Finance Bill

HC Deb 13 April 1981 vol 3 cc35-112

Order for Second Reading read.

4.28 pm

The Chief Secretary to the Treasury (Mr. Leon Brittan)

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

Before considering the main clauses of the Bill, I would like to put the Budget in the context of our overall economic strategy. Proper analysis of the Budget obviously cannot be considered in isolation from other economic developments and actions of the Government. The Budget is another stage in our long-term strategy to meet long-term and very deep-seated problems.

First and foremost among the objectives that we have consistently to put at the forefront is that of reducing inflation. Not, I hasten to add, because inflation is a greater social evil than unemployment, but because lower inflation is an essential condition for lower unemployment to be attained and sustained. Hard experience of recent history in the 1960s and 1970s suggests that, although the relationship is not a precise one, an acceleration in inflation tends to be followed by a rise in unemployment.

Recent history also suggests that "reflation" simply does not work; it leads to more inflation and higher unemployment. The problem of the economy is not the lack of monetary demand. Between 1977 and 1980, for example, total final expenditure on goods and services rose by more than 50 per cent. in money terms but only by 5 per cent. in real terms, and the GDP rose by less than 2 per cent. over this period. The vast bulk of the increase in demand was transmitted into increased imports of goods and services—which rose by more than 10 per cent. in volume—or higher prices for final output—which rose by nearly 45 per cent.

That is also why those who describe the Budget as deflationary misunderstand the basic objectives of the strategy. The misunderstanding comes from looking at the Budget in isolation rather than in the context of the Government's whole policy, including their expenditure response to the recession. In this latter sense, as our debate last Thursday showed, the Budget cannot possibly be described as deflationary.

evertheless, it is said that the Budget is deflationary because, faced with the prospect of a PSBR of about £14 billion if we left tax rates unchanged in money terms, we chose to take action in the Budget to bring it down to £10½ billion. But taking this action was essential to pay for the spending that we had already decided was necessary: for example, higher spending on special employment measures and on corporations such as the BSC and British Leyland. That sort of spending can hardly be regarded as deflationary.

Mr. Peter Shore (Stepney and Poplar)

The right hon. and learned Gentleman is arguing that it is not deflationary, but I am sure that he will accept, whatever he may argue about the difficulty of raising money to cover an extended public sector borrowing requirement, that if he reduces the PSBR by some £3½ billion that is bound to be deflationary compared with the position that existed before the Chancellor of the Exchequer presented the Budget.

Mr. Britton

The point that I was making—I have made it in earler debates, and it remains as valid as ever—is that we have to look at both sides of the equation. I remind the right hon. Gentleman that it is not just a question of paying for past expenditures. It is also a case of the future financing of expenditures about which decisions have been taken but in respect of which the money has not been spent. If we are committing ourselves in the future to higher spending than planned as well as incurring it in the immediately preceding year, the two have to be taken in context and together. If we do that and we decide to finance it in the way that I have described, the total as a whole is not deflationary.

Let me proceed to the second long-term objective of policy. It is to improve the "supply" side of the economy. Because inflation increases uncertainty and discourages risk taking, and hence investment and new enterprise, this objective is linked closely to the reduction in inflation. But the Government also have a role to play in improving fiscal incentives—by, for example, encouraging greater efficiency in the markets, especially in the labour market. The Government have moved some way in this direction already. We have abolished controls on prices, wages, dividends and foreign exchange movements. In the present Budget the further help given to new and small companies is an example of further movement in that direction.

Of course, the Government's role in this area is essentially limited to that of creating the right conditions in the form of a stable financial framework and improved incentives.

It is with these objectives in mind that the Budget must be seen as part of our continuing medium-term strategy. Restraint of the PSBR inevitably has meant tough decisions on taxation this year, but within the overall decisions that were necessary we have attempted to shield non-oil, non-bank business. Indeed, we have given significant help to industry. The brunt of the Budget tax increases has been borne by banks, oil companies and the personal sector. It is these sectors which have suffered least from the effects of the recession—in the case of banks and oil companies, high interest rates and rising real oil prices respectively have been important factors benefiting those concerned.

But for industry as a whole the picture up to 1980 has frankly been grim: while real personal disposable income between 1977 and 1980 rose by about one-sixth, real disposable income of industrial and commercial companies fell by nearly one-quarter. Naturally the CBI and others would have liked more relief for business. We would have liked to be able to give it, but within the strict targets that we had set ourselves there was simply not enough room to provide across-the-board help.

Some significant selective relief, however, is going to industry. First—I stress above all—there are the benefits of lower interest rates, which the CBI has estimated to be worth about £350 million a year for each 1 per cent. reduction. Short-term interest rates have come down five percentage points in the last nine months and are now below rates in the United States and Germany and most other OECD countries.

Secondly, there is the improved stock relief scheme, worth £180 million in 1981–82 and £400 million in 1982–83. Thirdly, there are the energy measures to relieve bulk users of electricity and gas. These are worth some £120 million in 1981–82.

Fourthly, there are the specific measures to encourage enterprise and small business, including an entirely new tax relief in the form of the business start-up scheme. These measures are much more significant than their revenue costs alone might imply, because of their implications for revitalising the enterprise sector.

Taken as a whole, the Budget measures enable us to look to the coming year with greater confidence. First, the annual inflation rate has fallen from the peak of nearly 22 per cent. to 12½ per cent. in February. The underlying rate is even lower—not much more than 10 per cent. Moreover, inflation is forecast to fall into single figures early next year.

Pay settlements have decelerated, too. The CBI figures show that the trend of settlements in manufacturing industry is firmly in single figures". In comparison, manufacturing settlements were running at about 16 per cent. last July. Similar deceleration is found in other sectors, including public services. Since last August, underlying average earnings have risen by only ¾ per cent. a month—less than half the increase in the earlier part of 1980. This is still too high.

Competitiveness in industry has declined by between 40 per cent. and 50 per cent. over the past three years, mainly because of higher unit labour costs. There must be a further substantial reduction in wage increases in the next pay round if we are to reverse the decline in competitiveness. The House will bear in mind that the more and the faster we can do this the greater will be the headroom for higher output and the better the prospects for jobs.

There are already some encouraging signs. Output is likely to be on a rising trend over the coming financial year, 1981–82. This is not just a Government forecast. As the Treasury Committee report noted, reputable outside forecasters also see prospects of recovery, and this expectation is reinforced by the behaviour of indicator series published by the Central Statistical Office. Longer leading indicators have been rising since November 1979 and, shorter leading indicators since November 1980, and co-incident indicators have levelled out since last November. Also, more encouraging, the CBI and Financial Times business surveys and some anecdotal evidence from industry support that view.

Dr. Jeremy Bray (Motherwell and Wishaw)

rose——

Mr. Brittan

I shall develop this further.

Dr. Bray

rose——

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. The Chief Secretary is not giving way.

Mr. Brittan

Housing starts, which have so often been forerunners of recovery in the past, rose sharply in January and February and the House Builders Federation is reported to be optimistic about prospects for the industry in 1981. But I shall refer specifically to one piece of hard evidence for those, especially Opposition Members, who seem reluctant to accept my comments. There is hard evidence that the fall in output may be over.

Dr. Bray

rose——

Mr. Brittan

The February figures for manufacturing production, seasonally adjusted, were published this afternoon. They show a rise of 1 per cent. compared with January. For total industrial production the figures show a rise of ¾ per cent. Of course, not too much weight should be put on one month's figures. Everyone who has spoken from the Dispatch Box, whatever party he has represented, has made that qualification. I should be giving less than a complete picture to the House if I failed to point out that that factual information about what has happened, as opposed to predictions of what may happen, suggests increases of 1 per cent. and ¾ per cent. respectively.

The renewed growth that we are expecting will come, in the main, from the reversal of the factors that have been responsible for the sharp fall in activity for the past two years. Rapid destocking should come to an end and there should be a sharp decline in destocking in the second half of 1981. The savings ratio reached a record 17 per cent. in the second half of 1980. The reasons are probably closely related to the effects of inflation, as people save more to preserve the real value of their financial wealth. The savings ratio is likely to fall as inflation and inflationary expectations continue to decline. Most observers also expect an upturn in the world economy this year. There are good prospects for the beginning of recovery in output during 1981–82.

Mr. Terence Higgins (Worthing)

My right hon. and learned Friend speaks continually in terms of an increase in output. Presumably that is not likely to happen unless there is a prospect of that output being sold. Therefore, does it necessarily follow that he expects a corresponding increase in aggregate demand? If so, is it the Government's intention that that should continue?

Mr. Brittan

One must take into account the overseas aspect to which I referred. I am not expecting that the output will not be sold. However, I qualify that because I am not suggesting that unemployment will start falling immediately.

Mr. Nick Budgen (Wolverhampton, South-West)

rose——

Mr. Brittan

It is realistic to expect unemployment to continue rising for some time. The House will appreciate that that factor follows rather than leads when an upturn begins. The key point on which the Government rest their strategy is that the faster we can make further inroads into inflation the earlier we can expect unemployment to fall. It is in that context that the Bill provides for raising revenue and also for some relief in particular areas.

Among the Bill's most important features are the excise duties dealt with in clauses 1 to 9. I shall remind the House of some of the facts relevant to those increases. First, the real value of most of the duties has fallen substantially in the past few years. Our proposals do no more than make up some of that lost ground. Secondly, when additional revenue is required, on the whole it is preferable to raise taxes on discretionary expenditure such as drinking and smoking. Thirdly, the Government are committed to switching from taxes on earnings to taxes on spending. There is, of course, the health factor. Taken together, those considerations amply justify the increases proposed by my right hon. and learned Friend in his Budget Statement.

I fully recognise that the justification for the increases proposed in the petrol and dery duties has been rather less than readily accepted. I do not in any way seek to deny the depth of feeling on this issue, or to pretend that the increases are not extremely unwelcome to many people, but it is only right to put them in their proper perspective.

As I have said, one of the main purposes of the Budget was to limit public borrowing. That could be done only by putting up taxes, and a major part of the increase—almost half—consists of an extra £1,200 million from the duty on petrol and derv. To suggest that anything approaching that sum could have been raised from further increases in the other indirect taxes is wholly unrealistic.

Some people have tried to suggest that there were alternatives. We have, for example, been pressed to increase the taxes on gambling. But the total revenue from gambling taxes is only £510 million—less than half the increase in petrol and derv—and the main gambling revenue raisers are already close to the point of diminishing returns. Other suggestions that have been made in good faith are a tax on space invader games, which would probably raise less than £5 million, and an increase in dog licence fees, which would bring in only £3 million I mention those suggestions not to pour scorn on those who support them but to illustrate the scale of the problem. It has also been suggested that caravans should be taxed and that we should impose VAT on foreign package holidays. But caravans already bear VAT and their further revenue potential would be limited to a few million pounds. The Chancellor has made it clear that to impose VAT on foreign holidays would involve double taxation.

Mr. David Ennals (Norwich, North)

While the right hon. and learned Gentleman is fully justified in imposing a 20p increase in petrol prices, will he explain why he voted against the 4p increase in the price of petrol introduced by the Labour Government?

Mr. Brittan

I do not take the view that every change in an individual revenue, whatever the time and date or the circumstances when it is introduced, justifies the same response. That is an absurd proposition. It is like saying that either one votes for a tax or against it, never mind how much, why, or when. That is patently absurd.

Mr. Roger Moate (Faversham)

Will my right hon. and learned Friend accept that there would be a much greater willingness to accept petrol duties if, at the same time, we were not imposing the immediate and direct extra burden on industry through the increase on derv? Does my right hon. and learned Friend agree that if there were scope for alleviating the burden of fuel duties we should find a way of helping industry, perhaps by reducing the total amount of dery duty? That would gain wider acceptance.

Mr. Brittan

I am grateful to my hon. Friend for making that point and expressing his view of what would be acceptable. As I have said, I accept to the full that the increases on petrol and derv duty are much disliked by private motorists and businesses. But it is right to look at the extent of the burden that they impose. Even after the increases, the tax on petrol in now less in real terms than it was in 1970 or, for that matter, in 1960 or 1950. Before the Budget, the price of petrol in the United Kingdom was the lowest in the European Community, except for Germany, and the price is now broadly in line with that in the rest of the Community.

Moreover, a number of important activities will not be affected by the new duties. Tractors and others farm machinery are not affected by the new duties. Tractors and other farm machinery are not affected; nor are fishing vessels, glasshouses, diesel trains and stage bus services.

I recognise that people living in rural areas are worried. They often have to travel long distances to work or to do the shopping, and depend on the motor car. Representing a rural constituency as I do, I am only too well aware of the strength of this feeling. Some people are particularly badly affected but, looking at the picture as a whole, one has to accept the evidence of independent studies, which suggest that while rural motorists travel, on average, about 8 per cent. further per year than urban motorists, the extra mileage can often be balanced by better fuel consumption per mile.

Mr. Albert McQuarrie (Aberdeenshire, East)

If my right hon. and learned Friend is quoting from the Open University urban study, he has got it all wrong, for the simple reason that it was also clearly stated that the average British motorist in urban areas, as against rural areas, had to use only six more gallons per annum.

The important factor is that the 1981 price—never mind 1970—to a person in a rural area is 20p more, on top of the 20p that the Chancellor of the Exchequer is seeking to impose. That is the problem. It is a question not of the price in 1970 as against 1981 but of the extra cash that the rural motorist now has to find.

Mr. Brittan

My hon. Friend, in making that point, was referring to factors other than the tax increase that we are debating, although I appreciate that he is entitled to raise those points as well.

When all is said and done, I absolutely accept, and have not in any way sought to deny, that the fuel duty increases are bound to be unpopular with many people—understandably so—but they are necessary if we are to achieve our main objective—a sustained reduction in the rate of inflation as a foundation for a healthy economic recovery.

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. and learned Gentleman must be ready for a forest of questions. That is quite usual in Finance Bill debates. He ought to be ready to interrupt his carefully prepared speech in order to answer some of these important points. The right hon. and learned Gentleman did not take account of what the hon. Member for Aberdeenshire, East (Mr. McQuarrie) was saying. It is not so much a matter of the cost. The problem is that a person in a rural area usually has no other choice. Other forms of transport are often no longer available, as they were a number of years ago. He must take account of that factor.

Mr. Brittan

I have not sought in any way to deny that there are parts of the country in which there were other forms of transport which do not exist at the moment. I am not seeking to deny in any way that that is a matter of considerable concern. I have not come to the House to say that none of this matters, or that it is a lot of hooey. I have not said that. I have said perfectly clearly that I accept and understand that many people, very reasonably, regard this as a real burden. I am not seeking to diminish it or to talk it away. I am merely trying to put it into perspective and to explain why it is necessary. That is quite a different matter.

Mr. Eldon Griffiths (Bury St. Edmunds)

Before my right hon. and learned Friend leaves the question of petrol, will he deal not with the alternative taxes—he and I were both elected not to increase taxes—but with the question whether there are other ways in which he can reduce expenditure to make up the difference?

Mr. Brittan

I assure my hon. Friend that I welcome his support in the efforts that every Chief Secretary has to make, and that I shall most certainly make, in dealing with the expenditure side of the equation.

I believe that we are entitled, in the same way as we are in relation to indirect duties, to ask people this year to bear a somewhat heavier burden of income tax than any of us would have wished. I shall not pretend that the decisions involved in that were at all easy. Leaving personal allowances at the same level as last year is bound to increase the number of taxpayers. It will be unwelcome to taxpayers at all levels, especially those with small incomes. But since the higher rate threshold and rate bands are unchanged as well, the largest cuts in real income will fall, perfectly reasonably, on those with very high incomes.

As the House will be aware, the Institute for Fiscal Studies has come to the same conclusion, and the fully price-protectd increase in child benefit will be of particular help to families on lower incomes.

Some people have said that we should instead have increased the basic rate. That would have meant raising it by 2½p or 3p, and about 24 million taxpayers would have faced an increase of that amount in their marginal rate. The effect on incentives of doing that would have been intensely undesirable; that is why we have not proceeded in that way.

Like the other provisions dealing with the raising of revenue, the special tax on banking deposits must be seen in the context of the substantial effort that we are making this year——

Dr. Bray

rose——

Mr. Brittan

I shall give way to the hon. Gentleman in a moment, if he will bear with me. I am dealing now with the special tax on banking deposits, which must be seen in the context of the substantial effort that we are making this year to restrain the PSBR. The banks have benefited, almost inevitably, from the high interest rates of the last two years. These have made a substantial contribution to their high profits in that period, at a time when profits in the rest of the economy have been under increasing pressure, not least because of the burden of interest payments.

In these circumstances, and at a time when the Chancellor of the Exchequer has been compelled to increase the burden of personal taxation, it is reasonable that we should seek, for one year only, an extra fiscal contribution from the banks.

I do not accept the charge that this penalises success. We are taking a once-for-all contribution from the endowment profits of non-interest-bearing deposits. Without that contribution we could not have proposed the measures that we have proposed to help industry.

Mr. Richard Wainwright (Colne Valley)

The Chief Secretary described the tax on the banks as special. Will he agree that the tax is, in effect, restrospective? Will he justify that?

