BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 31 March 1980 vol 982 cc37-166 3.53 pm

The Secretary of State for Social Services (Mr. Patrick Jenkin)

Today in the Budget debate we are to concentrate on the social services. It is impossible to look at social service policy other than in the broad economic context.

The heart of my right hon. and learned Friend's Budget strategy is summarised in the figures set out in table 9 of the Red Book—the five-year projection of public spending, public borrowing and taxation. The last line of this table shows the public sector borrowing requirement falling from 5½ per cent. of GDP in 1978–79 to 1½ per cent. in 1983–84.

In the Government's view, that is the only possible route to the rescue of our economy from the inexorable and depressing decline which we have witnessed over the last couple of decades. If Governments spend too much, the public sector absorbs too high a proportion of the national product and crowds out the private sector. If Governments borrow too much, high interest rates hit investment and home buyers. If Governments tax too much, incentives are eroded and enterprise is stifled.

Table 9 of the Red Book, which in effect sets out my right hon. and learned Friend's medium-term financial strategy, is the background against which the House and the country have to look at the social service programme. If we do not cut public borrowing, if we do not bring down interest rates and if we do not reduce taxation, the people who will suffer most in the longer run will be the people least able to protect themselves.

There is another table of figures to which I should like to draw the House's attention to reinforce this point. It is table 5.1 on page 170 of the public expenditure White Paper. This sets out for the years from 1974–75 to the end of the period 1983–84, at constant prices, total public sector debt interest payments. Though not all of this is funded direct from taxation, every penny of it has to be paid by the people of this country in one way or another—in their rates, in their water charges, in their fuel bills, on their public transport, indeed on virtually every public service we use. What does this table show? It shows that the total debt interest rose from just over £8,500 million in 1974–75 to over £10,000 million in the year that is just ending. It is projected to fall back to just over £8¾; billion by 1983–84.

Throughout the Labour years, from 1974 to 1979, this country spent more on debt interest than it did on retirement pensions. By 1982–83, under this Government, we shall be spending more on pensions and less on debt interest.

Mr. Charles Fletcher-Cooke (Darwen)

Did my right hon. Friend hear the Leader of the Opposition yesterday suggesting that the Chancellor of the Exchequer should be borrowing yet another £2 billion in the current year? Has he made a calculation of what further debt interest would be payable by the taxpayer if the Chancellor followed that advice?

Mr. Jenkin

My hon. and learned Friend is absolutely right. The figures put into context the remarks by the Leader of the Opposition on television yesterday. He said that we should borrow another £2 billion. That was his soft option. The consequence would be that debt interest would continue to cost more than pensions year after year after year. Is that the Opposition's policy?

Mr. Denis Healey (Leeds, East)

How does the Secretary of State reconcile what he says with the facts in the table to which he has directed our attention? That table shows that in his first year debt interest rose by £300 million, which is more than the average increase in the past six years.

Mr. Jenkin

The Leader of the Opposition knows that the debt interest that we are paying now is on the £40 billion of extra debt incurred when he was Chancellor of the Exchequer.

I have sought to make these points because it is desperately important that in all the debates that we shall have in the net few weeks on health and social security we constantly bear in mind the crucial and inescapable economic background.

The right hon. Member for Salford, West (Mr. Orme) is fond of referring to me, as he did in Committee, as the Treasury mole at the DHSS. If by that he means that I understand the economic imperatives as clearly as the Chancellor of the Exchequer and the Chief Secretary, I take that as a compliment. It is certain that neither I nor any succeeding Secretary of State for Social Services can care properly for the old, the sick and the disabled until the economy creates the resources to pay for that care.

My right hon. and learned Friend's Budget strategy, despite, or indeed in the light of, all the sound and fury from the right hon. Member for Leeds, East (Mr. Healey) on Thursday, remains the only viable strategy on offer. There does not begin to be a glimmer of any conceivable alternative from the Opposition.

The right hon. Member for Leeds, East, when in office, argued for policies to cut borrowing, cut spending and cut taxes. The only trouble was that he was incapable of cleaving to virtue for more than about five minutes at a time. My right hon. and learned Friend's Budget sets out the path of virtue for four years ahead in table 9 in the Red Book. It is a notable advance in the field of public finance, for which my right hon. and learned Friend deserves every credit.

It is against that background that I turn to consider the two main programmes for which I am responsible, namely, health and personal social services and the social security programme.

The central fact about the Health Service is that the growth in spending between 1978–79 and 1982–83—the last year covered by the Labour Government's last White Paper—projected an increase of 7.7 per cent. or about 1.9 per cent. per annum. During the election we gave a pledge to maintain that growth. The figures in the public expenditure White Paper demonstrate that that pledge has been kept 100 per cent. The White Paper shows that growth between the estimated outturn in 1979–80, the current year, and the end of the Public Expenditure Survey Committee period, is planned at 8.2 per cent., or almost exactly 2 per cent. per annum.

The real growth next year will be about one half of 1 per cent., but that is exactly the level of growth planned by the right hon. Member for Norwich, North (Mr. Ennals).

In line with other central Government expenditure, the cash limit for the National Health Service provides for a 14 per cent. increase in prices between 1979–80 and 1980–81 and in earnings from due settlement dates. It is not the Government's intention, so far as the NHS is concerned, that this cash limit should operate as a covert squeeze on volume.

We are providing separately for pay increases arising from existing commitments, for the staging of past awards and specifically for the increases resulting from the Clegg report on nurses' pay. This includes a special provision in 1980–81 to cover the recent Whitley agreement on reducing nurses hours to 37½ a week. We are also making full provision for the final stage and full year effect of the Clegg awards for ancillary workers and ambulancemen. However, health authorities will be expected to press ahead resolutely with the elimination of the bogus incentive schemes and other unsatisfactory working practices identified by Clegg. If allowance is made for savings on this account and for various other factors, I am satisfied that, given responsible pay bargaining on both sides, the cash limits for health authorities on current expenditure for 1980–81 are realistic and fair and, subject to inflation remaining roughly as forecast, they should be enough to achieve the planned level of spending.

Mr. John Ryman (Blyth)

Is the Minister saying that it is the Government's intention to implement the recommendation of the Clegg Commission about the ancillary workers in the National Health Service? The Minister of Health, during a lobby in the House last Thursday, said that he was absolutely amazed by the recommendation, which made no sense at all.

Mr. Jenkin

The hon. Gentleman is referring to the professions supplementary to medicine rather than to the ancillary workers, such as boilermen and porters. The professions supplementary to medicine are currently engaging the attention of the appropriate Whitley council. I fully understand the sense of indignation that many of the members of those professions feel, especially about hours and their professional status, but it is primarily for the Whitley council to reach a solution to the problems. Ministers are carefully monitoring the position.

Mr. Anthony Grant (Harrow, Central)

I should not like my right hon. Friend to imagine that the criticism of what I regard as an asinine report of the Clegg Commission is confined to one side of the House only. There are many Members on both sides who feel that the report is nonsense.

Mr. Jenkin

I understand my hon. Friend's point of view, which has been widely represented both inside and outside the House. However, in the first instance, it is for the relevant Whitley council to resolve the problems that have arisen as a result of the Clegg report.

There is not much scope for redistribution of money between the regions this year. Nevertheless, I have decided that the best-off region as defined under the RAWP formula should receive an increase of 0.3 per cent. so that the worst-off regions can receive increases up to twice as large—up to 0.6 per cent. In addition, although the sums of money are by no means large, I have sought to recognise, in some small measure, the special population problems of East Anglia and Oxford to which I know a number of my hon. Friends attach importance.

When the allocations were announced last year by the right hon. Member for Norwich, North, the worst-off region was pearly 9 per cent. below its target and the best-off region nearly 13 per cent. above. After this year's allocation the worst-off region is down to 7.5 per cent. below and the best-off down to 12.7 per cent. above target. It is not an epoch-making change, but I hope that the House will agree that it is a change in the right direction.

On Thursday, the right hon. Member for Salford, West complained bitterly about the increase in charges. I understand this necessary ritual, because that is what it is. The leader in The Guardian on Friday described the Opposition's protests as "somewhat hypocritical". It stated: Labour, which introduced health charges in 1951, has never repealed them. Moreover, it put up dental and ophthalmic charges in three out of its last four years.

Mr. David Ennals (Norwich, North)

Is the Minister ignoring absolutely the fact that during five and a half years of Labour government prescription charges did not rise at all but that since he took office he has decided upon increases to multiply the charges by five? He must understand that on this side of the House our anger is not hypocritical but genuine.

Mr. Jenkin

No doubt the right hon. Gentleman will make his view known to the writer of The Guardian leader. The truth is that Governments of both parties have not been able to avoid maintaining the charges or increasing them. We believe that it is sensible to let charges make their contribution towards increased spending. What really matters is that the facilities of the Health Service should be there when they are needed.

As my right hon. and learned Friend the Chancellor announced, the prescription charge will rise to £1 on 1 December next. But the exemptions remain unchanged. Some 305 million prescriptions are dispensed each year. Of these, two-thirds are exempt from charges, and they cover about 60 per cent. of the population. The cost of prescriptions is rising, and by December 1980 the average cost will be about £2.90 each. So the charge will be about one-third of the cost, paid by about one-third of the patients, with none of the cost paid by two-thirds.

Nor is it necessary for those who have frequent prescriptions to bear the full charge. Anyone not entitled to exemption can limit his outlay on medicines by buying a season ticket. The new prices from 1 April will be £12 for an annual certificate and £4.50 for a four-monthly certificate. Next December, the season ticket charges will be increased proportionately. People should realise that the season ticket entitles the holder to as many prescriptions as he needs.

Mr. Donald Stewart (Western Isles)

Does the Secretary of State accept that his figures showing the exemption from charges of two-thirds of those who will need prescriptions are quite irrelevant? The benefits of an insurance scheme must bear some relation to the contributions made. Contributions have been rising and the benefits have been going down.

Mr. Jenkin

The right hon. Gentleman is labouring under the same delusion as a large number of members of the public who think that the Health Service is paid for out of their national insurance contributions. Apart from a very small part, it is not. It is paid for out of taxation. It is of the utmost importance to people who are exempt that they should be so. Given the rising cost of prescriptions, given the wide exemptions, given the very reasonable price of a season ticket, and given the need to finance the rising spending in the Health Service, I believe that an increase in the prescription charge is fully justified.

Mr. Laurie Pavitt (Brent, South)

Will the Secretary of State tell us by how much season tickets have risen since he came into office until the new rate of £12? Will he confirm that every taxpayer pays 78p a week for medicine and that only the sick pay twice?

Mr. Jenkin

I am not sure from where the hon. Gentleman gets the figure of 78p. I shall write to him about the increase in the season ticket charge.

Several Hon. Members

rose—

Mr. Jenkin

I cannot give way; I must press on.

Dental charges are going up from 1 April in order to keep pace with rising costs, as, of course, they did under the previous Government. However, from next year we are ending the exemption for young people aged between 16 and 21 who have left school and are not exempt on grounds of low income or for other reasons. We have also decided, as part of the contribution which charges can make to the cost of the Health Service, to introduce a charge of £2 for a sight test in the general ophthalmic service.

Mr. Reginald Freeson (Brent, East)

That is a new health charge.

Mr. Jenkin

Does the right hon. Gentleman seriously imagine that it is possible to keep for all time to an existing list of charges?

Mr. Freeson

Another of the Prime Minister's election promises broken.

Mr. Jenkin

With respect to the right hon. Gentleman, that is not what was said. At the time it was said—and it was perfectly true—that we had no plans to introduce any new charges—[HON. MEMBERS: "Oh".] This is a small additional charge in an area where charges are already made, and overwhelmingly people will see the charge as being reasonable. The changes will require legislation and the necessary amendments will be tabled to the Health Services Bill on Report.

Mr. Eric S. Heifer (Liverpool, Walton)

May I take the right hon. Gentleman back to the question of prescription charges? Is he aware that certain sections of workers who will be included in the one-third who have to pay the full amount—for example, construction workers—suffer a higher percentage of illness because of the nature of their employment? They will now be put at a great disadvantage by the extra charge that the right hon. Gentleman has introduced.

Mr. Jenkin

I do not know the average earnings in the building industry, but I think that £12 for a year is not an excessive amount for someone who requires repeated prescriptions. I believe that that is a good bargain—

Mr. Heffer

If they are lucky enough to get a job.

Mr. Jenkin

If they do not, they will be exempt on the basis of low income. The hon. Gentleman cannot have it both ways.

We are also looking at other sources of income for the Health Service, and they include the possibility of recovering a greater proportion of the cost to the NHS of road traffic accidents and tackling the abuse of the National Health Service by foreign visitors. The Health Services Bill gives a new power to health authorities to engage in fund-raising activities.

Let me put all this in context. Ten years ago, at the end of six years of Labour government, the proportion of the cost of the National Health Service met by charges was 3.3 per cent. In 1980–81 it is expected to be 3.35 per cent. By the end of the PESC period, the proportion met by charges will rise by no more than a further percentage point or two. The Service will remain overwhelmingly financed by taxation. In the light of these figures, the well-orchestrated roar of disapproval from the Labour Benches that greeted the Chancellor's announcement in his Budget Statement turns out to have been just as misplaced as it sounded synthetic at the time.

Mr. Stanley Orme (Salford, West)

The right hon. Gentleman referred to the one-third of those requiring prescriptions who would have to pay the full amount. What is his view of the working poor, the people for whom many Conservative Members were wanting a higher child benefit? I am referring to people on low wages who will have to pay the £1 per item.

Mr. Jenkin

The right hon. Gentleman knows that children are covered by the exemptions.

Mr. Orme

I did not say "children".

Mr. Jenkin

But the right hon. Gentleman was talking about child benefit. Now he says that he was not talking about children. The right hon. Gentleman must get his interventions clear. He knows that, in addition to those who are exempt on the grounds of receiving supplementary benefit or family income supplement, exemption will be enjoyed by those who are at work but whose incomes are not much above the level of supplementary benefit. Children are exempt and they will remain so.

At 1979 survey prices, the total cost of the Health Service next year will be nearly £8.2 billion. I have no doubt that there is plenty of scope for getting better value for this money. I have already referred to the restrictive practices and bogus incentive schemes. The initiative there lies primarily with the management of health authorities. But I am also taking steps to see that the most glaring examples are brought to the attention of management by my Department. We shall want to know, if action has not been taken, why it has not been taken.

I am very encouraged by the positive efforts now being made throughout the country by people at all levels in the Health Service to seek savings and to root out waste. Many spending decisions are of course taken by clinicians, and doctors and nurses need to know the cost of the decisions they take. My Department is currently working with the Health Service to improve the cost information available to doctors and other health care professionals.

I have one other important piece of news before I leave the subject of the Health Service. Over the six months to 30 September 1979, the latest date for which we have figures, it looks as though the number of people on the waiting lists may have fallen by about 50,000. However, at 700,000 there are still far too many people awaiting admission to hospitals, and I know that it will be the constant concern of all the staff involved, clinical and non-clinical, to get this figure down.

Mr. Allen McKay (Penistone)

The Minister has been talking about waste and about the one-third who will have to pay the full price for their prescriptions. Is he aware that doctors will face a dilemma in wishing to prescribe double the amount of medicine to avoid certain patients having to have two prescriptions and pay £2? Has he considered the position of a doctor who is not certain what type of drug to prescribe and who at present will put the patient on a small amount of medicine to see how that patient progresses? Will not the doctor be tempted to forgo that trial period and instead prescribe a full amount?

Mr. Jenkin

The hon. Member for Penistone (Mr. McKay) is addressing himself to a perfectly sound argument which will clearly have to be taken into account. The amount of each prescription is a matter for the medical profession, which will do what it considers best in the interests of its patients. No doubt is being cast on the sums that will be raised from increasing the prescription charge. We have plenty of experience on that score from past years under Governments of both parties.

I turn now to the personal social services. The White Paper shows that spending on the social services by local authorities is projected to rise from next year by about 2 per cent. a year. That should be sufficient to maintain standards, given the rising number of elderly people in the community and the steadily increasing numbers of children in care.

I have never sought to conceal from the House or from anyone else that I recognise that local authorities this year and next have faced, and will face, difficult decisions. But as I go round the country I find marked differences in the ways that different authorities are approaching this task. In some, savings are being made by raising charges, by cutting down on administration and by trimming non-essential services. In others, elected members seem too ready to accept without question significant cuts in services for vulnerable groups. It really is the exceptional local authority officer who will voluntarily propose reductions in his own immediate headquarters staff.

It is for elected councillors to insist that savings should be found wherever possible by cutting down administration rather than by attacking services. I am doing that in my Department. Since 1 May nearly 2,000 DHSS posts have been saved—almost 2 per cent. of the total. In my headquarters departments the cuts are proportionately three times as big—6.5 per cent. of the total. We have one fewer Minister than the previous Government. A further 2,400 posts will be saved in this coming year. It requires constant, unremitting pressure from elected Members to force officials to make administrative savings.

The Association of Directors of Social Services has complained bitterly that the personal social services have been singled out for bigger cuts than other departments. In its memorandum, which many right hon. and hon. Members will have received, it does not make clear what level of spending was the starting point against which the cuts of which it com- plains have to be seen. It looks as if it may have taken the original Budget estimates for 1979–80 of the Labour Party for its base this year. Many hon. Members from all parties now recognise that those figures were totally unrealistic. I note that the right hon. Member for Heywood and Royton (Mr. Barnett) is present.

Let me make one or two other points about the personal social services. Unlike education, and unlike the Health Service, the personal social services are only part of caring in the community. Lord Wolfenden's report estimated that there was a bigger input to the personal social services from the voluntary sector than from the statutory sector. When economies have to be made, we are right to look to the voluntary sector to take on a larger share of what has to be done. Family support, support from neighbours, self-help groups, local and national voluntary bodies, all have a part to play. Indeed, local authorities such as North Yorkshire county council—which I visited on Friday—which are deliberately setting out to use their resources to mobilise voluntary support in the Community, will extend the networks of care and support far more widely than the social service department could ever hope to do by itself. My right hon. and learned Friend's Budget, in the £30 million package of reliefs for charities, has given a great boost to the voluntary movement, which will help considerably with the raising of funds.

Joint finance also has a major contribution to make to local authority services. The planned expansion of joint finance money has not been affected by the cuts, and next year, 1980–81, will see a 16 per cent. real terms increase in joint finance money. That increase, together with any unspent allocations from previous years, equals 1 per cent. of local authority budgets for the personal social services. Moreover, we have recently told authorities that though support should normally be phased out over not more than seven years, extensions or renewals for individual schemes would be considered.

During his Budget Statement the Chancellor referred to the cost of the social security programme. Even leaving out that part of the cost of child benefit which replaces the child tax allowances, the social security programme has grown by 50 per cent. since 1971. In the same period, total public expenditure has grown by about 30 per cent. and national income by only 15 per cent.

In 1970–71 social security accounted for 17 per cent. of public expenditure. Today it accounts for about 27 per cent. Part of the increase is, of course, due to the rising numbers of the elderly. Part is due to the rising numbers of the unemployed, but a substantial part has been due to real improvements in the level of benefits, and new benefits and increased family support.

Like most right hon. and hon. Members, I do not regard that as undesirable. On the contrary, we all know of social needs in the community which we do not yet meet properly and where we cannot match the provision made by other countries.

In the light of the economic imperatives with which I opened my speech, it is inescapable that the growth in the social security budget should be curbed. I say "growth should be curbed", for even after making the savings that I have announced the social security budget is still programmed to grow at about 2 per cent. a year. Let me repeat that: the social security budget is growing at 2 per cent. a year.

Anxiety about the rising burden is nothing new. The House will remember that in 1976 the right hon. Member for Leeds, East, then Chancellor of the Exchequer, let it be known that he was considering ways of reducing the burden that the unemployed put on the taxpaying population. He asked, in a broadcast in Wales, whether it was right to put the whole burden of national sacrifice on those who are working while continuing to protect those who are not working. Commenting on that, Ian Aitken, political correspondent of The Guardian, said: Ministers are acutely aware that continuing inflation, combined with a high level of unemployment, has substantially increased the burdens on the working population while those who rely on state benefit are protected from the impact of the crisis.' I am sure that the right hon. Gentleman remembers the incident well.

The right hon. Member for Heywood and Royton said, in a speech a day or two earlier, that the burden of social security transfer payments was becoming increasingly heavy and that there might be some justification for seeking means of reducing it. Well, well, well. The Treasury wanted to do something about the burden of short-term benefits in 1976, but, as we all know, it did not get its way. The Cabinet would not let it. As a result, the burden continued to grow, and nothing was done to curb it. The previous Government went on borrowing in order to pay for a rising burden on the social security budget, with the result that in the year just ended debt interest amounted to £10.2 billion, whereas pensions amounted to £8.8 billion. There was an excess of £1.4 billion of debt interest over pensions. I am sure that the right hon. Member for Leeds, East realised that that could not continue.

Mr. Denzil Davies (Llanelli)

Will the Secretary of State confirm that the Government intend to apply cash limits to unemployment benefits, as the Financial Secretary to the Treasury was reported to have said last week? If that is so, how will it be done?

Mr. Jenkin

My hon. Friend the Financial Secretary will reply to the debate. He tells me that he did not say that. However, the right hon. Gentleman will be able to put that question to him.

We know, too, that Labour Ministers recognised the justice of taxing the short-term benefits. Last Thursday I quoted from a letter to me from the right hon. Member for Salford, West, in which he said that he agreed with that in principle. I also call in aid the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), then Financial Secretary to the Treasury. Speaking in Standing Committee D on 23 June 1977 he said: Not only do I agree with the taxation of short-term benefits, but I think that everyone who has ever been concerned with these problems has agreed with it."—[Official Report, Standing Committee D,23 June 1977; c. 1182.] He is right. All Labour Members have agreed. It is against that background that the House should look at the proposals to increase the short-term—

Mr. Joel Barnett (Heywood and Royton)

Accepting the fact that short-term benefits should be taxed, is the Secretary of State now saying—or if not, will he do so—that when he taxes them, he will put back the 5 per cent. that he is now taking off?

Mr. Jenkin

The right hon. Gentleman will understand better than most hon. Members that that is a question that has to be faced when the decision is made.

It is against that background that the House should look at the proposal to increase the short-term national insurance benefits by 11½ per cent. rather than the 16½ per cent. needed to give full price protection. This is to be seen as an interim step pending the introduction of proper taxation in 1982, or as soon thereafter as can be managed. My right hon. and learned Friend the Chancellor announced proposals to bring unemployment benefit into tax by then, and I have announced proposals to transfer to employers the first eight weeks' responsibility for covering sickness. On the latter, my right hon. Friend the Minister for Social Security will launch a consultative paper this week, setting out the details of what we propose and seeking the views of trades unions, employers and others.

Taxation of the short-term benefits has been an objective of all major parties for some years. In the past, administrative obstacles have been allowed to stand in the way. They will stand in the way no longer.

Mr. David Price (Eastleigh)

Does my hon. Friend agree that these problems will be brought together in a tax credit scheme? Are the Government dedicated strategically to the introduction of a tax credit scheme?

Mr. Jenkin

My hon. Friend will know that I still maintain a warm regard for the principles of tax credit. He will also know that the costs of introducing a tax credit scheme on anything like the lines of the 1972 Green Paper would, in present economic circumstances, be prohibitive.

Earnings-related supplement is now a good deal less important than it was when it was introduced in 1966. Employers' sick pay schemes are much more widespread, and the sums now paid by way of redundancy payments are a good deal higher than they were. In these circumstances, limiting ERS, as proposed, next January and ending it in 1982 seems logical, but I emphasise to the House that the safety net remains intact. The short-term supplementary benefit rates set the level below which none shall be allowed to fall, and those rates will be fully price-protected.

With regard to child benefit, the House will wish to consider whether what the Chancellor has proposed—an increase of 75p per child, with an extra 50p on the lone-parent premium—is fair in all the circumstances. I have three points to make in this connection. The first is that the 75p is an increase of 18¾ per cent. since the last increase in April 1979—equal to an annual rate of increase of 11 per cent. That is exactly the effective increase in the personal allowances in the Budget. There is, therefore, no question of families with children falling behind.

Secondly, one of the arguments for child benefit that I and others have made on many occasions in the past is that it helps to combat the "Why work?" syndrome. However valuable it may be in this respect, it is nevertheless expensive. For instance, it would cost an additional £¼. billion in a full year to increase child benefit by £1.20.

Mr. Ralph Howell (Norfolk, North)

Will my right hon. Friend explain how increasing child support for working families, much less than for those of nonworking families, will affect the "Why work?" syndrome?

Mr. Jenkin

My hon. Friend has anticipated the point that I was about to make. The fact is that relatively few families benefiting are caught by the "Why work?" syndrome. In a difficult year it makes sense to give the working families added help through the family income supplement and by an extra boost to the single-parent premium, but in the longer term the child benefit remains the right way to tackle the problem, when it can be afforded.

Nor is it true to argue that families are doing worse than they would had child tax allowances been retained. In 1976–77—the last year when CTAs and family allowances were paid—if we take the then levels and revalue them to next November, they would be worth, for a family with two young children, £6.90 per week. By next November, a family with two young children will receive child benefit of £9.50 per week. That is for basic-rate taxpayers. For families below the tax threshold, the improvement is, of course, very much greater.

In all the circumstances I believe that the increases in child benefit and child premium that the Chanceller announced last week are fair.

The Government have been in office for less than a year. We faced perhaps the most difficult inheritance since the war, and the strategy on which we have embarked to restore the nation's fortunes requires a steady reduction in the share of the national income taken by public spending. Despite this, we have done a great deal not only to safeguard but to improve the social services.

Retirement pensions have been fully price-protected and will be uprated next November. Pre-1950 Service widows have been paid a pension for the first time ever. War widows' pensions have been exempted from income tax. Tax on pensioners' savings has been cut. We have given a categorical pledge that pensioners can look forward to sharing in rising living standards. For the disabled, the attendance allowance was increased by over 19 per cent. last November and will go up by 16½ per cent. next November.

