be able to introduce their share incentive schemes.

My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) put forward an interesting proposal which was that the tax-free zones should be extended to all development areas. That is a charming concept. We shall obviously watch the enterprise zones with keen interest and if they are a success, there will no doubt be scope for expansion later.

I return to the hon. Member for Walton, for whom I have great personal regard. I think that the only occasions on which we have found a common identity of view have been in debates on Church of England matters and on devolution. Alas, neither of those subjects is before the House this evening.

The hon. Member was a little alarmist in suggesting that there would be some massive industrial confrontation in the lifetime of this Government. He emphasised—it is perfectly right—that it is not a criminal offence to go on strike. I do not think that any one of my right hon. and hon. Friends would assert that to go on strike is or should be made a criminal offence. The simple question that has agitated the country—not just members of the Conservative Party—is whether it is right to call on the general body of taxpayers to add, however indirectly, a little support to those who choose to go on strike. Whether to go on strike is a personal decision and therefore we felt that we should apply ourselves to this problem.

The hon. Member for Walton also touched on enterprise zones and said that they might turn themselves into mini Hong Kongs. That would be a delightful and interesting conclusion. I have the warmest regard for the industry and enterprise of those who inhabit almost the last of our major Crown colonies.

Mr. John Garrett (Norwich, South)

It exists mainly on child labour.

Mr. Rees

The hon. Member for Norwich, South (Mr. Garrett) speaks of child labour. It may be that my visits have been superficial in character, but I have never observed child labour there. If it is used it is no more than the boy who does a paper round in this country. That was a slightly inaccurate intervention.

I turn with special interest to the contribution of my hon. Friend the Member for Plymouth, Sutton (Mr. Clark) who with honourable consistency over the last four years, supported more recently by my hon. Friend the Member for Macclesfield (Mr. Winterton) and hon. Members on the Opposition Benches, has propounded the virtues of protectionism. It is interesting to find such an eloquent and articulate exponent of at least some of the theories of the Cambridge school on the Government Benches. He challenged me—I assume the challenge was issued to me—to deal more adequately than I have in the past with the arguments that I have formulated in my mind that if we were to impose a policy of protectionism we might expose ourselves to retaliation. His simple formula was that since we run a deficit in our balance of payments—at least at present—we have the leverage.

Perhaps that is not the right approach. The truth is that one has to see what proportion of a country's GDP is exported. Then one can see the relative balance of power. On the best evidence available to me we export about 30 per cent. of our GDP, which is far more than that of the United States. Therefore, in any encounter with the United States—I gather my hon. Friend the Member for Sutton had a pleasurable encounter at the American Embassy the other day—I suspect that we would come off worst.

I ask my hon. Friend and the House to bear in mind—I hope it will not be felt that this is a legalistic argument from one who, until 8 May, was practising at the Bar and may soon be returning to that practice—that there is a wide range of international agreements to which we are party, not least those of the Common Market. I know that I may not carry my hon. Friend and others with me on that but we would have to renegotiate or break those agreements if we were to impose a full-blooded protectionist policy. Therefore, I leave, I hope not too summarily, the interesting arguments my hon. Friend put forward. I hope that there will be other occasions when we can examine at greater leisure and depth the interesting and profound points that he raised.

I turn to the contribution of the hon. Member for West Lothian (Mr. Dalyell). I apologise deeply to the hon. Gentleman for being absent from the Chamber when he spoke. However, flesh and blood cannot keep one anchored in the Chamber for a full six hours, even when a debate of such compelling interest is taking place. Had I known that he was to raise issues of such great interest, I should have forgone my refreshment.

If an adequate note was taken for me, the hon. Gentleman asked four specific questions. First, he asked whether it is right that the staff of the Inland Revenue should be decreased. Bearing in mind the staff increases that have been made within the Department of Health and Social Security to counter fraudulent claims, is it right to diminish the number employed in the Revenue Departments when evasion is running at a figure that we do not know precisely but which was estimated by a former chairman of the Board of the Inland Revenue in evidence to a Select Committee to be about £7 billion? That is not a figure that a Treasury Minister drawn from either of the two main parties could contemplate with equanimity.

The staff of the Inland Revenue is slightly fewer than 80,000. The staff of the Customs and Excise is about 27,000. Almost every member of the staffs of both departments is to a greater or lesser degree concerned with evasion. As a mathematical or statistical proposition, it may be presumed that if we were to recruit an additional 20,000 staff for each department we would collect more revenue. It is a matter of balance. Where is the balance to be struck? Would it be right to say to the public "We want to increase staffing within the two departments to collect a greater amount of revenue"? That is a matter for the House to decide. I am not complacent. It is a problem that we keep under constant review. At present I am not persuaded that we should reverse the trend that we have set in train.

Mr. Denzil Davies

Why not?

Mr. Rees

As I have tried to explain, there must be a limit. I am sorry if I failed to carry the right hon. Gentleman with me.

Mr. Robert Sheldon (Ashton-under-Lyne)

I understand the argument that the hon. and learned Gentleman is advancing, and I sympathise with much of it, but how does it fit in with the proposed taxation of short-term benefits, which will mean that the number of Inland Revenue staff will have to be increased considerably?

Mr. Rees

The right hon. Gentleman may have his mind on 1982. There are deeper social implications to be considered. The right hon. Gentleman had a distinguished career as Financial Secretary. I am not conscious that he increased to a great degree the staff of the Inland Revenue to counter evasion.