Mr. Brittan

I do not accept that it is restrospective if we take into account what was said during last year on this matter, and also the way in which a tax is levied in many other areas to which no doubt——

Several Hon. Members

rose——

Mr. Brittan

I have been trying to answer one point. It is extremely difficult to deal with more than one point at a time. In that context, I do not think that one can accept that the criticism is a valid one.

Mr. Tim Eggar (Enfield, North)

Presumably my right hon. and learned Friend was referring to what he calls the retrospective element of taxation on corporations and the self-employed. Will he name any company, or any self-employed person, who does not know how much he will be taxed or, indeed, whether he will be taxed at all on last year's profits, as was the position of the banks before the Budget?

Mr. Brittan

Although the nature of the tax may be substantially the same, the rate varies, so I am not sure that I accept what my hon. Friend said.

Dr. Bray

I am grateful to the Chief Secretary for his enthusiasm in giving way to me. I simply wanted to offer him my support, against his own Back Benchers, on the bank tax, and to point out that, despite the tax on banks and the increase in indirect taxation, a paper which his Department sent today to the Select Committee on the Treasury and Civil Service states that the percentage of money raised by income tax, national insurance contributions and child benefit on a person with average earnings has increased from 11.2 to 12.6 per cent. over the period since the Government took office. For a person on twice average earnings it has increased from 28 per cent. to 28.9 per cent. So the Government have failed in their objective of reducing direct taxation.

Mr. Brittan

Anything that the hon. Gentleman derives from a paper submitted by the Treasury must be uniquely accurate. I would not seek to dispute it. The hon. Gentleman fails to take account of the real and important fact of the comparative increase in real personal, disposable incomes over the last three years compared with the situation in the corporate sector. I do not disguise the fact that this Budget seeks to do something to redress that situation. If the chapter and verse are spelt out in the Treasury document, I am glad that it assists the hon. Gentleman.

Mr. Budgen

Will my right hon. and learned Friend give way?

Mr. Brittan

I wonder whether I could proceed a little further before I give way.

Mr. Budgen

I am the only person seeking to intervene to whom my right hon. and learned Friend has not given way. [HON. MEMBERS: "Ah".] I recognise that that was a bad point. A better point is to ask my right hon. and learned Friend to comment on his remark that because the banks had been warned in the last Budget, that was a sufficiently clear warning for the present levy not to be retrospective. If that is his argument, will he explain what the banks and other persons who may be warned in such vague terms are expected to do when somebody suggests that a tax is possible?

Mr. Brittan

I am glad to have given way to my hon. Friend because the last thing that I want to make of him is an object of pity. That would have been a real risk if I had not given way.

On the point about retrospection, it is a mistake to think that the word "retrospective" can be bandied about as possessing a single and exclusive meaning and that this is the end of the matter. It is much better and more genuinely accurate to describe exactly what happened, who said what, and what has been done, and then allow the House to draw its own conclusion. Otherwise, one is arguing about the meaning of words. [Interruption.] I am making a genuine point. The assumption is that "retrospective" is a bad word and therefore that one seeks to apply it come what may. [Laughter.] I am making a genuine point. The House may laugh if it wishes. One gets a much clearer picture of what has happened if one traces, as will be possible in Committee, what was said, by whom, and what expectations were aroused.

More substantially, in relation to what my hon. Friend says, it is not accurate to say that the banks were simply given a vague warning, brandished at them in the last Budget, and that they suddenly find this imposition. As the Chancellor has made clear, there were discussions with the banks when alternatives were explored. The banks made it clear that the alternatives in place of this form of levy were not acceptable to them. That was a view that they were entitled to take. I make no complaint.

Mr. Hugh Dykes (Harrow, East)

Will my right hon. and learned Friend give way?

Mr. Brittan

I think that this will be the last time that I can give way on this point. I do so with pleasure to my hon. Friend.

Mr. Dykes

I acknowledge that my right hon. and learned Friend has given way many times. Is his argument the same as saying that the exigencies of extra Government revenue raising far outstrip any other consideration in respect of the banks and that making them share in the general increase in taxation was secondary?

Mr. Brittan

No. I would not put it that way. It is not a question of the exigencies of Government taxation being primary, above all else. In the context of the cause of the bank profits, in the context of what was happening to industry and in the context of the Government's need for finance, and taking these factors as a whole, my right hon. and learned Friend concluded that it was reasonable this year to make that impost. Unless one looks at the various factors together one gets an incomplete picture.

So far I have been dealing almost exclusively with the revenue-raising parts of the Bill, but the legislation also provides reliefs to industry, to which I wish to refer.

The House will recall that stock relief was originally introduced in 1975 as a "temporary" measure. It has continued for much longer than could reasonably have been expected. Over the years, its defects have become increasingly apparent. In particular, clawback—the withdrawal of tax relief when businesses reduce their stocks—has become a major problem for many companies, and there has been some exploitation of the rules by artificial increases in stocks at the end of the year.

The new scheme tackles the worst abuses of the existing arrangements and abolishes clawback for all practical purposes for the normal continuing business. Industry will now be free to reach decisions about the optimum levels of stocks without fear of a crippling tax charge if they decide to run them down.

The proposals as a whole will be worth £180 million to business in 1981–82 and a further £400 million in 1982–83. I think that the House will agree that these are significant sums at any time, but particularly in present circumstances. A further advantage is that many more small businesses will benefit under the new rules.

Another valuable measure for industry is clause 69, which gives a boost to the construction, expansion or improvement of industrial buildings by increasing the rate of initial allowance from 50 per cent. to 75 per cent.—the first increase since 1974. In effect, we are increasing by half the amount of tax relief available on the construction of an industrial building, with the rest of the cost written off after about six years instead of 12 years. This complements the generous relief already available for investment in plant and machinery—the 100 per cent. first year allowance.

Mr. W. R. Rees-Davies (Thanet, West)

My right hon. and learned Friend raises an important question. Why have the Government decided completely to exclude the tourist industry? This is the more inimical because, instead of going up to the new level, it has dropped behind to 25 per cent. Why has the Government's admirable strategy of helping industry also excluded those in the tourist industry from the £10,000 relief scheme? This is a major field for additional job creation. There would be a real return if this investment was made to help the tourist industry.

Mr. Brittan

I shall be coming to the latter point. On the first point, there is a wide-ranging consideration of the whole of the tax and all its implications. That could not be concluded in time for the Budget, still less implemented. We were therefore faced with the choice of proceeding on the present basis but increasing the extent of the allowance, or doing nothing. Without prejudicing the future review that may or may not suggest that entitlement should be spread or varied in a different way from that now existing, the Government thought it was right to increase the allowance from 50 per cent. to 75 per cent.

Mr. Shore

Can the right hon. and learned Gentleman refresh the memory of hon. Members about the total sum involved in this increased concession to the building industry?

Mr. Brittan

It is comparatively small. I shall give it later if the right hon. Gentleman will bear with me. My right hon. and learned Friend the Chancellor, I think, referred to it in his Budget Statement. It is not a huge sum.

The increase in the allowance will benefit not only manufacturing but employment in the construction industry, which is particularly hard pressed at the present time. The construction industry will, of course, also benefit from the changes to development land tax contained in clauses 118 to 121, which remove unnecessary obstacles to development and encourage house building.

I will not need to remind the House that, for the second year running, the Bill contains a substantial package of measures aimed particularly at helping new and small businesses. The most important of these is without doubt the business start-up scheme covered by clauses 50 to 63. Many people starting up new businesses have difficulty in getting enough risk capital. As a result, many potentially worthwhile businesses may not get off the ground.

The clauses provide a relief to the individual "outside" investor to attract him into the field of venture capital. The outside investor in a qualifying company will be able to claim relief from income tax on risk capital up to £10,000 invested in any one year. He will have to leave his capital in the company for at least five years. The relief is to be given at the marginal rate so that new business can compete effectively with alternative uses for available funds.

Sir David Price (Eastleigh)

Is my right hon. and learned Friend aware that, as drafted, clauses 50 to 63 are so complicated that several of my accountant friends tell me that it will be difficult to give advice to the typical investor whom he has in mind? Can the legislation be made simpler so that it may fulfil his intention?

Mr. Brittan

There is considerable force in what my hon. Friend says. I was about to say that I know that some of my hon. Friends would have preferred a wider scheme and one which was less hedged about with apparent qualifications. But there are three points that I want to make clear now.

First, with so novel an initiative as the business start-up scheme, a measure of caution is inevitable. The scheme breaks entirely new ground. There is nothing like it in any other major country. The French loi monory, which is often held out as an example, is subject to much more restrictive limits on the amount which can be invested.

Secondly, the scheme concentrates on new corporate businesses, because that is where the main difficulties exist. It is intended not to encompass all forms of worthwhile economic activity but to deal with a specific, clearly defined purpose. Some concern has been expressed that the definition of an outsider would be so drawn as to prevent a shareholder participating in the scheme from also becoming a director. I am pleased to tell the House that clause 52(3) provides that a shareholder should not be disqualified from the scheme simply by virtue of becoming a director, provided only—this is important—that he is not remunerated as a director.

Thirdly, a number of commentators have suggested that a scheme of this kind could give huge opportunities for tax avoidance. Clearly, it might—that has not deterred us from introducing the scheme at a very generous rate—but it follows that the scheme has to include some pretty strict and detailed provisions to ensure, as far as possible, that it is not used for those purposes. That covers the point that was raised by my hon. Friend the Member for Eastleigh (Sir D. Price). Those of us who believe that the scheme has an important and useful role to play will agree that nothing would discredit it more quickly than if it were simply to become a tax avoidance vehicle. That should be avoided.

Mr. Dykes

I am sure that my right hon. and learned Friend would not wish to mislead the House unwittingly. He mentioned the French loi monory. Am I not correct in saying that that is a limited scheme for investing in quoted securities on the Stock Exchange only, and not a direct investment scheme in small companies?

Mr. Brittain

My hon. Friend is quite right. Nothing that I have said is inconsistent with his clarification. I said that the loi monory is the foreign legislation that is most commonly pointed to by analogy. I do not say that it does the same thing, but I am saying that it, too, has considerable limitations.

Mr. Michael Grylls (Surrey, North-West)

rose——

Mr. Brittan

I shall not give way. I want to go a little further before doing so again.

Finally, on specific taxes, I come to capital taxation. We remain committed to reducing the burden of capital taxation as economic circumstances permit, but it would be inappropriate to provide any major relief here in a year when we cannot increase the income tax reliefs. None the less, we have taken the opportunity to continue the process of improving the structure of the capital taxes, particularly capital transfer tax.

The measures that we are proposing include a new scale of rates for lifetime gifts, the limiting of the period of cumulation for the tax to 10 years, and an increase in the annual exemption from £2,000 to £3,000. Those changes should help to encourage lifetime giving, which has been seriously inhibited under the existing structure. We are also introducing a new relief at a rate of 20 per cent. for let agricultural land, which I hope will improve the supply of farms available to new entrants to the farming industry. I also hope that this change will ease the way to agreement within the industry on changes in the land tenure laws.

The cost of all these measures is relatively small—about £5 million this year—and in a full year it will be more than offset by the saving expected from the anti-avoidance measures affecting capital gains tax which are also in the Bill.

The Bill, as a whole, reflects and reinforces our priorities—sustaining the fight against inflation and helping to redress the balance of the economy in favour of business and industry.

Many people, including distinguished Members of the House, have spoken of the need to give this country hope. I share their view that that is essential, for revival is dependent on confidence, and confidence is dependent on seeing a more promising way ahead. But that promising way ahead must be credible. It must be realistic. It must be soundly based. The clearest possible signal that we could give of the way ahead was to reduce interest rates, but that signal could be responsibly given only if public borrowing could be held in check. That is why the PSBR could not be allowed to reach £14 billion. That is why the measures in the Bill are before the House. Some of them are painful, and many are controversial, but they are absolutely necessary for us to be able to offer hope of a way forward for the business community which will he a credible, sustainable way forward and not just another of the blind alleys into which Governments have so often steered the economy over the past generation. It is in that spirit that I commend the Bill to the House.

Mr. Deputy Speaker

Mr. Speaker has not selected the amendment in the name of the hon. Member for Bury St. Edmunds (Mr. Griffiths).

5.18 pm

Mr. Peter Shore (Stepney and Poplar)

At the end of the debate we shall vote against the Second Reading of the Bill. We had intended to do so in any event, but, having heard the Chief Secretary to the Treasury, we shall do so with even greater enthusiasm. The right hon. and learned Gentleman, along with his Treasury colleagues, lives in a curious world of make-believe if he can end his speech on a note of hope for British industry, in the light of the policies that his Government are pursuing and the two main propositions that he advanced.

The Chief Secretary told us, first, about all that the Government are doing to strengthen the supply side of the economy, yet the supply side of the economy is in greater disarray and nearer collapse than at any time in the experience and political memory of any right hon. or hon. Member. When the right hon. and learned Gentleman tells us that the major purpose of his counter-inflation policy is to increase employment he strains credulity to the very limit.

Some time ago I read about a theory of detours, in which, instead of going from point A to the objective, point B, one goes in precisely the opposite direction—to point C—in the hope that at some stage, by a distant and elaborate outflanking movement, one finally comes back to the original target. All that I can say is that those who engage in the theory of detour often do not arrive. I fear that that is true of the right hon. and learned Gentleman and his policies.

There are many charges to be made against the Bill. They will be the subject of many amendments, both on the Floor of the House and in Committee upstairs. Today I want to concentrate on the five major charges on which we indict the Bill. First, through its heavy increases in taxation it will add to the deflation that we are already so grievously experiencing and will consequentially reduce the capacity of the British people to buy from the output of their already seriously under-used factories, and therefore increase the level of unemployment, which is already at record heights. Secondly, the measures in the Bill increase the burden of costs upon our industries, already suffering from fierce competition at home and abroad. Thirdly, the tax measures single out particular industries for exceptional and disproportionate tax burdens. Fourthly, the Bill increases overall the burden of direct taxation on the British people and brings into the tax net hundreds of thousands of people on, by whatever standard they may be judged, very low incomes. Finally, the tax measures, both direct and indirect, on incomes and the changes in capital taxation are perversely redistributive and unfair.

Those are the charges. I deal first with the crucial question of deflation. Most of us have now had time to consider more carefully last Thursday's report of the Select Committee on the Treasury and Civil Service. In paragraph 5 it itemises the various tax measures announced in November 1980 and on 10 March this year, all of which take effect in the fiscal year 1981–82. Taking account of changes in expenditure, the net increase in taxation is shown by the Select Committee as £4.9 billion. I am prepared to accept, as I think others are, that the oil taxation measures and the special tax on banking deposits—whatever their other merits and demerits—are unlikely to have any significant deflationary effect, so we are left with a deflationary total of about £3.5 billion of extra taxation. The Select Committee concludes: These measures can therefore be seen as a tightening of the fiscal stance in 1981–82 compared with an unchanged policy position. This tightening comes at a time when the economy is already in deep recession. It can say that again. An alternative way of looking at the measures for 1981–82 would be to compare the change between 1980–81 and 1981–82 in the size of the PSBR measured as a percentage of GDP. Table 8 of the MTFS shows a reduction from 6 per cent. in 1980–81 to 4¼ per cent. in 1981–82. When challenged with that and other evidence of the deflationary effect of the Budget the Government have been extraordinarily evasive and, indeed, contradictory. The Chief Secretary on 11 March managed to persuade himself, but I think no one else, that the Budget could not be deflationary because the PSBR was to be larger in this financial year than the Government had originally planned for in the medium-term financial strategy published a year ago. That is nonsense, because what matters is not how this year's PSBR compares with last year's plans for the PSBR but how it compares with the outturn of 1980–81. I did not hear the Chief Secretary say anything today that carried him further towards safer ground.

The Chancellor of the Exchequer himself, winding up the Budget debate on 16 March, said something quite different: It is wrong to suggest—as some have argued today—that the Budget is too deflationary."—[Official Report, 16 March 1981; Vol. 1, c. 97.] The Chancellor's argument is not that the Budget is not deflationary but that it is not too deflationary. His principal defence was that we could not afford a PSBR larger than the £10½ billion set for this year.

I disagree, though I do not necessarily go so far as the right hon. Member for Taunton (Mr. du Cann), who is not present. He closed his speech last Thursday with these memorable words: All the cash in the world is available…if we just go out and get it. Cash is available at home and abroad on a massive scale. I have no doubt at all that the Budget strategy should have aimed to be less and not more deflationary than the Budget of 1980–81.

Then we have—where is he?—the ineffable Financial Secretary to the Treasury. He does not agree with the Chancellor. It is the Financial Secretary's contention that the Budget is not deflationary at all, or, to use the word that he prefers, contractionary. The Financial Secretary denies that the Budget is deflationary, and the Chancellor asserts that it is not too deflationary. They cannot both be right.

When challenged in the House last Thursday, and in response to specific criticisms by the Select Committee of his previous statements, the Financial Secretary subjected us to what those who heard it will agree was a flippant and arrogant discourse on the relationship between the growth of the money supply over the coming year and the growth of output that such an increase would allow. What it amounted to was that, on the best interpretation, monetary growth this year need not, in itself, have a deflationary impact. The assumptions about the growth of the money supply, the anticipated growth in the rate of inflation, and the relationship between the two, are all extremely precarious.