The mobility allowance was raised by £2 last year and will go up by a further £2.50 this year—a 45 per cent. increase in two years—and 15,000 disabled people under 65 have received the mobility allowance sooner than our predecessors had planned. The disabled will be able to claim the long-term supplementary benefit rate after only one year instead of waiting for two years, as at present.

For one-parent families we have done a great deal. By November, the child benefit addition will have gone up by 50 per cent. Lone parents will have a new, more generous, sliding scale of disregards for earnings, and will get the higher rate of supplementary benefit after one year instead of two.

We have decided that the maternity grant will become non-contributory and paid as of right to about 60,000 mothers who at present do not qualify.

We are maintaining the planned increase in spending in the National Health Service.

A major new package of help with fuel costs for needy households will bring an additional £100 million of help next year, of which £65 million is new money.

Mr. A. W. Stallard (St. Pancras, North)

rose—

Mr. Jenkin

Despite all this, some of our critics are using language as extravagant as it is absurd. Mr. Ron Hayward was quoted in the weekend press as saying, at Broadstairs, that the Tories were aiming to murder our entire Welfare State". If I am supposed to be murdering the Welfare State I am setting about it in a pretty rum way, for the public expenditure White Paper projects an increase in spending on health and social services from just under £9½ billion this year to over £10 billion in 1983–84—an increase of nearly 7 per cent. in four years. Spending on social security will rise from under £19 billion in the present year to over £19½ billion in 1983–84.

Given the economic and financial imperatives that I outlined at the start of my speech, the Government's record in social services demonstrates our commitment to bring real help to those in our society who stand most in need of it. It is not only the record of a Government who are realistic and responsible; it is the record of a Government who care.

4.37 pm

Mr. Stanley Orme (Salford, West)

As it is apparently fashionable to quote from The Guardian,I quote from The Guardian of last Saturday, in which Melanie Phillips wrote that the social security changes cut deep into benefits and that the concept of Beveridge's welfare state was now seriously threatened. I endorse that comment, for the Government, in effect, are going to the very basis of the Welfare State as it was created.

I said last week—I was accused of being extravagant in my language, but I believe that my criticism was justified—that this is a class Budget and is aimed at disadvantaging a section of our community who can ill afford it. Many of the increases in expenditure that the Secretary of State for Social Services has been talking about are based on an increase in unemployment within our society within the next 12 months to two years.

We have to go back to first principles and to restate as a party that the Health Service should be free at the time of need for all who are in need of it, and that it should be paid for during our working lives through direct taxation. The principle of social benefits to meet immediate need, not least for the family, and the national insurance principle—which the Government are now breaching—of paying benefits to those who are entitled to them, should be maintained. But the Government are making a basic change.

The Government have emphasised—and the right hon. Gentleman has mentioned it this afternoon—that the social security changes in the Budget have been introduced in an effort to slow down what the right hon. Gentleman calls the extortionate growth in the cost of social security. The Government have claimed that, given these financial objectives, they have provided specific help for the elderly, for those on supplementary benefit, for lone parents and for low-income families.

The Budget reflects a collection of Tory mythology about social security—and in particular about the work-shy and the unemployed—which has inspired changes in the relationship between national insurance and social assistance which undermine the principles of the Welfare State. Furthermore, the Budget represents a record of broken promises, particularly to families in work and out of work as well as to the elderly.

The right hon. Gentleman went on the defensive, quite naturally, about child benefit. Earlier, I asked about prescription charges. My point was that the working family itself, not the children, which is on a comparatively low income will have to carry the burden of the prescription charge of £1 per item. Such people will not be excluded. The point is that for such families child benefit has not been increased in line with inflation. Therefore, it is an added burden if the husband or wife needs a prescription.

I cannot see how the right hon. Gentleman can justify that increase, not only to the House but also to his hon. Friends, after all that he has said about child benefit. The fact remains that it has not been increased in line with inflation. It should have been increased by £2, but an increase of £1.20 would have taken account of the 18 months during which there was no increase at all. An increase of 75p means a reduction in real terms. In fact, the right hon. Gentleman again paid lip service to his commitment to tax credits, yet this tax credit has been severely damaged by the Government, who have not met their commitment.

Mr. Frank Field (Birkenhead)

Is not the situation much more serious than my right hon. Friend has suggested? Child benefit was increased by £1 in April 1979, but that was largely a transference from the tax to the benefit side. In fact, for most families, the last real increase took place in November 1978. Therefore, we are measuring this increase over a period of two years, and, while there has been a cut in child benefit as measured over the last 18 months, there has been an even greater cut in child benefit if measured over the two years.

Mr. Orme

My hon. Friend is absolutely correct. The last increase was the 70p increase which the Labour Government made in November 1978.

For a moment we should look at the principles contained in the Beveridge report, which was implemented by the incoming Labour Government in 1945 and in their social legislation in 1948. Paragraph 21 of the report stated that the principle was as follows: benefit in return for contributions, rather than free allowances from the State, is what the people of Britain desire. To that end, national assistance must be felt to be less desirable than insurance benefit—that is, a safety net and not a prime instrument of social policy. Successive Governments since the war have followed that principle, including Conservative Governments. They have extended it through the earnings-related scheme.

This Government have now broken that principle. By abolishing ERS and by de-indexing short-term benefits so that they are below the value of supplementary benefit, the Government are deliberately creating a new class of supplementary beneficiary—the unemployed and the sick, The White Paper estimates that there will be 270,000 more supplementary benefit claimants, not dependants, by 1980–81 and a further 185,000 by 1981–82. Thus, supplementary benefit has become a first and not a last resort. It is estimated that a further 110,000 people will be pushed on to supplementary benefit by the loss of earnings-related supplement.

Year after year, we have heard from the right hon. Gentleman talk about getting rid of people on supplementary benefit and getting rid of the poverty trap. Yet the Government are deliberately creating a situation in which far more people will be in receipt of supplementary benefit in the next year or two. That underlines two further assumptions. First, the Government claim that they are giving maximum support where it is most needed, but the supplementary benefit rates—the Government's official poverty line—are already scandalously low, particularly in relation to the cost of children. According to the Supplementary Benefits Commission, they do not permit people to participate fully in the life of the community". Therefore, the Government are condemning hundreds of thousands of people, many of whom have paid national insurance contributions, to absolute poverty.

During our debates on the Social Security Bill, which is now in the House of Lords, we went to a great deal of trouble to bring the rates into line. Is that Bill now defunct? Are its clauses no longer operative? We should like an answer to those questions, because we are entitled to one.

Mr. Field

Is it not sheer hypocrisy?

Mr. Orme

My hon. Friend will remember the hours that we spent in an attempt to bring the rates into line.

Secondly, the emphasis on supplementary benefit obscures the extent of poverty in general. Supplementary benefit claimants will benefit from free school meals, exemption from prescription charges and so on. Overnight, the poverty trap will become more bitter for those who escape supplementary benefit qualification. There are at least 2½ million people with incomes 20 per cent. or less above the supplementary benefit line. They will receive no additional help. How many of them will benefit from tax cuts?

Therefore, there are some urgent questions which the Government must answer. First, the Government have said that they believe in the principle of national insurance. To what extent does the right hon. Gentleman support that principle? The Government have introduced a Budget which is based on an extension of means testing and a new poor law mentality. What will be the administrative costs in respect of this greatly increased number of supplementary benefit claimants?

The Government estimate in the Social Security Bill that a further 1,000 staff will he necessary. Yet I remember the right hon. Gentleman quoting Professor Donnison, saying that the supplementary benefit system was about to collapse and that the staff could not cope with it. Now he is putting hundreds of thousands more people on to supplementary benefit. We want to know how the staff will cope with that increase. From where will the extra staff come? How much will it cost in administrative terms?

I turn to the breaking of the link with unemployment and sickness benefits. In that regard, I think that the right hon. Gentleman has been less than honest. Why does not he stand on his own feet? At this stage, he has not introduced taxation of short-term benefits. He has introduced a severe measure against the unemployed, a measure which has no discretion in it whatever.

My right hon. Friend the Member for Heywood and Royton (Mr. Barnett) asked a very good question. What will happen in 1982 when taxation of short-term benefits is introduced and when such benefits are reduced? They have been reduced by 5 per cent. this year, and they will be reduced further in 1981. How does one assess the benefits? The Government must answer that question in some detail.

Mr. Ennals

Does my right hon. Friend agree that many people who will take the 5 per cent. cut in real terms do not come within the tax range at all? Therefore, they are the poorest of the poor.

Mr. Orme

My right hon. Friend underlines the argument that I was advancing. The effect is indiscriminate. There are some who will suffer a cut who would not do so if there were taxation.

In the 1950s and 1960s Britain was going through economic and industrial change. We had to cushion the effect of that change. Some older industries were closing down and newer industries were opening. The pattern of our industry was changing. There was a great contraction, especially in the manufacturing sector. Governments introduced redundancy payments and the earnings-related supplement. Unemployment benefit was set at a reasonable level. In most instances it was reinforced by the earnings-related supplement. These measures were introduced mainly by Labour Governments. They saved Britain from what could have been, in many instances, civil strife. They allowed industries to be reorganised or closed. They provided a breathing space and allowed people to look for new employment.

During the 1950s and 1960s it was never envisaged that we would have more than 300,000 long-term unemployed. Unemployment benefit is regarded as a short-term payment because unemployment has always been seen as a short-term measure. We are now moving into a very different pattern.

I stress to the Financial Secretary to the Treasury that we have avoided the difficulties that have arisen in other countries. At present there is a major steel strike. A similar occurrence in France led to riots and deaths. It has led to nothing of that nature in Britain. The benefits that I have outlined have provided a cushion or safety net with which the trade union movement has co-operated. We have witnessed industrial change that would not have been possible if we had not introduced such benefits.

The Government are breaking down the benefits, especially the earnings-related supplement. It is robbery to abolish the supplement. The British people have contributed to it since 1966. The right hon. Gentleman talked January to January. There will be some who will contribute to the earnings-related supplement scheme who will not be able to draw the supplement in the final year.

Mr. Allen McKay

The Secretary of State referred to redundancy payments and sick benefit schemes. Those payments and schemes are partly made up by the earnings-related supplement. What will take over the part that the Secretary of State is to remove? Will the missing element be made up by the employer, or are the Government planning to make another grant to assist the employer to close the gap?

Mr. Orme

I understand that the Financial Secretary said at a press conference last week that the contribution was not to be reduced but, for other reasons, increased. There will not be a quid pro quo. Perhaps the Financial Secretary will confirm what I have said when he replies.

Long-term unemployment is a major problem within our society. We are now moving towards the figure of 400,000 men and women—largely men—who have not worked for more than 12 months. That is a disgrace in a modern society. We should make a major effort to eradicate such a blot on our map. Instead of cutting benefits for the unemployed, the Minister should be increasing long-term benefits for those who have been unemployed for more than 12 months. Many people in that position are family men. Many of them live in areas that my hon. Friends represent. In those areas men now losing their jobs at the age of 40 or 45 years have little chance of regaining full-time employment.

I am not saying that the right hon. Gentleman is acting consciously in the sense that he wants to bash the unemployed.

Mr. Heffer

He is.

Mr. Orme

I am trying to give him the benefit of the doubt.

Mr. Heffer

I will not give him that.

Mr. Orme

The fact is that the unemployed will be made the scapegoats for all our social and economic ills. I was a child in the late 1920s and 1930s, when there were 3 million unemployed. They were made the scapegoats. We were told that people did not want to work. It was said that work was available and that the unemployed would not take it up. We saw whether people would work during the Second World War. These social problems are crucial to the structure of our society. The Government's moves are divisive. Those who have suffered and will suffer will not forgive.

Mr. Heffer

When I first went to Merseyside after the war, I worked with a building labourer who had been out of work before the war for nine years. That man, having obtained a job after the war, never stopped working. He was like a machine. He worked all day. When I said to him "You do not have to work as hard as that, you can ease off a bit", he said "For nine years I never worked. It is a joy to be working again." Conservative Members said at that time that ordinary working people in areas such as Merseyside did not want work. They claimed that they were lazy. They said it then, and they are saying it now.

Mr. Orme

It was the unemployment of earlier times that led the late Aneurin Bevan to refer to those who created such conditions as being lower than vermin.

One of the moves behind the reduction of unemployment benefit is to force people into low-paid jobs, where they are available, and to take jobs at rates that are unacceptable in our society. That is underwriting the bad employer and the plant that is not organised. It will bring the reaction that most of my right hon. and hon. Friends expect.

There is much talk nowadays of scroungers. The right hon. Gentleman said this afternoon that social security is too expensive. He argued that it all goes to scroungers and that the payments are handouts. Of the £19 billion that is anticipated for 1980–81, 65 per cent. will be accounted for by national insurance contributions. The beneficiaries are merely receiving what they have contributed. It seems often to be suggested that we are talking about someone else's money and that benefits are being paid to those who have no entitlement. It must not be forgotten that we all make the contributions. We do so to make provision for the rainy day when people are forced to turn to sick benefit and unemployment benefit.

The average working person will say that he will gladly work all his life and make the contributions as long as he does not have to draw the benefits. However, if he is forced to draw the benefits he will consider that he is entitled to the correct benefits. Nearly 60 per cent. of the budget goes in various ways to the elderly. Retirement pensions and supplementary pensions account for nearly half the budget. Unemployment benefit accounts for nearly 4 per cent. and supplementary benefit accounts for 9 per cent. The savings to be effected on social security will be borne largely by reductions in short-term contributory benefits. This will destroy the contributory principle. It is a serious step.

I have referred to the ERS concept. The average worker's contribution is slightly under £9 a week and the employer's contribution about £18 a week. With all these benefits being removed, the worker will want to know what his contributions are for. What will the Government say to that? Perhaps the Financial Secretary will deal with the level of contributions in the year 1980–81 and the reduced benefits.

Benefits for strikers' families is an emotive issue. The Government, with great assistance from the media, are trying to find a scapegoat for their policies. Like the Employment Bill, they are a means of attacking the trade union movement through legislation. I have read in the newspapers, even in The Guardian, of the battle between Ministers from the Department of Health and Social Security and the Department of Employment. Will a Minister from the Department of Employment be included in the Committee on the Bill?

Mr. Patrick Jenkin

My right hon. Friend the Secretary of State for Employment has his name immediately after mine on the Bill. The press reports are nonsense.

Mr. Orme

Is the Secretary of State for Employment standing back from the effects of that legislation, even though he has his name on the Bill? The right hon. Gentleman did not tell us whether a Minister from the Department of Employment will be included in the Committee.

Only in exceptional circumstances do strikers receive benefits. Last year the benefits paid to strikers' families were a tiny proportion of the total benefits paid. We should stick to the principles of a civilised society, where we have given the lead to other countries.

On average, the first £15 of any benefits claimed by a striker for his family is for him to pay. Then there is a further £12 a week on top of that, which makes a total of £27 before a striker's family starts receiving benefits. [Interruption.] The hon. Member for Enfield, North (Mr. Eggar) is laughing. I see nothing funny in strikers' families suffering.

Mr. Ralph Howell

Why does the right hon. Gentleman not believe that unions have a duty to pay benefits to strikers?

Mr. Heffer

What if it is an unofficial strike?

Mr. Orme

Trade unions pay dispute benefits in some instances, but frequently the amount is less than £12. Some unions do not pay dispute benefits. We received the announcement on Wednesday, and the Bill was printed and published by Friday. The Government are moving quickly.

The legislation affects not only official strikes but unofficial strikes, lock-outs and all industrial disputes. The Government may initially deal a blow to the trade unions, but the unions will regroup. The Government's legislation will only worsen industrial relations.

This seems to be The Guardian's day. Has the right hon. Gentleman seen the letter in The Guardian today from Mr. David Heywood, which suggests that the Government are making a direct attack on trade unionists and workers in dispute? What reply does the right hon. Gentleman have for Mr. Heywood? The Government have fired the bullets. They have set the scene for worsening industrial relations.

Mr. Patrick Jenkin

Mr. Heywood is not an employee of my Department but an official of his trade union. The right hon. Gentleman has asked me to express a view. I believe that Mr. Heywood's letter has overstepped the mark of how far it is legitimate for a trade union official representing public service employees to become involved in Government policies. That is a matter that I shall be putting to Mr. Heywood when I next meet him.

Mr. Orme

It is unnecessary and unfortunate that the right hon. Gentleman created such a situation.

Mr. Tim Eggar (Enfield, North)

Before the right hon. Gentleman completely runs out of synthetic indignation, will he take the opportunity of reaffirming that the Labour Party does not support Mr. Heywood's suggestions in any way?

Mr. Orme

The dispute is between Mr. Heywood's union and the Government. The Government have got themselves into this mess and they must get themselves out.

I warned the Government not to be too much encouraged by the recent public opinion poll. The proposals have not yet taken effect. I further warn them that there can be no compromise by the Labour Party and the trade union movement over these measures.

I have experience of the people whom these cuts will affect. Government Ministers do not know what these cuts will mean to average people. From their Olympian heights they are deciding what is good for the workers, but the workers may soon tell them differently.

The right hon. Gentleman did not answer the question that I asked on Thursday about invalidity benefit, which has been reduced by five points. Invalid care allowance, NCIP and HNCIP are linked to invalidity benefit. Will those benefits therefore also not be increased by 16½ per cent.?

Mr. Patrick Jenkin

The right hon. Gentleman should be aware that long-term invalidity benefit has never been subject to tax and, therefore, is subject to the 5 per cent. abatement. The other three benefits that the right hon. Gentleman mentions are not affected, because basic ally they are not benefits on which people are expected to live.

Mr. Orme

I understand that, but for uprating purposes they are linked to invalidity benefit. Disablement organisations believe that benefits will be directly reduced, and that means a cut for the disabled.

In his statement, the right hon. Gentleman made much about the fuel bonus and about help for pensioners and people in receipt of supplementary benefit. The fact is that the increases announced are only for people on supplementary benefit, and the Government have not returned to what the Labour Government introduced, which was based on a rent and rate rebate as well. Therefore, whereas 4½ million people got fuel bonus under the Labour Government, the number of recipients has been reduced considerably because the bonus is to be given only to people in receipt of supplementary benefit.

I turn to the National Health Service. We have dealt with prescription charges at some length. The right hon. Gentleman has said that by 1982 the charges which are now part of the funding of the NHS will increase from 3 per cent. to 5 per cent. The present Government are hitting at the basis of the NHS. They are encouraging the private sector. They want to create a two-tier Health Service. They are turning to raffles and fundraising as a mean of financing it. That is completely unacceptable. The Sunday Mirror has made the point in regard to kidney machines. The Minister of State's letter was diabolical. It said, in effect, that the way to finance the Health Service was to match pound for pound. That is not the concept of a health service. One should not be able to buy health above another person just because one has the money to do so.

The principle of the NHS is that we are all entitled to use it and that it exists for all of us. The present Government are moving away from that principle. It is no good underwriting Mr. Jimmy Savile, OBE, in trying to raise £6 million for Stoke Mandeville hospital, which needs refurbishing. If that hospital needs refurbishing—as it probably does—that should be a charge upon the NHS and should not be thrown open to charity and to other people deciding priorities in the NHS.

Mr. Patrick Jenkin

Will the right hon. Gentleman answer this question? Since the growth in the spending of Health Service money is precisely what his Government planned—the percentage increases year by year, exactly—what would he have cut in order to be able to rebuild that hospital?

Mr. Orme

First, we would not have increased VAT by 4 per cent. Perhaps the Secretary of State would tell us what the rate of inflation was when he took office. What about that?

Mr. Patrick Jenkin

In real terms.

Mr. Orme

If the right hon. Gentleman wants to know about priorities, let me say that the NHS needs more than 2 per cent., and I would want to see a future Labour Government allocating resources—

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

Where is the money coming from?

Mr. Orme

—to meet the demands in the NHS. But that is a matter for the future. [Interruption.] The Financial Secretary asks where the money is coming from. He knows that in the next couple of years North Sea oil will come on stream. He knows that his Government will attempt to use that revenue for tax cuts and in order to win the next election. I want to see a Labour Government using that revenue for the social priorities in our society and not giving it to the better-off.

Labour's answer must be a return to first principles in regard to the Welfare State and no compromise whatsoever with the Government. Proposals to fight the Government, inside and outside Parliament, to fight them in conjunction with the trade union movement—

Mr. Field

Mr. Heywood.

Mr. Orme

Yes, and Mr. Hayward—Ron Hayward.

Mr. Eggar

Is the right hon. Gentleman supporting Mr. Heywood?

Mr. Orme

I am sure that these are the worst aspects of this Budget. I am convinced that in its day of action the TUC will make this a centre point in the discussions and demonstrations that take place throughout the country—[Interruption.] I do not know why the hon. Member for Enfield, North (Mr. Eggar) is laughing so much.

Mr. Eggar

Will the right hon. Gentleman give way?

Mr. Orme

No, I shall not not give way.

The proposition that the right hon. Gentleman has put before us is very depressing indeed. It will lead to the dismantling of many of the fundamental aspects that we fought to establish and which have been maintained by successive Governments since 1948. It will have a dramatic effect upon the British people when it begins to work its way through. What we must do is to defend the Welfare State and to attack the worst excesses which the present Government are putting forward, despite their parliamentary majority. We must then forge a policy which will return us to the basic and first principles upon which the Welfare State was founded.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. Before I call Back Benchers, perhaps I may say that the Chair has a very long list of right hon. and hon. Members who wish to speak. Short contributions would be very helpful and would enable a great many Members to be called.

5.15 pm

Mr. Terence Higgins (Worthing)

My right hon. Friend the Secretary of State for Social Services raised in his opening remarks a number of specific points. I hope to take up some of them during the course of my speech, although I wish to be as brief as possible. My right hon. Friend also stressed, very rightly, the basis on which our whole social security rests, namely, the economic management of our country. Therefore, while I represent a constituency which has been said to have the most elderly population of any in the country, and one with many difficult social problems in the sector covered by my right hon. Friend, I think that all my constituents recognise that unless we get the economy right we cannot hope to see any real increase in the standard of provision for those in need.

I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on a number of specific measures that he has taken in the Budget, some of them to help individual groups of people and some of them to increase incentives and to add to our nation's wealth. In particular, the provisions that he has made for charities, to help them from a fiscal point of view, will be widely welcomed. I certainly would not wish to underestimate, as the right hon. Member for Salford, West (Mr. Orme) seems to do, the important contribution that charitable donations can make in our society.

My right hon. and learned Friend the Chancellor made a number of specific points on share options and profit sharing, and, most particularly, on incentives for small businesses. I believe that these measures will be helpful in providing the real resources that we need to deal with social and economic problems.

I take up one point which the right hon. Member for Salford, West made about the provisions for deeming a certain amount of the contribution towards strikers' families on supplementary benefit. This is certainly a move in the right direction. I have long found it extraordinary that the trade union movement should take the view that contributions made to trade union funds ought not to be used to support the financing of a strike. However, I ought also to make this point in answer to the right hon. Member for Salford, West. In the difficult economic circumstances that we face, we must have a sense of priorities. If we compare, for example, expenditure on the NHS, on the one hand, with, on the other, support for strikers' families, I do not believe that we ought to say that supporting strikers' families at the taxpayers' expense is more important than using public funds to build more hospitals. It is this sense of priorities that is extremely important.

Dr. Brian Mawhinney (Peterborough)

Will my right hon Friend give way?

Mr. Higgins

No. With great respect, I want to stick to Mr. Deputy Speaker's wishes, if my hon. Friend will allow me.

I want to comment on the balance between direct and indirect taxation. Last year my right hon. and learned Friend the Chancellor made a significant change in adjusting that balance, which I think was widely felt to be a balance that was not correct, by moving the burden from direct to indirect taxation. I somewhat regret the way in which his operations this year have worked out. He pointed out that he could not fully offset the effects of inflation on income tax, and he gave less than the full allowance in the raising of indirect taxes.

Unless I am mistaken, it seems that the balance between direct and indirect taxation, taken overall, has moved somewhat, though perhaps not greatly, in the opposite direction to that which my right hon. and learned Friend adopted last year. That is unfortunate, though I realise why it has happened. My right hon. and learned Friend is concerned about the effects of increases in indirect taxation on the cost of living index.

I regret that the Chancellor did not increase the tax on tobacco by more. We should seriously consider whether tobacco and cigarettes should be taken out of the cost of living index and put into a cost of dying index. They have important implications for the DHSS and the cost of the National Health Service. If we could get agreement on that, we might see a more rational approach to the matter.

I also regret that my right hon. and learned Friend has not done more on capital taxation. I am glad to hear that his review of those taxes is complete, and I hope that he will be able to take us into his confidence on the general principles that have been revealed by his study. While we take the earnest of his intention that he claimed in his Budget speech, we need to move in that direction because, as my right hon. and learned Friend rightly points out, the damage done by those taxes is disproportionate to their yield.

I come to my main point. My right hon. Friend the Secretary of State drew attention to the interest payments by the Government compared with pensions payments. The fundamental basis of the Budget, namely, control of the money supply, has always been important and the recent Green Paper on monetary control is greatly to be welcomed. I have always regarded control of the money supply as essential to good economic management, but there are problems of data and mechanisms which need to be looked at. I hope that in the light of discussions on the Green Paper we shall be able to rectify some of the problems that all of us who have served in the Treasury have faced.

There is a fundamental distinction to be made, not on whether there is a distinctly monetary policy, Keynesian policy or whatever, but on how one controls the money supply. The big question is whether we have what I call phoney monetarism—a big public sector borrowing requirement, which we have to finance from the non-bank public at high rates of interest, and control the money supply that way—or a small public sector borrowing requirement, which we can finance at much lower rates of interest and still control the money supply.

The relationship between the PSBR and the money supply is far more complex than that, but the basic distinction that I have outlined is important. I welcome the fact that my right hon. and learned Friend fully accepts that we have been landed with a situation in which we have had to adopt the first alternative, when we should have been implementing the second way of controlling the money supply.