The hon. Member for West Lothian referred to the £1 billion outstanding for schedule D. It is true that there are always sums outstanding at the end of every year. The liabilities are not agreed as punctually as one would like. I remind the hon. Gentleman and the House that most of the liabilities will be carrying interest at the rate of 12 per cent., which is not deductible for tax purposes.

Other hon. Members—

Mr. Dalyell

rose—

Mr. Rees

No. I do not have time. The hon. Gentleman must forgive me. I have eight minutes in which to deal with an important debate and try to state the Government's position. We shall be able to return to these matters on Second Reading. I hope that the hon. Gentleman will acquit me of discourtesy if I pass on.

The hon. Member for Walsall, North (Mr. Winnick) foresaw a general strike. He, too, tried to reinforce the plea for import controls. It is not for me to envisage the possibility of a general strike. I hope that he hon. Gentleman will forgive me if I pass on.

My hon. Friend the Member for Macclesfield supported the Budget in general terms. However, he expressed his reserve on and disapproval of the proposal to increase the duty on hydrocarbon oils. The increase will yield about £550 million. If my hon. Friend is minded to vote against the Government on that issue, I hope that he will consider carefully the alternatives if we did not have that source of revenue available to us.

I must contrast the speech of the hon. Member for Gateshead, West (Mr. Horam) with the contribution of the right hon. Member for Leeds, East (Mr. Healey). Their contributions did not entirely match. The hon. Member for Gateshead, West evidently resiles from the monetarist position to which, to a degree, his right hon. Friend still adheres and which he adopted while in Government. The hon. Member was uncertain about the figure that should be advanced for public sector borrowing requirement. The right hon. Member for Leeds, East, whatever fanciful distinctions he may draw between punk monetarism and the monetarism that he adopted, undoubtedly was a monetarist for a period.

If the House is doubtful about that point, I refer hon. Members—as my right hon. and learned Friend referred them—to the letter written to the IMF on 15 December 1976. Presumably that letter was written after due consideration. It was not thrown up in the heat of debate or under pressure from the NEC or a Labour Party conference. It was written to international bankers, who are trained to weigh words. Perhaps we do not weigh our words carefully enough in debate. However, I assume that these were the considered words of the right hon. Gentleman. In 1976, he said: For this purpose an essential element of the Government's strategy will be a continual and substantial reduction over the next few years in the share of the resources required for the public sector. It is also essential to reduce the public sector borrowing requirement in order to create monetary conditions which will encourage investment and support sustained growth and control inflation. I could not have put it better myself. That letter was not written under pressure but after consideration over a long period. That is exactly the position of the Government. I ask those members of the Opposition who have reservations about this matter to say where they stand on the matter of the public sector borrowing requirement.

The right hon. Member for Leeds, East came out quite boldly with the figure of £10 billion. Are the Opposition with him on that? In fact, that figure is only £1½ billion more than ours. In which area would the Opposition make these relaxations? If they are so concerned with the high level of interest rates, are they confident that the public sector borrowing requirement of £10 billion would lead, over a period, to the reduction of interest rates which hon. Members on both sides of the House wish to achieve?

Mr. Denzil Davies

rose—

Mr. Rees

I shall give the right hon. Gentleman thirty seconds.

Mr. Denzil Davies

This is a Tory Party myth. Inflation affects interest rates —not the public sector borrowing requirement.

Mr. Rees

The right hon. Gentleman begs the essential question. If inflation affects interest rates, how is it that we act on inflation? We believe in a sustained, moderate, sensibly thought-out monetary policy that depends, to a degree, on interest rates. It also depends on our fiscal stance and on the extent of our PSBR. Therefore, it depends on the extent of our public expenditure and on the amount that we are prepared to raise by way of taxation.

Regrettably, in the time left to me I cannot put the constructive fiscal case. However, it is right to observe that although we have been subject to the most swingeing attacks from the Opposition—this is the small change of party politics which neither the House nor the country take very seriously—there has not been a sustained critique of the Government's fiscal measures. There has been a certain wan, lack-lustre attack on our removal of the lower rate band. But that is about as far as it gets.

If time had permitted I should have liked—as I shall, with permission, on the Second Reading of the Finance Bill—to deal with the positive and constructive measures. I shall deal with what the Government have done for charities, by way of an enterprise package, and what we are doing for small businesses and the self-employed—all the various causes which we have at heart but which the Labour Party so sadly neglected in the five years that it was in power. We shall have time to come to that. I shall also come to the capital tax package.

I want to say this to the House and the country: although it may not have been appropriate to do fully what we intended to do in the area of capital taxation, if we believe in a free market economy and a capitalist system, as the Government do, we must do far more than we have been able to do this year to reduce that jungle which was created by the luxuriant mismanagement of the Labour Party. We shall return to that.

In a singularly lack-lustre speech, the Leader of the Opposition described this as a hopeless Budget. I want to ask, hopeless for whom? Hopeless for widows, for whom a new allowance has been created? Hopeless for single-parent families, for whom the allowance has been put up? Hopeless for pensioners, whose pensions have been safeguarded against inflation? Hopeless for small investors, who are to be relieved of capital gains tax? Hopeless for small business men, who are freed from a whole range of fiscal and administrative burdens? Hopeless for charities, which will benefit from a whole range of new reliefs? Hopeless for the enterprising, who will find new scope for creating opportunities?

Debate adjourned.—[Mr. Newton.]

Debate to be resumed tomorrow.