What is astonishing is that even if the Financial Secretary were by some strange accident to be proved right about the broadly neutral effect of monetary policy during the coming year he dismisses the impact of fiscal deflation as though it has no weight or meaning. His only comment on the matter was that his conclusion is in no way affected by a Budget which increased taxation to pay for increased Government spending."—[Official Report, 9 April 1981; Vol. 2, c. 1187–95.] But taxation is not simply to be increased this year to pay for increased Government spending. Compared with last year, it is to be £3.5 billion more. So how on earth can the Financial Secretary continue to assert that the impact of the Budget is not deflationary?

The adverse effects on unemployment, at any rate, are not in dispute. Although the Government evade the question, and although the Red Book takes the economic forecast only up to mid-1982, other sources—both official and unofficial—make the prospect all too clear. The public expenditure White Paper makes the assumption that unemployment will rise this year from 1.8 million to 2.5 million. Its assumption for each of the following two years is no less than 2.7 million—in all cases excluding school leavers. The CBI's latest forecast is that unemployment: will continue to remain on an upward trend throughout the forecast period to the fourth quarter of 1982…By the end of 1982 we expect a figure of about 3¼ million (unadjusted, including school leavers) or of about 3 million (seasonally adjusted, excluding school leavers). The latest post-Budget forecast of Phillips and Drew similarly estimates an unadjusted unemployment figure of 3.3 million by the end of 1982.

I shall not on this occasion dwell at length on the human tragedy and the waste implicit in those totals. The appalling events of Brixton are rightly in our minds, but I shall not argue that appallingly high unemployment, unemployment that disproportionately affects school leavers and the young, is the sole, or even the major cause of growing tension, crime and violence in many of our worst-hit inner city areas. But of one thing we can be certain—that when large numbers of young people are forced into idleness, and when they lose hope of gainful employment, there is a background all too conducive to mischief, crime and alienation from the wider society. As I pointed out in my speech on 11 March, although unemployment is already a tragic one in 10 for the whole nation, in the age group 16–19 it is an appalling one in six.

I come now to my second charge, that the Budget has not only failed to assist the competitiveness of British industry by reducing some of the fiscal costs that it has to bear but has actually increased, net, the total fiscal burden this year a year in which industry faces a continued fall in output and a corresponding fall in profitability. As the Chief Secretary must have read, the CBI's latest report gives a detailed account of the Budget measures as they affect industry. Those minor benefits that consumed a disproportionate amount of the speeches by the Secretary of State for Employment and the Chief Secretary, the former in the Budget debate and the latter this afternoon—the new stock relief scheme, the corporation tax changes as they affect small companies, and the changes in energy prices—total about £315 million. To that should be added, I suppose, the 75 per cent. initial allowance on the cost of industrial buildings.

I know the answer to my own question—as the Chief Secretary may be surprised to learn. I looked it up, as he did not have the figure himself. The cost of that massive concession to get going commercial and industrial building will be nil this year, £10 million next year and £25 million, it is hoped, by 1984. That is the kind of stimulus, the kind of nonsense, the building bricks without straw, the kind of make-believe, to which we are being subjected in this Budget and Finance Bill debate.

Against these minor concessions, the direct costs on industry are much more formidable. There is the increase in the duty on heavy oil for use in vehicles, business's share of the higher duty on petrol, the higher vehicle excise duty, and the increase in employers' national insurance contributions—above what had already been planned, or what was the minimum that could have been exercised in April of this year. The CBI puts these impositions at a total of no less than £865 million, so the net impact of the Budget is an increase of about £500 million to £600 million in the costs of British industry.

Even if one takes account of the 2 per cent. cut in the minimum lending rate, it is clear that in this, the worst year in the recent history of British industry, the Budget will contribute at most, including the cut in MLR, the tiny sum of £200 million. It is not surprising, therefore, that the CBI anticipates a continued fall of output this year and into 1982. Its estimate is that next year the volume of manufacturing output will, on average, be nearly 20 per cent. lower than it was in 1979.

I could not find much encouragement in this afternoon's index of industrial production figures released by the CSO and quoted by the Chief Secretary. February's figures are slightly better than January' s, but February's figures also show a fall of 9.6 per cent. for total industrial output in February of this year, compared with February of last year, and a fall of 12.1 per cent. in manufacturing output in exactly the same 12 months.

One thing that we know is that in the first quarter of this year we have had reported a record number of company liquidations—no fewer than 2,263—an increase of 51 per cent. on the first quarter of 1980.

Mr. Brittan

Reverting to the figures issued this afternoon, perhaps I may ask the right hon. Gentleman whether he agrees that, if he is looking back over the whole year, the picture is as we know it has been, and that the only new feature in the figures that appeared today are the figures relating to February, which is exactly where I described them?

Mr. Shore

One can compare one month's figure either with that for the previous month or with what it was the year before. I acknowledge that the Chief Secretary is entitled to draw what conclusion he can from the fact that the February figure was slightly better than that for January. I am simply saying what it was as compared with the figure a year ago. We must rein the two together.

I have mentioned the record number of bankruptcies and liquidations that have taken place. I am referring here to the well-respected information sheet published by Dunn and Bradstreet Ltd., which is well known to those who follow these matters. The notice carries the name of a Mr. Hugh de Wet. I realise that this is likely to arouse all the prejudices of the Prime Minister and the Treasury team, but I must insist that there is no reason to doubt the authenticity of the figures.

I simply cannot understand why the Government did not take the opportunity that the Budget presented this year to reduce the duty on heavy fuel oil, of responding to the NEDC task force's proposals on comparative energy costs, and of reducing, at least for manufacturing industry, the national insurance charge, and why they failed to take bolder action in reducing the MLR. Industry will pay the price for all these omissions.

Our third charge relates to the quite disproportionate burden that the Budget imposes through increases in excise duties on tobacco, alcohol and petrol. It is no less than £2,200 million this year. In normal circumstances I should not oppose the revalorising of excise duties, and I can also see a case for a careful and measured increase in these taxes, beyond valorisation, on both health and energy grounds, but I see no point at all in hitting these industries and their consumers with a sledgehammer in one year.

Among alcoholic drinks, beer has been singled out for the harshest treatment. An increase of 4p on a pint is an increase of no less than 38 per cent. in excise duty. Wines and spirits are treated far less harshly. What on earth is the justification for so heavy and so selective an assault? I fear very much the repercussions of this on the large number of people employed in the brewing industry. Last year beer sales dropped by nearly 4 per cent. I shall be surprised if the fall this year is not even larger.

Mr. Eggar

As the right hon. Gentleman is so concerned about the discriminatory actions that have been taken against specific industries, will he express his concern about the taxation of bank profits? The clearing banks employ 250,000 people. Will the right hon. Gentleman also express his concern about the taxation of oil companies? Much of the North-East of Scotland relies on the generation of profits and work by the oil companies operating in the North Sea.

Mr. Shore

I shall say something about petrol in a moment. I have already mentioned my views on oil and bank taxation. On the whole, I take the view that the case for increasing the tax on oil is made. After all, oil prices doubled, and no one did anything extra to earn them. It happened. The effect on demand as a result of that increase in taxation will be nil or negligible, and that is the case also with bank profits.

Mr. Eggar

That has nothing to do with it.

Mr. Shore

It has everything to do with it. I am giving the reason why I am not particularly disturbed and why I have not gone out of my way to comment on the increase in these two taxes. I think that that is what the hon. Gentleman wanted to know.

Mr. Peter Tapsell (Horncastle)

Before the right hon. Gentleman commits himself to a point of view on the petrol tax, because the increase in that will have no effect on demand, will he consider the implications? As petrol is essential to the people who use it in country areas, of course the demand will not fall. It is quite different from the other taxes.

Mr. Shore

I am sorry. I must have misled the House and used the wrong word. I meant the supplementary tax on oil profits, not petrol. I am coming to that matter shortly. I genuinely understand the point, and I am sure that the hon. Gentleman will, therefore, find my previous remarks acceptable.

As for tobacco, an increase of 14p on a packet of 20 cigarettes is certainly the highest that I can recall. Since the Budget there has been a sharp drop in sales, although I acknowledge that it is too early yet accurately to estimate how far this will continue into the year. The House should be aware, however, that about 13,000 employees in the tobacco industry are shortly to go on to short-time working. The House should bear in mind, too, that cigarette smoking and beer drinking are very much a part of the social habits of people of average and below-average income, particularly older people, including retirement pensioners.

Lastly, there is the 20p a gallon increase in the cost of petrol. That increase follows the 22p imposed in the past two Budgets. We shall hear more of this during the debates on the Finance Bill. It is a heavy additional and unwelcome cost both on the business user and on the private motorist. Incidentally, nearly 1,000 filling stations closed last year following the earlier impost, and I believe that we shall see a similar contraction this year.

Our fourth charge is that because of the Government's failure to index tax allowances large numbers of people on small incomes are brought back into direct taxation. We all recall the strictures of the right hon. Lady the Prime Minister about the weight of taxation on the lower-paid and on people generally, and the arguments that ensued about the "Why work?" syndrome.

Mr. Budgen

If the right hon. Gentleman is complaining about the effect on the poverty trap, is he in favour of an increase in the standard rate of taxation?

Mr. Shore

As between the two, yes. That is almost certainly so. I shall develop my arguments on that topic.

It was argued in defence of the Government's first Budget that its principal virtue was that it would increase incentives at the top as well as at the bottom, by reducing the taxation of those who were allegedly badly over-taxed. I have studied the report of the Low Pay Unit, which was published today, and I suspect that others have done so. It is interesting to note that the proportion of low-pay families' earnings taken in income tax and national insurance contributions has increased from 21.9 to 23.6 per cent. since the Government came to power. In the immortal words of the Secretary of State for Social Services, the poverty trap has not deepened but widened.

We know that retirement pensioners, especially women, between 60 and 65 years have been brought into the tax net. Although both the Secretary of State for Social Services and the Financial Secretary to the Treasury at first denied it, the accusation made by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) proved to be correct. Women between the ages of 60 and 64 years who have in addition to their basic retirement pension a State graduated pension—we know how big that is—will be brought into taxation for the first time. The £30 tolerance which the Treasury allows, and which the badly briefed Treasury team assumed would clear such women from taxation, has not proved enough.

On 23 March, no doubt after much agony and anger in Great George Street, the Minister of State, Treasury was reluctantly compelled to admit: In 1981–82 the estimated average payment of graduated pension to women aged 60–64 years when added to the basic retirement pension will exceed the proposed single allowance and also the Inland revenue assessing tolerance."—[Official Report, 23 March 1981; Vol. 1, c. 236.] Those with disagreeably accurate memories will recall the broadcast made during the general election campaign by the right hon. Lady the Prime Minister, who was then the Leader of the Opposition. She concluded her appeal to pensioners to vote Conservative on 11 April with the following words: those pensioners who have another little pension of their own or some savings and who therefore pay tax will benefit from our income tax reductions. Our final charge is that the net effect of the tax changes in the Bill will be to redistribute income regressively. Only those earning more than two and a half times the national average wage will pay proportionately less tax than in April 1979. The tax burden of a married man on two-thirds' average earnings was eased by 11 per cent. as a result of the Chancellor's first Budget. It increased by nearly 5 per cent. following his second Budget. Last month's Budget increased it again by a further 16 per cent. if we include, as we should, the increases in the national insurance contribution to the effect of non-valorisation.

Let us contrast that with the experience of the taxpayer with five times average earnings. His tax burden fell by 18 per cent. after the 1979 Budget and by a further 7 per cent. following last year's Budget. It will increase by 8 per cent. following this year's Budget. That clearly falls far short of offsetting his previous and substantial gain.

The figures quoted in today's report from the Low Pay Unit are relevant. In 1978 the tax threshold as a percentage of average earnings was 45.4 per cent. That relates to the typical two-child family with the earner on average earnings. By 1980 the tax threshold as a percentage of average earnings fell to 41.5 per cent. It is estimated that in 1981 it will fall to 38 per cent. The report asserts that the starting rate of income tax for the low-paid is the highest in the world, with the one exception of Australia.

As we have been reminded so plaintively, Conservative Members were not elected in May 1979 to increase the tax burdens upon the British people. However, in clauses 27 and 29 the Chancellor is deliberately and meanly proposing to delay tax refunds due to employees on strike and to bring into the tax net short-term benefits, including those paid to the unemployed. We have yet to hear him give—we demand to do so now—an unequivocal promise that before those provisions come into effect he will restore the 5 per cent. cut that was a feature of the 1980 Budget.

That cut was described as an interim measure in lieu of taxation. The House will want to hear a definite and firm commitment that it is the Government's intention to restore in full the cut in unemployment pay before the new measures come into effect. If the Chief Secretary wants to respond now, I shall willingly give way. If not, I hope that whoever replies for the Treasury will give us a straight and clear answer before the conclusion of today's debate.

It will not have escaped attention that in the clauses dealing with capital transfer tax, especially clauses 88 and 89, major concessions have been made for those who are substantial owners of wealth. We shall explore that more fully in Committee. However, there can be no doubt that these are substantial changes, which are designed to weaken the effect of our present and still inadequate taxation of wealth.

Mr. Brittan

The right hon. Gentleman talked about major concessions. He will have heard me say that the cost will be about £5 million.

Mr. Shore

That is by no means the substance of the two clauses. It is proposed that the rates should be changed. In addition, we have the 10 or 12-year rule. We shall debate these issues before long.

I do not know whether the Chancellor of the Treasury team has seen the interesting report of the March Gallup poll, which records the national response to the Budget. It helpfully records similar responses going back as far as 1949. The Chancellor may be interested to know that in the nation's view fewer people think that he has done a good job as Chancellor of the Exchequer than on any previous occasion in the past 32 years. He will be interested further to know that it is the judgment of his fellow-countrymen that his Budget is not a fair one. It appears that 75 per cent. of those asked considered that it was not fair, while only 22 per cent. thought that it was. No post-war Chancellor has received so adverse a judgment.

Over the next 12 months GDP and industrial output will fall again. Unemployment will rise, and there is a high probability that the PSBR will overshoot the £10½ billion that is the Chancellor's current target. If last year's pattern is to be repeated we shall get further public expenditure cuts in November to reduce again the PSBR. These will prove to be inadequate, so in all probability we shall face yet another deflationary tax-increasing Budget in 12 months' time.

These are the economics of the madhouse. We are in a downward spiral, and only a total change of policy will enable us to escape the trap into which the Government's obsessive policies have led us. I hope that the House will join us in declining to give a Second Reading to this utterly perverse and misconceived Bill.

5.50 pm

Mr. Maurice Macmillan (Farnham)

I must confess that I listened to the right hon. Member for Stepney and Poplar (Mr. Shore) with a certain feeling of having heard his argument not once but several times before. In his not very constructive speech there was one suggestion which I should like to recommend to my right hon. and learned Friend, namely, that he should try to continue to bring down the minimum lending rate. I am sure that by far the biggest single burden on industry is the cost of borrowing money—bigger even than the other burdens complained about by the right hon. Gentleman.

I shall make one narrow and specific point and I shall make one suggestion on it to' the Chancellor of the Exchequer. As it is a little complex, I fear that I shall have to give some explanation before coming to my suggestion.

There is no argument in the House or anywhere else but that inflation is a symptom rather than a disease. I am sure that the Government can succeed in squeezing inflation out of the economy. However, if, as so many Governments do, they continue to treat symptoms only, I fear that when the time comes for recovery the unemployment, the bankruptcies and all the difficulties will have been sacrifices made for no lasting success. For then the new growth which will come in the economy as things improve cannot but cause inflation, as it has so often before, under Governments of both political complexions.

I am not trying to criticise the basic strategy of the Government and the Chancellor up to now, nor am I suggesting an immediate demand reflation. Some Members, including myself, have suggested in previous debates certain forms of selective capital expenditure by the Government to help our private sector industry. In addition, it is necessary for the Government to correct now one imbalance, which will otherwise cause difficulties in the future.

This imbalance between supply and demand, which is outside the main stream of economic analysis, is the gap in many modern societies and economies between people's expectations and their willingness to supply enough to meet those expectations. That is part of the cause of the extra imports to which the Chief Secretary referred. This particular imbalance is a disease—it does not merely affect the economy; it is more internal to business firms in the market sector. That is why the matter has escaped much political and economic analysis.

I am deeply indebted to the work of Dr. George Copeman, with whom I worked for many years in the Wider Share Ownership movement. With him, I believe that there is a link between the rate of growth in economies and businesses and the amount of new labour coming on to the market at any given time. It could be migrant labour from abroad or labour moving from agriculture into industry. I shall give a few examples.

The United States of America, in the words of one American President, is a "nation of immigrants". Its great economic miracle was based on the 34 million people who went to America between 1820 and 1920. Now that the flow of migrants is beginning to dry up and the United States has been developed to the full, that country may well find itself in difficulties similar to those already experienced in the United Kingdom and elsewhere.