The measures that the Chancellor has taken to get down the PSBR are welcomed, though he proposes to reduce it in 1980–81 by an increase in taxation, in real terms, rather than by cutting public expenditure on the scale that I believe it needs to be cut if we are to get the right long-term pattern. There was a widespread feeling that the public expenditure cuts in the original 1980–81 White Paper, published some months ago, were inadequate. The new White Paper, which includes that year, details some additional cuts, but I do not believe that they are as large as we need. We need to make further progress in that direction.

One matter that gives cause for concern is that we are faced with a number of means of cutting and controlling public expenditure which may not be as secure as we should like. Let me identify one. It appears that cash limits are to be used to a considerable extent to reduce public expenditure further in 1980–81. If that is so, we are saying that there are many cuts that we shall make in the coming year, but we do not know what they are, although we shall achieve them by imposing tighter cash limits. If we cannot find them in advance, I am not sure how we shall be able to find them in the course of the year.

That method, which may tend to invalidiate the whole approach of cash limits—because if we start by fixing them too low that is dangerous—gives cause for concern. I hope that we shall not constantly get new Supplementary Estimates because cash limits have not stuck.

It was implicit in what my right hon. Friend the Secretary of State said that public sector pay increases have been hived off from the rest of the cash limits. The Select Committee has commented on that issue. In terms of controlling public expenditure and the money supply, that is a dangerous development.

On top of that, two further factors create an air of uncertainty. The first is the assumption that shortfalls will continue, even though spending Departments must be getting rather used to the idea of having a shortfall and may therefore compensate by planning overspending so that the shortfall does not materialise. Secondly, there is a substantial change in the size of the contingency reserve, which seems to be much bigger for the coming year than for subsequent years. The reasons for that are not fully explained.

For all those reasons, I am worried that the extent to which the Government's determination to control the money supply, on which depend the control of inflation, the operation of the economy and the basis of the social services, is not as secure as it could be. We have a particular responsibility to ensure that the plans set out by the Chancellor of the Exchequer are fulfilled.

The proposals in the public expenditure White Paper are, presumably, based on a medium-term assessment of the economy. We are told that that is to be found in the Red Book, but that covers a much shorter period than does the White Paper. Although we have a financial forecast for the whole period, we do not have a forecast for the other main variables, such as gross domestic product and so on, on which, presumably, the whole of the Government's plans have been based.

Therefore, I hope that the Government will be prepared to publish that forecast and will not rely on the fact that it has been transferred from the White Paper into the Red Book, so that somehow we lose the past three years—which ought to appear in that document if we are to know what we are talking about.

There is a danger that the public will get the impression that if we are to reduce the rate of increase in the money supply, which I regard as important, that necessarily means that we are not able to have an increase in aggregate demand at the same time. All these relationships are complex, but I do not take the view that control of the money supply and the reduction of its rate of increase necessarily mean that aggregate demand must fall.

Conservatives believe fundamentally in the profit motive, and in the sanction of losses as well, but we must extend that from the microeconomic level to the macroeconomic level. I am a little worried that there is no proposal in the Red Book which, in the light of the forecasts, while showing a substantial reduction in the rate of increase in the money supply, also shows towards the end of the period an increase in aggregate demand that may tend to give a hope of profit and investment, on which the long-term growth of the economy and the growth of our social services, in real terms, which we should all like to see, must ultimately depend.

5.29 pm

Mr. David Ennals (Norwich, North)

As most of my comments will be almost entirely critical, perhaps the Secretary of State for Social Services will not mind if I start with one complimentary comment. I welcome the higher than average rate of the mobility allowance increase that he has announced. The allowance was introduced by the Labour Government and twice increased by them. The right hon. Gentleman is increasing it by 21 per cent., which will be welcome.

I suspect that that 21 per cent. increase is a better indication of the likely inflation rate than the 16½ per cent. movement in prices that the right hon. Gentleman and his right hon. and learned Friend the Chancellor of the Exchequer have prophesied. To the extent to which the inflation rate is higher than 16½ per cent. and approaching anything like 20 per cent., the harder will be the blow to those whom the right hon. Gentleman has determined to push down to the 11½ per cent. figure—the unemployed, the sick, those on invalidity pension and their dependants. The more his estimate is wrong, the more serious will be the depression in child benefit, which is to increase by only 75p instead of at least the £1.20 that my right hon. Friend the Member for Salford, West (Mr. Orme) said it should be.

Family support will be squeezed still further by a Minister who, in Opposition, made such bold claims to be the champion of child benefit. How often when we were in Government and he was in Opposition he lectured the House about child benefit and its significance and advanced all the arguments for it! I presume that he will now say, as he said about tax credits, that he still has a warm regard for child benefit. That is just about all that he can say.

With the decision on child benefit, the programme of what I can only call the punishment of the increasing number of the unemployed, as well as the decrease in invalidity pensions and benefits for dependants, and the sick decision to push prescription charges up to five times their level under Labour, I reckon that the right hon. Gentleman must have lost almost every battle that he fought in the Cabinet—if, in fact, he fought any battles.

I have said on a previous occasion that the Secretary of State always seems to me to speak like a Treasury Minister, not like a Secretary of State for Social Services. Perhaps that is the role that he plays behind closed doors. I know that the Prime Minister came to his defence on Thursday, but, between them, the Prime Minister, the Chancellor and the rest of his Cabinet colleagues have made a monkey of him. He and those for whom he should be responsible are basically having to take the rap as a result of the Budget.

There are two other issues that I want to raise. First, I want to follow up the point made admirably by the right hon. Member for Worthing (Mr. Higgins) about smoking and to take it a little further. In whatever other league we may be slipping, Britain leads the world in lung cancer incidence. Fifty million working days are lost annually through smoking-related diseases, with a loss of production and higher sickness benefits. There are also the cost of pensions for dependants of the roughly 50,000 who die prematurely every years as a result of smoking-induced induced diseases and the £85 million that I estimated—the right hon. Gentleman probably thinks the same—is roughly the cost to the National Health Service of dealing with those who suffer from diseases attributable to smoking.

The 5p extra on the price of a typical packet of 20 king-size cigarettes is inadequate. A 10p increase—I am not suggesing that it would have been universally popular, but it would have been popular with the non-smokers, who are now, happily, in the majority in this country—not only would have discouraged a lethal and unpleasant habit but would have raised at least another £100 million. That assumes that a significant proportion of smokers would have stopped smoking or reduced their consumption. The figure would be £180 million if there had been no effect on the smoking population. Even the figure of £100 million is three times what the Chancellor will gain from the increase to £1 in prescription charges. What an absurd balance of judgment the right hon. and learned Gentleman has made on this issue! I hope that the Government will be beaten on this matter in the Committee considering the Finance Bill. There are in the House a growing number of hon. Members associated with the anti-smoking lobby. I hope that they will see that the figure is changed.

No doubt the Secretary of State also hoped that his package of measures to give special help to those least able to cope with rising fuel costs would gain a measure of support. I support them. It was essential to give more than the poor provision that his Government provided this winter, particularly to help people cope with the astronomically rising fuel costs, some of them imposed by the Government themselves.

But what has happened to the rest of the Government's "massive effort"—I quote the Secretary of State for Energy—to reach Britain's energy-saving targets? The Chancellor talked a great deal about enterprise, but there was not a word about energy conservation. The right hon. and learned Gentleman did not sound as though he had much energy himself when he was making his Budget Statement, but that is another matter. There was no tax encouragement of energy conservation, except 10p on the price of petrol and whatever that means for the retail price index.

The Government are persistently cutting back spending on existing energy-saving programmes. Most recently, the budget for the home insulation scheme was halved, to £12.5 million, and it must now be stretched to cover claims by council tenants, who will no longer have a separate allocation for insulating council houses.

The Secretary of State for Industry has decided that the selective grant scheme which helps businesses to replace energy-inefficient plant, insulate premises and install or improve combined heat and power schemes will be stopped in June this year. That is a deplorable decision. It should have been put right in the Budget, because one of our prime targets is to achieve energy saving.

I am not suggesting that our energy-saving targets are ambitious. I think that a target of a 20 per cent. cutback in energy demands over the next five years is modest. Yet the Government are proceeding at the same time with costly programmes to install over the next 10 years nuclear power stations costing between £10 billion and £15 billion or more. Those programmes will in part be paid for by those least able to look after themselves.

Mr. Robin F. Cook (Edinburgh, Central)

Did my right hon. Friend note in yesterday's edition of The Observer the allegation that the committee of Ministers on energy conservation has met once since this Government were elected? That graphically underlines my right hon. Friend's theme.

Mr. Ennals

I did not see that report, but I am grateful for my hon. Friend's intervention, because it confirms my point.

We must somehow or other push the Government into taking energy conservation seriously instead of going more and more deeply, and, I believe, dangerously, towards increasing nuclear power, particularly with all the uncertainties and dangers that may be associated with it. To commit ourselves to that sort of expenditure when the central issue between the two Front Benches has been the miserable and miserly cuts that the Secretary of State has sought to make in the social security programme shows the extraordinary way in which he and his colleagues have looked at this country's needs. It is the unemployed, especially the long-term unemployed, who will suffer as a result of the measures that have been taken.

5.39 pm

Mr. Percy Grieve (Solihull)

The right hon. Member for Norwich, North (Mr. Ennals) was at least slightly more temperate in his comments on the Budget than his right hon. Friend the Member for Salford, West (Mr. Orme), who was hysterical and exaggerated. But even the right hon. Member for Norwich, North permitted himself such expressions as that the way in which my right hon. Friend the Secretary of State for Social Services had treated the prescription charge was a sick decision. That is nonsense, and the right hon. Gentleman knows it.

The philosophy of both right hon. Gentlemen is plainly that there is an enormous pool of resources to be doled out by whatever Government are in power irrespective of need. The right hon. Gentleman has reiterated that a sick decision was taken over prescription charges. How can he use that description when the old, the young, the chronically sick and those in need can get a season ticket to meet prescription charges? What he says is rubbish.

Mr. Ennals

Does the hon. and learned Gentleman agree that the sick aspect of the matter is not simply the amount by which the Government propose to increase prescription charges but that the cost of any improvement in the Health Service is to be borne by the sick and not by the generality of the population? That is what is sick about the matter. It is the principle.

Mr. Grieve

The right hon. Gentleman's intervention shows what nonsense he is talking. This will leave more money in the Health Service for the care of those who are sick in hospital and for the building of more hospitals. The right hon. Gentleman knows perfectly well, having been Secretary of State for Social Services, that the amount of money available to the Health Service must be limited. Otherwise, it could take pretty well the whole resources of the State.

No one in the House has benefited more from the Health Service than I have. I pay tribute to it. Our hospitals are having to cut down on vital services such as cardiology and kidney treatment because money has been spent in blanket fashion whether or not people need treatment. This indicates the mood and philosophy of Labour Members.

I wish to congratulate my right hon. and learned Friend the Chancellor on a constructive Budget, looking several years ahead, to right the problems that face this country. His proposal will not only put into reverse the gross overspending of the last six years under the Labour Government but will make sure that public expenditure, in the long term, is cut. This will mean that in the table put before the House there will be not an ascending level but a descending level of Government expenditure. This is vital if we are to save ourselves, as a country, from bankruptcy.

I was astonished when the right hon. Member for Salford, West spoke of our having avoided the evils and ills of other countries. That is true in some measure. But we have not avoided having the worst productivity in Europe. We have not avoided one of the highest levels of unemployment. We have not avoided, time and again, one of the highest levels of inflation. We have not avoided one of the worst records of strikes. It was time that these matters were put right. The electorate voted the Government into power to carry out this task. The Government will do it. My right hon. and learned Friend's Budget is an important step on the way towards doing so.

Mr. Ennals

Inflation has been getting worse all year.

Mr. Grieve

A matter raised by the Opposition is the deeming of the contribution to be paid by the unions or by the individual towards his social security when a man is on strfike. The most intemperate language was used by the right hon. Member for Salford, West. Yet for years the electorate has been demanding just such a change. Throughout the period of the last Conservative Government the electorate was asking "Why are we, the taxpayers, subsidising strikes?" It is not only anomalous. It is bad for labour relations and bad for the country. I shall briefly try to state the reasons.

It is significant, I suggest, that in no other country in Europe, or, I believe, in the world, are strikes subsidised in a similar fashion by the taxpayer. The situation is not only anomalous. It encourages irresponsibility. That is the vice. When someone can say to himself or a union or those running it can say that it does not matter whether they go on strike and the taxpayer will pay, there is no sanction in the background to make people consider the factors in the situation. It is wholly wrong that the taxpayer should be asked, and should have been asked all these years, to subsidise strikes when Britain has been one of the most strike-ridden countries in the world—[HON MEMBERS: "That is not true".]—and when strikes have done infinite damage to the fabric of our society and economy.

I cannot deal with the whole of the social security aspect of the Budget. I should, however, like to make a brief comment on the proposed taxation of short-term benefits. Opposition Members' comments have all proceeded from the philosophy that people should receive subventions from the State whether or not they need them. It is surely obvious that some people desperately need short-term benefits. Their earnings will not bring them into a tax bracket at the end of the year in which the benefits are received. They will not pay tax. But some people who are off work ill have large incomes to which they return when they resume work. It is crazy that in a society like ours which has been approaching bankruptcy such people should not pay tax at the end of the year on the advantages they have received from the State while temporarily incapacitated.

I quite understand that my right hon. and learned Friend found himself able to proceed very little further in reducing direct taxation. I hope very much that next year, in the light of this Budget and what I hope will be an improving state of the economy, he will be able to continue the policies on which we were elected to power.

I regret that my right hon. and learned Friend has not felt able this year—although I understand the motivation—to carry out the complete review and reconstruction of capital taxes for which Conservative Members continue to look. It is essential that there should be such a reconstruction. One knows, from constituency experience, the number of businesses and farms that have to be sold to meet the wholly excessive level of duties imposed on inheritances and gifts.

I welcome the measure that has been taken this year of doubling the threshold of gift tax, or capital transfer tax, to £50,000. I also welcome the increase of the level of capital gains tax to £3,000.

I intend, Mr. Deputy Speaker, to observe your appeal that hon. Members should be brief, but I should like to say a word about another matter in the Budget to which my right hon. and learned Friend the Chancellor made a brief allusion.

Mr. David Penhaligon (Truro)

Will the hon. and learned Gentleman give way?

Mr. Grieve

I have not yet embarked upon the point, but I shall give way.

Mr. Penhaligon

Is there any area of services for those who are sick, elderly or disabled where the hon. and learned Gentleman would like to see an improvement in State help?

Mr. Grieve

Those that I wish to see improved are comprehended in the long list that my right hon. Friend the Secretary of State gave the House today. One would obviously like to see improvements made in many spheres, but one would like to see them made when the state of the nation is such that they can be afforded.

I refer now to the taxation of husbands and wives. For far too long, the taxation of husbands and wives has been completely anomalous. Originally, as hon. Members will be aware, the two incomes —whether earned income or investment income—were united. The husband and wife paid tax as if they were one. Under the last Conservative Government, there was a measure of reform. Husbands and wives were permitted to separate their incomes for fiscal purposes when incomes were earned. But the anomaly in regard to investment income remained. This is not only a tax upon income. As a result of that measure, it is an additional investment income surcharge.

In a world in which men and women are equal, this is completely anomalous. It was held to be unconstitutional in Germany in 1957, in Italy in 1976 and in Ireland in January of this year, in the case of Murphy v. the Attorney-General. This is because it militated against the institution of marriage. It encouraged people to live in sin and to get a divorce if they could because they would be better off in consequence. This not only merits the attention which my right hon. and learned Friend is to give it. After he has considered it, it merits reform and at least the option for married couples to be taxed as single people.

I commend my right hon. and learned Friend for a courageous Budget, formulated in the interests of the country and with a view to restoring us from the brink of bankruptcy to which the Labour Government brought us over five years.

5.51 pm

Mr. Donald Stewart (Western Isles)

The speech of the hon. and learned Member for Solihull (Mr. Grieve) made the Secretary of State's speech appear a model of charity and compassion—and at the time I thought that the latter was pretty hard-faced. The hon. and learned Gentleman said that the increase in prescription charges would mean more money for the sick and for hospitals. In fact, it might put many more people in hospitals than would otherwise go there. I am surprised that a member of the hon. and learned Gentleman's profession should have made so many outrageous statements without evidence.

Of course, we all agree that there is no bowl of resources that we can dip into for ever, but there are some priorities that any civilised society should maintain.

The right hon. Member for Worthing (Mr. Higgins) made a lucid and interest- ing speech. I did not grasp it all—he was talking as fast as he is reputed to run—but I agree with what he said about the tax on tobacco. I am amazed that the Chancellor went so easy on tobacco. I say that with sincerity, since at the moment that he was talking about that tax my pipe was burning a hole in my pocket. The Chancellor has been exceptionally lenient here. I agree with those who say that this cost should come out of the retail price index.

The Secretary of State said today that this was a caring Budget, but his speech, like that of the Chancellor, showed that this Government care for some people more than others. The Chancellor's apparent strategy is that sacrifices now will bring salvation later. The measures in his two Budgets may mean that at the end the United Kingdom's industrial base is considerably diminished, or even destroyed altogether. One recalls the old line about the operation being a success although the patient died.

The Government are accepting that industrial investment will decline and unemployment will continue to escalate. That is dangerous medicine for the future of the United Kingdom. It is made more dangerous still by the attack on the living standards of ordinary people. Whatever reasons are given for these measures, people know that the wealthy are being looked after. Under last year's Budget, the wealthiest 5 per cent. collected 30 per cent. of the tax relief.

The measures to attack abuses in social security are another indication of the Government's attitude. I do not say that abuses do not exist, but they are trivial alongside the evasion of income tax.

I was surprised and a little alarmed at the Minister's statement the other day that the Government gauged social security fraud on the same basis as the percentage of pilferage from Oxford Street stores. If that is the Government's arithmetic, the sooner they file their petition in bankruptcy the better.

I am sorry that the Chancellor made no reference to our EEC contribution. We had been led to believe by wild statements of the Prime Minister that we would get back about £1,000 million. We have received so far not a penny—and the Budget reflects that fact.

The raising of the prescription charge is an attack on the poor at their most vulnerable. The accusation at the last election that the Tories would raise these charges was denounced as a great lie. We now know who is guilty of the great lie.

This measure is dastardly enough in itself, but it contains another danger—that it will produce extra finance to such an extent that future Chancellors of both parties will be reluctant to abolish it.

The Budget makes no mention of an increase in the death grant, which is still a derisory £30. According to a recent parliamentary answer, at current values it should now be £145. Normally, insurance benefits should reflect contributions, or people will come to regard them simply as a tax-raising swindle.

The effect of the 10p rise in the price of petrol will be serious in areas that have no bus or train services.

According to the Secretary of State for Industry—the right hon. Member for Leeds, North-East (Sir K. Joseph)—the 1980s should be a decade golden with the benefits of North Sea oil. The people of Scotland see increasing poverty and deprivation in a country which produces over £2,000 million of oil revenue in the current year. In spite of this increasing oil wealth, the money is not being diverted to the problem of unemployment. Even in a British context, that is theft of Scottish wealth.

In Canada, the province of Alberta, which is an oil-producing state, receives an extra share of the wealth instead of it all being diverted to the national exchequer. Where is the special oil fund promised to Scotland in the 1974 Tory election manifestos? There is not a sign of it. Yet in Scotland poverty affects 38 per cent. of the population, who, according to Townsend, live below, on or just above the poverty line. The shortest way to combat family poverty would have been to increase child benefit, but here again the Scrooge philosophy has operated.

In spite of all the Chancellor's pleas about lack of cash for these essential needs, we have the contrast of the failure to levy a tax on the fantastically swollen bank profits. In his Budget speech the right hon. and learned Gentleman said: it is …irrational to attribute these profits to some wickedness on the part of the banks." [Official Report, 26 March 1980; Vol. 981, c. 1466.] Quite so—the wickedness was that of the Government. It was their policy that enabled this windfall to grow without any effort or any increased production by the banks. Now they are to be allowed to get away with the lot.

Even the Daily Mail, hardly an organ of the Socialist Workers' Party, felt constrained to ask: Why dither over imposing a windfall tax on hank profits? If that's not done now, while the coffers are overflowing, it's not worth doing at all.

Mr. Tristan Garel-Jones (Watford)

Does the right hon. Gentleman agree that my right hon. and learned Friend said that he could see no reason in principle for not imposing such a tax on these windfalls and that he intended to consider the matter further?

Mr. Stewart

I agree that the Chancellor said that. However, I do not imagine that that will prevent bankers from sleeping at night. I can tell the hon Gentleman that that tax will never be imposed if it is not done this year. Even the Daily Mail recognises that.

I make the following suggestions to the Chancellor—

Mr. Stallard

The Chancellor should resign.

Mr. Stewart

I had not included that suggestion. The Government are not open to good advice of that kind. The Government should use oil revenues to get Scottish industry going again through the Scottish Development Agency. They should increase child benefit and ensure that it is index-linked. If we consider ourselves a civilised society, we owe that to the poor. The Government should reintroduce the regional employment premium. When it was abolished by the previous Labour Government 20,000 jobs were lost.

A system of relief on petrol tax should be introduced in areas that are completely dependent on motor transport. A feeling is growing throughout the House that as a temporary measure we must introduce an import levy on semi-manufactured and finished products in order to make our industry competitive.

This Budget has been a double tragedy for the people of Scotland.

Mr. Grieve

rose—

Mr. Stewart

No, I cannot give way. I am about to finish. The Scottish people did not vote for this Government. If they had voted for Scottish control of Scottish resources, a Budget on those lines would have reflected the proper situation.

6.1 pm

Mr. Ralph Howell (Norfolk, North)

I approve of much that is in the Budget and I give it my full support. I am particularly glad that we are making further cuts in public expenditure, because it is important that we should. I am also glad that we are abolishing earnings-related benefit. The principle of one safety net is correct. The State should see to it that there is a safety net and that the provision of benefit should be uniform. I am naturally pleased that at last, after I have been campaigning for almost 10 years, we are to tax short-term benefits. However, I fail to understand why it will take two years to introduce that measure. All the same, we must be grateful that something is to be done.

I am pleased that we are tackling the problem of paying State benefits to strikers. I think that both the Opposition —who are criticising the measure—and the Government have got it wrong. I believe that the country wishes the Government to introduce such a measure but to tackle the problem more thoroughly. I do not think that the "deeming" idea will work. The country would have been disappointed to find that had the measure been in operation during the steel strike —during which £8 has already been paid out in strike pay—about £5½ million would still have been paid out. If that situation obtains in future, the country will feel that we have not acted sensibly and that benefits to strikers should have been withheld completely. It is the duty of trade unions to support strikes. The Government cannot get away with the idea that they can adopt a neutral position if at the same time they are handing out benefits to strikers.

Although we are going along the right road in many respects, we are going along it too slowly. There is danger in being slow, because many aspects of our way of life have been wrong for a long time, and the sooner we put them right the better.

I am not sure whether the eventual intention is to tax supplementary benefit and, if so, whether it will take two years to put the measure into effect. In the past the Treasury has said that it would require an army of civil servants to implement such a provision. The Treasury seems to have abandoned that idea now and to be saying that the work could be done without a great increase in staff. I believe that if the Treasury were pressed hard such a measure could be brought into operation within 12 months.

My main disappointment, however, is that we have not tackled the "Why work?" problem. Many Ministers have paid lip service to solving this problem, but by leaving income tax at the highest initial starting rate in the world–30 per cent.—we are prolonging the problem. The problem is also exacerbated because we are still taxing those who earn only 40 per cent. of the national average wage. That cannot make sense. We must get it into our heads that the only way to solve the "Why work?" problem is dramatically to raise income tax thresholds and simultaneously to reduce the initial rate.

What possible sense can there be in taking about £7,000 million in income tax from people who are earning less than the national average wage while giving back to them between £5,000 million and £6,000 million in housing subsidies, family income supplement and the like? That does not make any sense. We should recognise that we need a complete reorganisation of the system if we are ever to get on top of the problem.

What we have done about child benefit aggravates the "Why work?" problem. I have never been in favour of increased child benefit, but I have asked for a uniform child benefit. I had hoped that the Government would move in that direction, but the Budget proposes an increase of 75p per child and an increase of between £1.55 and £3.20 to the families of men who are not working. That will lock into the system a great number of people who will be unable to afford to work. Many people who are claiming supplementary benefit cannot afford to work, because of the system. It is important that we recognise that and find a solution to the problem.

I enjoyed the recent broadcast by my right hon. and learned Friend the Chancellor. He used a diagram that indicated that the French economy was forging ahead, with the economy of West Germany following closely and our economy and production sagging badly. However, the fact that the Treasury is looking beyond our shores for the answer to our difficulties is a breakthrough.

I urge the Government to take time off from the replay of the Napoleonic wars to study the French tax system and the German employment and welfare system. If we took the best elements of the French and German systems and applied them to this country and restored the will to work our economy would improve dramatically. The people of this country would then enjoy as high a standard of living as that of our neighbours on the Continent.

6.9 pm

Mr. Laurie Pavitt (Brent, South)

This is a shabby Budget because it divides the nation at a time when we need a unifying process. I believe it is the most divisive Budget since the war and that the most mean and despicable item in it is the increase in prescription charges, which divides the sick from the healthy. I hope that the hon. Member for Norfolk, North (Mr. Howell) will forgive me if I concentrate all my remarks on one terrible item—the increase in prescription charges.

One of the problems in the National Health Service is the cost of transplants. I should be pleased if the Secretary of State financed one transplant. He could remove from the Treasury Ministers the cash box and replace it with a human and compassionate heart. The prescription charge is despicable, because it reveals a lack of understanding of people in pain. The Treasury has as its first, second and third priorities the balancing of the balance sheet. The welfare of the physically and mentally ill and of the handicapped is low on the list of priorities.

The sick have no choice. They do not want to be ill. They do not want to take medicines. The £1 charge is an insult to members of the British Medical Association. It is justified only on a market place commercialism—on the basis that demand is likely to diminish because incompetent GPs prescribe unnecessarily. I do not believe that GPs prescribe unnecessarily. The majority of our GPs and doctors prescribe only when they see the need. I am equally angry about some of the other charges, particularly the dental charge. That will put back the prevention of oral diseases, which are now preventable, by at least 10 years.

I shall concentrate on prescription charges. It is no excuse that 65 per cent. of children and the elderly are exempt. The Government are imposing a tax upon 110 million scripts for the middle-aged who need care and attention. The prescription charge is a tax that only the sick pay. The healthy are exempt. The more sick the person, the more he must pay. If one is healthy one pays nothing. The person who has a chronic illness is being asked to get the country out of its present mess. No civilised society can justify that. I wish that I had the Shakespearean eloquence of a Portia to summon the quality of mercy on the Treasury Bench.

All doctors fact the dilemma of prescribing not only for treatment but for the alleviation of pain. Most doctors have the option of telling their middle-aged patients that their pain can be alleviated or that they must grin and bear it. If a poor patient requires three or four different medicines for which the charge is £3 or £4 each, the doctor might advise that patient to grin and bear it.

A woman at the time of menopause is vulnerable. She is in pain but will not die from her condition. She cannot be taken to hospital for an operation, because of the waiting lists for such treatment. Such a woman must suffer, even though she may still be looking after children. The doctor must decide whether to help to alleviate her pain.

I am not talking of the poor alone. One of my most formidable opponents in the House, with whom I crossed swords many times, was kin Macleod. He was a great House of Commons man and when he sat on the Government Bench those with health knowledge knew that he was doubled up with pain from arthritis. That man had more money than I am ever likely to see. However, I believed that if only there were something that I could do to alleviate that gallant gentleman's pain I would willingly have been prepared to increase my tax payments. That is what I mean by a compassionate society.

The increase in the season ticket charge is unforgivable and mean. The chronic sick, who need medicine year in and year out, are being asked to pay more in order to bring in less than £500,000 a year. Let the Chancellor of the Exchequer take pride in the money that he is to take from people with Parkinson's disease, arthritis, chronic bronchitis, asthma, hypertension and diabetes. Such people are being asked to pay more each year for their medicine.

Let the Chancellor and his colleagues put themselves in the place of the unfortunate person who has cancer of the rectum or bowel. Such a person has his rectum removed and after a colostomy must be given medicine and equipment on prescription for the rest of his life. He must pay for the privilege of carrying with him a bag of excrement day in and day out. Does the Chancellor really believe that such a person should rescue the country from its economic problems? I have a list of 46 chronic diseases. Those who suffer from them are being asked to rescue the Health Service. This increase will raise less than 1 per cent. of NHS resources. These charges distort the provision of care.

Pharmacists will be faced with problems. A patient may ask the pharmacist which of three medicines is most necessary. Such an occurrence will destroy the doctor-pharmacist-patient relationship. In the GP's surgery, the small number of hypochondriac patients will feel that they are paying for the privilege of wasting a doctor's time for which payment for medicines entitles them. The increased prescription charge is a hypochondriac's charter.

Mr. Ennals

I apologise for breaking into my hon. Friend's moving speech. Some poor patients will decide not to pay for a prescription because they cannot afford it, and that will cost the National Health Service more, since they will not have taken the treatment prescribed for them.

Mr. Pavitt

That is inevitable. I have a love-hate relationship with the drug industry because it saves many hospital beds by providing medicines in time. My only quarrel is that the industry charges too much. Anything that involves care in a hospital whips up the cost to the taxpayer. Problems will be caused in the rural areas where some doctors dispense for their patients. The doctor's relationship with the patient will be destroyed when the patient has to hand over £1, and it will belittle the qualified practitioner.

My right hon. Friend the Member for Norwich, North (Mr. Ennals) mentioned the battles that the Secretary of State has had behind closed doors. However, the Secretary of State always has a choice when such matters are discussed in the Cabinet. He could give the Chancellor his pound of flesh either from the patients or from the drug companies. If he wanted to do something about pharmaceuticals, he could have chosen to go for the drug companies rather than for the patients. If he wanted to be tough, he could have saved £100 million on his drug bill, running now at £740 million. I can tell him of several National Health Service big spenders. The Health Service pays £5.40 per 100 ampicillin tablets, £3.75 for 100 brocades, £17.45 for 100 flucloxacillin tablets and £9.30 for 100 talampicillin tablets. Each of those drugs does the same job.

The classic example of "me too" drugs is the section known as B Blockers. The Minister of Health provided me with six foolscap pages listing drugs that have the same purpose. A total of 77 drugs were listed. Their prices range from the foothills to Mount Everest.

Only one Tory Government stood up to the drug companies' excessive profiteering. Strangely enough, it was the present Chancellor of the Exchequer. That was when Roche was found to have made £11 million excessive profits between January 1970 and April 1973. After the case had been to the House of Lords, the company eventually paid back £3.75 million. Since then Roche has more than recovered its repayment sum by the massive increase in cost to the National Health Service of two products—librium and valium.

In January 1977 100 tablets of librium cost the Health Service 75p. Two years later they cost £1.35. I have a list here that occupies two foolscap pages and shows fantastic price rises, which the tax-paper pays through the Health Service. That is not 12 per cent. or 16 per cent. inflation. Valium has risen from 82p to 101p.

The Shenley mental hospital in my area is one of the finest in the country. In one year its drug bill rose from £65,000 to £75,000. If the Secretary of State wants to save taxpayers' money, why does he not consider doing so on drugs? Beecham, who provide ampicillin, last year made a profit before tax of £144 million, compared with £62 million five years ago. Another major supplier, Glaxo, made a profit of £65 million in 1979 compared with £41 million in 1975. How much does the Conservative Central Office receive from paraplegics and epileptics? Not very much. It received £20,000 from Beecham last year. How much does it receive from other disabled people and from diabetics? Nothing. But it received £25,000 from Glaxo last year. It does not make sense to impose a £1 prescription charge on the sick while at the same time taking no action to curtail excess profits.

The pharmaceutical industry has a profitability rate next to the top in the league table of industries. It made 28.1 per cent. last year as a return on its capital employed. At the same time, engineering achieved 18.9 per cent., motors and components 18.5 per cent. and food retailing 16.8 per cent. The only industry with a better profitability rate was the electrical industry, at 30.8 per cent.

My right hon. Friend the Member for Cardiff, West (Mr. Thomas) was kind enough to send me a note about a speech that I made 12 years ago on this subject. The largest vote against the Labour Government was when they had the temerity to open the door on increased prescription charges—and I divided the House. I received another note—one that I treasure—from Lord Boyle. He congratulated me on the stand that I took and said that in the light of the decisions being taken he could do nothing but support me.

I seem destined to battle on this issue time and time again, irrespective of the colour of the Government. On 1 May 1952, at column 1776, Hansard records the pledge of Prime Minister Attlee to bring all health charges to an end. That has never happened. As charges escalate over the next four years, it will become extremely difficult ever to unravel them again.

The Treasury blackmails the National Health Service. It says to the Secretary of State "You have to have an amputation, but you can choose which limb—either a leg, an arm or a wrist." The Tory Government divide the nation and set class against class. These charges divide the healthy from the sick. I hope that the nation will reject this injustice. Anybody with any civilised emotion will know that the most deserving section of our community will be hit hardest by the swingeing increase from 20p—when the Government came to power—to the £1 proposed in the Budget. Surely we can care for the sick in our community.

6.25 pm

Mr. Paul Dean (Somerset, North)

I am glad to follow the speech of the hon. Member for Brent, South (Mr. Pavitt). There are many occasions on which he and find ourselves in agreement, but I part company with him on many of his remarks today.

The social security package brings us face to face with two stark realities—first, the very big increase in expenditure over the years, especially on social security cash benefits, and, secondly, the fact that expenditure has outpaced the growth in the national wealth, a point referred to by my right hon. Friend the Secretary of State.

In those circumstances, it is totally unreasonable to expect that the largest single item in central Government expenditure, namely, social security, and the third largest item, namely, health, should remain unscathed. The right hon. Member for Salford, West (Mr. Orme) seemed completely to ignore those harsh realities.

In the light of the need for economies, the social security package is a well-balanced one. I welcome the fact that expenditure in the National Health Service will continue to rise by about 2 per cent. a year. I am sure that that is necessary, and the public expenditure White Paper sets that target.

I do not object to the increase in prescription charges. Against our economic background and the great need for resources in the NHS, it is a reasonable action to take. I hope that my right hon. Friend will keep a careful watch on the arrangements for season tickets for those who require regular prescriptions. That arrangement becomes important now that the charge is to rise to £1.

I welcome the real increase in expenditure on the social security budget. If there must be priorities, I am sure that it is right to place the priority on the long-term benefits for pensioners and widows —the most vulnerable groups—and on supplementary benefits. We must look to the short-term benefits for economies. Broadly speaking, it is a sensible package, although I have one or two doubts.

I shall refer briefly to six small but significant items in the Budget. They are imaginative features. I welcome the fuel allowance because the rapidly rising cost of fuel is one of the major worries faced by the elderly. I welcome the substantial increase in the allowance for one-parent families, and also the additional mobility allowance. Those increases will substantially assist two hard-pressed groups.

I am delighted to note the widows' bereavement allowance. Women face considerable financial and emotional problems in early widowhood.

I am pleased to note the improvements in the retired immunity for the self-employed, and especially that the ceiling is to be abolished. Because of the nature of self-employment, it is often not possible for the self-employed to save for their old age until they are well on in life. Their resources are ploughed back into their businesses.

Finally, I welcome the improvement for charities. During a debate on the Finance Bill last year, I pointed out that one of the disadvantages of tax reduction was that income from covenants could reduce because of the arrangements for refunds. Not only have charities lost £3 million through tax reductions, but they are also feeling squeezed because of the reduction in grants from many local authorities. That improvement, therefore, is another welcome aspect in my right hon. and learned Friend's Budget. Those six points constitute a good example of humanity and realism.

However, I have two anxieties to express. The first concerns child benefit. I am disappointed at the size of the increase. A little more would have made so much difference. The leading article in The Times on 28 March puts that basic theme eloquently. I do not propose to quote it because I do not want to detain the House for too long. However, I hope that the Government will be able to say, if not in this debate, at any rate before too long, that they are firmly committed within a reasonably short time to restoring the value of child benefit and maintaining its level thereafter.

If we continue as we are at present, there are dangers that the balance between the dependency allowances in the national insurance scheme and child benefit will be lost, and equally that the relationship between child benefit and other personal income tax allowances will go out of balance too. I hope, therefore, that the Government have as a firm objective an improvement of child benefit and that they will achieve that as soon as the economy will allow.

My second anxiety concerns the relationship under the new package that my right hon. Friend the Secretary of State for Social Services has announced between long-term and short-term benefits. Clearly, the borderline under the new arrangements will be of considerable significance. I hope that my right hon. Friend will look in particular at the needs of those who have been sick or unemployed for a long time. I am not sure, for example, whether under the new proposals it is any longer appropriate for unemployment benefit to cease after 12 months. Equally, I am not entirely convinced that it is necessarily appropriate under the new arrangements for invalidity benefit to begin after six months.

I suggest that considerable scrutiny is needed in the relationships between benefits which will be price-protected and those that will not be, between the short-term and long-term benefits. One of the disadvantages of the package—this was referred to by the right hon. Member for Salford, West—is that almost certainly a growing number of people will be dependent upon supplementary benefit. I am anxious that we do not get into the position where a growing number of people in the community who have worked and saved hard and have some resources discover that the cutback in short-term benefits or the taxing of benefits forces them on to supplementary benefit. We must take care to avoid the position where those who have tried and worked hard, and who have saved, are put at comparative disadvantage in relation to those who are on supplementary benefit.

I hope that in this new package my right hon. Friend the Secretary of State will look at these areas to ensure that we do not create hardship among those sections of the community that we wish to encourage and protect.

With those two reservations, I welcome my right hon. and learned Friend's Budget as realistic, sensible and in the best traditions of a Government who believe in restoring the economy but who also believe in care and compassion for those who most need our help.

6.34 pm

Mr. David Penhaligon (Truro)

The criticism that I and my colleagues make of the Budget is not that contained in some of the points that have already been made, valid and fair though they are. It is that we genuinely believe that the strategy that the Chancellor has outlined will not work. If, as the right hon. and learned Gentleman claims, the package were to cure inflation, it might be worth taking a deep breath, swallowing what he has presented and putting up with it for a period. But our judgment is that it will not work. We do not believe that an economic policy based purely and simply on the control of the money supply, with the Government adamantly refusing to have anything to do with pay settlements, can lead other than to an unmitigated disaster.

In the short term it can produce only two results. The first is a substantial adjustment in the number of unemployed, which means a vast increase. Secondly, we have already seen the astronomic adjustment in interest rates. We are genuinely concerned at just where the country is going in economic terms. At best it appears to us that we could end up with little inflation but virtually no industry. Our total survival is based upon industry. The only natural resources that we can sell abroad in any quantity are the short-term benefit of North Sea oil and the massive quantities of china clay from my constituency.

Mr. Dennis Canavan (West Stirlingshire)

What about gas and coal?

Mr. Penhaligon

I include gas with North Sea oil, and we sell very little, if any, coal abroad. Therefore, we rely for our survival upon our industrial competence. I fear that with exchange and interest rates at their present levels we are working ourselves towards oblivion.

One point has not been mentioned in the Budget debate, and I give the highest priority to it. A major discussion should be taking place about how we transfer the great short-term wealth of North Sea oil into improving and increasing our industrial competence. That must surely be our aim so that in 25 or 30 years' time, when the oil has gone, we are left with something that we do not have now. Surely, the only thing in which we can logically invest is a tremendous improvement of our industrial sector. The policies pursued today seem to us to be doing the opposite.

It would not be that difficult to raise extra revenue in the Budget. The moneylenders could have produced more. The argument for a windfall tax on bank profits seems overwhelming. I believe that those profits are even greater than the banks' accounts suggests—that is, if the constant redecoration, removal, replacement and reconstruction of my local bank is anything to go by. That sort of activity is going on throughout the country. The banks have been spending a massive slice of their profits in a tremendous attempt to get rid of them before having to declare them. I wish that the banks would offer their customers a better service as a means of getting rid of some of their profits. However, if they cannot do that, and they seem determined not to, it seems that the Chancellor could look to them for much more help in running the economy.

I do not exempt the building societies from this criticism of the moneylenders. The Leicester Building Society has decided to come to my constituency. I cannot see what Cornwall has to do with Leicester. There are already the offices of some 28 building societies in my tiny city of Truro. The Leicester Building Society is paying about £200,000 for a small kiosk in the centre of the town in order to trade and attract custom. The building societies are open to criticism for the amount that they spend on prestigious premises for gathering in money. They, too, could give their customers a better deal, and if they do not we could look to them for extra money.

Drink and tobacco have been mentioned. I declare an interest. I smoke a lot. I have been described in Cornwall as the only member of the Church of England in the county who is teetotal. One elderly gentleman once told me that he could not see the point of my being a member of the Church of England, since I was a teetotaller. That says a lot about the county of Cornwall.

The inclusion of alcohol and tobacco in the cost of living index is ridiculous, and both have come off lightly in the Budget. If we were to chart the items that have become less expensive in real terms since the early 1950s, we would find that alcohol is nearly top of the list. That is insanity for any long-term economic policy, and it has happened because Governments are constantly terrified of the cost of living index. Could not there be an across-the-Floor agreement to stop that sort of nonsense?

There is an 11 per cent. rate of unemployment in my constituency. Before I became a Member of Parliament I worked in industry, and I despair of the knowledge of Conservative Members of what it is like to be unemployed. I have never been unemployed, despite predictions at the last general election. I recollect the tin mines in my constituency being closed down and 700 men being made redundant. It was not their fault. They had a good record for doing a good day's work. It was the judgment of Consolidated Gold Fields, which owned the tin mine at that time, that it was not viable. That was contradicted by Rio Tinto-Zinc, which, fortunately, has reopened the mine.

I have always been prepared to justify a substantial expenditure by the State to make the adjustment from employment to unemployment as reasonable as possible. It must be despairing for a man to realise at the age of 50—having spent his entire life working in an enterprise—that he faces a period of major readjustment and that the skills in which he has taken great pride are no longer required. I am, of course, talking about ending the miserable 26-weeks' earnings-related supplement. I find that incredible, and I find it difficult to believe that there is a majority for the suggestion. I look to Conservative Members, many of whom are more humanitarian than some Labour Members believe them to be, to vote against that measure.

The increase in child benefit from £4 to £4.75 is not sufficient. The House constantly pays lipservice to wanting to change the "Won't work"—or "Why work?" as I choose to call it—attitude. If that is to be dealt with sensibly we should increase child benefit in real terms, and I am disappointed that the Government have not even kept it in line with the rate of inflation.

Prescription charges are to be raised to £1. It is time that politicians were honest about prescription charges. They do not increase the charges because of the money that will be raised. They increase them—there has been evidence of it in the past—because they hope that there will be a substantial reduction in the demand for prescriptions. The policy of the Liberal Party is that there should be no prescription charges, but I suspect that if we came to power prescription charges would remain, but not at the rate of £1. That charge cannot be justified on any basis. I can do no better than echo the words of the hon. Member for Brent, South (Mr. Pavitt), who outlined the arguments against a prescription charge of £1.

A small point that has not been mentioned before but which will be mentioned by many employers of one or two people—small businesses are common in my area—is the scheme whereby the Government will make the employer responsible for the first eight weeks of sickness pay. I have not been able to confirm that the period is eight weeks; the Chancellor said that it would be several weeks. That can only be viewed as a fine on employers of one or two people. A company of the size of ICI will not suffer, but the genuine small employer will suffer the loss of a valuable employee—a third of his work force —he will have to pay the sickness benefit of that employee and he will also have to pay a short-term replacement. Yet the Government have the audacity to tell the House that they support the self-employed and the small business man. The irony will not be lost on small employers in my constituency.

The Government have increased income tax in real terms by the miserable reduction of £61 in personal allowances for a married couple.

If some attention had been paid to the moneylenders, the banks, and the duty on tobacco and alcohol, enough money could have been raised to do better.

I plead with the Government not to continue their policy of an ever-increasing tax on petrol. The argument for increasing indirect taxes each year is that we must keep them constant in real terms and that we must not let the cost of the article fall in real terms. I generally favour that argument. But no one can say that petrol has decreased in price during the last 12 months. The Government increased tax on petrol last year, there was a massive increase in oil prices from the oil-producing countries in the Middle East, and the Government are now increasing the tax on petrol yet again. If we wanted to design a tax as a penalty for rural areas, I cannot think of anything more clever and more efficient than to increase the tax on petrol.

If an ordinary working person in my constituency buys a gallon of petrol to drive his car to work, he pays £1.40. If a self-employed person in my constituency buys a gallon of petrol, he can claim back 21p VAT, and he can reclaim the remainder against the standard rate of tax. Therefore, the cost to him of a gallon of petrol is 84p. If a person works for ICI or the china clay group in my constituency, he can reclaim the 21p VAT and the company can charge the remainder against corporation tax, thereby receiving 61p in tax rebate. The cost of a gallon of petrol to an ordinary working person is £1.40, the cost to a self-employed person is 84p, and the cost to a person working for ICI or another large group is 58p a gallon.

If the Government are increasing the tax on petrol purely as a conservation measure, I humbly suggest that they look also to the broad issue of taxation on petrol and the marginal cost of buying a gallon of petrol. There can be no logic in two people buying a gallon of petrol and driving the same distance having to pay such incredibly different prices. That is what is happening at present, and as the years go on the position will become worse.

My party's main criticism of the Budget is not so much of the items in it, some of which are miserably mean, as I have already outlined. Our main objection is that we do not believe that the Government's overall declared strategy for overcoming inflation will work. It will not even begin to work until the Government face up to the main issue of having a pay policy.

6.50 pm

Mr. Chris Patten (Bath)

I should like to comment on and follow a little later in my remarks what the hon. Member for Truro (Mr. Penhaligon) said about child benefit. Having listened to some of the speeches in the debate since last Wednesday, it would seem, from hearing Opposition Members, that the Chancellor has in his Budget perpetrated the greatest atrocity since the slaughter of the innocents. However, for most of the time since last Wednesday afternoon there have been more adjectives than hon. Members on the Opposition Benches. It would seem that most of them have been content to express their outrage by proxy.

I do not want to appear at the outset to be too sycophantic, but I should like to give an unreserved welcome to four of the proposals in my right hon. and learned Friend's Budget and then to say one or two things that may be taken as being slightly less sycophantic.

I welcome in particular what my right hon. and learned Friend had to say about profit sharing, and I join my hon. Friend the Member for Somerset, North (Mr. Dean) in giving a particular and unreserved welcome to what my right hon. and learned Friend had to say about the tax treatment of widows, about help over fuel costs and about charitable giving. I should like to commend the part that I am sure my hon. and learned Friend the Member for Dover and Deal (Mr. Rees)—who has just come into the Chamber—played in that decision.

I wrote to the Chancellor before the Budget asking him to do two things. He did three. I am reminded of the words "Ask and it shall be given you". I hope that that is a precedent for any future dealings that I have with the Treasury.

The overall thrust and approach of the Budget is towards the objectives set out in the manifesto on which we were elected, namely, to halt and reverse the decline in the British economy by reducing inflation, by shifting resources from the consumption of wealth to its creation, and by establishing a fairer balance between the trade unions and the rest of society.

I do not happen to be a great fan of the mandate theory of politics. Looking back over the last few years, it would appear that almost as many mistakes have been made as a result of following manifesto commitments as have been made by breaking them. Nevertheless, I wholly endorse the objectives that we set out in our manifesto, while having one or two anxieties about tactics and methods. I am not sure exactly what is the moisture content of those reservations, but I am somewhat reassured by the fact that most of them have been expressed, even fairly recently, by some people who would not he considered merely as dry but as positively bone dry.

In the run-up to the Budget, week by week the forecast for the public sector borrowing requirement fell steadily. There was a point at which I thought that if the Chancellor would put off the Budget until June he would be running a surplus. He was not quite able to do that, but he announced in his Budget that the PSBR, as a proportion of gross domestic product, would be falling.

I have in the past expressed some doubts about the emphasis that we place on the PSBR as the hallmark of virtue. There are obviously doubts about the intimacy of the relationship between a given level of the PSBR and interest rates on the one hand and the control of money supply on the other. My right hon. and learned Friend the Chancellor seemed to be toying with this argument, and my spirits soared during his Budget Statement, when he said: Some increase in the ratio of PSBR to the national income may be consistent with the maintenance of a given monetary target and without itself requiring increases in interest rates."—[Official Report, 26 March 1980; Vol. 981, cc. 1446–7.] Quite so. I imagine that that was the reasoning that led the Financial Secretary to the Treasury, in a speech in January, reported in The Financial Times and, I think, elsewhere, to argue that after taking together cyclical influences and the medium-term objective it might be sensible to favour what he called a stepped profile, in which the proportion of the GDP taken in borrowing remained broadly unchanged in recession years but fell sharply in other years.

There is one of my reservations, expressed by somebody who is very dry. That was the voice—I imagine the authentic voice—of the London Business School and of the Chancellor's new economic adviser, but, having appointed Professor Burns, it appears that the Government have listened to Professor Minford. We understand from The Observer that the main reason for the switch from January to March was that the Government now believe that the corollary of the argument in 1973—that as an oil importer we could afford to run a higher public sector deficit in order to offset the deflationary impact of higher oil costs, is—to quote from what was clearly a very influential economic paper produced early this month by Morgan Grenfell, that as an oil producer, the UK should run a smaller deficit and even a public sector surplus in order to preserve the industrial structure of the economy and encourage the growth of the non-oil sector. As I understand the argument, it is that industry would be helped by a very much lower PSBR, and the lower interest rates consequential on it, by giving firms an opening in the capital markets and by making them more competitive and profitable through a capital account deficit and a lower exchange rate.

I hope that Ministers are right about that, because one could presumably accomplish the switch from a current account to a capital account deficit either by devaluation or by a long recession. If it were the latter—and given what is still likely to happen in the future to world oil costs and so on it might well be—we could finish up with a very large quantity of foreign assets but with very little industry to speak of here at home.

I hope that my right hon. Friends will be reasonably flexible about this strategy. I hope that they will consider helping industry through tax cuts, even at the expense of slightly increasing the PSBR. I hope, in particular, that they will consider a cut in the employer's national insurance surcharge, which stands for us as a reminder of how much the right hon. Member for Leeds, East (Mr. Healey) did to help industry—German industry, French industry, Japanese industry but not, alas, British industry. He was boasting last week about how quickly he had been able to impose the national insurance surcharge. I hope that, if necessary, my right hon. and learned Friend will be able to act as quickly to cut it. That would seem to me to be one very good way of using any Brussels rebate that we get in the next few months.

Some people have argued that the Chancellor should not do that, because we can keep pay settlements down only by keeping the company sector weak. A previous Chancellor had a word or two to say about that: They say that we should depress demand to a point at which employers cannot afford to pay and workers are in no position to ask for higher wages. If this be the only way in which to contain the wages/prices spiral, it is indeed a sorry reflection upon our modern society."—[Official Report, 9 April 1957; Vol. 568, c. 969–70.] That was in Lord Thorneycroft's Budget Statement. We have been searching for the Holy Grail—or, as some people would have it, hunting the Snark—ever since.

I thought that in many ways the least satisfying part of the Chief Secretary's speech last week—it was otherwise an excellent and customarily intelligent and charming speech—was what he had to say about pay. Perhaps I may say, as he is now present on the Treasury Bench, that his reassurance about the CBI data bank figures, showing that 52 per cent. of pay deals since last August had been under 15 per cent., was a trifle "underwhelming". If my arithmetic is right, it means that 48 per cent. of those settlements have been over 15 per cent.

The problem is that with a pretty tight cash position for companies we still have a pay round that is running at about 20 per cent., and it would be extremely worrying if, with an even tighter pay position for companies next year, we were to have—as some people are suggesting may happen—a pay round running at any thing like that figure.