After the Second World War about 12.3 million people came to West Germany from Eastern Europe, as well as the "Gastarbeiter." France had a big flow of ex-colonists and about 4 million people of colonial origin. In the first 10 years after the end of the war, Japan benefited from 14 million peasants leaving the land to work in industry.

Our economic miracle, alas, was a long time ago. It came with the movement from the land into industry—from 80 per cent. on the land to 33 per cent. in 1811. Also, later on in the United Kingdom, the Empire, the sterling area and the invisible exports made an enormous difference. If one looks carefully into our manufacturing industry one finds that it is only since the Second World War that we have begun to cover over 90 per cent. of our imports with exports. Before the war the figure never reached more than 75 per cent.

Britain has been able to survive somewhat longer than many other countries because until fairly recently we have lived largely on the income which our predecessors earned by starting up enterprises abroad—on interest, profits and dividends, the service industries and the financial services which we have provided.

In such growing economies—including, the United Kingdom in the past—the new labour coming on to the industrial market and into manufacturing industry was willing to supply more through its work than its expectations demanded. These people had problems of adjusting to the new life and in some cases to the new country. For some years, therefore, one could rely on the fact that the expectations of such people working throughout the economy would not exceed their willingness to supply.

However, that was essentially a transitional phase, although in many cases it went on for several decades. It led to two factors. The first was a tendancy by employers to treat the new "migrant" labour as if it were not an essential part of the enterprise, leading to some alienation. Secondly, it led to a tendency for the labour market to become ossified. I shall not go into the details of that argument, because it is long and complex.

After that transitional period, in some economies then, and now in those countries which lacked the benefits of labour based on mass migration, when such economies and countries wanted to compete with the faster economic growth of their competitors that were still to some extent enjoying the benefits of new labour, they faced union restriction—rightly, from the union point of view. That -happened because of the nature of the economic development. Those union restrictions were inevitably inflationary. As a consequence, investment incentives were demanded, which in fact puts the cart before the horse.

One of the key points of my argument is that the rate of investment depends on business growth and not vice versa. It is not possible to stimulate investment by tax concessions and allowances beyond a certain point. It is possible and frequently necessary to help people to finance their investment, but the only real stimulus to investors is a market in which they can sell successfully and which will lead them to make the necessary expansion and growth.

Such growth has meant, even in the most well-conducted and prosperous businesses, that there is a problem for reinvestment. The cash flow of industries, which is required for reinvestment in their expanding future, is not sufficient to enable them to reward their employees directly and immediately, in proportion to the increasing profitability of the business concerned, without putting their growth at risk. The result may have been reasonable for a decade or two, but inevitably the fact that it is impossible through the wage structure directly to give to employees a reward that reflects the growth of the company must lead to the acceptance by the work force of what one might call alienating philosophies, because they have no constant share in the added value of the business. That is a major factor in the developed economies of the Western world.

Therefore, I come to the one clear suggestion that I wish to make to the Chancellor. He should think again about encouraging schemes for employee shareholding not only to enable people to participate in the company in which they work but so that they may have a stake in the reinvested profits, which they can cash in the future if they want to. I am suggesting not that people should be locked in but that employees should have a share in the capital growth.

The great failure of the capitalist system as it has developed in the free world is that, on the whole, the factors that I have tried to describe have led to wages tending to be too high for the effective growth of companies to be maintained and tending to be more in terms of income than the shareholders are getting out of the business. On the other hand, the increasing capital value of a successful business goes entirely to the shareholders. The fact that the shareholders may be institutions representing pension funds or investment or unit trusts in which many small people participate does not alter the argument. As a share of the capital value of that business, there is really no part for the earners. That is bad for industrial relations, it leads to over-powerful institutions and to the concentration of business into bigger and bigger firms, and, above all, it tends to mean that companies grow by financial rather than organic means.

Companies tend to expand by acquisition, because they then do not have the cash flow problems that they would have if they reinvested on a scale necessary to grow organically. This has had the effect of tilting the major part of our effort towards the financial rather than the industrial sector. Those who, starting from nothing, wish to acquire capital during their working life tend to move to the financial rather than the industrial side. Under successive Governments and over a long period we have tended to over-reward the dealer compared with the trader and manufacturer.

In those circumstances, investment incentives tend to make matters worse. They add to the tax advantage that existing shareholders already have. It is not possible to redress the balance simply through monetary restraint. Therefore, when the time comes to expand the economy we cannot avoid inflation unless we are willing to make some radical and positive changes.

In suggesting to my right hon. and learned Friend that he again considers and acts on the many plans put forward for spreading ownership of shares among management and employees in industry, I ask him to consider linking access to share schemes to some at least of his investment allowances—making it conditional, say, for the larger and medium-sized firms that the proportion of the total allowance that they get depends upon the validity of their employee share schemes.

I have had only a short time to sketch the analysis that others, including Dr. Copeman, have done in more detail, but I believe it to be valid. It is the only non-inflationary way in which, in the longer term, we can meet the expectations of people in industry as it expands and becomes more prosperous. It is the only way in which, in the longer term, we can encourage people and match the expectations of those willing to supply. Even more important, it should be the next phase in the development of the capitalist system—away from institutions and towards individuals.

This will be even more necessary in an age of high technology. As more and more wealth tends to be created by machines, I do not see how the wage system can spread the rewards beyond the people who look after the machines. We should now be taking the first steps so that in an age of high technology and, I hope, much leisure we may look forward to the time when it will be normal instead of the exception, as it is now, to have an investment income.

Perhaps politically we can then look to see a certain amount of withering away of the State. We can hope to see the shrinking and eventual abolition of the proletariat. This is what today's Tory Party should mean by a property-owning democracy. The first steps must be taken very soon.

6.6 pm

Sir Harold Wilson (Huyton)

I hope that the right hon. Member for Farnham (Mr. Macmillan) will forgive me if I do not follow him exactly in the arguments that he presented to the House. I should like to deal mainly with the proposals of the Chancellor of the Exchequer for small businesses, offering one or two suggestions that I hope he will find helpful.

First, I must refer to the right hon. and learned Gentleman's decision to levy his so-called windfall profits tax on the clearing banks. Apart from the somewhat capricious way in which the levy falls on different banks, the House should be very much concerned with the likelihood that it will obliterate practically all the profits of the Giro and also of domestic banks such as the Cooperative Bank, which have virtually no offsetting earnings overseas to cushion them against the levy.

Giro was set up by a Labour Government. It is an ideal repository for small savings. Hs link with 21,000 local post offices helps to make them, as well as itself, more viable. When we set it up in 1968 we shared the grave doubts about its viability, but the committee on financial institutions, which reported last year, recounted the history of Giro, and a majority of us recommended its continuance and recommended against any attempt to merge it with the National Savings Bank. Therefore, I hope that the Chancellor will take action to safeguard Giro and the Cooperative Bank from the lethal consequences of his proposed bank tax.

I said that I would confine myself to the problems of small businesses, on which the Chancellor has laid a number of proposals before the House, some of which are useful but in total are far from adequate. Clearly I welcome the proposed increase in the VAT threshold, the quite useful move on small companies' corporation tax and the proposed easements for industrial co-operatives and partnerships, together with the proposals for next year's Finance Bill on companies purchasing their own shares and this year's extension of the venture capital scheme and proposals to put redundancy money towards the creation of new businesses. The last two proposals outlined in the Budget—the loan guarantee scheme and the business startup scheme, operated through the clearers and ICFC and FCI—are again to be welcomed.

In welcoming those proposals as far as they go, however, I feel that the Chancellor could have done far more. With respect, he has had plenty of time to study the proposals for helping small business men—proposals made by the committee to review the functioning of financial institutions, which after three and a quarter years of hard toil produced its final report last July. For the information of any hon. Member who has not had the pleasure and privilege of reading the 800 pages of that report, it is Cmnd. 7937. A much earlier report, w hen we had been sitting for only about a year, dealt with small businesses. On the need to help small firms, the interim report made a number of specific proposals upon which the Government have not yet acted, and there was no sign in the Minister's speech today that they intend to do so.

I remind the House of the committee's comments in its final report on the proposals in the interim report on small businesses. The final report said: In the year that has passed since our interim report very little has been done to implement our recommendations. We recognise that during that time consultation and further discussion have been taking place and that a number of other measures have been taken to assist small firms, including those in the last Budget"— that was the previous Budget. Nevertheless, with credit tight and interest rates high the difficulties for small firms identified in our interim report are now more intense. We therefore urge the earliest possible implementation of our recommendations. Even with the Budget proposals, credit is still tight and interest rates are high, especially for new and struggling firms, against a background of decline and slump in industry generally. When the gales lash such giant vessels as Unilever and ICI, with the effects that we have seen on their results, the effects upon often more fragile barks in small industry do not need to be imagined.

The Chancellor has not lacked advice from either side of the House. On Friday 23 January, on the initiative of the hon. Member for Winchester (Mr. Browne), the House debated the main report of my committee. In my contribution I dealt only briefly with the problems of small firms. On 6 March the hon. Member for Upminster (Mr. Loveridge) introduced his Small Finns Expansion (Inquiry) Bill. I agreed very much with the principal proposals in that Bill, some of which closely reflect matters with which we were concerned in our long inquiry.

We approached the problems of small businesses in terms of four main groups. First, there are newly launched firms, many of them unincorporated, very small and often with no more than 10 employees. Secondly, there are firms which are growing rapidly, or have reached take-off point. Thirdly, there are established firms, well-rooted and stable, but growing somewhat slowly and still well within the proprietor's personal control. Fourthly, there are more substantial private companies which have crossed the private capital barrier and in many cases are guided and assisted by merchant banks, clearers or other advisers.

It seemed to me that the Chancellor was very much, although not exclusively, concerned with the third group. I welcome the fact that he did something to quantify the concept of a small firm in relation to his specific measures. Ten years ago the Bolton report first examined the problems of small firms. It defined small firms in manufacturing as those with fewer than 200 employees. That is rather big in comparison with many that we have in mind. When we reported there were 80,000 such firms, accounting for about 21 per cent. of the total employment. Clearly such a definition was too wide. I believe that the Chancellor was right, as was our committee, to consider much smaller firms than that.

It is important to distinguish between groups of industries in this regard. My committee took 25 employees as the criterion. In construction—building and contracting—there were 72,000 firms, accounting for 92.4 per cent. of the total number of firms but only 30.3 per cent. of the total employment and 23.2 per cent. of the total value of work done. In retailing, there were 276,000 firms with an annual turnover of less than £150,000, accounting for about 39 per cent. of the total employment.

In preparing our report on small businesses we set up two inquiries into specific groups of small firms. One was a major inquiry into about 40 firms in the Nottinghamshire area, conducted by the University of Nottingham. The other was a survey of about 50 smallish firms. Every member of the committee was told the names of the firms, but in order to preserve the anonymity of those who had contributed so much information to us the names were not published. Those firms were of varying size, history and coverage.

Whatever the differences in need, sophistication or profitability, two facts became clear. One was the extent to which a considerable number of large firms in this country help small firms to be launched and to expand without any real thought of profit for themselves. The Chancellor made that point. A special example is a firm which has perhaps two or three specialist engineers working on a specific problem which they wish to take further, beyond the plans of the firm which would find it rather difficult to control what they were doing.

We found examples in which the firm had agreed that there might be something in the idea, perhaps going quite outside its own needs and plans, and was prepared to release the people involved to concentrate upon it. In some cases the firms helped with finance or equipment. Quite frequently the firm would say that if those people succeeded and wished to continue on their own, they had the firm's blessing, but that if it did not work out the firm would welcome them back. This is being done by a number of large firms. I wish that more would do it, because it would be a most valuable incentive. It is of great importance that this should be done. It was not clear from the Chancellor's proposals in what specific ways he would help in such cases.

We were told repeatedly in all our evidence that "Aunt Agatha" was dead. She is well known to us all, although she has other names in different parts of the country. She was the lady who used to help her nephew set up and develop his business. She is now a far rarer phenomenon than she was. Nowadays, if it is not the former employer, it is the bank manager who gives most of the help and advice. Many, though not all, bank managers are very experienced advisers, especially in connection with the financing of industry. They can obtain from specialists within their own banks the assistance and advice needed for these small firms.

In recent years there has been a major constructive revolution—a revolution for the better—in bank attitudes to the small man. We had reason to conclude that no small part of it was the result of their having to think hard about what the banks could tell the committee they were doing to help the small man. The banks were most concerned about the quality of the evidence that they were preparing. They actually invited us to lunch and asked us what we wanted. When we told them, they went away. Their product, like so much of the evidence, was of first-class quality. It was published in hard-back form, and I gather that it is in the libraries of all the universities and many of the businesses in the country.

I was very glad that, as we had suggested, nearly everyone who submitted evidence to the committee published it. That started a great debate, not to mention the development of a certain competitive spirit among those giving evidence to us.

Mr. Dykes

Would the right hon. Gentleman none the less accept not the criticism but the comments of Lord Lever and others in their consideration of the amounts of money given in recent years for business in general and small businesses in particular, compared with the situation in Germany and other countries?

Sir Harold Wilson

Yes. We made that point, but we were reassured by the improvement in the arrangements made during the period that we were sitting not so much because we were sitting, but because of pioneering work by those who had reported before us, and because of the lead given by the NEDC.

Not only our reports but much of the debate since have made it clear that much more is needed, and that the Chancellor has gone only part of the way. In his Budget Statement he referred to the Council for Small Industries in Rural Areas. COSIRA was founded under Lloyd George's development commission scheme, which was his bonus to industry to offset his big and far-reaching tax increases. The council's terms of reference, however, limit its activities purely to rural areas and to country towns with fewer than 15,000 inhabitants. That is as far as England gets in the matter. That contrasts with the Scottish and Welsh Development Agencies, which the committee regarded as doing a first-class job. We went to Edinburgh and took our evidence. Each of the agencies has within its country virtually a countrywide franchise. In addition, Scotland has the Highlands and Islands Development Board. Wales has the Development Board for Rural Wales. The two development agencies make no distinction between rural and urban areas as COSIRA is forced to do in England.

We pressed strongly in our report that there should be a similar body for the urban areas—one might call it COSURBA—-exercising the same powers as COSIRA. We were aiming at putting England on a parity with Scotland and Wales. In order to avoid proliferating agencies, an aspect about which we were concerned, we suggested that the COSURBA should also be put under the aegis of Lloyd George's development commission scheme, at least to begin with.

My committee believed that it was urgent to expand financing facilities. There are powers under section 7 of the Industry Act 1972, an Act that was created by the Government of the right hon. Member for Sidcup (Mr. Heath), whose illness all of us regret and to whose speedy return to the House we all look forward. Then there was section 8 of that Act as well as the powers of the Science and Technology Act 1965. When my committee dealt with equity finance we obviously referred to the famous Macmillan gap—that is a reference not to the right hon. Member for Farnham or his illustrious father, but to Lord Justice Macmillan's committee of inquiry, the last but one before we were set up, whose report dates from 50 years ago and which the older Members of the House will perhaps remember studying at the time.

After a long delay that was partly caused by the war, that inquiry led to the creation of the ICFC in 1945. However, that did not solve the problem, and in many ways it has been something of a disappointment. In 1947, in my Board of Trade days, we set up the National Research Development Corporation to pick up bright inventions, especially by small business men, and to help with developmental capital. We expected it to lose money, but it made large fortunes for the Treasury, and I am told that it now looks like making still bigger profits for the British taxpayer in the near future.

Our principal report showed the great power of the institutions, especially the pension funds in the control of the economy. It was a development that went totally unnoticed in the House—including by me. I looked up Hansard covering my last period at Downing Street. There were only four references to pension funds at that time. Three of them dealt with benefits, and not with the investment power or possibilities of pension funds. The fourth reference was, to me, a meaningless question which received an equally careful and meaningless written answer. That was apparently all there had been until that time. It is extraordinary.

There have been arguments in the House over many years—for as long as I have been here and for about 50 years before that—about socialising or nationalising industry. Certain steps have been taken which have not always been reversed when the parties have changed places. The establishment of pension funds has created in this country a certain degree of social ownership without, as far as one knows, either the employers or the workers knowing much about it. That could be built on and could help to secure greater loyalties and better achievement.

Sixty per cent. of the equity of the 200 or so of our largest firms in now held by the workers' pension funds. That has developed without its ever being referred to in the House. In spite of this silent takeover, however, most pension funds, for reasons which appear sound to their trustees, and in the interests of their beneficiaries—the workers—invest very little in small businesses. One has suddenly decided, because it has been much criticised, to invest in street and city centre development. That is in the Elysee and the Rue Royale, however, and not nearer home.

If that will get a better deal for the pension fund, as its managers clearly think it will, it is their duty to do it. However, as we say on page 13 of our report, few of the pension funds and investment institutions are prepared to make direct investments to any significant extent in business valued at less than £5 million.

Dr. Bray

As my right hon. Friend says, the important development of the pension funds is a major feature of his report. But did his committee consider the possible impact of the increased pension fund savings on the overall national savings ratio? I cannot recall that in the report. It could be that the Government are looking for a chimera in expecting the savings ratio to fall at a time when pension fund contributions are increasing.