That is why I was encouraged by what my right hon. and learned Friend the Chancellor had to say about pay talks in the NEDC forum. In Opposition we talked quite a lot about moving towards the sort of concerted action procedures that the Germans favour. I notice that last Thursday the Chief Secretary said that that was nothing to do with an incomes policy. I hope that that can be regarded as a useful step forward and that those of us who press for the Government to be a little more imaginative on this, whatever the difficulties, will not be accused of the ultimate sin of suggesting that they should intervene in something which it still somewhat erroneously described as "free collective bargaining".

I should like to express one final reservation, following the speeches of the hon. Member for Truro and my hon. Friend the Member for Somerset, North in regard to child benefit. I do not want to crawl over the details of the argument that has raged or pattered about for the last few weeks. As he has just entered the Chamber, I might add that the admirable speech of my right hon. Friend the Secretary of State for Social Services on the subject a few years ago is now almost as famous as those which were made at Tilbury and Gettysburg. However, it bears repetition.

Without seeming to be too destructively critical, perhaps I can point out that whatever else is said about the benefit increase announced in the Budget, and whatever the justifications for the Government's decision—and they seem a little thin—the Chancellor's decision clearly fell a long way short of what we hoped to do when we were in Opposition, I think that that goes without saying.

In justifying what he did, my right hon. and learned Friend said that he had treated child benefit in exactly the same way as tax allowances in the future and annualised basis. I hope that we can take it from that—perhaps this can be confirmed later—that the Chancellor intends to treat child benefit in exactly the same way as tax allowances in the future, and to all intents and purposes to index them, which has been suggested by Mr. Sam Brittan, who, I suggest, is not widely regarded as "wet". Unless the Government are prepared to take that sort of decision, and unless they are prepared to rescue child benefit from the list of also-rans, it will become increasingly difficult to see what stands at the centre of their social policy.

I am totally committed to the Government's objectives. More than that, I believe that the great majority of people, even some of those who do not care for us, want to see our strategy work. After all, what is the alternative? However, as my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) said on Thursday, to make it work we need as much understanding and support as possible from the public. Last week, the Chief Secretary mentioned Philip Snowden. In Robert Skidelsky's book on the slump, I think he said that Snowden was never able to reconcile the laws of sound public finance with the rhetoric of Socialism. I think that that is still the problem that the Labour Party faces today.

Our challenge in the Conservative Party is to reconcile economic realism with consent. It will be easier to do that, and to ensure that our policies not only work but last, if we pay proper attention to the problems of the family and of industry as we lead Britain through the difficult months of austerity that lie ahead.

7.3 pm

Mr. Andrew F. Bennett (Stockport, North)

I welcome the remarks of the hon. Member for Bath (Mr. Pattern), particularly about child benefit. It seems rather unfortunate that, although there have been many words on child benefit from Conservative Members, they did not produce any real action in the Budget, and it does not look as if they will produce any real action at all in the Finance Bill. I think that it is time that one or two Conservative Members starting voting according to the way in which they have argued in the Chamber.

In my criticism of the Budget, I start with two fairly small points. The first relates to the date of the uprating. In my constituency, and I am pretty certain that the same applies throughout the country, most pensioners bitterly resent the fact that they must wait for six months after the announcement to get their money. This year, they will particularly resent the fact that the uprating has been put back from 10 November to 24 November. So far, there has been no Government explanation of why they are doing that. We can only assume that it is just another public expenditure saving and that in putting back the date of the up-rating they have saved about £35 million. But to most pensioners it means that half their Christmas bonus has been saved this year by putting back the date of the uprating for 12 days or so. Certainly, a large number of my constituents will judge the Budget in those terms and will think that it is a pretty mean deal.

Secondly, there is the choice of 16½ per cent. for the uprating. At present, estimates of what the inflation rate will turn out to be are mere speculation. Therefore, in order to judge the Government's intentions in the Budget, we must ask what will happen if inflation turns out to be higher. Will they make it up to the pensioners, or will the pensioners lose out? Certainly, a lot of pensioners in my constituency believe that the inflation rate this year will be more than 16½ per cent. They want to know what will happen if the Government have got their figures wrong and have picked a figure which is too low. Again, we have had no commitment from the Government that they will make up any deficit. As with last year's estimate, which proved to be wrong, one can only assume that the Government will pocket the difference and will not make it up to the pensioners.

According to the opinion polls published in the Sunday newspapers, the Budget is supposed to have been popular. That is completely different from my experience when talking to my constituents. Very few have had a good word for the Budget. However, in compiling the opinion polls I suspect that a lot of people thought that the Budget would be worse, and when it turned out not to be as bad as they were expecting they decided that it was not too bad. I also suspect that a lot of the Budget's worst aspects are contained in the small print of the White Paper, and it will take a long time for people to realise just what is happening.

I do not really believe that the test of the Budget is whether it is popular or unpopular with the majority of the electorate. The real test is more serious. What does it do for the small minority? Does it remove all their hopes? That is the real problem with the Budget.

We live in a democracy which depends on two major elements—first, gaining approval from the majority of people to govern, and, secondly, getting the consent of the minority. To get that consent, one must convince that minority that there is a real chance of their getting some change and that there is a real hope for their future as well as for the future of the majority. I believe that the Budget takes away the hope from a large number of people who are already in poverty. In so far as it destroys their hopes and aspirations, the Government ought to start to worry. It is when people lose hope and their belief that through the democratic society they can improve their lot that they start to turn to anti-social means, such as breaking the law and inflicting injuries on others. The Government ought to be thinking pretty carefully about the effect which their policies are having on the long-term unemployed and sick as well as on the working poor.

Those groups have received from the Budget another kick in the teeth. Has the Chancellor checked with them to discover whether they meekly prefer to put up with being put upon again and again? If he has not, he may well find that some of them will start to hit back, not in the democratic way in which we would like them to hit back but in other ways. Having failed to early those people with the Budget, he may find that he is producing far more problems for the country than he is hoping to solve with his economic strategy.

I met quite a few people at my advice bureau on Saturday morning, and I was surprise at the number who increasingly felt that they had little hope. One example concerns a man with three children who lives in a council house in Stockport. He does not like the house. He believes that it is badly maintained by the local authority, and I think that he is right. He feels that the surrounding environment is pretty run down. He believes that his heating system is costly and ineffective. More than anythilng else, he would like to move to a more attractive council estate. He has little chance of doing so within the present housing policy in Stockport. The next approach is to ask "What is the alternative? If you are not likely to get a move, what chance do you have of trying to buy a house of your own?" On his income of £60 a week, he has little chance of obtaining a mortgage. He is pretty well trapped in his present accommodation.

Of course, he receives some benefits from the State. However, his income is slightly above FIS rates. In future he may come just within FIS rates, but if he receives a small increase in his income, if he works a little overtime or if his wife goes to work, he will lose his FIS and other related benefits.

As I have said, he is pretty well trapped in what he considers to be inadequate accommodation. There is little prospect of his improving his lot for a long time to come. He feels increasingly bitter. He reads of the Budget and he asks "What about housing? How much money is available for a major overhaul of my council house so that it may be improved and brought up to the standard in which I should like to live? How much money is available for the local authority to improve the environment in which I live?

The answer to all these questions is that there is no money available. The Budget means that the prospects of the man to whom I have referred become worse and worse. He has seen school meal charges increase as well as fuel bills. In neither of those areas is there any help for him in the Budget. He feels trapped. He is a hard-working man with simple aspirations for his family, yet he sees them all being denied in the Budget.

My hon. Friend the Member for Brent, South (Mr. Pavitt) spoke about prescription charges. On two occasions since Christmas I have been into a chemist's shop for prescriptions. I am not suggesting that this happens every time one visits the chemist, but I have seen people waiting to hand the chemist their prescriptions who have asked which of the two prescriptions they should have because they did not want to pay for both. It seems wrong that chemists should have to make decisions of that sort.

The Government say that they are exempting various groups. That does not ease the burden that is put on a family's income. If a child is sick, it will be exempted from charges, but that system does not help the mother or father who is sick. That will involve family income and family hardship. Many of my constituents do not have a spare pound in their pockets on certain days of the week. That is because their budgeting is tight. When the mother or father is sick, they do not go to the doctor. If they do go, they want treatment that does not involve paying out £1.

Many people tend to continue to go to work when they are sick. They spread germs to others. They try hard not to have time off work. They try hard not to get prescriptions. The social cost may be far greater if 'flu spreads around the works and there is a consequent loss of productivity. It is one of the charges that cannot be justified. Although the charge is to be £1, there will still be a great deal of administration involved—for example, checking the exemptions.

The Government argue that the £12 season ticket is available to those who need a great many prescriptions. However, some people find that £12 takes quite a bit of saving. The Government could say "Keep a part of your prescription forms and when you have 12 you may have the rest for the year free." Unfortunately, the Government are saying that they want the money in advance. They are making it difficult and discouraging those who are most in need on low incomes from availing themselves of season tickets.

The Government propose to remove the earnings-related supplement. Conservatives are saying that there should be confiscation of all sorts of insurance benefit for which people have contributed. Surely, most Conservative Members do not believe in that approach.

I move on to consider the plight of the longer-term unemployed. It is interesting that none of the Department of Health and Social Security Ministers is in the Chamber.

Mr. Canavan

Where are they?

Mr. Bennett

In Committee we heard great words from the Under-Secretary of State for Health and Social Security, the hon. Member for Wallasey (Mrs. Chalker), and the Minister for Social Security, the right hon. Member for Daventry (Mr. Prentice). They told us of their concern for the long-term unemployed. They told us that they believed that there was poverty among those who had been in receipt of unemployment benefit for 18 months to two years.

I know that my constituents who have been out of work for a long time but who do not receive long-term rates of benefit are in the most difficulty. Some of them have every intention of getting a job. They go after jobs week after week and they do not get them. Employers take the attitude that if there are two persons applying for one job it is best to choose the person who has had the shortest period of unemployment. These people get a double kick in the teeth. The Government now propose to cut back the benefit that they receive. There is no provision in the Budget that will give them the prospect of a job.

Mention was made in the Budget of enterprise zones. It would have been far better if the Government had said to employers "If you take on those who hake been unemployed for more than 18 months, we shall make some contribution to their wages for the first few weeks." That would have provided a positive incentive to employers to take on those who had been out of work for a long time. Everybody agrees that those who live year in and year out without work suffer serious social disadvantages.

There are many other provisions in the Budget that will make people think twice about keeping the laws of the land. I suggest that the Government's proposals for strikers is a clear illustration. It seems that few of those on the Government Benches have spoken to strikers or considered their situation.

It is my experience that if a dispute lasts a long time there is formed a group who might well be described as the wild boys. Very often these people have engaged in little or no political activity. They have often participated to only a small extent in the affairs of their union. However, some of them get wild ideas. They become extremely bitter. They talk about sabotaging the factory. They are quite happy to become involved in violence. It takes a great deal of hard work by those with cooler heads—very often full-time trade union officials—to persuade them that they must organise the strike in a peaceful way and that they have to be sure that when they return to work the factory is there and they can work in it.

There are many who are already pressed hard by financial pressures. The theory is that strikers have made provision for strikes. My experience is that many of them do not intend to get into strikes. Many of them are faced with difficulties before the strike takes place. They may be in financial difficulties long before the strike. They may have matrimonial problems or other family problems. Many of these people are of the sort who do not look from one day to the next. It is difficult to restrain some of those I call the wild boys within industrial disputes. If the Government produce measures of the sort that are set out in the Budget, we encourage the wild boys to take the law into their own hands. If the Government find that over the next few years industrial disputes become increasingly bitter, that will be of their making.

It seems from some of the speeches that we have heard from Conservative Members that Conservatives are encouraging workers to submit more wage demands. What is the logic of the Tories' position? They argue that provision should be made by trade unions to ensure that they can afford a strike. That means that it becomes necessary to pay higher union dues. The logical means of obtaining the money to pay those dues is to pursue a claim for a higher wage increase next year. In that sense Tories are fuelling pressure for more money from employers.

We know that many industrial disputes end with an agreement with the employer that an additional sum will be paid as "clear-up" money. More often than not it is an agreement to make a great deal of overtime available. It is an arrangement that will permit the strikers to catch up with much of the money that they have lost during the industrial dispute. Sometimes it means that the employer may catch up with lost production, but often it does not.

The £12 will become an element in "clear-up" money. The strong unions, the ones that are likely to win disputes, will ask for the £12 element to be included in the "clear-up". There will be no penalty for those in the strong unions. The penalty will be paid by the groups that are less well organised and weaker.

From the Bill as drafted, it is clear that the Government intend to penalise not only people who strike but also those who are locked out. There are occasions when employers behave badly in industrial disputes. What penalties will the Government impose on bad employers, particularly those who unfairly lock out groups of workers? Alternatively, is the provision there because the Government realise that trade unionists may be much more selective in those they bring out on strike? They may try to penalise industries and plants by bringing a few people out on strike rather than large numbers.

The final problem that the Government should consider is disputes within families during industrial disputes. From press reports it is clear that the wife who has to cope with budgeting often puts pressure on her husband to return to work. The husband is keen to stay out in support of the dispute and realises what a defeat is. From my experience, families can be divided through an industrial dispute.

Under the Bill, if the husband leaves home, the wife does not lose the benefit that she receives. If the husband stays, she loses the £12. That is a direct encouragement to families to split up during industrial disputes. There will be confusion between a genuine split in a family and one that is merely contrived to get round the law. I suggest that the Government have sufficient problems in deciding between non-genuine and genuine cases in need of social security without creating a new problem.

Whatever the majority may have said in the opinion poll this weekend, the real test of the Budget will he how far it grind: down the minority this time round and how soon they will hit back, one hopes by democratic means. The Government should not be surprised if some of these people hit back in undemocratic ways.

7.21 pm

Mr. Charles Fletcher-Cooke (Darwen)

Yesterday, members of the viewing public were treated to an interview between the Leader of the Opposition and Mr. Brian Walden. Many hon. Members may have heard Mr. Walden ask the Leader of the Opposition how he would have financed his Budget. The staggering reply was that he would have increased the public sector borrowing requirement by £2,000 million. When I heard that, I thought that the old boy had gone mad. On reflection, I believe that he is intending to retire soon, because a more irresponsible suggestion would be hard to consider.

I do not want to get into theological debate with my hon. Friend the Member for Bath (Mr. Patten) about the exact effect and web of connection between the public sector borrowing requirement and inflation. That there is a strong connection no one will deny. How it works, those who carry around with them their little Red Books without which no go-ahead young budgeteer can hope to compete in these debates, will answer better than I. Even if there is no connection, to load a further £2 billion on the taxpayer at current interest rates is incredible, yet that was the suggestion of the Leader of the Opposition. The more widely that is known in the country, the better.

The question is whether the public sector borrowing requirement has not already been fixed rather too high. Contrary again to my hon. Friend the Member for Bath, whom no one could possibly accuse of being wet despite the name of his constituency, I question whether any Brussels dividend—I believe that it was my hon. Friend who made the suggestion—should go to the reduction of direct taxation. To my mind, it should go to a reduction in the PSBR.

Mr. Chris Patten

I suggested that it should go to cuts in the employer's national insurance surcharge and not to taxation on the individual.

Mr. Fletcher-Cooke

I did my hon. Friend an injustice. I believe that the latter is preferable to the former but that my suggested destination is better than either.

What is the effect of the Budget on unemployment? Everyone, including the Government, appears to assume that unemployment will rise. I am alone in this Chamber in believing that the overall effect of the Budget will not be so. I ask hon. Members to bear with me while I put forward this eccentric view.

I am more and more impressed, from visits to my constituency, which is industrial and which I know pretty well after 30 years, with the increasing unreality of unemployment figures. That they are numerically correct and that those numbers are drawing unemployment benefit I do not doubt, but whether they represent in totality those who are not working I very much doubt.

Since I am increasingly suspicious and doubtful about the present figures, it is not surprising that I do not follow the figures in the little Red Book that forecast these matters year and year ahead. The forecasts are now called medium-term rather than long-term, in the hope that that sounds more practical and less visionary, but the effect is much the same. From personal experience and from talking to people, I consider that present position is different.

May I give one or two examples? People talk on these matters without examples, and two examples are better than any amount of expatiation at large. Situated near my constituency is a large office-cleaning firm. That is a growing sector of British industry, which is not glamorous but nevertheless important. It is efficient, and it has a great deal of machinery that is difficult to work. It needs skilled people to use that machinery if full advantage is to be taken of its efficiency. The industry employs a large number of people.

Those concerned in the business all over the country are anxious to increase the status of the industry, as are all businesses, particularly new ones. Part of the increase in status was to have been a system of apprenticeships. Last year, throughout the country 3,000 apprenticeships were offered for school leavers. That scheme was published, and leaflets were distributed to schools and career offices. The terms appeared favourable. As an example, apprentices were to be given a car in their second year. How many replies were received? Not one single school leaver applied.

That is a most extraordinary thing, in those circumstances, when we are told—

Mr. Canavan

Will the lion and learned Gentleman give the name of this firm, so that we can check this information?

Mr. Fletcher-Cooke

Certainly. The firm is called Lester's Office Cleaners. The hon. Gentleman will find that it has offices in London and Lancashire. I am afraid that I cannot give him the telephone numbers, but he can look them up in the directory. The gentleman who is the chairman of the firm, Mr. Barry Lester, is also the president of the Institute of Office Cleaners. If the hon. Gentleman wants any further information, he can get it from Mr. Barry Lester. I do not blame the hon. Gentleman for being suspicious. Opposition Members are always suspicious when these examples are produced. I thought that I would be asked for further and better particulars, so I furnished myself with one or two.

All the time one gets these stories. Again, for example, NORWEB, the electricity distribution concern in my part of the world, cannot get apprentices, drivers or unskilled labourers who are prepared to dig the road and to lay or mend cables. If it gets them, they leave pretty soon. This is a nationalised industry with very good terms of employment. It simply cannot get the people.

I am sure that that is not true of the majority of the unemployed, but it is true of quite a section, a hard core—that there are jobs available and people simply will not take them. Why is this? First, it is because there is the black economy. A number of people will not get into the machine because it means paying a high rate of tax, and it is better not to pay tax if one can avoid it. Secondly, it is, of course, because of the poverty trap, the matter about which my hon. Friend the Member for Norfolk, North (Mr. Howell) tells us all the time.

There is undoubtedly a "Why work?" syndrome when the margin between the benefits to be gained from working and those to be gained from not working is too narrow. It is well known that that is so. Anything that can be done to cure the problem should be done. Although I am not a great one for family and child allowances, and although I do not think that they are as popular in the country as some of my hon. Friends do, nevertheless I think that they have a good case on the ground that an increase in the child allowance is apparently one way of decreasing the poverty trap and of going a little way to curing the "Why work?" syndrome.

But there are other things in this Budget which do that, some of them appearing severe—the taxation, or at any rate the notional taxation, of unemployment benefit, the raising of tax thresholds and all the other financial indications in the Budget which are designed to work on that margin to make it better to work than not to work. Although they will not cure the unemployment problem, I think that they will be enough to compensate, and even more than compensate, for the increase in the global figures which my right hon. and learned Friend the Chancellor of the Exchequer, in his indispensable little Red Book, says will increase absolutely. I think that they will not do that because, although more could be done at this point of application, enough has been done to see that more people will be tempted back into open work rather than working in the black economy and more people will be keener to get a job than they are now, and for that I am very grateful.

7.34 pm

Mrs. Renee Short (Wolverhampton. North-East)

It is interesting how people who deny that they are "wets", whatever the real definition of a "wet" is, will produce, before sitting down, a number of criticisms of what their own Government are doing. The hon. and learned Mem- ber for Darwen (Mr. Fletcher-Cooke) is no exception.

The majority of people in this country are aware of what happened in the previous Budget and of what has happened in this Budget and in the public expenditure White Paper, and they know that these events, taken together, spell disaster for the British economy unless the Government are willing to change course. The damage that the Government are doing to the economy now is quite breath-taking.

Reference has been made to the meanness of the death grant. It is mean. I remind the Secretary of State about the meanness of the maternity grant. One way in which we could help some of the unsupported mothers and low-paid families is by improving the maternity grant.

During the general election campaign, we knew that what the right hon. Lady the Prime Minister was saying about cutting back on income tax—this was her main ticket during the campaign—would inevitably mean disaster for the country. We were right when we explained what the consequences of that policy would be. The trouble is that we did not say it loud enough or long enough, and we did not impress the electorate as to the consequences of the right hon. Lady's policies. But those consequences are now clear for everyone to see.

It is clear that the right hon. Lady is now set on a course which is systematic and determined and is an onslaught on every scrap of social and economic advance that previous Labour Governments have introduced. The two Budgets that they have introduced show clearly the political and economic bias of the present Government.

The right hon. Lady's policies suit the well-off very well indeed. Not only do the well-off make money but they can offset many of their living expenses against tax and they do very well out of wage and salary earners, who are seeing their cost of living, by contrast, rocketing sky high and their standard of living being eroded. Not for them the possibility of reducing their cost of living through the tax system.

We have only to look at what was given out in the previous Budget. A director or chairman of a firm on, say, a "modest" remuneration of £40,000 got no less than £7,000 back in income tax reduction. That sum is more than a large number of families in this country live on during the whole year. I have the figures from The Economist—and who would suggest that The Economist produces figures that are not correct?

Low-paid workers are being ground down in a way unprecedented since the war. Indeed, while the right hon. Lady and the Government inveigh against "scroungers" and those who "will not work"—and we have heard a good deal about the "won't work" syndrome this evening—she is systematically removing the incentive to work from the low-paid by her taxation policies, by her assault on the social wage, by her attack on what we provided for their children at school and by the soaring cost of living, including food, fares and fuel. These are parts of the general family budget that loom very large.

By the Education (No. 2) Bill alone, the right hon. Lady is putting thousands of low-paid families in crisis. I do not want to say anything about prescription charges because my hon. Friend the Member for Brent, South (Mr. Pavitt) dealt with those very effectively. They affect not the families who are able to get a season ticket for their prescriptions without charge or with very low charge, or whatever the Secretary of State decides. It is those who are just above that level who are hit so badly.

Mr. Patrick Jenkin

The hon. Lady is confusing two things. One is the exemption—two-thirds of prescriptions go to those who are exempt—and the other is the season ticket for the one-third who have to pay. There is no income limit on that. Anyone may apply for a season ticket, at £12 for a year or £4.50 for four months.

Mrs. Short

Nevertheless, charges for prescriptions fall very heavily on families who do not qualify for either of the benefits to which the Secretary of State has referred. The level of the charge is hound to be a barrier between the medical care that doctors feel that those people need and their ability to take advantage of it.

The Prime Minister and the Government are obsessed by the monetarist men- tors Friedman, Joseph and Howe. The countries that have taken Milton Fried-man's advice are facing severe economic crises. While presiding over a decline such as has never been seen before, and throwing thousands of people out of work every week, the Prime Minister is creating jobs in one direction—by taking on people to chase those whom she calls social security scroungers—instead of boosting industry by providing new jobs and creating new jobs by investing in new industries. I wish that the right hon. Lady showed equal enthusiasm for chasing tax dodgers, because she would then be able to recoup some of the revenue that is escaping.

Unlike the hon. and learned Member for Darwen, I have no reason to believe that the unemployment figures are incorrect. The West Midlands has seen the biggest regional increase in unemployment since September. The increase has been 15 per cent. compared with the United Kingdom figure of 9.4 per cent. and the increase in the South-East of 7.5 per cent. That is a serious increase in unemployment and the contraction of job opportunities in the West Midlands.

The number of registered unemployed in Wolverhampton last month was 7.3 per cent. of the number of working people. The figures include 1,550 young people aged between 16 and 18. Another 800 in the same age group were participating in various youth opportunities schemes. That means that 2,350 young people aged between 16 and 18 were either out of work or seeking work in Wolverhampton.

A total of 12 per cent. of 18-year-olds are seeking work, and if the 18-year-olds on youth opportunity programmes are added to that number the unemployment rate of 18-year-olds becomes 15.5 per cent. Of course, a number of young people will be leaving school in the summer and we shall probably then have as many young people again added to the unemployment register. Their prospects are grim. Throughout the area a large number of firms that were household names have disappeared from the industrial scene. Bilston steel is one of the later casualties. Ever Ready batteries, which employed hundreds of women in my constituency, has closed, and we all know the sad story of the motor cycle industry and many other firms where job opportunities have disappeared.

Some West Midlands housing authorities are among the worst hit by council house spending cuts. Coventry and Walsall have had their spending cut by half and Birmingham has had a 30 per cent. cut. The outlook for the construction industry is grim. Only today I visited one of the country's major construction firms which has its Midlands headquarters in Wolverhampton. Its position is dire. It is depressed about the outlook. We all know that the building industry has been depressed for a long time and that there is much unemployment in that industry.

The Secretary of State for the Environment has been waffling about the need for local authorities to build low-cost houses and to make a few pounds by selling some of their council houses, but he is condemning millions to go on living for the foreseeable future in rotten, damp, insanitary little houses.

Local authorities have no money to modernise such properties. The local authority in my area has had to postpone a comprehensive modernisation scheme of houses in a densely populated ward in my constituency that were built after the First World War. It is scandalous that those houses will have to be left for goodness knows how long before the families can have decent heating, kitchens and bathrooms.

With £957 million cut from local authority housing investment and £25 million from the Housing Corporation budget, the future is grim for the house-building and house renovation industry. And who can afford to borrow to build at the present rate of inflation and interest rates? Local authority building may fall to 30,000 next year—one-fifth of the level under a Labour Government a few years ago. What a record that would be for the Government to achieve! Wherever one looks, the outlook and the prospects are appalling.

A few weeks ago the Chancellor of the Exchequer addressed the engineering employers at their annual dinner and said that it might be 10 years before we saw any signs of recovery.

Mr. Lawson

No. He did not say that.

Mrs. Short

It is no use the Financial Secretary shaking his head. He should check with his boss to find out what he said.

We cannot suffer 10 more years of the decline and failure that we have witnessed in the nine months since the election. Think what sort of wasteland the Government could create in 10 years.

Mr. Nick Budgen (Wolverhampton, South-West)

Would the hon. Lady like to say a word or two about the Chancellor of the Exchequer's proposals for an enterprise zone at Bilston? Does she welcome that?

Mrs. Short

There is nothing new about that. It is just following on from some of the things done by the previous Government.

Mr. Budgen

Does the hon. Lady welcome it?

Mrs. Short

We shall have to see how successful it is. The Government did not provide the resources for which the Bilston steel workers asked time and again.

The situation is difficult. We have high interest rates, record inflation and low borrowing targets. I wonder why the Chancellor does not change his policies in order to help the Secretary of State for the Environment to get on with what he is supposed to do.

In the Chancellor's speech to the engineering employers he blamed the very policies for which the Government have been responsible—high inflation, low borrowing targets and high interest rates. Those policies are putting a brake on the development of new industries, whether in Bilston or anywhere else. The Chancellor chose an extraordinary venue at which to make that speech, because the engineering industry has had a tough time over the past few months. Imports have been eroding the home market and exports have been declining.

When I visit factories in Wolverhampton and ask why some firms have bought new automated machinery from America, Sweden or Germany, the reply is always the same: that British firms do not make what managements need and are not interested in trying to meet the design requirements of firms, delivery dates are too long, or there is just no interest in adapting to new technological needs.

We cannot go on like that. We should have led the world in new technology, but there is no drive in education to familiarise and educate the young in order to produce the designers, technicians and makers of new technology and no drive to retrain unemployed men and women in new technology. There is no help for industry to re-equip, and many firms that should be profitable and viable are struggling to stay alive. So where is all the enterprise? Where is all the help that the Government are giving to industry?

Added to this are the continuing cuts in public expenditure, the effect of the Budget and the decline and fall in economic activity this year. Next year there could be a further decline of as much as 4 per cent.: there have been estimates to that effect. Even more firms and more jobs will collapse, poverty will hit many thousands of families and more people will be unemployed.

All the Government's forecasts on the level of inflation were way out. The White Paper published last November forecast an inflation rate of 13 per cent. That has long been proved to be incorrect.

The proposals by Sir Derek Rayner, reported in today's edition of The Times, include the abolition of unemployment benefit and a return to the means test. I take Sir Derek's proposals with a good deal of salt. The Select Committee has already had experience of looking at one of his projects—the change in the method of payment of pensions and the effect that that would have on sub-post offices. We found that the vaunted savings were not as much as were forecast.

Sir Derek's present suggestions would be widely resisted by the trade unions if they were put into effect, because they would breach the principle of benefits in return for contributions and would put the unemployed back on the means test, which all of us thought had long ago disappeared from our economic and industrial life.

It is no wonder that the trade unions are fighting for their members, no wonder that the miners and the steel workers and the engineering workers are desperate. They see that Britain is sliding to chaos and misery under this Government, divided as the Government are. During every economic debate there are instances of division on the Conservative Benches. The Government are bent on outmoded and failed economic dogma. The best thing that they could do would be to change course or get out. Unless they do, we should make sure that there is complete opposition to every aspect of the Budget.

I hope that those on the Opposition Front Bench will pull their socks up and make sure that we provide tough, prolonged and concentrated opposition to the Government. We should have learnt the lesson of what happened during the election campaign, when we did not put over to the people what the effect of a change of Government would be and what the effect of their economic policies, based on cutting income tax, would be. We have seen it now. During the nine months since the election, people have been able to see the fruits of that policy.

I hope that the Opposition Front Bench will understand that it must fight hard against this Government. If the organised working class sees that the Labour Party is not fighting for it—it understands that the Government and the Prime Minister are not fighting for working people—there is the danger of the kind of industrial unrest that would cause great strife across the whole of our society. We have seen it in Germany. It is how Fascism arises. I hope that my right hon. and hon. Friends will take warning and understand that we must fight this Government all the way.

7.54 pm

Sir Brandon Rhys Williams (Kensington)

My right hon. and learned Friend the Chancellor of the Exchequer has evidently won general public support for his Budget, and it is easy to see why. It is not only brilliantly balanced and comprehensive but plainly comes from a man who is entirely dedicated to sound economic and monetary principles. He is making no concessions to vote catching, and he is introducing multi-annual planning in earnest. That is long overdue. However, there are some important points about the Budget that need to be watched, and possibly adjusted, as time goes by. One matter in particular should be adjusted right away.

When I spoke last June I praised my right hon. and learned Friend for increasing value added tax and expressed the view that it might well have gone higher. This year my right hon. and learned Friend was right to raise the duties on beer and tobacco, but again he should have gone further, for two reasons.

First, I entirely endorse the policy of swinging the burden of taxation away from the direct to the indirect. Secondly, indirect taxation, especially on such items as beer and tobacco, constitutes a tax particularly on men, which then helps to finance the things that we want to do for the family. I so regret that my right hon. and learned Friend did not go somewhat further in that direction this year.

Mr. Garel-Jones

rose—

Sir B. Rhys Williams

As we are all trying to keep our speeches as brief as possible. I hope that my hon. Friend will not press to intervene.

I think that the reason why my right hon. and learned Friend did not go further was that he was concerned about the effect on the cost of living index. I can understand that, but I think that it has become an obsession with him. Of course he is right to fight inflation, but the health of the economy cannot be deduced from appearances, and the cost of living index from month to month is not everything.

I think that it is better to meet changes in the retail price index selectively, through child benefit, rather than by blanket increases in wages. I therefore regret that my right hon. and learned Friend did not do more to increase family support. The rate of wage settlements is not governed primarily by the cost of living index, although it is always used in the arguments. What really decides the rate is the balance of forces between the parties concerned within industry. Legislation is no doubt necessary, and in the course of the coming year it will have an impact. But the big change that is coming in attitudes to pay claims is now the reappearance of serious concern about job security. That will have more effect than movements from month to month in the cost of living index. But a bigger rise in child support would have helped and could have been paid for by a rise in tobacco and beer prices.

I should like to say a brief word about interest rates. I criticised my right hon. and learned Friend last year for his sudden and unexpected raising of the minimum lending rate. However, I recognise that interest rates must be high when the currency is depreciating as fast as it is. We cannot return to a negative rate of interest. But we should look at the long-term rate of depreciation of sterling rather than at the position that has been created in the money market simply by the exigencies of the public sector borrowing requirement.

The long-term rate of interest should have a clear relationship to the long-term rate of depreciation of the currency. On that basis, one could reasonably hope for quite a sharp decline in interest rates over the next few months. I hope that we shall see that, but I am not asking my right hon. and learned Friend to press interest rates down artificially. That would be a mistake.

On the other hand, we must look at the whole business of the control of credit. Obviously, my right hon. and learned Friend is right to put emphasis on the total supply of money in our inflationary economy. But I am concerned about the effect of the Government's policy on the volume of business borrowing, because to a great extent the implementation of the Government's policies at local level will fall on High Street bank managers and others who may be forced to take extremely painful decisions, sometimes even to pull out the life support mechanism of firms that are basically sound.

In the coming year this will present many people all over the country with agonisingly difficult economic and personal decisions. If a bank manager must make a decision about the possibility of extending a firm's credit, he must make assessments of that firm's potential—and for export in particular. I concentrate on the export potential of British firms, because clearly the home market will not be too lively. The best opportunities for a firm to expand will lie overseas.

That brings me to my special concern, which I have tried to voice in the House over the last few days on a number of occasions. That is the rate of exchange. I know that many people regret that the exchange rate for the pound is as high as it is because of the embarrassing effect on our manufacturing industry, but they feel that the matter is somehow out of our hands because it is dictated by market forces. That is true. But those forces are decided by policy options that we ourselves have taken, such as the rate at which we are exploiting our North Sea oil asset.

The situation in which we find ourselves is one in which it is extremely easy for importers to come into the British market and become established on a basis that is likely to give them a permanent foothold here. At the same time, it is hard for our exporters even to retain the export connections that they have built up, sometimes over tens or scores of years.

I realise that in my right hon. Friends' minds there is once again the effect on the retail price index of bringing about an adjustment in the exchange rate—that it would result in a rise in the price of imports—but I feel that they are pursuing short-term benefits at the risk of long-term damage by allowing imports to Coma into the country at artificially low prices. It may be attractive for retailers to be able to offer cheap and excellent goods with easy delivery dates all over the United Kingdom, and it may be a stimulus to drowsy and obsolete British firms, but there is a danger in continuing this policy. I believe that the Government should do something about it.

There is a risk that firms will have to postpone investment, or that improvements in productivity will be discouraged, in the economic climate created by the artificially high exchange rate. This is an aspect of the Government's economic policy that can be overdone. We should seek actively to bring down the exchange rate by the export of capital as a deliberate policy and by the acquisition of foreign currencies in the same way as the Bundesbank, over many years, followed a policy of acquisition of foreign reserves to keep the deutschemark as low as possible and protect the profitability of German exports. And we ought to look again at the rate of depletion of our oil reserves. There are many other ways in which the Government, if they had the will, could find the way to bring down the exchange rate, including closer association with the European monetary system.

I should like to say a few words about the personal sector. Everyone appreciates the Chancellor's courage and determination in pressing ahead with significant cuts in personal taxation and giving away some £1,500 million in the uprating of personal allowances. He is taking a courageous step in following on the policies that have already become established. At the same time, he is making changes in social security, some welcome and others controversial.

I should like to say a few words about the earnings-related element in unemployment pay. No one has made a close study of the philosophy of the structure of benefits in national insurance, but an inevitable reform was introduced a few years ago when we put the finance of national insurance on to earnings-related contributions. The old flat-rate contribution to national insurance was plainly insufficient, so national insurance is now paid for by earnings-related contributions. For the most part, the money received by the fund goes out in flat-rate benefits. At a time of inflation the Treasury does well out of national insurance contributions that rise in relation to earnings while the outgoings, for the most part, remain in the form of flat-rate benefits.

It seems to me that the Treasury is on delicate ground in attacking the earnings-related element that has become built in to the national insurance system. I am not necessarily resisting the reform either of this or of the large payments made in cases of redundancy. But my right hon. Friends must show that their policy is part of a full-scale reform to deal with redundancy and obsolescence of personal skills. They should make a full review of redundancy payments as well as the support that the Government provide for retraining, resettlement and rehabilitation. We shall need an ambitious scheme from the Government to meet the need for the retraining of the work force to catch up with changes in technology. If the Government are touching the earnings-related benefit in unemployment pay, they must also show the positive side of their policy. I hope that they soon will.

I should like, finally, to say a few words about child benefit. As the House knows, I believe that we should increase child benefit, for many good reasons—economic, social and out of humanity. Every Chancellor includes in his Budget one particular proposal on which he intends later to give way in response to pressure. I hope that I have diagnosed that my right hon. and learned Friend has chosen child benefit as the point on which he will soon give a concession to the feeling in the country and in the House.

In effect, my right hon. and learned Friend is raising child benefit, I understand, by 19 per cent. while prices since the last increase will have gone up by 30 per cent. before the new child benefit rate is implemented. I do not think that either he or my right hon. Friend the Secretary of State, who opened today's debate, can say that the Government are implementing the promises they gave to keep the rate of child benefit up to date with inflation. Their approach to child benefit is part of the whole pattern of the tax reductions that have been incorporated in this year's Budget. It seems to me controversial and precisely the type of subject on which the House of Commons should be able to express a view.

Without necessarily upsetting the overall balance of the Budget judgment, we ought to be able to look in detail at the particular tax concessions that my right hon. and learned Friend has chosen to make and the particular ways in which social security is affected by the Budget. We should be able to weigh up these changes and possibly to recommend that the Budget might be adjusted this way or that to take account of the feelings of the House. But, as it turns out, it seems virtually impossible for us now, for procedural reasons, to enter into a full discussion on this point, partly because of the narrow drafting of the long title of the Social Security (No. 2) Bill, which was presented to the House at the end of last week.

I understand that the change proposed in child benefit is likely to be implemented by an order and that the House will simply have the opportunity of voting against it if it does not like the figure included in the order. We shall not have an opportunity to debate it. This seems a disadvantage. I hope, therefore, that my right hon. Friends will look at ways in which these matters can be discussed by the House in the coming weeks. We have a duty to look into these issues. We have a right. There may also be occasions when we should insist upon a vote. I hope that we shall have the opportunity.

8.8 pm

Mr. Dennis Canavan (West Stirlingshire)

Last Wednesday, during his Budget Statement, the Chancellor of the Exchequer said: This Government, no less than their predecessors, are committed to maintaining a social security structure that protects the weakest and most vulnerable in our society."— [Official Report, 26 March 1980; Vol. 981, c. 1454.] This afternoon the Secretary of State for Social Services appeared at the Dispatch Box claiming that he was a member of a Government who care. I do not know, frankly, how these people have the brass neck to stand at the Dispatch Box and put forward claims that they are protecting the weakest and most vulnerable members of society and then turn round and deliver them a hefty kick in the teeth. That is what the Budget is. It is an attack on the living standards of some of the weakest and most vulnerable members of society, including the poor, the sick, the unemployed, and families with young children.

When I hear Conservative Members complimenting the Chancellor of the Exchequer on his courage in producing such a Budget, it occurs to me that the Tory definition of "courage" must be very strange. I believe that people who can produce such a Budget are stooping lower than the most cowardly "bovver boy." They are putting the boot into the sick.

The sick are taking a clobbering, not just once, not just twice, not just thrice, but four times. First, their earnings-related supplement is to be abolished. Secondly, the real value of their basic benefit is to be cut. Thirdly, whatever benefit is left will be subject to tax. Fourthly, they will have to pay £1 for a prescription. What kind of caring attitude is behind that policy? It is almost criminal.

But perhaps we should not be too surprised. The morality of the Tory Party is not that high, anyway. We all remember how that party cheated and lied its way into office. We all remember, for example—hon. Members who have forgotten may care to he reminded—the Daily Mail of 26 April last year, during the general election. It produced a propaganda sheet on its front page which could have been, and might have been, written by Tory Central Office, in which it listed 12 so-called "lies" that the Labour Party was telling during the campaign. Many, if not all, of those statements have turned out to be truths—bitter truths for many people.

Alleged lie No. 9 was a quotation from the Labour Party manifesto: There are Tory proposals for higher prescription charges and charges for seeing a doctor or being in hospital. The Daily Mail went on: TRUTH: 'We have no intention of increasing or introducing such charges,' says Mrs. Thatcher. I understand that according to the rules of the House I am not allowed to call the Prime Minister a liar, but perhaps the Daily Mail could climb out of the gutter and at least perform some public service by undoing some of the damage that it did in that article. It could publicly state the truth about this matter by exposing the Prime Minister and her people on the Front Bench.

Mr. William Waldegrave (Bristol, West)

The Daily Mail, of course, can write what it likes, but the Prime Minister's words were in answer to a question about the introduction of so-called hotel charges in hospitals—

Mr. Cook

And prescription charges.

Mr. Waldegrave

No, they were not. Her words were directed to charges for staying in hospital.

Mr. Canavan

I think that the hon. Member should take up his point with the Tory journal, the Daily Mail. No leading Tory disclaimed that article during the general election. That is why I say that they and the Daily Mail collaborated in the cheating and lying that put the Government where they are.

A prescription charge of £1 represents a fivefold increase since this Government came to power—and they have been in power for less than a year. Even many people who voted for them would say that that is far too long already.

The Budget attacks the family by reducing the real value of child benefit. Speeches today show that even many Tory Members are themselves ashamed of such a proposal.

The Government are also attacking the families of people involved in industrial disputes. Whatever we think of the merits or demerits of a certain industrial dispute, what possible justification is there for using wives and children as political pawns in a dispute?

The thinking behind this proposal seems to be that the Government can solve industrial disputes and get the men back to work by starving the women and children. They are treating the families of strikers worse than the families of convicted prisoners. Even the wife and family of a criminal who has been found guilty and sentenced to imprisonment are not deprived of full social security benefits, yet the Government will deprive the families of strikers of that right. When I hear Tories claim that they are the guardians of the family and of family life, the sheer cant and hypocrisy makes me shudder.

Then there is the Government's attack on the unemployed, which in many respects is one of the worst and most damaging long-term features of this bad Budget. The Budget represents a major change. The Government have abandoned even the pretence of fighting unemployment. Indeed, they are deliberately creating unemployment as an economic weapon and then attacking its victims by cutting the real value of their unemployment benefits.

At a time when 1½ million people are already unemployed, the Chancellor last Wednesday virtually instructed local authorities and other public bodies to sack more workers. The cuts in public expenditure will have a devastating effect on employment prospects, particularly in places such as Scotland, where many employment opportunities depend on public investment, either directly in the public sector or in the propped-up part of the private sector.

I can think of a couple of examples affecting my constituents. At the Glynwed Company foundries in Falkirk and Larbert, where many of my constituents work, several hundred jobs are at risk. Part of the reason given by the company is that the cuts in public expenditure have meant less demand by the public sector for its products. At the Cape Insulation factory in Stirling, 90 jobs are at risk because the Government have cut, and intend to cut further, public expenditure on such things as domestic and industrial insulation.

The only hope, or so-called hope, that the Chancellor offers us is the possibility here and there of some enterprise zones. I have my doubts about the success of this proposal. I fear that it will turn back the clock to set up colonies in the de prived areas, for example, of Clydeside, where any old spiv or racketeer would be given carte blanche to exploit a large pool of unemployed people without regard to planning, environmental control, job security or standards of health and safety at work—things for which the Labour and trade union movement have been fighting for years.

When the Tories talk about their employment strategy, I suspect their motives. They always want to attack working people, and one of the surest ways of delivering an attack on working people is by reducing the numbers of working people. That is what this divisive Budget will do. It will divide those who are in work from those who are not.

One of the most frightening statistics that I have come across recently is one that I received in a parliamentary answer on 18 March from the Secretary of State for Employment, who told me that, of the total unemployed, 538,574 were under 25. I should like all hon. Members to think of the social implications of that statistic—more than one-third of the total unemployed, more than half a million, are under 25.

That number will increase. Imagine that number of young people roaming the streets. I could not think of a surer recipe for social chaos. There may be some significance in the fact that the only parts of the public sector that will get more money from the Budget are the Army and the so-called law and order forces. The Government may need more than an Army to protect them if they continue with these policies. People who are genuinely concerned about law and order should urge the Government to change course now, before it is too late.

Mr. Tom Benyon (Abingdon)

Will the hon. Member expand on what he means by the "so-called" forces of law and order? What does he mean by "so-called" law and order forces?

Mr. Canavan

It is clear that the Government plan to build up the forces of law and order because they have no solution to the economic and social implications of even their own policies. I believe that that would be a wrong use of the forces of law and order. That would be to use the police and possibly the Army to do jobs that, hitherto, they have never been required to do. There are grave social implications there. Those who are genuinely interested in establishing and preserving law and order should be urging the Government to change course before it is too late.

When I say "change course" I mean do a complete U-turn. Instead of cuts in public expenditure there should be more public investment in industry in order to create more wealth and more money for the social services in order to distribute more wealth. Of course, the Government will ask where that money is to come from.

It is interesting that the Chancellor, who was not slow to put the boot into the sick and the unemployed, chickened out of putting the boot into the banks by taxing their windfall profits at a time when the Midland Bank announced profits of over £315 million, representing an increase of 36 per cent. on the previous year, and Barclays announced a profit of over £529 million, which was 42 per cent. higher than the previous year.

We also note the extra £1,017 million extra expenditure on defence between the current financial year and the financial year ending in 1984. It appears that the priority of the Government is to manufacture weapons of mass destruction rather than to care for the sick or provide jobs for the unemployed.

On the same day as the Budget, it was announced that an additional £19,600—a 30 per cent. wage increase if we can call it a wage—was to be awarded to a certain member of the Royal Family. As a remarkable reward for overspending on her £65,400 pocket money for the previous year, she was given £85,000 for the coming year. There are many people who suspect that her horses are better fed than many of the old people and schoolchildren who are being starved by this Government.

The Government should try to recoup some of the tax handouts that they gave to the rich last year. Of the £3½ billion tax cuts, 40 per cent. went to the richest 5½ per cent. of the population. People earning £30,000 a year received a £4,000 per year tax handout and those on £20,000 a year got £2,000. When the Chancellor speaks of his Budget as a consolidating Budget, we all know whose interest it consolidates. It consolidates the interest of the rich.

The whole Budget is designed to make the rich richer and the poor poorer. It divides the healthy from the sick and it divides those in work from those who have no work. It is meant to take away wealth, power and opportunity from the people most in need in order to give it to the rich and privileged.

The Budget turns the clock back to the 1930s. I do not believe that to be an exaggeration. This is the most malicious Budget since the establishment of the Welfare State. The thinking behind it will produce a rat-race type of society, where only the strongest will survive and where the weakest will go to the wall. That is why I hope that as many hon. Members as possible will vote against it.

8.24 pm

Mr. Stephen Dorrell (Loughborough)

For one thing at least I respect the hon. Member for West Stirlingshire (Mr. Canavan), and that is the unquestioning certainty with which he advances his views. I could not help reflecting as he spoke on whether he was one of the people whom my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) had in mind when he spoke of go-ahead young budgeteers with their Red Books. Had he meant the hon. Gentleman, it would have been an apt description.

For most of us who are not blessed with that degree of certainty, any Budget, no matter by whom it is presented, is more like the curate's egg than it is like the class enemy as described by the hon. Member for West Stirlingshire. There are parts of any Budget of which people approve and parts which make some people less happy.

I begin on the positive side by strongly welcoming the commitment by the Government to bringing public expenditure under control. I welcome the fact that the public expenditure White Paper was introduced on the same day as the Budget, and I believe that the Government have made clear their serious determination to exert a proper and responsible control over the future levels of public expenditure.

I do not believe that the Conservative Party has any deep-seated hostility to public expenditure as such. There is merely a determination that it should more properly reflect the ability of the economy to provide the necessary resources. Most of us would like to see one step back in public expenditure so that we might take two steps forward on a more secure and realistic footing.

In the past we have seen Governments issue public expenditure White Papers based on unrealistic growth targets. That has meant—particularly when introduced by the Labour Party—that White Papers have included for the third or fourth year of the programme a commitment which for political reasons had to be included in order to ensure that hon. Members like the hon. Member for West Stirlingshire voted in the Labour lobby at the end of Budget debates.

Where there has been a specific commitment that the Labour Government knew they could not undertake, they introduced a public expenditure White Paper including a 2 or 3 per cent. growth factor. That factor was put in at the end of the period with the result that, long before they reached the point of being able to undertake such expenditure, the need for that expenditure had been removed from the plans because of serious under-performance by the economy. We have, therefore, not been able to generate the necessary funds to pay for particular items in the programme.

There can be no clearer illustration of that principle than the factor in the public expenditure White Paper relating to 1982–83. Because of the determination of my right hon. and learned Friend not to get into that ball game—that of spending funds before they have been generated and without any realistic prospects of their being generated—he has imposed a £9 billion cut on the public expenditure programmes that he inherited from the previous Administration when they left office in May 1979.

That does not merely demonstrate a difference of view about whether we should be running an extra £2 billion on the public sector borrowing requirement. The Labour Party knows that a £9 billion gap cannot be bridged. There is no way that either borrowing or taxation can be rigged in order to bridge the £9 billion gap that my right hon. and learned Friend found in the spending programmes that he inherited for 1982–83. To express the situation in a crude figure, if the Chancellor proposed to bridge that gap it would necessitate an increase of 16p on income tax at current rates of yield.

That is not the sort of thing that any senior member of the Labour Party has ever supported on a public platform. Unless they are prepared to do that, they must concede that the public expenditure programme inherited by the Government was quite clearly unrealistic.

The argument about the level of the public sector borrowing requirement is irrelevant. One can argue that we should have a higher PSBR than my right hon. and learned Friend plans, but that is a separate argument. Whether or not one believes in Keynesian deficit financing, we are committed to providing resources, either in the relatively short term or in the present, to fund the spending programmes. There was never a prospect of being able to self-finance many of the spending plans which we inherited now or in the immediate short term. Therefore, the programmes that we inherited were irresponsible. My right hon. and learned Friend deserves the support of the House in pointing that out to the electorate, bringing them back under control and in touch with reality.

I have little sympathy for the indignation whipped up by Opposition Members about the supposed swingeing cuts that we are imposing on public expenditure this year and next year. It is hard to bring such accusations into line with the facts in the White Paper. The Opposition must recognise that the highest-ever level of public expenditure is undertaken in the year which is just coming to an end, the second highest is that which is planned for next year and the third highest is planned for the third year of office of the Government. Only in the fourth and fifth years will the public expenditure planned by the Government come below the levels that the Opposition achieved in their highest year, 1975–76—and none of my hon. Friends would like to see that year repeated.

The Opposition whip up an enormous rage about the cuts that we are imposing on public expenditure. They should restore the balance and recognise that the public expenditure plans in the White Paper are higher than the average achieved when the Labour Party was in office.

I turn to another part of the curate's egg which is less to my liking—the Government's stance on monetary policy. I hope that one aspect at least might begin to move into history. I am talking of the attitude by many Opposition Members in suggesting that monetary policy was invented by my right hon. Friend the Secretary of State for Industry and that no Government until five years ago had heard of it. Clearly, that is not true. I do not regard myself as a Friedmanite. I watched one or two of the programmes on television in which Friedman expressed his proposals. I found them no more instructive or enjoyable than the party political broadcasts made by the right hon. Member for Leeds, East (Mr. Healey).

Governments of all parties have to adopt a clear stance on monetary policy. Monetary policy is not a term of abuse but a rational definition. Everybody knows this Government's monetary policy. It is to control the growth of sterling M3 according to strictly defined targets. Why we have adopted that policy is not so clearly understood. That question has troubled many people. I shall try to answer the question, although the Financial Secretary might say that I misinterpret his views.

In a letter to the Treasury and Civil Service Select Committee, the Chancellor of the Exchequer stated: The ways in which control of money supply affect the growth of…prices are complex. Lower monetary growth may be expected to result in a lower growth of money incomes…because of its effects on the exchange rate and asset prices and the fiscal changes required to achieve lower monetary growth. In other words, the Government's vision of the way in which the system works is that control of money supply affects three intermediate channels through which the effect is felt on the economy as a whole. The first channel is asset prices, the second the public sector borrowing requirement and the third the exchange rate.