Sir Harold Wilson

Yes, we did. I do not have the figures with me, but in the report we showed that there had been not only an increase in pension funds and insurance companies but a heavy fall in the established savings media. It was almost equal to the increase experienced by the pension funds. There has been a complete switch in a period of only about 15 or 20 years. That aspect is summarised quite early in the report.

Quite apart from Government action, and action from the Scottish and Welsh development agencies, there are other bodies such as the small business investment fund, set up by the Co-operative Insurance Society, and Moracrest, set up jointly by the Prudential, the British Gas pension fund and the Midland Bank. Then there is a joint enterprise between the coal industry pension fund and the Midland Bank. All of these are designed to help small businesses and are much to be welcomed. But the small businesses that they are helping are mainly the larger small firms and not the smaller ones that are struggling into existence and that were referred to by the Chancellor in his Budget Statement. Certainly my committee looks forward to seeing more small firms helped by large ones.

Our recommendation on arrangements for changing the law on taxation to allow small companies to raise equity in a redeemable form should, we said, be examined by the Departments of Trade and Industry, the Treasury and others. I do not know how far that has been examined or rejected, but I hope that it will be studied by the relevant Departments. It did not appear to be in the Chancellor's list of measures to help small industry. I urge him and his Treasury colleagues to consider that proposed new weapon for small firms.

I do not wish to go over the ground covered in the debate on 23 January, but I want to press the Government about the over-the-counter market. I draw attention in particular to the seven examples that I listed on that occasion of statutory discrimination in relation to the over-the-counter market compared with the Stock Exchange proper. I had in mind what firms such as Nightingale's are doing. The Minister undertook to examine the position, although it was not possible to act in time for the Finance Bill.

I put a proposition to the Government. I have referred to the committee's interim report on small businesses. We made 15 specific recommendations of which only a few have been implemented. I remind the House that the committee consisted of top industrialists, including the deputy chairman of the biggest company in the country, the chairman of Unilever, top bankers and City men, top trade unionists, economists, a highly respected accountant who was also Lord Mayor of London when we were working—that is why we had lunch in the Guildhall so often—and one of the most respected economic journalists in Fleet Street. The committee was authoritative.

I ask the Government to publish a White Paper setting out our 15 recommendations for small firms. We can leave the final report for another occasion. I should like the Government to give their answer point by point to the 15 authoritative recommendations. They should say how far they agree with the recommendations, whether they wish to study them further, vary them a little or recommend them to the House. Such a White Paper would help the committee's work which aimed, as I believe the Government aim, at achieving the best and most sound assistance for small businesses.

6.32 pm

Mr. Peter Tapsell (Horncastle)

I am glad to have the chance to speak immediately after the right hon. Member for Huyton (Sir H. Wilson). When I first entered the House he was Shadow Chancellor of the Exchequer. Everybody who remembers his brilliant, witty and sardonic speeches recalls that he was the most effective shadow Chancellor in living memory. Even the older Members of the House said that at the time. I am particularly glad that he is here today in all his old vigour.

The right hon. Gentleman spoke with particular authority because of his recent chairmanship of the committee to review the functioning of financial institutions. That committee's report is well written and readable, unlike so many such documents. The right hon. Gentleman rendered great service to the City of London and financial institutions generally by putting to rest, one hopes for all time, some of the more alarmist views about the City which his right hon. and hon. Friends have sometimes held. I agreed with what the right hon. Gentleman said about the need to help small businesses more effectively. It is a pity that he was not chairman of the committee before he became Prime Minister instead of the other way round. As one of his most famous predecessors as Prime Minister once said everything in life comes to one too late, but it is something if it comes at all. In our increasingly divided and embittered country, it is important to continue to stress the many things that we still have in common. They include the desire to secure a stable currency, high employment levels, growing prosperity and social justice for all.

So our arguments are about the technical means best suited to achieve those generally agreed ends. They are not arguments about objectives, still less are they about morality of dogma; certainly not within the Conservative Party, because its tradition is alien to such concepts and the bitterness that they breed. It is important for us to remember that.

We should also remember the international context in which we operate—the world-wide recession and the great and growing threat of aggression by the Soviet Union. Do not let us blame ourselves or one another for difficulties which are not of our creation, or let us forget that there is an even greater danger than that of inflation and unemployment in the shape of Communist imperialism.

The whole world is in recession. The prime cause of this recession should be kept constantly in mind because it has a direct bearing on what we have to do to cope with it in this small country. The prime cause is the reduction in demand caused by the economic sterilisation of the vast OPEC monetary surpluses year after year. These surpluses, perhaps amounting this year to $140 billion, are mainly placed in short-term monetary instruments at high rates of interest rather than being spent on real goods. They represent a huge annual deflationary transfer of wealth, and therefore demand, away from the industrialised nations and the poor primary-producing countries towards the oil-producing nations, some of which have small populations.

That means that purchasing power which could otherwise be satisfied by work-giving production is being continually withdrawn by an unelected, invisible, international Chancellor of the Exchequer in greater amounts each year. Let nobody say that, in its world context, the basic economic problem, which faces the industrial countries is not a demand problem. It is no wonder that almost everywhere unemployment is rising, except in Japan, where there are special skills and the capacity to work together so well.

So much for what we have in common. Why, against that unavoidably difficult world background, has our performance in Britain been so much worse than that of other countries? The Bank of England has told us that our competitiveness in the world dropped to an unprecedented extent in 1980. Our productivity has been falling and unit costs rising, industrial production is down by 12 per cent. in two years, and unemployment has almost doubled. Few other countries have done so badly.

Why is that? I have no doubt that there are some fundamental reasons involving our self-discipline, our work ethic, our party-political divisions, our education system and our class structures, but as we are debating the Finance Bill I wish to confine my brief remarks to the technical factors which the Bill seeks to influence.

In my view, four major errors of technical judgment contributed to our exceptionally bad economic performance in the past 12 months. Some of us have drawn attention to them with an ever-growing emphasis and sense of concern and urgency almost since the start of this Parliament. The errors were, first, an excessively high interest rate policy; secondly, an excessively high exchange rate policy; thirdly, an excessively tight credit policy for agriculture, business and industry; and fourthly, an uncompetitive industrial energy pricing policy.

There is not time now for me to examine all four in detail, as I should like to do, and to show how damaging each has been and how avoidable each was. I have repeatedly done that in speeches in the country, many of which have been reported, and from time to time by interventions in the House, both at Question Time and in debates.

As I said at the time, the decision to move to an MLR of 17 per cent. in the winter of 1979–80 and to retain a high interest structure for a long period after that was a grave error of judgment. The policy was almost wholly counter-productive in pushing up bank lending, expanding the money supply, increasing industrial costs, reducing our international competitiveness, increasing public expenditure and now leading, irony of ironies, to a retrospective tax on bank profits. Far from reducing inflation, it helped to feed it. Even Professor Milton Friedman has condemned it, as he did the sudden move from 8 per cent. to 15 per cent. in VAT.

There has been a great deal of breast-beating in public about the failure to achieve the ill-omened medium-term monetary targets, against which I strongly warned the Treasury team when they were first mooted, but at least it can be said of them that our national situation would be a great deal worse today if the sterling M3 and PSBR targets had been met.

It was against that background that we approached the Budget and Finance Bill. Matters seemed to be improving. Indeed, before the Budget I would not have quarrelled with the Chief Secretary's forecast today of a likely pick-up in the economy in the second half of this year. That was very much my feeling, and many commentators attributed that likely pick-up to the arrival of Professor Alan Walters in 10 Downing Street.

It is said—and no one has denied it in the way that such matters tend to be denied if they are untrue—that the professor advised the Prime Minister shortly after he arrived, and rather to the surprise of everyone—because he came here with the reputation of being the hardest-line monetarist of all—that the exchange rate was too high and was partly, at least, a reflection of excessively high interest rates

Sir Frederick Burden (Gillingham)

How would he control the exchange rate?

Mr. Tapsell

My hon. Friend must put that question to Professor Walters, but on the day that his reported views appeared on the tape I asked my right hon. Friend the Prime Minister in the House whether the report accurately reflected the new views of the Government. I should point out that sterling exchange rate has hardly stopped falling since. Of course, it can be "talked down" for a time but, whatever the reason, the reductions in interest rates, together with the feeling that there was a new desire by the Government to have lower interest rates, produced a lower exchange rate.

I fully accept the point that I take my hon. Friend to be making, namely, that no Government can completely control the exchange rate or put their finger in the dyke against market forces, but Governments can have an influence over the short term and perhaps even the medium term. However, I am not trying to solve that problem; I am merely attempting to analyse what it appears that Professor Walters, who is the chief economic adviser to the Prime Minister and whose views are therefore of some interest to us all, has reputedly said.

In addition to the professor's views about the exchange rate and interest rates, which marked a revolutionary turn in the thinking of economic Ministers, he is also said to have concluded that the credit squeeze on industry, which the monetarist theoreticians had been lamenting as too lax, at nearly double the declared target, had in fact been too tight all along, as some of us had been pointing out.

Treasury Ministers also at last discovered something else that many of us had been telling them, namely, that it was possible to bring MLR down from 17 per cent. to 12 per cent., with a rapidly expanding PSBR, without causing a buyers' strike in the gilt market. The House may remember my intervening at the end of a speech by my right hon. Friend the Secretary of State for Trade, when he was Chief Secretary to the Treasury, to make precisely that point.

The Government have brought MLR down by a further two points since then and have sold massive amounts of gilts in the process. It was obvious that that could be done, except to those whose vision of the practicalities of such things is blurred by academic monetarist dogma. Consequently, the prospects of our recession bottoming out of in the second half of this year began to look fairly good. Then came the Budget, which this Bill seeks to implement.

I hope that the House will forgive me if, for the sake of brevity, I merely repeat the opening words of the press statement that I issued on the morning after the Budget. It achieved a certain amount of prominence in the press. I said: This is not the Budget for our times. We are in a deep recession. To inflict a further savage deflation—up to 3 per cent. of gross domestic product—on our economy now is economically illiterate. The effect on the employment situation will be grave…What is most urgently needed is to give industry an incentive to invest. The overall impact of this Budget will have precisely the opposite effect.

Mr. Eggar

The Financial Secretary to the Treasury took considerable time on Thursday night to tell the House why the Budget was not contractionary. How does my hon. Friend answer that argument?

Mr. Tapsell

I become increasingly baffled, because each Treasury Minister says a different thing. One Minister has said—they were all quoted by the right lion. Member for Stepney and Poplar (Mr. Shore)—that the Budget is not deflationary. Another has said that it is not too deflationary and a third has said that it is deflationary but not contractionary. The Treasury team does not seem to be agreed on precisely what the Budget will do or was intended to do. When I issued my statement I assumed that Treasury Ministers had intended the Budget to be what I tok it to be, namely, severely deflationary.

As each day passes I feel increasingly reinforced and strengthened in my original view of the Budget. I was interested to read in the Financial Times today, if I may give a little publicity to one of my respected commercial rivals, that Laing and Cruickshank argue that, despite assertions to the contrary, the Budget is highly deflationary and Gross Domestic Product will fall 2¾ per cent. this year. Just over a month after I made my statement one of the leading stockbroking firms in the country, which has had an opportunity to study all the statistics with its professional economists—an opportunity which I did not have by 11 March—has reached almost exactly the same conclusion that I reached and has expressed it in almost identical words.

The only possible justification for the policy is that it is considered that however harsh it may be in terms of ruined firms and broken lives it will permanently stop inflation and provide the foundation for a lasting recovery and prosperity. I understand that that is the justification which has inspired Ministers to pursue the policy so long and so bravely.

Presumably the authors of the policy still believe that, but I can see no evidence that events are likely to prove them right. My belief is that a year from now, if the policies are continued, not only will unemployment still be on a rising trend, and probably over 3 million, but inflation will be on a rising trend also. Many independent commentators now share that view. If that proves to be the case, it will be very sad.

I should like briefly to explain some of the reasons why I think that these policies, if unchanged, will generate a higher rate of inflation in 1982 than we have at present. The greatest single cause of inflation in this country is the extent to which wage increases outstrip increases in production. The moderation in wage demands, which are still far too high, has been caused mainly by rising unemployment. But it is the rate of increase in unemployment rather than the absolute level which has the main braking effect on wage increases.

Since the upward move in unemployment over the past year has been considerably sharper than it is likely to be in the coming 12 months, unemployment at 2½ million now is likely to act as a greater restraint on wage increases than a figure of more than 3 million will do next year.

Secondly, I take the view that the only part of the Government's economic policies to have played a significant role in bringing down the rate of inflation over the past year, which has been mainly as a result of the general recessionary forces in the world, has been the high exchange rate. That, quite rightly, has now been abandoned, but it means that our imports will be dearer from now on while benefits to our exports will not be felt significantly until the second half of 1982.

Thirdly, world commodity prices are likely to turn up fairly sharply, for the reasons given by my right hon. and learned Friend the Chief Secretary, as the rest of the world bottoms out of recession in the second half of this year, just as we begin to restock.

Fourthly, the Budget is itself inflationary in a prices sense while deflationary in a demand sense—the opposite balance to what is desirable—and, like the 1979 Budget, will itself inspire greater wage demands than would otherwise be the case.

If I may diverge for a moment from my main argument, that is why the increase in petrol tax, as well as being unfair and discriminatory between town and country, was such a bad increase to impose at this time. Nothing would improve the Budget more, at a stroke, than the withdrawal of the 20p increase in the tax on petrol and derv and a consequent addition of £1 billion to the PSBR. There is no need to replace the lost revenue from this source. At our stage in the recession, with private sector loan demand likely to decline and personal savings likely to remain very high, a £10½ billion PSBR would be over-restrictive if it were to be achieved. As a proportion of the GDP it would be nearly half that in 1975, when interest rates were much lower than they are now; it was a year in which interest rates were falling.

For all these reasons—unemployment levels, the exchange rate, world commodity prices, wages and the effects of this Finance Bill—I expect the inflation rate, after dipping down into single figures towards the end of this year, to be on a rising trend again this time next year unless there is a change of economic policies in the fairly near future.

Before this Budget and this Finance Bill, a slow and faltering industrial recovery was in prospect for Britain in the second half of 1981, likely to be helped by the fall in interest rates and the exchange rate for which some of us had been campaigning for 18 months. In my judgment, this Finance Bill will postpone any real recovery in our economy until the middle of 1982 at the earliest, unless there is a change in policy. Therein lies another great anxiety that I have about the Bill. I am certain that economic and political pressures eventually will force a change of policy to one more similar to that now being pursued by France and Germany.

Perhaps the change will come as soon as July, but more probably it will not be until the autumn, and perhaps not until next winter. But when that change comes, it will be more abrupt and more extreme as a consequence of this Budget and this Bill than it would otherwise be or than would be necessary or desirable if we started now making the change gradually. Nothing is worse than these sudden and abrupt changes from one extreme of economic policy to another, which have bedevilled British industrial policy and industrial life for so long.

What is most urgently needed now is a clearly defined industrial strategy supported by the Government, the trade unions, business and the City, all working together, which can be followed broadly for a decade and backed by the revenues of North Sea oil. That is what we should all be working for on both sides of the House.

During my first five years in the House Sir Winston Churchill was still a Member. I enjoyed the privilege of only one serious conversation with him. He told me that the decision which he regretted most in the whole of his turbulent political career was when, as Chancellor of the Exchequer, he put Britain back on to the gold standard. He said that almost all his senior economic advisers in the Treasury and the Bank of England urged him to do it, as did the financial journalists. City opinion was overwhelmingly in favour of the move, frightened as it had understandably been by the terrible inflation which swept Europe in the early 1920s. Sir Winston told me that his instincts warned him even then that it was the wrong thing to do, but he allowed himself to be overborne on what seemed primarily a technical question by the weight of the professional advice that he received and so embarked on a strongly deflationary policy which contracted the economy.

Sir Winston said to me "Of course, they were all keen to go on fighting the previous war with the old weapons that they had come to know. But the job of a statesman is to peer into the future, and what the future held was a decade of slump and wasted resources with millions of men thrown on to the scrap heap." In my judgment, 50 years on, that is again what the future holds for us if we continue with these policies. There is still time, if not to avert at least to mitigate that fate, but there is not much time.

6.57 pm

Mr. Donald Stewart (Western Isles)

I hope that the hon. Member for Horncastle (Mr. Tapsell) will forgive me if I do not pursue the matters which he raised in his speech, since I intend to make only a few brief remarks. However, I am sure that all of us listened to his interesting and informed speech, in the course of which I was glad to hear him say that nothing would improve this Budget more than the withdrawal of the proposed increase in petrol tax. I intend to confine myself to that topic and to make a constituency point about it. I make no apology for doing so. It is a proposal whose effects are not confined to my constituency, although they will be felt especially acutely there since we have no railways and very few bus services.

I listened to the hon. Member for Horncastle with pleasure and agreed with most of what he said, although I do not kid myself that I should have been able to take him on if I had not done so. I shall be interested to hear the Treasury Minister's reply to what he said.

I was surprised to hear the Chief Secretary say that the increased petrol tax was less than readily accepted. I thought that that was pitching it rather low, since it had led to the largest revolt or abstention rate among Government supporters on any vote since the Conservatives came to power.