In deference to the expertise of my hon. Friend the Member for Kensington (Sir B. Rhys Williams), I should like to deal with the exchange rate. I believe that the Government's view on the exchange rate is precisely that of the London Business School, namely, that a high exchange rate leads to price pressures, both domestically and overseas, which in turn bring inflation under control. Recent debates about the exchange rate have centred around two points. The first is whether the Government can control the exchange rate. In view of the letter from my right hon. and learned Friend the Chancellor, I suggest that the answer is "Yes".

The Government's policy is to tighten money supply so as to push up the exchange rate. That policy is favoured by both my right hon. and learned Friend and by the London Business School. That mechanism will bring downward pressure to bear upon inflation. The Government's case rests on money supply having a direct effect on the exchange rate. I accept that argument.

It is difficult to argue that the Government cannot control the exchange rate and fix it at a level of their choice. Because of our history during the 1950s and 1960s, it could be argued that that is undesirable. However, it could not be argued that we were unsuccessful in maintaining the exchange rate over most of that period.

The second point relates to the exchange rate policy of the Federal Republic of Germany. Its consistent policy has been to create capital outflows to balance trade surpluses and by that means to hold down the exchange rate.

It is untrue to say that the Government cannot control the exchange rate. However, to argue that the Government can control it is not to argue that they should control it. They would be well advised to moderate their monetary stance—not to desert it totally—to reduce the exchange rate to a more competitive level in the world economy.

My first argument to support that statement deals with the economic cost involved in maintaining our present stance. The present exchange rate is about 10 per cent. above its level before devaluation in 1967 and 20 per cent. above its level in the mid-1970s. The effect of that on our external trade was clearly shown in the balance of trade figures published last year. They showed a saving of £3 billion in our fuel account and a deterioration of £3 billion in our manufactured surplus. The revenue from North Sea oil has been used to pay for higher manufactured imports or lower manufactured exports. That is a clear economic danger which is occurring. The oil revenues that should have been such a great opportunity for the long-term future if they had been properly managed, although not doing irreparable damage as some Opposition Members have suggested, are doing visible damage to some of our manufacturing industry. We ignore that at our peril.

My second argument has nothing to do with short-term economics; it is a political argument. One of the most worrying trends in debate—we saw it today during questions to the Secretary of State for Trade—is that the deterioration of our manufacturing trade balance has brought into question more important principles that the Government and I have in common—which we do not share with many Opposition Members—namely, a commitment to free and open liberal trading, a commitment to avoid the apparent attractions and advantages of protectionism, and a commitment to maintaining an open economy.

The danger is that the present high rate of the pound and the damage that that is undoubtedly causing to manufacturing industry will break the intensified pressures for some protectionist response. We can see that beginning to develop. I am deeply worried that if that gets out of control the combined effect of North Sea oil and a tight monetary policy could undermine the commitment to the liberal trading economy which my right hon. Friends on the Front Bench and I have in common.

I conclude by referring to a pamphlet written some time ago by my hon. Friend the Financial Secretary to the Treasury. I hope that he will not think that I am trying to embarrass him, because that is definitely not the case. He said in 1966. during the lead-up to the 1967 devaluation, that if the British economy were to continue to grow, and if we were to build our policies on the assumption of future growth, there was a clear choice between the protectionist Leo Amery approach and the devaluation approach which I am suggesting. I hope that my hon. Friend will read that pamphlet again and take note of the arguments that he then advanced.

8.40 pm

Mr. Alfred Dubs (Battersea, South)

As one listens to the debate and the discussion of the PSBR one feels that we have elevated it to a theological status, and the more we have done so the more we have made our discussions incomprehensible to people outside and certainly to quite a number of hon. Members. Perhaps I may voice a few thoughts about the PSBR to see whether it is possible to clarify the issue on a model concept.

We have heard on countless occasions from the Government Front Bench that this country must live within its means. That implies that somehow we have become profligate in terms of public expenditure and that we are not meeting our expenses.

The PSBR has a number of elements. They include current and capital expenditure by the Government and by the public corporations. One or two people may therefore be surprised to realise that the Government's current receipts exceed their current expenditure, so that in that sense there is a surplus. However, capital expenditure by the Government and by the public corporations is the main element in the creation of the PSBR.

Let us draw an analogy here with the person who is buying a house on a mortgage. No one suggests that he should not buy a house on a mortgage or that he should cover the cost of the house out of income in the first year. In spite of having listened carefully to speeches over many months, I cannot understand why the public sector should be expected to avoid running up a PSBR, or should operate as small a one as possible, when the main element in it is capital expenditure, particularly capital expenditure by the public corporations. If those public corporations were to be translated into private corporations—I hope that that will not happen, but it is what the Conservatives sometimes wish—clearly their capital expenditure would not become a part of the PSBR. Therefore, the obsession with reducing the PSBR is based upon a false premise.

Having listened to many speeches on both sides of the House, I realise that whereas there is agreement that there is a relationship between the PSBR, inflation and interest rates, it is hard to define with any precision. There are differing views about how close that relationship is.

Under the Labour Government it was possible to have a relatively high PSBR and lower interest rates, as happened in certain periods in recent years. I have yet to hear a Conservative Minister analyse that and relate it to the Government's policy on the PSBR.

The sale of assets by the Government has been a way of reducing the value of the PSBR for the year during which the assets were sold. I refer to publicly owned assets, such as BP shares. Am I right in thinking that there is a similarity between the effect of the selling of assets and the effect of the selling of gilts? They have opposite effects on the level of the PSBR. I appreciate that there are complexities and that it will depend on who buys public sector assets before we can say with confidence that we should treat sales of assets as we treat sales of gilts. However, I cannot understand why they should be treated as opposites.

The Government have expanded inflationary expectations. Those inflationary expectations are making inflation more difficult to contain. If we accept what the Government have been saying about the need to finance capital expenditure in the year in question in order the keep the PSBR down, that will add to inflationary expectations, because the more that one finances capital expenditure, the more one has to put up prices by public corporations, which in turn will feed the inflationary process.

I turn to the question of oil income As I understand it, the oil income—PRT, corporation tax and royalties from North Sea oil—stands at approximately £4 billion for this financial year. I have examined the Red Book carefully, and it appears to me that there is an expectation that that may increase by a further £2½ billion by the end of the period covered by the Red Book, making a total of £6½ billion. Is that not a gross underestimate? All outside estimates suggest that income to the Government from oil from the three different sources is likely to be between £7 billion and £11 billion by the end of the period covered by the Red Book. Are the Government underestimating that because of natural caution, or is there some other motive? A more explicit statement from them on the income from North Sea Oil would be helpful.

The Red Book does not make clear, and the Chancellor of the Exchequer did not make clear, what the Government will do with this money. If the figure is larger than the Red Book suggests, there may be a pre-election bonanza in 1983 and 1984, which may have damaging effects on our balance of payments because of the tendency to suck in imports.

If the Government were to use the extra money in different ways, there would be a golden opportunity ahead of us. Is it necessary to make such savage cuts in public expenditure if, in a few years, there will be a large increase in money to the Exchequer?

The question of duties, particularly on cigarettes but also on alcohol, has been raised by many hon. Members. We understand the dilemma of the Government in not wishing to increase the RPI, having had their fingers burnt through the VAT increases last year. However, there is a good case for saying that cigarettes—the consumption of which should be discouraged on health grounds—should be taken out of the RPI in order to give Governments the freedom of manoeuvre that they need drastically to increase the duty on cigarettes, which might in the short term increase Government income and in the long term would have a beneficial effect on health.

I share the regret expressed by other Labour Members that the windfall profits earned by banks are not to be subject to taxation. The banks did not do anything to earn the extra profits, which are now reaching astronomic proportions. One would have thought that in all equity a Government who are seeking extra sources of income would use the windfall profits of the banks, at least in this year, as a way of easing their financial position.

I appreciate that many Conservative Members, as well as Labour Members, have regretted the Government's failure to keep child benefits at least in line with inflation. In looking at the public expenditure White Paper, I have sought to discover what are the Government's longer-term intentions about child benefit. It is not clear from the White Paper, although if we look at the appropriate table it would seem that further relative reductions in child benefit are more likely to be in the Government's mind than any increases in child benefit.

Mr. Patrick Jenkin

Perhaps I may relieve the hon. Gentleman of that anxiety. The convention that applies to benefit, such as child benefit, in the public expenditure White Paper is that if there is no obligation to uprate it it is simply put in at its current price, and therefore shows a reducing figure of constant price, and no deductions whatever can be drawn from that fact. The Government remain entirely free to deal with it as they consider appropriate at the time.

Mr. Dubs

I thank the Minister for what is a very small crumb of comfort, but I hope that he will be more positive in saying that the Government do not wish child benefit to do other than keep up with inflation in future years.

I turn briefly to the public expenditure White Paper, and in particular to the section dealing with housing. Of all the alarming sections in that document, the section on housing seems to me to be the one that will cause most concern when its effects work their way through. As I understand the position, there is to be a 48 per cent. cut in real terms in housing expenditure over the period covered by the White Paper. I cannot escape the conclusion that this will mean the virtual cessation of building by local authorities, that council rents will be increased significantly above the rate of inflation over the next five years or so and that absolute havoc will be created in the construction industry.

I can only assume that these expenditure estimates have been prepared by the Government because they feel that we have no longer a housing problem in this country. I only wish that something positive had been said by the Government about their intentions on housing. Whatever may be the position in some parts of the country, in inner city areas—and in particular in inner London, in the borough of Wandsworth, in which my constituency is located—there is enormous housing pressure. There are thousands of people in desperate housing need.

The Government's public expenditure proposals spell absolute disaster to the housing hopes of many people. I can only ask the Government to think again because of the socially damaging effects that the cessation of all efforts to improve the housing position will have upon many people in our inner city areas.

The Government have put forward a Budget that is highly ideological in content and is based upon a number of acts of faith that cannot be justified in terms of any logical argument. Certainly we have heard no argument explaining why the Government think that their deliberate attempt to cut public expenditure and their views on the PSBR and M3 will have a direct bearing on the rate of inflation over the coming years.

More than that, the Government, in their package of measures, have gone beyond the permissible limits of any Government in recent years in attacking the weaker members of our society. They are going beyond the permissible limits in initiating policies that will greatly increase the rate of unemployment. They ought to be asked to explain—if their present policies continue unabated—what is to happen when North Sea Oil runs out. On present policies, there will be virtually no industry left to sustain us when our natural fuel in the North Sea is no longer there.

8.54 pm

Mr. William Waldegrave (Bristol, West)

My right hon. Friend the Chief Secretary asked the House for its opinion on whether the public expenditure White Paper, which in a characteristic British way is blue, and the Red Book, which, of course, is a very thin pamphlet, should in future be presented together. I hope that the accidental coincidence of those two papers this year will become regular and that they will become amalgamated and simply called "The United Kingdom Budget". Then, at last, we shall have arrived at a more or less rational position with regard to our debates on these matters.

Some of my hon. Friends, including my right hon. Friend the Chief Whip, will know that I have had some doubts about what we have done on child benefit. There is only one thing that my right hon. Friend the Secretary of State, or his colleague who will reply to the debate, can do to make me a little happier, and that follows what has just been said by the hon. Member for Battersea, South (Mr. Dubs). Does the coincidence of the rise in child benefit on an annualised basis, with the slightly tricky arithmetic by which the allowances are said to have risen by the same amount—11 per cent. on an annualised basis—mean that it is the intention in the future to raise benefits in line with allowances? If that is so I should be a little squeamish, but I should stomach it. if it is just an accident, and if the Chancellor's words in his Budget Statement do not imply an intention for the future but merely an indication of an accidental coincidence, I shall remain very unhappy.

I shall not vote against the Budget because of child benefit, nor is the reason for voting for it that it contains various good things, such as the heating scheme or help for charities. The reasons why I urge my hon. Friends to vote for it are a little more profound. There are many alternative economic policies. It is not that there is no alternative. I think that I am the only hon. Member present who has sat through both days of the Budget debate. I have listened to many interesting alternatives which have been put forward.

The hon. Member for Blackburn (Mr. Straw) said that he preferred protectionism, like my hon. Friend the Member for Plymouth, Sutton (Mr. Clark). My hon. Friend the Member for Loughborough (Mr. Dorrell) and the hon. Member for Gateshead, West (Mr. Horam) are really in the same Keynesian corner. The right hon. Member for Leeds, East (Mr. Healey), like a great rhinoceros, has his tusk still stuck in a form of monetarism which is similar to that pursued by my right hon. Friend the Chief Secretary.

There are plenty of alternatives, but I would simplify and group them into two and argue that both are more risky than the strategy which the Government are pursuing. There is one group which, in one way or another, wants to expand demand and—let us not hide behind the elision of "reflation"—to reinflate out of the recession. Whether it wants to do so by means of managed devaluation and increased home demand or whether it wants to do it by increased home demand behind protection—which more or less amounts to the same thing—it is asking us to take the grave risk of re-inflating an economy which is already bumping around an inflation rate of 20 per cent, as a way out of recession. I believe that that is much too great a risk to ask the country to undergo.

The other coherent group, represented by my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and others, is what may be called the "big bang" theory, or, perhaps more suitable to my hon. Friend, who is a well-known steeplechaser, the "cavalry charge" approach. This course is urged upon us by Professor Minford and by Professor Hayek. Their hero is Schacht. They want to stop everything overnight. I believe that that is also far too risky in terms of damage to the social structure and damage to institutions which for too many years have learnt to live with inflation. If the cavalry charge were to be launched it would be magnificent, but it would not be economic policy.

According to The Guardian, which has been much quoted today, I am a notorious wet, but in my own terminology I believe that I am a Tory. I am one of those who believe that a legitimate and overriding objective of Government policy is the maintenance of social cohesion and national unity. I believe that both those wide groupings of policy alternatives, which in the few minutes available to me I have grossly oversimplified, offer greater risks to social cohesion than does the Government's policy. It is right to make control of inflation the prime objective if national unity is the aim.

In that respect I agree with my right hon. and learned Friend the Chancellor of the Exchequer, who in his Budget Statement said: Nothing, in the long run, could contribute more to the disintegration of society and…any sense of national unity than continuing inflation."—[Official Report, 26 March 1980: Vol. 981, c. 1443.] So I believe that the basic strategy is not only right but formulated in the right terms. Here at last are a Government talking in terms of growth rates that are realistic and not hopeful. Here at last are a Government talking about spending resources that are relatively firmly predictably available rather than spending resources that are pie in the sky.

I think that my right hon. Friend the Chief Secretary was rather harshly treated by my right hon. Friend the Member for Worthing (Mr. Higgins), who talked about the Red Book as a medium-term plan. It is not. It is a collection of sensible, pessimistic working assumptions which, if we follow them, we may find ourselves able to better. It is not a plan. It is a collection of assumptions that we hope will be bettered.

There are some doubtful elements and gaps in the policy. In particular—this was highlighted by my hon. Friend the Member for Bath (Mr. Patten)—there is the relationship between the public sector borrowing requirement and monetary control that is not argued clearly by my right hon. and hon. Friends on the Government Front Bench. It is crucial, because my hon. Friend the Member for Bath and others have advanced an attractive siren song, namely, that there is a respectable form of monetarism that allows us to increase expenditure.

It is like one of the free offers that drop through the door—"Win £2,000. All that you have to do is send away for a book". One receives a guide to motorway cafes in the East Midlands but never sees the £2,000. My hon. Friend is offering us £2 billion. It is an offer that warrants a little more examination. I am afraid that my right hon. and learned Friend the Chancellor of the Exchequer did not offer us much argumentation about the PSBR. He just said that there was a certain amount to be learnt from experience. So I turned to the Red Book for enlightenment. That seemed to cast a flood of darkness on the subject. I found the following sentence: The consequence of the high level of public sector borrowing has been high nominal interest rates and even greater financing problems for the private sector. I cannot believe that that is right. The implication of that sentence is that if we had had less public borrowing we would have had negative real interest rates, which cannot be quite right. Alternatively, if interest rates were not to be negatived, it must mean that the inflation rate was to be lowered, in which case public sector borrowing acts directly on inflation. Something seems to have gone slightly awry. I hope that my hon. Friend the Financial Secretary, with his customary clarity, will be able to explain it to me more clearly.

A major gap in the Government's armoury is public sector pay. There is only one element of policy that can drive a coach and horses through the whole strategy, and that is if the Government turn out to be a feebler employer than anybody else. If the private sector, which will be under tremendous pressure, watches the public sector giving pay rises that subvert the whole system, we shall have high unemployment in the private sector, which will be caused by the Government's weakness. It is necessary for the Government to stand firm. That may mean talking about norms and targets in the public sector. We should not be too squeamish about that.

Industrial firms in the private sector will go through a hard time in the next 18 months or two years. The so-called "fiscal adjustment" in paragraph 12 of the Red Book means tax cuts. I hope that we shall start talking well in advance to industry about how the resources, when available, are to be channelled into industry. To some extent lay-offs and bankruptcies may be prevented if those in industry can see some real light at the end of the tunnel and if they are already in discussion with Ministers about it. The discussion should include dramatic cuts in employers' contributions and major cuts in corporation tax.

I end with a few sentences on what I believe should be the attitude of those of us who worked for a different economic policy in the past. If the Government are seriously wrong in what they are doing, they are very seriously wrong. It is not very honourable for those who disagree with their policy merely to distance themselves from it. One should come to a conclusion about whether the strategy is right or wrong. I have attempted to the best of my ability to reach a judgment, and I believe the strategy to be right. Those who doubt that judgment, as it is their perfect right to do, should openly oppose the strategy. If they do so, I hope that we shall have a more useful and open atmosphere. It is not satisfactory simply to distance oneself from it in the hope that it will fail.

With an eye on the clock, and having passed over many other points that I wished to make, I give way to the hon. Member for Norwich, South (Mr. Garrett).

9.5 pm

Mr. John Garrett (Norwich, South)

Uniquely this year we can examine the provisions of the Budget, the medium-term economic assessment and public expenditure plans for the coming five years at the same time—and a unique record of Government-induced collapse they reveal. The full weight of that economic collapse falls on poor families and the sick. I hope that Government Ministers listened to the most moving speech by my hon. Friend the Member for Brent, South (Mr. Pavitt) about the direct suffering likely to be caused to the sick who happen to be poor as a result of the increased prescription charges.

The Budget is an outright attack on the personal and living standards of the working class, which is hardly surprising. The Government are led by a Prime Minister whose only memorable executive achievement before becoming Prime Minister was to take milk off school-children.

Looking back on last year's opportunity Budget, the Financial Times on 26 November came to the conclusion, which we clearly forecast, that there would be no significant net gain from that Budget for anyone earning less than £15,000 a year. The result of this year's consolidation Budget is that only those earning £15,000 a year and over—some say £30,000 a year—will benefit. It seems that £15,000 a year is the entry qualification for membership of the Tory beneficiaries' club It is therefore natural to conclude that it is a class-motivated Budget. The working class will suffer greatly and those earning £15,000 a year or more will gain much.

I have spoken in every public expenditure debate for the past six years. On every occasion I have tried to draw the attention of the House to the inadequacies of the public expenditure White Paper as the basis of information for parliamentary scrutiny. It is a matter of as great importance to Conservative Back Benchers as to the Labour Party. This public expenditure White Paper is the worst of the lot. Most programmes after 1981 are simply shown as empty boxes. We have no idea of the decisions and priorities that the Government attach to individual programmes.

I and Select Committees have argued in the past for the presentation of spending and revenue together, but on a comparable basis and in a form that allowed the House to examine the objectives of spending programmes and the way in which they are intended to meet the needs of the people at whom they are aimed. The response of the Treasury has been to display with the spending programmes a few statistical tables that cannot be related to individual programmes in any way, and it has kindly supplied us with a reading list at the back of each section.

It is a pity that the Treasury has not displayed measures of need—and measures of need can be constructed and many are available—for social services or housing, for example. To do so would have indicated how little these programmes meet the needs in our community, particularly of the poorest.

I hope that the new Select Committees will take the White Paper as the basis for their future investigations and call Ministers to account for the decisions that they represent and officials to account for the way in which these programmes are managed. I hope that they will ask Ministers precisely what the policy objective is behind each spending programme and programme category and what is the justification for the decision which has been made.

This approach has always seemed to me—it is basically a non-party-political question—to be much more sensible behaviour on the part of a Select Committee than the single-issue studies which Select Committees in the past have carried out on issues of the day. Departmental Select Committees represent an excellent opportunity to comb through the spending programmes of individual Departments and ask Ministers and officials to justify them, and I hope that that is what they will do.

A most interesting feature of the Budget and the public expenditure White Paper taken together is that they amount to a national plan for the next four years. This plan goes much further than the modest attempt at indicative planning attempted by my party in the 1960s. This is not an indicative plan. This is a centralised or dirigiste plan, with specific targets for economic indicators to which members of the Treasury Bench have nailed themselves. These targets are, of course, the totems of monetarism—money supply and the public sector borrowing requirement, to which everything else—output, employment, living standards, the quality of life—is made subservient.

So what does this Tory Gosplan reveal? It shows an unprecedented downward spiral, followed by years of relative decline, followed by an unprecedented cash offer of North Sea oil revenues in the form of tax reliefs at the time of the next election. It is an exercise in political cynicism.

The present Government must be the only Government in the world who have presented to their people a national plan for inflation at 14 per cent. to 20 per cent., over 2 million unemployed—some say 2½ million or more—the destruction of housing and social services programmes, and a reduction in education standards—in other words, the dismantling of the Welfare State.

Some of my friends and some journals say that there must be a U-turn—"Sooner or later the Government must describe a U-turn." I do not believe that at all. The Prime Minister is far too inflexible for that. I believe that the whole structure will eventually collapse from wet rot. Those hon. Members—and we had a very good example from the speech of the hon. Member for Bristol, West (Mr. Waldegrave)—in what is really the main stream of one-nation welfare Toryism, which has carried the Tory Party through the greater part of this century, are now described as "wets"—vilified as "wets". But I think that wet rot from them will eventually undermine the Tory Party and that the Labour movement will push the whole rotten structure over.

The recession and the slump that we are about to see will be worse in Britain next year than anywhere else in Europe. That is what the OECD has said. As Dr. Budd of the London Business School has said, there is no call to add to the world recession a self-imposed constraint to reduce the PSBR year by year regardless of the state of the cycle. The fact is that every 100,000 extra people unemployed cost £110 million in benefits. So high unemployment causes a high borrowing requirement, which in turn is given as a reason for tightening monetary policy still further, and so creating more unemployment. Therefore, we gradually wind ourselves further and further down into a pit of unemployment. The resulting strategy for prosperity will cripple manufacturing industry. As the Financial Times observed, the big unknown factor is how industry is going to survive the period of transition. I cannot imagine the Financial Times describing an industrial collapse as a "period of transition" if a Labour Government were in power.

Cuts in the public sector will give rise to the most acute social tensions. In social provision and benefit, some of my hon. Friends have said that with this Budget and the White Paper we have returned to the 1930s. But it is much worse than that. In the 1930s the Government cut benefits by 10 per cent. between 1928 and 1934, and the social tensions were acute, yet in that time prices fell by 14 per cent. Today's cuts are an absolute reduction in the standards of living of the poor. The Government are actually making a deduction in lieu of tax from thousands of people on the poverty line who are too poor to pay tax.

The previous White Paper began by saying: The Government believes that public expenditure is at the heart of Britain's difficulties. This belief is based on several myths about public expenditure in Britain. The first is that it is exceptionally high, but, as my right hon. Friend the Member for Leeds, East (Mr. Healey) pointed out on Thursday, general Government expenditure, on the EEC definition, at 42.7 per cent. of gross domestic product is well below the EEC average of 46.8 per cent. and substantially below that of West Germany and France.

Social expenditure in Britain is planned to fall to less than 20 per cent. of GDP in the planning period, whereas in seven of the other eight countries in the EEC it is planned to rise to between 24 and 31 per cent. of GDP. The rest of Europe reacts to a coming recession by increasing social expenditure, but we cut ours still further.

Total tax revenue as a percentage of GDP, at 35 per cent., is lower in Britain than in Holland, France or Belgium—countries that have a far higher economic growth rate, year in and year out, than we do. Britain's public sector deficit is also lower than the EEC average.

There is also the myth of crowding out—that public expenditure prevents growth in the private sector. That is not true either. In the past, cuts in public sector investment have been accompanied by increases in private investment of only one-third as great as the cuts. In other words, if we cut by £4,500 million we see an increase in private investment of £1,500 million. In addition, with 1½ million unemployed it is clear that there is no case for saying that the public sector is soaking up scarce manpower.

The Tory Party assiduously cultivates the idea that much of public expenditure is dispensed by parasitic bureaucrats to parasitic scroungers. In fact, public expenditure underpins our economy and has funded the great social, cultural and scientific achievements of our society for which Britain is held in the highest regard abroad.

The BBC has had its outstanding achievements—and anyone who goes abroad will know how highly the BBC is thought of—rewarded by a cut of £132 million. Our subsidised theatre, a glory of our national life, is being murdered by VAT and by local authority cuts. Our universities, internationally recognised for excellence and with spectacular achievements in, for example, biochemistry and astrophysics, are rewarded by a 2 per cent. cut in equipment allowances, a 3 per cent. cut in general spending and a level of student grants which is 5 per cent. below the level needed to maintain their value.

Mr. Grieve

The hon. Gentleman has listed a number of cuts of which he plainly disapproves. Does he think that no cuts should be made? If he thinks that any should be made, where should they be made?

Mr. Garrett

At this stage in the economic cycle there is no need for any cuts in public expenditure. My right hon. Friend the Member for Leeds, East left behind a programme of steady growth in public expenditure, and that seems to me well justified.

The social effects of the White Paper fall primarily on the services to our local communities provided by local government spending. Local government spending is being reduced 10 times more than central Government spending. We can now foresee the ending of local authority housing altogether, yet all of us every week meet people who are desperate for council houses. What will young couples who want to rent a house do in future? The answer is clear. They will be lodgers for years—with their in-laws, with friends or with strangers—with all the problems and difficulties that that implies.