My local authority—the Western Isles islands council—has estimated the increase which will fall on people in a year as a result of this iniquitous proposal. I may say that it is a conservative estimate, because it does not include the loss of revenue from tourism.

We in the Western Isles use 2.6 million gallons of petrol a year. It is virtually all used by locals, and the increase will mean an additional impost on the constituency of £526,000. The derv addition will cost £92,000. The additional cost of road haulage, assuming that the present tonnage is maintained, will mean an extra £157,000. The extra cost of school transport is estimated at £12,000. The extra cost of air services will be £9,700. That is a total for my constituency of £800,000 a year from this one tax alone.

The EEC has earmarked my area for a development programme. It is one of the most deprived areas in the United Kingdom. Petrol prices now are already higher than on the mainland. It was a crass error on the part of the Chief Secretary to repeat the ridiculous claim by the Chancellor that one achieves more miles to the gallon in rural areas. He should do some driving in my constituency. If he does he will find that that is not true.

We carry much produce from the mainland on car ferries, and as transport costs go up, with VAT added, that will force up the already high cost of living. Unemployment is running at 20 per cent. and the imposition of a petrol increase is one of the heaviest burdens that has fallen on us for many years. I agree with the hon. Member for Horncastle (Mr. Tapsell) that nothing would improve the Budget more than withdrawal of the tax. I hope that there will be strong opposition to it in Committee. It is an impost that rural areas will feel very heavily.

I used other arguments in a speech on the Budget Statement. I do not know whether my appeal will fall on receptive ears—probably not. I hope that the Treasury Bench will receive the utmost opposition from both sides to the 20p petrol tax.

7.1 pm

Mr. Terence Higgins (Worthing)

The right hon. Member for the Western Isles (Mr. Stewart), like my hon. Friend the Member for Horncastle (Mr. Tapsell), has advocated that the Chancellor should not increase the petrol duty in the way proposed in the Finance Bill. If the substantial revenue from that increase were not replaced, the upward pressure on interest rates would be much greater. Therefore, it is unlikely that the minimum lending rate would stay at its present level. That would have a serious impact on industry generally.

This debate, like the debate on public expenditure last week, takes place against the background provided by the report of the Select Committee on the Treasury, which was produced immediately after the Budget, in time for both the debates. The press, television and radio misrepresented the Select Committee's report. In one media report it was said that the Committee had criticised the Chancellor for not uprating the income tax threshold—the so-called Lawson-Rooker-Wise amendment. That is untrue. We did no such thing. Similarly, it was said that the Committee advocated more public borrowing. Again, that was untrue. Complex reports understandably present the media with a difficult problem if they intend to comment immediately or the following morning on the contents of such a report. Summaries are expressed in telegraphic terms, such as "Committee challenges public expenditure cuts", which give the impression that the committee is opposed to them whereas in fact it was objectively stated that it was doubtful whether the Government would succeed in making the cuts. That highlights the difficulty of reporting reports of that kind.

Hon. Members who have read the report will have benefited from it. It provided valuable information for two debates. The evidence that we took in the Select Committee from the Chancellor and the Governor of the Bank of England was of considerable value. The general effects of the report have been to increase the standard of debate on the two issues.

The late lain Macleod once said that in politics nothing ever is so good or so bad as it seems at first sight. I commend that saying to the Treasury team, because in considering the Select Committee reports published so far—for example, on public sector pay—the initial Treasury reaction was unfavourable. But in a short time it had accepted all the recommendations. We were told that what we had said about being more flexible on the medium-term strategy was not a good idea, but almost immediately changes were made, and they were contained in the Chancellor's Budget Statement. Our report on last November's measures prompted me to advocate strongly at that time an increase in indirect taxation. In the Budget those changes are made.

We can reasonably claim that the Select Committee has been one stage ahead of the Chancellor. I welcome the fact that his response eventually—I stress eventually—has been seen to be correct. On the whole, we have reinforced and improved the Chancellor's policies. It is not true to say that we have suggested a reversal of them.

The report was not as unanimous as some of the previous reports. To some extent, that diminishes its impact, but it is important to stress that it was not split on party lines. A Select Committee report that is split on party lines must inevitably have little impact. To some extent it is a duplication of a debate on the Floor of the House. However, that was not so with the latest report of the Select Committee on the Budget and the Government's expenditure plans. Such difference as there was was more a question of whether one believed that econometrics contributed to an analysis of the problems or whether one could rely on forecasts rather than on points of substance. I do not take as pessimistic a view as some of my colleagues about econometrics, or the need to take an analytical view of what is likely to happen to the economy.

I am glad to see that my right hon. Friend the Financial Secretary has now taken his place. In the final paragraphs of the Select Committee report we concentrate on the crucial issue—my hon. Friend the Member for Homchurch will agree—of whether we are likely to see an upturn or improvement in the economy. Together with the speech of the Financial Secretary in the debate last Thursday, the final paragraphs of the report concentrate on the main issue. In response to the speech of my right hon. Friend, the reaction of the right hon. Member for Stepney and Poplar (Mr. Shore) was extraordinary. He seemed to regard it as an insult that serious matters should be debated seriously. He seemed infuriated that my right hon. Friend had sought to debate issues raised by the Select Committee. The main issue is the mechanism by which there is likely to be an upturn in the economy. It raises important questions at two levels.

It raises fundamental questions for manufacturing industry and those working in the economy. They feel desperately that they need to see light at the end of the tunnel. They want a prospect of future expanding markets in which to sell their goods. That is understandable, and is one of the reasons why, in the Budget debate and in the Select Committee report, there are appeals for the Government to explain how they see an upturn in the economy coming about.

Some of our arguments have been in terms of change in the decline of stocks—the well-known accelerator effect if there is a fall in the rate of decline. But that argument to some extent is based on the idea of a normal level of stocks. I am far from sure that that is a valid assumption.

Similarly, the Chief Secretary argued that there would be a change in savings ratio or an improvement in the world economy. Taken together, that may give one some hope for the future, but it does not reassure one on the central issue for manufacturing industry. Therefore, while my right hon. Friend the Financial Secretary tried very hard last Thursday to spell out the position as he saw it, I have some doubts about his success in that respect in relation to the ordinary manufacturer or the manager working in industry.

We can all agree that over the last 18 months or two years there has been a great reduction in overmanning in industry. This in itself creates serious personal and human problems in terms of unemployment. But if there is an upturn in demand it is reasonable to suppose that firms will be able to spread their overheads and reduce their costs, and therefore be seen to be more efficient. That will certainly improve the so-called supply side of the economy. But in the longer term, what is important here is that there should be more investment in manufacturing industry and that the supply side of the economy should improve on a long-term basis, and that we should get real long-term economic growth.

Here I find the argument put forward by the Financial Secretary somewhat curious, because it seems to me that while he is right in stressing the supply side of the economy, we cannot in economic analysis ever merely concentrate upon supply or demand; we must concentrate on both. Whether it is the micro-economic aspect—the determination of price or output, or the macro-economic aspect—determining overall prices and unemployment, both supply and demand are important.

I do not think that it is reasonable to say that industry has become more efficient because it has reduced overmanning, and therefore that there is a marvellous improvement on the supply side, unless the people who have improved their efficiency in this way believe that they will be able to sell the goods that they can now produce more efficiently. That is how I see the position in simple terms, and it is very important indeed.

The good old Conservative principle of believing in the profit motive will be fulfilled and we shall get investment only if firms have both become more efficient and believe that there is a market for their products.

I am concerned about the way in which the Chief Secretary this afternoon talked about expecting some improvement in output in the coming year, without being prepared to say that it would be in response—for whatever reasons—to some increase in the level of demand. We should not talk about output without talking about sales at the same time. That is a basic commercial principle and, I should have thought, also a basic Conservative principle.

Mr. Eldon Griffiths

Will my hon. Friend give way?

Mr. Higgins

No, with great respect, because I am about to get involved in a complex extension of what I have just said. I am not for one moment, as my hon. Friend well knows, advocating a massive U-turn or a boost to demand, and so on. That would undoubtedly get us back on to the old inflationary spiral, with all the problems that it creates, and even more unemployment in the longer term.

What I am suggesting is that the Government must be more explicit in what they intend to do about demand, and that they need to back up their medium-term financial strategy, as argued in the Budget debate, with a medium-term demand strategy as well, if they are to create the kind of business confidence to which the Chief Secretary referred in his closing remarks today. The Financial Secretary shakes his head, and I want to turn specifically to the points that he has made.

We asked the Financial Secretary some while ago to spell out why the economy was likely to recover eventually, not in terms of an engine of recovery—an expression to which he objects—but in terms of how he analyses the prospects for that recovery.

I quoted in an earlier debate an extract from the Financial Secretary's speech to the Financial Times conference on 21 January 1980, when he said: But in the world of monetary targets, the level of demand is effectively determined by the rate of inflation. A rate of inflation higher than the monetary target will cause demand to be depressed, as a smaller volume of goods is purchased at a higher price; similarly, a rate of inflation lower than the monetary target will give rise to a boost to demand. In other words, what matters is the rate of change in the real money supply. One can agree with that statement, although it is perhaps for consideration where the cross-over in the rate of change of the money supply, on the one hand, and inflation on the other, comes about. That would seem to imply some demand management in the economy. As my right hon. Friend says, it is the "real money supply" that is important. If that is so, a question has to be asked. If that is the position, what determines whether that increase in the real money supply—that is to say, demand—is reflected in real output, and to what extent it is reflected in prices?

With great respect, my right hon. Friend did not spell this out in his speech last Thursday, although I was slightly surprised to discover, on the Friday morning, an article in The Times by Alan Budd, for whose technical ability I have the greatest respect, saying what he thought the Financial Secretary had said in his speech a few weeks before, in March.

What was curious about it was that Alan Budd seemed to draw his conclusion from the earlier speech—which had not really made a distinction between the short run and the medium term—and what appeared in a speech that was made only on the night on which the article had been written. It is a little worrying, for if two people both get the right answer in an examination it is reasonable to assume that the answer may have been arrived at independently. But if they both get the wrong answer, one is a little worried about how much co-operation there may have been.

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

I can assure my right hon. Friend that there was no collusion whatever. We both arrived independently at the right answer. If my right hon. Friend will read my speech to the Institute of Fiscal Studies, he will see that in the passage to which he referred I was referring to 1981–82, the forthcoming year, and not to the longer term. I hope that I made that clear in my speech on Thursday night in the public expenditure debate.

Mr. Higgins

I understand my right hon. Friend's point. If the House will allow me to detain it for just a little longer, I should like to go into it, because this is the crux of the argument as to whether there will be an upturn in the economy.

Perhaps I may suggest what my right hon. Friend is saying now, if I understand him correctly, in his "FST Mark II". He was saying originally that there was a crossover, and that demand recovered but then he put the matter in this way: Our contention is that while in the short term an expansion in the money supply can give a boost to real output"— that was his first point, which he then elaborated— in the medium and longer term it has no positive effect on output. All that it does is to increase prices."—[Official Report, 9 April 1981; Vol. 2, No. 85, c. 1196.] My right hon. Friend, therefore, is drawing a distinction between saying that there is a cross-over between the rate of change in money supply and inflation which gives an increase in real demand which results in a real increase in output, and then saying—this is what I find puzzling, and this is where I think that he has got it wrong—that that does not continue indefinitely, that somehow, from then on—I quote Alan Budd's version, but essentially they are saying the same thing— In the longer term the real growth of output will depend on the technical performance of the economy. The inflation rate will depend upon the growth of the money supply less the growth of output (and on any changes in the velocity of circulation). These factors in turn will determine the growth of the real money supply. He then points out that the real factors are things such as productivity and investment.

If there is no increase in demand, or if there is not adequate demand, I do not see how these real factors are expected to respond, for precisely the same simple-minded reason that I spelt out earlier—that people will not become more productive, invest more and work harder unless they can get rid of the goods that they are making.

I do not think, therefore, that the subtlety which my right hon. Friend has now introduced between the immediate future, when, he accepts, there can be an increase in real output, and the medium or longer term, when somehow it all depends on the real factors, is justifiable. I appeal to my right hon. Friend very strongly indeed, at all events to continue the debate, which, despite the simple-minded view of the Leader of the Opposition, is an important one. I appeal to my right hon. Friend to spell it out in rather more detail. I do not think that in the pressure of the debate in the House of Commons last Thursday he explained it as clearly as he might have done. None the less, if I understand him correctly, if they are to reassure industry the Government need to admit that the level of demand is important.

It is not "Keynesian" in some pejorative sense to say that demand management is in some sense a dirty expression and ought not to be uttered by any true monetarist. One must take into account the money supply—I have never denied its crucial importance—and the effect of the real level of demand. If one seeks not to do that, the result, I fear, may be great confusion, and the Government's objective, which we want to see, will not be achieved.

7.20 pm

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

The right hon. Member for Worthing (Mr. Higgins) spent some time giving yet another interpretation of what the Select Committee did or did not say. I shall not follow him in that direction. I note only that while listening to the right hon. Gentleman and his hon. Friend the Member for Horncastle (Mr. Tapsell) I could not help feeling that totally different languages are being used by Conservative Members. They are not differences of detail but they amount almost to people speaking foreign languages to each other and scarcely hearing or understanding what the other says.

I share the doubts of the right hon. Member for Worthing about the demand side. All the evidence is that real consumption, real investment and real exports will fall in the coming months. The only possible hope on the horizon is that stocks will stop falling to an extent that permits some kind of stimulus. That does not seem to me a basis for getting out of the worst slump in 50 years.

I oppose the Bill because I do not accept the Government's Budget judgment on increases in overall taxation or their cuts in public spending. Nor do I agree with the manner in which the Government propose to raise those revenues through the Bill. We cannot consider the Bill without regard to the Budget judgment that lies behind it. There can be no serious doubt in the minds of most commentators or most hon. Members that this is a sharply, even savagely, deflationary Budget, introduced at a time of deep recession. It will pile agony on to injury. It will damage more businesses, families and individuals and impose further strains upon the social fabric not only in the capital but in many industrial cities. The size of the deliberate act of deflation is concealed in a variety of tax rises, a variety of failures to protect taxpayers against inflation, of increases in national insurance contributions and of spending cuts.

The Treasury and Civil Service Select Committee, as stated on many occasions, came to a view on the size of the deflation deliberately inflicted in the Budget. Its view was that the deflation amounted to about £5 billion. We can argue the pluses and minuses at the margin but this spending will drain activity and energy out of the economy. If this deflation had been concentrated into one single stroke of policy for all the country to see, the severity of the impact would have been that much clearer. It is as if 5p or 6p had been put on to the standard rate of income tax at a stroke. One can imagine the uproar that would have been caused by such an act of vandalism in the middle of a depression. The Chancellor could hardly have denied that it was deflationary in the way that he has attempted to talk his way out of this act of vandalism.

Concealed though the tax rises and the spending cuts are, the fact is that the Government, elected to reduce the so-called burden of taxation, have been responsible for increasing from 40 to 48 per cent. in two years the share of national income taken by all forms of taxation. Nor are the increases in income tax and in indirect taxes on the items that we buy the only way in which the Government have taken money out of the pockets of families, young and old. A deliberate policy of forcing up prices in many nationalised industries and of forcing up council house rents has been the equivalent of a sharp increase in taxes on many people. Gas and electricity prices, along with council house rents, have been the most obvious. It is clear that there will be further big rises in these charges for each of the next two years.

It is nauseating to hear what I regard as the hypocrisy of Conservative Members attacking the monopoly position of nationalised industries and criticising local authorities on council housing, when the Government are forcing the gas and electricity industries and councils to raise charges far beyond what is justified and far beyond what those who should be in control of these industries wish to impose. The Government stand condemned of increasing unnecessarily the cost of living and inflation and of allowing their own blind ideological prejudice to colour their judgment in dealing with what are important examples of successful public and social ownership.

In their crude acceptance of rising unemployment and of falling living standards the Government are building up a great well of resentment. Until a short time ago they had been saved in large measure by North Sea oil revenue and the over-valued pound, which helped support rising average living standards largely through cheap imports despite falling national production at home. Now, however, the harsher reality of government by unemployment is coming home to an increasing number of people. Why is there mounting unemployment and this further deflationary Budget in the midst of the worst depression for 50 years? It is surely because the Government want to get inflation down and have rejected any open form of incomes and prices policy, except, it must be noted, in relation to their own employees, and are using the iron discipline of the dole queue and factory closures to get wages and prices under control.

Many voices of Left and Right in industry and the trade unions have argued against incomes and prices policies, saying that they are inefficient and inequitable and cause open clashes of interest between groups in society. I say to them "Look at the cost of an incomes policy by unemployment." Has the policy of the Government been without its costs? Production in manufacturing industry has gone down by 20 per cent. in two years. Fine, experienced workers and efficient companies have been put on the scrap-heap. North Sea oil revenues have been thrown away with an astounding disregard for the historic opportunities that they have offered. It will take many years even to make good what has been lost in these disastrous two years, let alone to catch up on lost ground.

Have the dole queue and its pay and prices consequences been equitable and fair? That question should be asked of the textile, engineering and construction industry workers. One needs to compare the profits made by banks and importers with the losses made by the wealth-creating industries of the Midlands and the North. Has an incomes policy of the dole queue avoided conflicts in the country? That question should be asked of the steel workers, and of the civil servants who are in the middle of the most serious dispute ever seen between employees and management. It should be asked of youngsters without work. It should be asked of ethnic minorities, so badly hurt by unemployment.

It is clear that the market-place free-for-all has not succeeded, and cannot succeed. Even its limited success depends on mass unemployment. Is it not likely that a return towards full employment will again lead to inflationary wage and price settlements? I ask that because political parties, employers and trade unions need to face the issue. It will not go away. I reject the dismal view that mass unemployment is unavoidable in the future. I reject the view that public sector workers must be made redundant because private sector workers have suffered. Yet any serious measures, whether on the demand or supply side—I agree with the right hon. Member for Worthing, that both are important—aimed at redressing unemployment within a reasonable time scale are bound to bring with them renewed and escalating inflationary pressure. In considering how best to tackle these difficult problems, at least we all now know what logical analysis had previously shown us, namely, that a market-place free-for-all and deflation has vast costs, is inequitable and breeds its own brands of conflict.

I conclude with a brief reference to two matters. Dissatisfaction with the Budget strategy and its associated Finance Bill was also expressed to Yorkshire Members of Parliament by the Leeds chamber of commerce and industry and by the Association of Yorkshire and Humberside chambers of commerce. The Leeds chamber drew particular attention to its opposition to the increase of 20p in the tax on derv fuel, estimating that it would increase haulage costs by about 4 per cent., with inevitable effects on prices. Even before the Budget, the United Kingdom price of derv of 161p compared with 120p in Germany, 116p in France, 97p in the Netherlands and '75p in Italy. The 20p increase in the Finance Bill makes matters even worse.

Have the Government considered the effect of that increase on the ability of our producers to compete with our main competitors? As with other aspects of the industrial and energy policies, the increase in derv in the Budget appears to call into question the Government's policy judgment.

The Association of Yorkshire and Humberside chambers of commerce told Members of Parliament in its brief that the time has come to apply some gentle stimulus to the economy". Instead of that, there has been a sharp deflation. The association gave significant reasons for believing that the expansionary stimulus needs to be gentle. It would have to be gentle because British industry would in its current state find it difficult to respond to any sharp increase in consumer demand, given that it would in many cases have to rebuild its workforce, would have difficulty in funding an increase in work in progress and could have problems in obtaining adequate supplies of semi-processed goods and components. The net result would be an increase in our import bill". That is the realistic and commonsense view of experienced business men in Yorkshire.

Far from laying the foundations of future growth, as we are frequently told by the Government Front Bench, the Government are currently reducing production, reducing investment, closing factories, and losing skilled workers. The economy is becoming trapped in a vicious circle—at best, a vicious circle of depressed stagnation, or, at worst, of spiralling decline. Doubt and concern are expressed not only by the Treasury and Civil Service Select Committee and outside commentators but by many Conservative Members, and must serve as a sharp warning to the optimists in the Government and to their depleted ranks of supporters.

The Bill inflicts deflation on our economy, which is already in its deepest recession for 50 years. It raises prices through taxation and by forcing them on our nationalised industries and council house tenants. It increases the tax burden on the majority of workers and their families, while giving the largest concessions again to the most wealthy. It increases industry's costs rather than reduces them. It will fuel inflation, increase unemployment towards 3 million, and reduce investment and the prospects of recovery. I shall certainly join my right hon. and hon. Friends in voting against the Bill tonight.

7.35 pm

Mr. Chris Patten (Bath)

I should like to come back later to the remarks of the hon. Member for Batley and Morley (Mr. Woolmer), and in particular to what he said about pay bargaining and what Professor Meade, in an article the other day in a book on social democracy, called our increasingly strong-armed attempt to try to extract a quart from a pint pot. I think that comes closer to the reasons for our economic difficulties than any argument about over-stimulation of demand in the 1950s or 1960s.

First, I am anxious about part V of the Bill, particularly the extent to which it runs the risk of reintroducing the voluntary principle into the payment of capital taxation. The point was strongly argued by one of my most distinguished constituents Professor Sandford—who I think is known to my right hon. Friend the Financial Secretary—in a recent article in the Financial Times. No doubt we shall have a chance to discuss the issue after Easter.

So I shall concentrate on two matters which are central to the Government's economic strategy, and which are both affected by what is in the Bill and what is not in the Bill but which I think should be in the Bill. In the wake of the Budget, I imagine that Treasury Ministers must have sympathised with the story of the prisoner in the magistrates' court. When the chairman of the Bench returned after an adjournment to consider the sentence, he said to the prisoner "There is a great deal of doubt in this case, but we are not going to give you the benefit of any of it".

It would be unreasonable—not to say incautious—for those of us on the Government side of the House who have some doubts not to give Ministers the benefit of them. However, I hope that, for their part, Ministers will understand some of our doubts and will be prepared to act on them later in the year if—perish the thought—they should prove well founded.

The first concerns the timing and the extent of the recovery which has been the subject of much debate today—whether, for example, the Budget is contractionary or deflationary, or whatever is the allowed word. In the article to which my right hon. Friend the Member for Worthing (Mr. Higgins) referred, Alan Budd, who must be the most amiable of all the monetarist divines, said that he thought that this was a rather arid debate. I do not think that he would regard it as quite so arid if he were to run a firm in my constituency as he does running the forecasting unit in the London Business School. The debate is clearly affected by the tax increases in parts I, IV, VIII and X of the Bill.

I do not think that I am being wilfully craven—presumably, I am being merely unintentionally stupid—in not entirely following the argument that the increase in the money supply this year ensures that there will be an increase in output. As a Tory, I am somewhat sceptical about certainty and simplicity in these matters. I always sympathise with those who tried to understand Hegel's philosophical thesis proving that there could not possibly be more than seven planets, only to discover, shortly before they completed the: impossible task, that someone with a telescope had actually discovered an eighth. Those are the sort of people with whom I feel that I, as a Tory, should sympathise.

I shall deal first, as did my right hon. Friend the Member for Worthing, with the short-term argument. As I understand it, it says that real output grows by slightly more than the increase in money supply, minus the increase in inflation. If we use our telescope and consider the longer term we see that, as we have already been told, inflation equals the previous money supply increase after a suitable time lag minus the growth in output.

I should find those two propositions much easier to understand if there were no overlap between the short term and the long term, but presumably the rate of inflation, which is crucial to the first of those propositions, must at some point in time—as the Americans would say—be affected by the second. If that is so, we should need a much greater surge in output than is forecast by the short-term proposition at present in order to prevent last year's increase in the money supply coming through into higher prices in two or three years' time. We have been told that that will not happen, so I am confused. I am reminded of the remark of Tweedledee in "Through the Looking Glass": Contrariwise, if it was so, it might be; and if it were so, it would be: but as it isn't, it ain't. That's logic. I have another problem, which was referred to by my hon. Friend the Member for Bristol, West (Mr. Waldegrave) in his speech in the Budget debate. He argued that since we were putting up the rate of inflation in the short term by some of the measures now in part I of the Bill, presumably the amount that would be available for output would be that much smaller next year as a consequence of those indirect tax increases finding their way through into the inflation rate.

I imagine that that is why my hon. Friend went on very courageously to argue the case for an increase in the standard rate of income tax rather than the indirect tax increases suggested in part I or the de-indexing proposals in part IV.

I should be more prepared to agree with my hon. Friend's proposals if I had a more nearly wholehearted confidence in the "Lawson effect", as I think someone called it—that is, the relationship between the money supply and output—than I have. With that relationship, if it exists, the prospects for an upturn are small but perceptible. Without that relationship, the prospects of an upturn are a great deal smaller.

We hope that destocking will finish in the next few months. We hope that there will be some increase in consumer spending as inflation and savings fall, although consumer spending has been clobbered pretty hard this spring. We hope that there will be some increase in exports, despite what the Red Book says, even though the competitiveness of British industry is not all that one would like. We hope that there will be some increase in investment as the productivity of British industry increases, as I am sure it will, during the course of the year. But there seems to me to be too many definite "maybes" about all those conditional clauses. Particularly when one compares the restrictive or non-contractionary stance—I am not quite sure which—of the Budget, of fiscal and monetary policy in this country, with the position in West Germany, Japan and the United States, one cannot be too confident of much of a lift-off from the bottom for the British economy in the next few months.

If we are to do a little more to help the creation of demand, of confidence and of hope, what should it be? I should have liked to see in the Bill the Government at least halving the surcharge that employers have to pay on their national insurance contributions and a guarantee to remove in the next Finance Bill what was left. I realise that that would have increased the public sector borrowing requirement by about 1½ billion, or perhaps slightly less, since there is not a pound for pound knock-on effect, because of the effect on the lower level of economic activity.

Many of us heard the right hon. Member for Down, South (Mr. Powell) talk in the Budget debate about the undesirability of any increase in the PSBR. No one in the House is better than the right hon. Gentleman at reducing an argument to the absurd, and it must be said that he had some pretty good material to work on. Few people can put a more absurd argument than those on the Opposition Front Bench, with whose arguments about the PSBR he was then dealing. But I cannot help feeling that there must be a sensible mid-point between the rigorous arguments of the right hon. Gentleman and the IMF-bound extravagance of the right hon. Member for Stepney and Poplar (Mr. Shore), a mid-point on which many of us would be happy to take our pew. As my father used to say, although he did not put it quite so delicately, there is the world of difference between scratching one's nose and tearing it to shreds.

My hon. Friend the Member for Devizes (Mr. Morrison) said in the Budget debate that a PSBR of Ell ½ billion or £12 billion could not possibly be regarded as wildly inflationary reflation, especially when one considered it as a proportion of gross domestic product, or one considered—a point that I have made before—the lack of any intimacy of relationship between a given level of PSBR and a given level of inflation or a given level of interest rates.

I should like to make one more brief point about a reduction in the national insurance surcharge. That would not only help us greatly to fight inflation, rebuild profits, make industry more competitive, help exports and create new jobs but would end the absurd fact of our subsidising employment on the one hand and increasing its costs on the other.

I very much hope that some of the doubts that I have expressed this afternoon will be put to flight by events in the next few months, but I am worried that courage and faith, like monetarism, may not be quite enough. If they prove to be inadequate, I trust that we shall have the good old-fashioned Tory horse sense later in the year to come back and do rather more for British industry.

7.47 pm

Mr. Richard- Wainwright (Colne Valley)

Hon. Members may agree that Second Reading debates, apart from the forced adversary rhetoric of the Front Benches, usually revolve around the balance of national advantage or disadvantage that is supposed to flow from the Bill in question. But this Finance Bill deserves no mercy. I hope that it will have as little mercy in the Division Lobbies tonight as it has had from both sides of the House so far. Nobody could say that the speech that we have just heard by the hon. Member for Bath (Mr. Patten) showed the Bill much mercy.

The Bill is the vehicle for a severely deflationary Budget. The amount of deflation in the Budget has not been effectively concealed by the extraordinarily wide variety of interpretations that each Treasury Minister has put upon it. The right hon. Member for Stepney and Poplar (Mr. Shore) let the Treasury team off rather too lightly this afternoon. He had some genuinely entertaining fun at the expense of the Chancellor of the Exchequer and the Chief Secretary, pointing out that the Chancellor had said that the Budget was not too deflationary, whereas the Chief Secretary had spent an inordinate amount of time this afternoon trying to show that it was not deflationary at all. But the right hon. Gentleman neglected the elegant place in this extraordinary cacophony from the Treasury Bench occupied by the Financial Secretary, whose elegant sidestep was to avoid the word "deflation" altogether and to insist that the proper term was "not contractionary".

The Government set a great deal of store on influencing people's expectations. That is the core of their policy. As the Chancellor frequently reminds the Select Committee on the Treasury and Civil Service, nothing that has gone before in our economic history is a relevant guide to what is happening under the present Government, because they will change human expectations. He says that models and other mechanical devices can be thrown out of the window, because human nature and people's outlook will be changed by the signals from the Government. It is difficult to know how anyone could maintain a view that has been so fully demolished by so many reports in the last year or two. But if that is the Government's view, why do they persist in giving totally confused signals, one Minister against another, to the British people who are supposed to be waiting to have their expectations influenced?

It was clear from the interest with which hon. Members present followed the remarks of the hon. Member for Horncastle (Mr. Tapsell) that he was going to the heart of the matter. There is no need to reinforce his points, because he made them with such a wealth of supporting evidence and so clearly. However, I should not like his speech to pass without commenting from the Liberal Bench that two points that he made seemed to us outstanding in their validity. The first was his expert testimony, from the City itself, that all this talk—to use a polite word—of the last two years to the effect that a respectable non-deflationary public sector borrowing requirement could not be met without a serious rise in interest rates, has been so much wind.

The House should not allow itself to be diddled by the stories, which have no foundation, that a PSBR of more than £10½ billion would inevitably involve an end to the drop in interest rates. The hon. Member was entirely convincing on that point.

The other point made by the hon. Member, so graphically and rightly, concerned the danger that a House whose older Members have become connoisseurs of U-turns because they have seen such a variety executed by respective Front Benches in succession, is soon likely to be treated to the appalling spectacle of a V-turn. That means that the alteration in policy will be virtually total, and that instead of the luxury of a shallow progress along the bottom of the "U" the change in policy is to take the shape of a "V", to the utter dislocation of already demoralised industry.

That is a warning which surely even the present Government ought to heed. Industry is continually reminding them of the havoc that has been wrought in the past by these zigzag policies. I believe that the present Government are heading for the sharpest and most dislocating reversals of policy that we have ever had in our long history of Government turns.

I have no need to elaborate at length on the views of the Liberal Bench on the Budget strategy because they have been put during the Budget debate and in the debate last week on public expenditure. However, before I come to the particular mischief of the income tax changes I should like to mention two more general aspects of the Bill.

In opening the debate the Chief Secretary claimed that the brunt of the tax increases in the Bill would be borne by the banks, the North Sea oil industries and the personal sector. That is an incredibly myopic point of view. The Select Committee made it clear, in paragraph 7 of its report, that it is necessary to consider the direct effect on domestic sales and orders resulting from the overall tightening of the fiscal stance. The havoc that the Bill will wreak on demand in Britain will be far more damaging to business than the taxes on, for instance, the North Sea oil companies.

The second matter to which I refer before dealing with income tax is the extraordinary passivity with which the Government accept that the savings ratio is bound to fall. Why they should be afflicted with this death wish, that the propensity to save despite all kinds of discouragement in Government policy, one of the greatest assets of our people, is suddenly to dwindle, passes my imagination. There may be some fears for the savings ratio, because who can tell with confidence what the attitude of savers will be from year to year. But to embody in the Red Book, as an important element in calculating demand during the coming year, a firm forecast that the savings ratio is bound to fall seems perverse. It is suggested that the British people's attitude to savings is diametrically opposite to that of the people of the United States of America, who, when inflation moderates for a time, have traditionally stepped up their savings because they then believe that it becomes worth while to save in the conventional sense.

The income tax changes to which I turn are the most horrendous surrender by the present Government in relation to their explicit election promises. It is worth reminding the House that in real terms—that is, with a full adjustment for inflation—the increase in income tax for the average taxpayer since the present Government came to power is 8 per cent. That is from a Government whose leader said on 25 April 1979, just before polling day: I assert without hesitation: we will cut the tax on work. We will cut the tax on savings. We will cut the tax on extra skill and extra effort. The Red Book—and this is to be commended—also virtually puts the lid on any vestigial hopes that the Government may have that all this horrific contradiction of their promises can be put right in the next year or two. In the Red Book, under the usual coy title of "Implied fiscal adjustment", we have the figures for what the Government estimate they will be able to do by way of tax reduction in 1982–83 and 1983–84. On page 18 of the Red Book, for which the Financial Secretary is personally responsible, amongst large numbers such as £90 billion, £87 billion and sums of that magnitude, for implied fiscal adjustment next year in the Budget, we have precisely £1 billion, and in 1983–84, which may be a very significant year, only £2 billion. It has been stated—the Government have not denied it—that those implied adjustments, even if there is room for them, will do no more than repair some of the damage which is done in this Budget.

The effects of this rise in income tax through failure to index the allowances are becoming fairly well known, but it cannot be repeated too often that it is the low-paid worker who will in many ways suffer most savagely. The level of income at which how-paid families will become liable to income tax, the threshold, will fall by more than £4 a week. In combination with the disastrous decision last year to abolish the reduced rate band, this means that over two years the marginal tax rate of the lowest paid has risen from 25p in the pound to 30p. That is an appalling blow to those who are least able to bear it.

Turning from the personal damage to the national damage, there is the awful consequence that it will now be far more financially advantageous for many more people not to be working than to take work. Before the Budget, the gross earnings figure that a married couple with two children needed to have in order to put themselves on the same level as such a couple on supplementary benefit was £74.03 a week. If an individual managed to earn £74.03 a week and he was married with two children he could expect to take home the equivalent of supplementary benefit for a person in that position. According to the Low Pay Unit, which has an excellent record in these calculations, the Budget will increase that figure to £88.10 a week.