There will be 40,000 fewer children in nursery schools as a result of the cuts. Hitherto it has been a common policy between the two sides of the House that nursery expenditure should be increased. The capital investment of local authorities—roads, schools and social services—is hacked, hacked and hacked again—5 per cent. down in 1981–82, 6 per cent. down in 1982–83, 3 per cent. down in 1983–84. Think of the damage to social services provision. Cuts in this area fall directly on the most vulnerable members of our society, with cuts in residential care, sheltered housing, day care, meals services, holiday facilities and aids and adaptations.

The directors of social services departments have said that those mindless cuts will fall most heavily on the elderly, the physically handicapped and children. Next year, 28,000 fewer old and handicapped people will receive home helps, 1½ million fewer will receive meals on wheels, ½million children will no longer receive free school dinners—for many the only square meals they get in a day—and many parents barely above the supplementary benefit level will have to pay £5 a week for dinners for two children, to which the Government will contribute £1.50 in increased child benefit.

In East Anglia, the area of my constituency, where average income per head is the lowest in England, public expenditure—the social wage—is what keeps real poverty from the door. In Norfolk, home helps have already been reduced to two hours a week. The provision of places in old people's homes is already 700 short of the DHSS guideline. Day care for the mentally ill is only 10 per cent. of the DHSS guideline. Day nursery places are one-sixth of the DHSS guideline. Yet hospital places for geriatric and psychiatric beds are based on the assumption that local authorities meet the guidelines. We shall see more and more elderly in particular pushed into hospitals because the community cannot care for them.

A recent Child Poverty Action Group pamphlet sums up the case on these cuts in social provision. It says: The current policy of cutting social expenditure is based on a total misunderstanding of the role and value of such expenditure in modern societies. Much of the spending on social services should be seen positively, as essential maintenance of the human factor of production, as investment in sickness prevention and cure, as investment in families and in the future generation, in social integration and in those such as the unemployed and elderly who bear the costs of economic policies and development. I turn to the industrial effects of public expenditure cuts. The reductions in spending by over £1 billion in four years on industry and employment programmes will undermine the prospect for economic growth that the Government affect to foresee in the mid-1980s. What could be a better investment for growth than training? Yet the increase in the youth opportunities programme is used to conceal a cut of 10,000 in the training opportunities programme, the closure of 20 skillcentres and the ending of the small firms employment subsidy. There will be a drop of one-third in the numbers trained in three years.

Britain clearly needs to train its young people in vocational subjects, in modern management and technology. In my constituency we have the largest college in East Anglia doing just that. I refer to Norwich city college, which is acknowledged to be highly efficient and successful. Even before the latest cuts, the lack of growth in its staff and equipment budgets—thanks to the Neanderthal Tories on the Norfolk county council—was severely hindering its effectiveness.

There have been reductions in courses, class sizes have been reaching 40, and there has been a lack of technicians, hindering the teaching of technology. The college now has an equipment allowance of £40,000 a year, for an investment in plant and equipment of £4 million. That means that it is allowed to replace its equipment every 100 years. What basis is that for equipping young people with the skills needed to cope with the microprocessor revolution?

Cuts in public expenditure will not allow us to maintain and modernise the transport system and the public works needed to sustain a modern and efficient economy. Our economy is falling into disrepair. At the same time, the effect on the construction industry is devastating. The fall in local authority and central Government building mean that next year the output of the construction and civil engineering industry will fall to the lowest level since 1963. A major industry, of enormous importance to the local economy, an industry with a low import content, an industry building the structure and sinews of a modern economy, will go the way of our manufacturing industry.

These public expenditure cuts will be followed by others. I believe that the Chancellor spoke of £700 million—I cannot work it out, but it seems to me that the figure is much closer to £1 billion—to hold cash limits at 14 per cent. when inflation is rising by 20 per cent.

Those are the hidden cuts that the Government will try to fudge. Perhaps the Financial Secretary will comment on them. It must be common ground between us and at least the "wets" on the Conservative Benches that what the Financial Times has called "surprisingly big cuts" in overseas aid are cruel, stupid and selfish. Their stupidity is illustrated by the fact that they fall primarily on bilateral aid—that is, orders for British goods. As the Financial Times said, the cuts are attacked as being shortsighted in unnecessarily damaging Britain's image abroad as well as its trade links", since the aid was mostly fed back in capital goods orders. The Government have contrived to damage the developing world and our own capital goods industry simultaneously.

All in all, as the TUC has said, we shall lose 200,000 jobs in the public sector and as many again in private industry. We are sure to have 2 million unemployed, and probably more.

Public spending not only creates jobs but saves the Exchequer unemployment pay and provides it with taxation and national insurance revenue. The Exchequer cost is much less than the public spending cost. It has been calculated that Labour's temporary employment subsidy actually had a negative Exchequer cost, which is why the EEC made us withdraw it. The small firms employment subsidy, which is to end, kept 60,000 people in work in January this year and helped the small firms sector that the Chancellor is always telling us he is so keen to assist.

What will be the effect on regional inequalities of chopping regional investment aid? In the real world of the regions, manufacturing industry is in collapse. One has only to look at the jobs lost in engineering in major closures and redundancies in January and February this year. At Mullard, 850 jobs were lost in television tubes, at British Leyland, 750 jobs in vehicles, at Borg-Warner, 700 jobs in automatic transmissions at Alfred Herbert, 700 jobs in machine tools, at Delta Metal, 850 jobs in copper and brass fabrication, at the Weir Group, 850 jobs in casting, at Massey-Ferguson, 1,500 jobs in tractors and harvesters, and at Stone Platt, 850 textile machinery jobs.

Our manufacturing base is collapsing after one year of incentive Government. The Government are calmly asking the management and workers to sit by while the great deflationary purge works its way through the economy. What will be left when the upturn comes, if it ever comes? I referred at the beginning of my remarks to a Government-induced economic collapse. It is worse than that. The public spending cuts will make it even more difficult for Britain to climb out of the hole that the Government have dug.

We shall not have the trained manpower we need to survive. We shall not have the infrastructure of service and transport systems. There will have grown a generation without work. I am sure that, before long, the Prime Minister and Treasury Ministers will be appealing to us all to pull together, to work for Britain and to behave as a whole community. But the bitterness and disillusion shown by this attack on the structure of the Welfare State will poison our community for a generation.

We are embarked on a great, mad experiment in which monetarism is used to teach the Labour movement a lesson. It will fail. Behind monetarism we can see the great horsemen of the Tory apocalypse—greed, indifference, selfishness and squalor. The people who have approved the Budget simply have no idea yet of the true effect of these public expenditure cuts. When they find out, they will realise how they have been cheated.

9.27 pm

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

We have been treated, if that is the word, by the hon. Member for Norwich, South (Mr. Garrett) to all the usual shopworn clichés of the class war. It was an essay in hyperbole that beggars description. The Budget that the hon. Gentleman attacked bore no relation to the Budget presented by my right hon. and learned Friend last Wednesday. The burden of the hon. Gentleman's serious content, if, indeed, there was any serious content, was that higher public expenditure was the solution to all our problems and that we should have stuck to plans published in the last public expenditure White Paper of the previous Government.

Before the hon. Gentleman develops this line further, he might have a quiet word with his right hon. Friend the Member for Heywood and Royton, (Mr. Barnett), who, as Chief Secretary in the previous Government, knows perhaps more about public expenditure than the hon. Gentleman. The right hon. Gentleman has already gone into print with the fact, manifest to pretty well everyone else in the Chamber, certainly on the Government side, that those plans were utterly unrealistic. An attempt to achieve them would have led straight to disaster. What agony the right hon. Gentleman must have suffered with his conscience when his right hon. Friend the Member for Leeds, East (Mr. Healey) was cutting public expenditure during his tenure as Chancellor. He should be thankful that there is no single year in the forthcoming years covered by this public expenditure White Paper in which we propose a 6 percent. cut, to compare with what was achieved by the right hon. Gentleman in 1977–78.

A number of valuable contributions have been made in the debate by various of my right hon. and hon. Friends. My right hon. Friend the Member for Worthing (Mr. Higgins) told me that he would be unable to be present for the concluding speeches. I should perhaps reply personally in writing to him about the points that he made with his characteristically informed comment and search for the truth. I shall, however, refer to one matter that he raised, because it was commented upon by other hon. Members during the debate. That was the proposal that cigarettes and tobacco generally should be abstracted from the retail price index. [HON MEMBERS: "Hear hear."] I see that there is fair support for that. There was support on the Opposition Benches as well. The hon. Member for Battersea, South (Mr. Dubs) nodded assent to that proposal. Other hon. Members have suggested that on much the same argument alcohol should be extracted from the RPI.

We may have views on this matter on health grounds, but the purpose of the RPI is to measure what happens to the retail prices of the things that people buy. Some people might bitterly regret the fact—I am a non-smoker myself—but people do buy cigarettes, tobacco and alcohol, so an index that excluded them would not be regarded as properly measuring retail prices.

However, we have introduced the tax and price index, which gives a better perspective to these matters by taking into account other things that people have to pay for, such as income tax and national insurance contributions. In relative terms, the weight of tobacco and alcohol is less in the TPI, although it is there. [Interruption.] That is wrong, but everything that the right hon. Member for Leeds, East says is wrong.

Therefore, those who support the abstraction of alcohol and tobacco from the RPI will at least accept the modification inherent in the tax and price index.

My hon. Friend the Member for Norfolk, North (Mr. Howell) asked why it will take two years to tax short-term benefits. I am grateful to him for his support for the move in principle. The reason is that it has to await the computerisation of the unemployment benefits system. That will not be in place to enable us to make the move before 1982.

My hon. Friend also asked whether we intended to tax supplementary benefit. The answer is that we do not intend to tax supplementary benefit as such. But, consistent with our other proposals, supplementary benefit to the unemployed and to strikers will be liable to tax in the same way as is the case with unemployment benefit.

Mr. Denzil Davies

While on the subject of supplementary benefit, and unemployment benefit in particular, will the hon. Gentleman now confirm that there is no intention to place cash limits on unemployment benefit or to cut other public expenditure further if unemployment increases faster than the forecast and more benefit has to be paid out?

Mr. Lawson

Of course there is no question of cash-limiting unemployment benefit. No one has ever suggested that there was. What I said was that our public expenditure proposals as a whole are reviewed each year and that, as a consequence, if the total public expenditure on unemployment benefit increased above that which was projected, that element would be taken into account in the review of public expenditure as a whole.

Mr. Davies

Does that mean, in effect, that if the expenditure on unemployment benefit is greater than the Government are forecasting, other public expenditure will have to be cut to pay for it?

Mr. Lawson

Not necessarily. As I said, the matter will have to be considered and taken into account in the review of public expenditure. The plans that we have put forward are the best projections that we can make in the circumstances.

Mr. Healey

The Minister has given an estimate for the increase in unemployment in the next 12 months, which is only half that of the lowest given by any independent institute—in other words, 300,000 against the 600,000 expected. He must come clean with the House. Is he really saying that if there is double the increase in unemployment the additional cost will be offset by further cuts in public expenditure? If not, what the hell is he saying?

Mr. Lawson

I am saying, if there is any increase—the right hon. Gentleman's record of forecasting unemployment was notoriously bad when he was in office. I do not blame him for that, because it is an extraordinarily difficult thing to forecast—

Mr. Healey

Would the hon. Gentleman mind answering the question?

Mr. Lawson

If, as I said, public expenditure on unemployment benefit exceeds what is expected, that will have to be taken into account in she totality of public expenditure, including the contingency reserve.

Mr. Healey

What does that mean?

Mr. Lawson

It means what it says. I am now moving on to the next point. I cannot spend all night giving a tutorial for the sole benefit of the right hon. Gentleman.

My hon. Friend the Member for Norfolk, North also asked about the "Why work?" problem, particularly in the context of child benefit. This was raised by others of my hon. Friends and I think also by the right hon. Member for Salford, West (Mr. Orme).

As from November, the problem will be mitigated—not enormously, but to a significant extent—by the very fact that child benefit will go up then by 18¾ per cent. whereas the child addition for supplementary benefit purposes will go up by about 16½ per cent. Thus, the percentage increase in child benefit, which people in work get as well, will be a little more. In addition, there will he an increase in the real value of family income supplement, which is of particular value to low-paid people in work.

Mr. Ralph Howell

Surely, my hon. Friend realises that child benefit to those in work is spread over 18 months and that those on social security receive 16 per cent. in a year. The "Why work?" problem has increased already and will increase further in November, when child support to those in work will be increased by 75p and to those out of work by 1.55p at least and £3.20p at most.

Mr. Lawson

My hon. Friend is slightly mistaken. Starting from present levels, in November child benefit goes up by 18.75 per cent., whereas the child addition for supplementary benefit goes up by 16.5 per cent. That is a fact. I ask my hon. Friend to reflect on that. He and I have plenty of time to discuss these matters on other occasions.

My hon. Friend the Member for Bath (Mr. Patten) made a number of points. He suggested that the public sector borrowing requirement perhaps should be larger than we have decided is appropriate. He thought that that might enable us to help industry through a reduction in the national insurance surcharge. We considered that seriously. The Chancellor concluded that the best way to help industry was to concentrate on getting the public sector borrowing requirement down and thus exerting a downward pressure on interest rates. Industry agrees with that approach.

My hon. Friends the Members for Bath and for Bristol, West (Mr. Waldegrave), in their West Country alliance, said that child benefit should have treatment parallel to that of personal allowances. I am sure there will he plenty of opportunity to debate that matter. It deserves the fullest debate.

Child benefit is not simply a replacement for child tax allowances; it is a replacement also for the family allowance, which was never indexed. If my hon. Friends examine the level of child tax allowances as they last existed in their full form and index that to November, they will find that the real amount of child support is not as great as that which is given as a result of the £4.75 level of child benefit.

My hon. Friend the Member for Bath further said that the problem for the Tories was to recognise economic realism while securing consent. He is absolutely right. The degree of consent from the people as a whole to this Budget is striking. The poll in The Sunday Times, which I am sure Labour Members will have seen, shows that no fewer than 57 per cent. of those who expressed a view believed that the Budget—it is a tough Budget, and we made it clear that it would be—was good for the country as a whole. Hon. Members from either side of the House who were in their constituencies over the weekend will have found that feeling among the people. According to the poll, the measure that received the greatest degree of consent was that which concerned changes in the social security system.

My hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) spoke of the fallibility of unemployment predictions. He is right about that. I believe the likelihood to be that unemployment will rise in the short term. My hon. and learned Friend was right to point this out—although I say this with no pleasure. But he was right to say that unemployment forecasts are particularly fallible. No one can say dogmatically what will happen.

Mr. Healey

The hon. Gentleman expressed the view that unemployment will rise. He made a speech the other day which, if not wet, was distinctly moist, in which he suggested that if there was a cyclical depression the public sector borrowing requirement should not be reduced so much. That idea seems to have been thrown out of the window by the Budget. Could the hon. Gentleman say why he said, a moment ago, against that background, that if unemployment rose other areas of public expenditure should then be cut? How is that consistent with the speech that he made—perhaps it was written for him by someone else—in favour of a stepped profile for the PSBR?

Mr. Lawson

What I said on that occasion was that a reduction in the public sector borrowing requirement during a recession should be relatively small. That was on the assumption that it was 4½ per cent. of GDP at the time. I had envisaged its going down to about 4 per cent. It has turned out to be 4¾ per cent. for the year just ended, and the Chancellor has decided that it should go down not to 4 per cent. but to 3¾ per cent. That is consistent with the fact that since I spoke on 21 January there has been a sea change in the level of interest rates overseas. So the level of borrowing requirement necessary in order to get a downward pressure on interest rates is that much greater. The difference between 4 per cent. and 3¾ per cent. of GDP for the borrowing requirement is nothing compared with what the right hon. Gentleman has been advocating.

My hon. Friend the Member for Kensington (Sir B. Rhys Williams) was concerned, as was my hon. Friend the Member for Loughborough (Mr. Dorrell), about the level of the exchange rate. Both seemed to think that the level of the exchange rate should be brought down. My hon. Friend the Member for Kensington mentioned three ways in which that could be done, including the export of capital.

My hon. Friend will be aware that we have completely abolished exchange controls, so allowing the free export of capital. He also suggested buying foreign currency, but that would inflate the money supply and thus be highly inflationary. He suggested a slowing down of oil production. I do not think that would be a sensible course at present.

My hon. Friend the Member for Loughborough twitted me about that, suggesting that since I had argued for devaluation in 1966, logically I ought to argue for devaluation now. I must remind him that conditions then were different. In 1966 the exchange rate was artificially propped up. Now, like others, we have allowed it to find its own level, as a result of market forces. And in 1966 the public sector borrowing requirement was about 2½, per cent. of GDP—very much lower than it is now. During the 1960s the level of inflation averaged 3 per cent. and public expenditure was a smaller proportion of GDP. There is no way in which I would advocate propping up the exchange rate by artificial exchange controls. That is not our policy.

Mr. Dorrell

Does my hon. Friend accept that in real terms the exchange rate is 10 per cent. above its level in the 1960s and that it is being propped up by the new factor of oil, introduced in the past three years? Does he accept that the Government could begin a capital outflow by early repayment of the £21 billion outstanding in official overseas debt?

Mr. Lawson

Early repayment which involved the purchase of foreign currency in the market would add to the money supply, be highly inflationary and prove more harsh for industry than the current level of the exchange rate.

Mr. Healey

When I repaid foreign debt early, I used the reserves. Why does not the Minister do the same, or does he not yet understand that that is possible?

Mr. Lawson

We are repaying foreign debt out of the reserves. That was a clearly stated policy in the 1979 Budget Statement of my right hon and learned Friend the Chancellor of the Exchequer. There is a limit beyond which it would not be prudent to repay debt out of the reserves.

I turn to the right hon. Member for Salford, West, who made a number of statements and asked a number of questions. I shall not have time to answer all his questions, most of which were the province of my right hon. Friend the Secretary of State for Social Services. The right hon. Gentleman said that the increase in our social security programme was due to increased unemployment. He poured cold water on the increase in spending on social security in the years ahead for that reason. But it is not true. The whole of the increase in the social security programme is accounted for by the increased expenditure on pensions.

The right hon. Gentleman was further concerned about the withdrawal of the earnings-related supplement. Its abolition does not come into effect until 1982. The 1981–82 contributions on which it is based have not yet been set. When they are set, they will take into account the fact that there will be no earnings-related supplement paid.

However, the supplement is only about 1 per cent. of the total amount of national insurance benefits paid. So it will make an insignificant difference to the level of contributions into the national insurance fund on which the Government settle. That will be determined by the larger benefits, such as pensions. Because of the rising number of pensioners relative to the working population, the likelihood is that contributions will rise. It is a much larger factor in the equation than the relatively small effect of the abolition of the earnings-related supplement.

Mr. Orme

Is it not a fact that in the last year of that proposal people will contribute to a benefit that they will not receive?

Mr. Lawson

They will contribute to benefits as a whole. There will be no breaking of any contractual obligation. Title to earnings-related supplement is determined by the benefits paid in the previous year. It is a pay-as-you-go system rather than an insurance system. The right hon. Gentleman is aware of that. There will be no contributions for earnings-related supplement paid in the preceding year. So, there will be no legal entitlement the year following this.

I must be fair to the Liberal Party. I understand that the hon. Member for Truro (Mr. Penhaligon) asked about the arrangements for the employers' payment of employees' sickness benefit. I can tell him that a consultative document on this will be coming out in a few days' time.

The striking aspect of contributions from the Opposition, starting with that of the right hon. Member for Salford, West, is that they are wholly out of touch with the people of this country. They have made it absolutely clear that they support what my right hon. and learned Friend has done in his Budget.

The Opposition are also out of touch with the economic imperatives described by my right hon. Friend the Secretary of State for Social Services. They are out of touch, too, with what is happening in the world. The problem of inflation is a worldwide problem. Throughout the world over the past 12 months inflation has increased sharply and is now well into double figures. The whole Western world has concluded that the only effective way of meeting the problem of curbing, curing and mastering inflation is through monetary policy. That is why, again throughout the world, interest rates have risen sharply over the past 12 months. In fact, pretty well throughout the world, interest rates have risen by the same amount as they have in this country—by about 6 per cent. The fact that there is this worldwide rise in interest rates makes it that much harder for us to get our interest rates down.

Mr. Healey

Why?

Mr. Lawson

Because there is a world market in money about which the right hon. Gentleman should know. Hence my right hon. and learned Friend's determination to make a major cut in the public sector borrowing requirement this year.

Mr. John Garrett

Will the Financial Secretary give way?

Mr. Lawson

No; I have very little time left.

Mr. Garrett

rose—

Mr. Lawson

Very well, I give way, but this is for the last time.

Mr. Garrett

Will the hon. Gentleman reply to the question asked by my hon. Friend the Member for Stockport, North (Mr. Bennett)? I think that it was important. I know that the hon. Gentleman intends to slide out of answering these questions. Why has the due date for up-rating pensions been moved from 10 November to 26 November? How much public expenditure does that save?

Mr. Lawson

That is a question that my right hon. Friend the Secretary of State for Social Services will be able to answer. To quibble over a couple of weeks is absurd.

Throughout the world we have seen interest rates rise, and there is some argument whether our methods of monetary control are the best or the right ones. That is somehting to which we have addressed ourselves in our Green Paper on monetary control. However, there is no way in which the quantity of money and the price can be controlled. If there is any effective control of the quantity of money, whether that is done by controlling the supply or controlling the demand, the effect must from time to time be to make interest rates rise.

It is in the world context that my right hon. and learned Friend's first two Budgets must be seen. The two have frequently been contrasted, yet there is a single strategy running through them. That strategy is to cut public expenditure in order to achieve the cut in the public sector borrowing requirement that is so crucially necessary. Of course, there have been changes within the tax system. In last year's Budget there was a fairly dramatic switch from direct taxation—income tax—to indirect taxation—taxes on spending. This year there was the enterprise package.

Since the Opposition are in the mood for good news, I have a further bit of good news to give them. We shall be legislating this year to deal with a longstanding and, in our view, justifiable complaint by the managers of authorised unit trusts that the tax regime that applies to them discourages them from investing in gilts and debentures.

In order to remove what is in practice a restriction on the range of unit trusts that management companies can launch, we shall be providing in the Finance Bill for income tax—instead of corporation tax—treatment to be applied to the income of authorised unit trusts which under the terms of their deeds may invest only in United Kingdom interest-bearing sources and have only individual unit holders. For this purpose they will be treated as trusts. Like other authorised unit trusts, they will also, of course, enjoy the new exemption from capital gains tax on their chargeable gains.

Overall, in the two Budget Statements there has been no significant change in the total burden of taxation. Last year there was a switch in taxation rather than a change. We have concentrated instead on getting the public sector borrowing requirement down, from 5½ per cent. in 1978–79—the last year in which the right hon. Member for Leeds, East was Chancellor—to 4¾ per cent. of GDP in the year now ending, and 3¾ per cent. of GDP for 1980–81.

Some people say that we do not have a fiscal policy, but we do. Had we kept the PSBR at the level of 5½ per cent. there would have been a PSBR for 1980–81 of £12½ billion instead of £8½ billion. In other words, we have cut the PSBR by £4 billion—one-third.

What would the Opposition have done? They cannot say that the public sector borrowing requirement does not matter. The right hon. Member for Leeds, East described it as the Chancellor's biggest error. What the Opposition think it should be is somewhat obscure, but the right hon. Gentleman has never admitted that the 1978–79 PSBR was too high. He says again that it was not. He has also held that it should rise in a recession.

Mr. Pavitt

On a point of order, Mr. Speaker. Is it not in the tradition and courtesy of the House that when a Minister replies, he replies to all hon. Members? The Financial Secretary has not dealt with any of the points raised by Labour Members.

Mr. Speaker

Order. The Minister must make his speech in his own way. It is not for me to tell him how to make it.

Mr. Lawson

I have done my best to treat the contributions on their merits. The right hon. Member for Leeds, East said, and he agrees now, that the public sector borrowing requirement should rise in a recession—so presumably it should be more than £12½ billion. Perhaps it should be £13 billion, £14 billion or £15 billion. The right hon. Member cannot answer that. He and the Opposition Front Bench—whatever the interesting policies on the Back Bench—have no policy except one of "leave it to Denis". The trouble with "leaving it to Denis" is not only that it is lacking in intellectual rigour but also that, unfortunately, people can remember what happened when they "left it to Denis". That is why they voted the Labour Government out of office at the last general election.

The most important aspect of the Budget is not next year's PSBR—important though that is—but the mediumterm financial strategy. For the first time a Government have published a financial strategy to master inflation and to restore the economy to health in four years. It sets out a coherent policy that is confined to what the Government can control. That is in contrast to a national plan. It is based on prudence and caution.

Mr. Healey

The Chancellor has proved in the last year that he has failed to control the money supply, which has run well above the rate that he has set for the 12 months. How can he say that he can control the money supply when he has failed to do so, and why should anyone believe his projections for the future when his record in the past is so bad?

Mr. Lawson

We inherited an appalling acceleration in monetary growth from the right hon. Gentleman, but it is now under control. During the last four months the annual rate of growth of sterling M3 has been 10 per cent.—well within our monetary guidelines. Our strategy is to get monetary growth down to 6 per cent.—and, contrary to the right hon. Gentleman's assertion, the new target represents no relaxation. We envisage getting the PSBR down to 1½ per cent. of GDP while maintaining our existing public expenditure plans. North Sea oil revenues will thus be used largely for the benefit of industry—through lower interest rates. At the end of the day we envisage a fiscal adjustment in the form of scope for the relaxation of taxation in 1982–83 of about £3½ billion at 1980–81 prices and a further £1½ billion in 1983–84.

This is not just a Budget for the coming year; it is a Budget for the 1980s. As such, I have no doubt whatever that it deserves—and, indeed, that it will command—the confidence of the whole House.

Debate adjourned.—[Mr. Cope.]

Debate to be resumed tomorrow.