In many areas—perhaps not in those so well represented in the Cabinet—north of the Trent and in the far West, many jobs that are advertised hold out no financial advantage to the unemployed man with two children. As the Government have been forced to admit, a poverty trap which was deepened in last year's Budget has been widened in this. That conflicts with the Prime Minister's statement in her election broadcast on 30 April, in which she said: What we do believe is that there is all the difference in the world between creating a society in which it pays to work and creating one in which it does not. As to vehicle fuel taxes, my party accepts that there is a case for keeping the duty on petrol more or less in line with inflation. However, that should not be done in an erratic manner which requires an enormous leap in one year, which destroys household budgeting, destroys the rationale which led individuals to live in a particular area and wreaks havoc in their financial calculations. We would have supported an increase of about 5p a gallon. We advocated such an increase before the Budget. The increase of 20p is savage. It demonstrates a total remoteness from the budgeting processes of the average family.

The Liberal Party is unimpressed by the threats that have been made that if the House is so impudent as to deny the Chancellor his additional 20p on each gallon of petrol the most terrible taxes will be imposed that will turn British people's blood to frost and cause awful havoc, in comparison with which the additional duty on petrol would be a light impost.

When the right hon. Member for Leeds, East (Mr. Healey) was Chancellor of the Exchequer in the Labour Government he issued similar threats in 1978 during the Lib-Lab pact. He said that if Liberals insisted on removing the 5p increase on each gallon of petrol that he had incorporated in his Budget he would without a doubt increase taxation on beer. He repeated that threat throughout the country. But when August came and the 5p was duly removed, no tax was imposed in its place. I hope that the House will not be moved by the fearsome threat that many desirable objects will have to be taxed if the additional 20p on each gallon of petrol is to be moderated.

Mr. Chris Patten

Is the Liberal Party always against increases in the duty on petrol, or only sometimes? What are the reasons that sometimes lead Liberals to favour such increases? Are those reasons electoral or political? I hope that the hon. Gentleman will enlighten us.

Mr. Wainwright

I believe that I am already in trouble for being diverted last week by an intervention and adding to the length of my speech. I thought that I had made it as clear as I am capable of making it that Liberals have always been in favour of a movement towards keeping the tax abreast of inflation. We are not in favour of vast and crude leaps of 20p. I remind the hon. Gentleman that in 1978 the extra 5p meant rather more than it does now.

The increased duty on derv was carefully slid over by the Chief Secretary this afternoon. The right hon. and learned Gentleman was eloquent in saying that even after the increase in petrol tax we would be no worse off than most countries in the Common Market. However, he was silent on the comparative figures for derv. Even before the Budget Britain had the highest price of derv of any Common Market member State. It was well over twice the price which obtains in Italy, for example. In these circumstances we see no justification for any increase this year in the price of derv.

The Financial Secretary has prophesied that the public's behaviour in the atmosphere created by the Government will not be like their past behaviour. The opinion polls are indeed endorsing that prophecy, and I believe that the Finance Bill may prove to be the spade that dug the Government's grave.

8.7 pm

Sir Graham Page (Crosby)

I apologise for being unable to rise to the heights of financial philosophy and economic policy that have been scaled in some earlier speeches. I am capable of dealing only with the nuts and bolts of the Bill which happens to be before us for Second Reading.

It must have been the ambition of every Treasury Minister to simplify and clarify our tax law. I imagine that every Chancellor has had the vision before him of being a Hercules, or statutory St. George, and slaying the taxation monstrosities conceived by unholy wedlock or deadlock between the Inland Revenue and the parliamentary draftsmen. Alas, we have, as in previous years, another monstrous child of 195 pages with scarcely an item of delegislation throughout its 126 clauses and 16 schedules. One can look in vain for any real clarification and simplification of revenue law that would help the taxpayer to understand that law and reduce the staff required to administer it.

In part I, under Customs and Excise, we find that the duty on matches and mechanical lighters is to be increased. Do we need that tax? We may need the money to be derived from it, but do we need a separate tax? Are not matches and lighters used for 99 per cent. of the time to light cigarettes, cigars and pipes? Would not it be more sensible to add 1 per cent. to the £3 billion in tax that is collected from tobacco and to disband the matches and mechanical lighters duty division? If we considered whether some of our taxes were necessary we should find some that could be merged into others.

Clause 10 introduces schedules 6 and 7, which amount to no fewer than 27 pages. These schedules introduce into the Bill the procedures for import and export. I do not know why they are in the Bill. Their proper place would be in a Customs and Excise Management (Amendment) Act or a statutory instrument. I am bound to ask whether these schedules are necessary. Paragraph 7 of schedule 7 states: The Commissioners may relax all or any of the requirements imposed by this section as they think fit in relation to any goods and, if they do so, may impose substitute requirements. If one does not obey the substitute requirements one has to bear a penalty of £500. All those 27 pages of the two schedules could have been reduced to one sentence: "Do as the commissioners tell you or you will be fined."

Part II deals with value added tax. I am sure that the small business man is delighted that the threshold for compulsory registration has been increased from £13,500 to £15,000. However, the realistic appraisal of inflation would have justified an increase not to £15,000 but to £20,000, as recommended by the National Chamber of Trade. That would have significantly reduced the administrative work, but it would not have significantly reduced the amount of revenue collected. That part could have been considered more from the point of view of the administration caused.

Part III deals with the extension of car tax to motor cycles. That is another nail in the coffin of what could have been the greatest tax administration slimmer of all time—the merger of car tax and petrol tax. There is a simple way of doing that. One increases the petrol tax—dare I say it?—by another 20p. Every time one buys a gallon of petrol one receives a voucher for that 20p—rather like the old Green Shield stamps. When £70 worth has been collected one exchanges the vouchers at the garage for a car licence for next year. For the rest of the current year one produces that car licence every time petrol is bought, and a discount of 20p is obtained. That is a simple way of combining car tax and petrol tax.

Part 4 of chapter 1 seems to increase the number of instances in which there will have to be claims for repayment of tax because the tax has been deducted at source. Few contacts between the Inland Revenue and the taxpayer cause the taxpayer more frustration and fury than the time it takes to obtain repayment of tax overpaid. All those repayment claims cause much administrative work. That time lapse in getting money back often causes real hardship. Therefore, in the cause of relieving anger and hardship and in the cause of reducing administrative work, the need for repayment claims should be reduced and not increased.

I shall give the House one example which has been called to the attention of the Inland Revenue by the Law Society. In the majority of court orders for maintenance, the recipient's means are below the tax threshold. For example, an ex-wife who has had to look after one child would have a basic tax-free income of up to £41.25 a week. However, under a statutory instrument, if her maintenance payments are more than £33 a week the payer—the ex-husband—has to deduct tax at source. For a maintenance payment of £34 a week, he pays her £23.80 and she has to claim the other £10.20 out of the Inland Revenue. It reaches her six months or even 12 months later.

That is not only crazy; it is cruel. Hardship to the person entitled to the money and unnecessary work for the Inland Revenue could be avoided if the limit of maintenance payments below which the payments can be made gross were linked to the single person and one child allowance. That is one example of many of reclaims causing hardship and much administrative work.

The system of "pay now and reclaim later" has been taken to its extreme in clauses 50 to 63. Those clauses deal with the welcome relief for investment in new corporate trades. That is a good tax incentive to encourage investment in new businesses. One receives the allowance of that investment against one's income. However, that allowance is not received when one makes the investment. One cannot claim it for that year, but one must claim it during the second year. The Inland Revenue can take it all back again within the next five years. That is an absolute nightmare of claims and reclaims. I do not believe that the Inland Revenue will let anyone have the benefit of that within those five years if it can claim it back again.

Benefits in kind are dealt with in clauses 64 and 65. There is an administrative irony, if not a nightmare, in clause 65. The original justification for the flat rate benefit system in respect of company cars available for private use was to avoid the trouble of apportioning expenditure between business and private mileage. All that is to be resurrected in clause 65—at least from 1982–83. It will take a year to exhume the corpse, resuscitate it and provide it with accommodation and staff. I hope that during that year, or before that happens, someone will decide that we should let it rest in peace.

I now turn to the part of the Bill which deals with capital taxation and its various breeds—capital gains tax, capital transfer tax, development land tax—and, on the other side of the picture, capital allowances. I am sure that my right hon. and learned Friend will recollect that during the debates on the Finance Bill last year we were denied amendments to capital taxation on the grounds that if we waited we would have a comprehensive Bill on capital taxation. We waited, hut, like Godot, the Bill never arrived. Instead, in the Finance Bill there are 26 titivating clauses on CGT and CTT and another four on development land tax. At the very least, development land tax should now have its neck wrung. If we need the £25 a year, that it is said that the tax can raise its collection should be part of the income tax and capital gains tax system. The department which administered it should be disbanded.

Mr. Budgen

Will my right hon. Friend explain why he has had that change of view? I remember that when he and I were debating the development land tax when it was first introduced, his view was that there was a necessity for some level of development land tax. There used to be a discussion on the question whether it should be 60 per cent. or 50 per cent. As to the proposition that there should be some tax, I remember my right hon. Friend being firm on the side that there should be a tax.

Sir Graham Page

My hon. Friend is always fair when he intervenes. I said that if we need the £25 million which it is said development land tax can produce it should be collected through the income tax system. It should not be a levy. I have stuck to that opinion throughout the time that I have advocated that money should be raised from the windfalls which result from development. However, I do not believe that it should be raised as a separate tax.

Finally, part VI deals with stamp duty. Clause 101 reminds us that the basic statute was passed in 1891. We are still collecting much of the duty by the impressed stamp, under a system 90 years old and, indeed, 90 years out of date. I do not know how many officials are employed in banging the press down on legal documents, but if we were permitted in all cases to use adhesive stamps they could be put to more productive work. I know that we should be licking large, high-value stamps, which would perhaps be exciting, but if we were allowed to buy, lick and stick our own stamps we could save much time and administration.

I apologise to my right hon. and hon. Friends on the Treasury Bench for not having said the complimentary things about the Bill that its merits deserve, but I was anxious to use the time to point out that there are ways in which the Bill could have made the application of tax more intelligible and its administration less expensive.

8.21 pm

Mr. David Ennals (Norwich, North)

I remember as a Minister introducing a Bill on only one occasion when no one spoke in its favour. That was the measure concerning British standard time which I inherited and which suffered the fate that it deserved. This Bill has attracted no support, except for the 10-second non-tribute of the right hon. Member for Crosby (Sir G. Page), and I wish that it could suffer the fate that it deserves.

We have today heard damning evidence against the Government. The right hon. Members for Worthing (Mr. Higgins) and for Crosby and the hon. Member for Bath (Mr. Patten) spoke against the Bill. The hon. Member for Horncastle (Mr. Tapsell) made a devastating attack on it. It is staggering that the Prime Minister, the Chancellor, the Treasury team and the Government have learnt nothing over the past 12 or 18 months and certainly nothing since the right hon. and learned Gentleman's disastrous Budget speech on 10 March. The Chancellor's strategy has been condemned by almost everyone—the CBI, the TUC, 364 or 895 economists, half the Cabinet, the Select Committee and a large number of Back Benchers—yet he, with the backing or push of the Prime Minister, has blundered on with his academic monetarist dogma, to use the words of the hon. Member for Horncastle.

What has been achieved? First, the burden of personal taxation has increased, and hundreds of thousands of additional people have been forced into the tax net. Secondly, an increasing number of firms have been reduced to bankruptcy. Thirdly, the Government have sustained the downward trend of our economic performance. The Financial Secretary saw a glimmer of light in one month's figures, but no one is impressed by that. The forecasts are that production will continue to decrease. Fourthly, unemployment, which has already become intolerable, will increase. The CBI estimates that next year well over 3 million people will be unemployed, and, if that happens, what occurred in Brixton over the weekend may be repeated in other parts of the country. There is a danger of social unrest with such high unemployment.

Fifthly, the Budget has given an inflationary twist to an improving economic situation. I was surprised to hear the Government taking credit for reducing inflation, when in their previous Budget they stimulated it. They are trying to bring down inflation to the level that they inherited, but, especially since this Budget, the evidence is that it will not continue to fall.

Sixthly, we have seen a sustained squeeze on housing, education and social services. In addition, although perhaps less important nationally, the Government have done nothing to relieve the serious plight of the voluntary organisations that do so much important work for the needy.

It is staggering that the Prime Minister, the Chancellor and the Government have failed to listen to advice from any source. They have rushed headlong to the top of the cliff, like swine, and are followed willy-nilly from time to time by the Tory sheep into the Division Lobbies.

I wish to raise two particular problems. The first concerns petrol tax, which many hon. Members feel strongly about. I shall not repeat what I said in the economic debate just over a month ago. Let me simply quote a letter that the Norfolk county council sent to the Chancellor, a copy of which I received the day before yesterday. The council is not at present Labour-controlled, although it may be in a few weeks' time. It stated: Not only is the tax a substantial blow to those who rely on the use of their private cars for essential journeys, but it will undoubtedly escalate transport costs overall which, again, bears particularly harshly on a predominantly rural county. Many people in Norfolk have to travel substantial distances to work in their own transport where public transport is not available. Furthermore, the Council is concerned about the effect of the tax on its own expenditure, which gives rise to yet another increase in costs which will have to be met within the cash limits. I do not always agree with the Norfolk county council, but I agree absolutely with its condemnation of the tax increase.

The Chancellor must listen to what is being said on both sides of the House. He has not been here for one moment of the debate. Perhaps he did not wish to hear the criticism that would be heaped on him, although he is not a man without courage. He has boldly and courageously pursued a policy that is patently wrong. However, it is curious that he has not been here for this debate. [HON. MEMBERS: "He has."]

Mr. Barry Sheerman (Huddersfield, East)

Only briefly.

Mr. Ennals

He could not have been here for more than three or four minutes, and I do not know where he was sitting.

My last point concerns charities. I raise it because, looking at the time, I fear that no one else will. In the debate on 3 February and again in the Budget debate on 12 March I pleaded with the Chancellor to do something to relieve charities from the intolerable burden of VAT at 15 per cent.

No one can doubt that magnificent work is done by organisations such as the Spastics Society, the Society for Mentally Handicapped Children, Help the Aged, Age Concern, the Save the Children Fund, Dr. Barnardo's, the National Children's Home, the Royal National Institute for the Blind, the Royal National Institute for the Deaf and many other organisations, all of which over the years have given magnificent services to supplement the statutory authorities. I am sure that all hon. Members would wish to support them. Certainly, the Prime Minister and the Secretary of State for Social Services poured tribute upon them. Yet the Budget puts them in an intolerable position in trying to do their job.

Those organisations are having to cut back on their work because of the burden of VAT. They sought to see the Chancellor before Christmas, but he refused. Representations were made to the Prime Minister, but received a negative answer. I, too, have written to the Chancellor, although I do not expect to get any more support than the charities themselves. Indeed, I have not even received a reply.

Mr. Eggar

rose——

Mr. Ennals

Time is so short that it is not fair to others if I give way. [Interruption.] All right, if I am under criticism, I give way.

Mr. Eggar

First, did not the right hon. Gentleman welcome the decision in the last Budget to alter arrangements for charitable giving under covenants? Secondly, has it not been established under Governments of both parties that charities pay VAT at the going rate?

Mr. Ennals

But the going rate has doubled, against the views of all Opposition Members, who strongly condemned it, and after a pledge by the Prime Minister during the election campaign that allegations that VAT would be doubled were lies. Eight per cent. is a very different matter from 15 per cent.

Mr. Eggar

Humbug.

Mr. Ennals

I shall not give way again. Let hon. Members ask the charities their views, one by one, as I have. They believed that they had seen a spark of hope in the Chancellor's speech. I quote from the Spastics Society journal which I received today: The high hopes of charities that the Chancellor's Budget would relieve them of the crippling burden of VAT were shattered, and millions of 's donated to relieve suffering will continue to be paid to the taxman. The injustice of that was bad enough, but what has really made the charities sour is the misleading way in which Sir Geoffrey Howe magnanimously appeared to give concessions to voluntary organisations. Budget-watchers believed that kind Uncle Geoffrey was actually helping charities when he announced that the benefit of VAT zero rating on ambulances and wheelchairs would be extended to institutions caring for the handicapped. On investigation, this great 'concession' proves to be a cruel mirage. Only ambulances and wheelchairs which are gifts will be zero rated. Do any of these organisations use ambulances? The answer is "No". They are suffering far more from the extra cost of petrol than they have any chance of gaining if someone strangely decides to give them an ambulance.

I hope that the Minister will convey this to the Chancellor. First, he must redefine what "ambulance" means. Far more seriously, because that is just chicken feed, he must recognise that if these charities are to do the job that over the years they have done and for which they have been applauded, there must be some recognition by the Government that they need the money to do it.

This is, after all, the International Year of Disabled People. Instead of tax relief for private medical insurance and new expenditure on civil defence, let the Government do something now to help these fine charitable voluntary organisations so often praised by the Prime Minister and the Secretary of State for Social Services. Smooth words do not help. Only a change in the Finance Bill, which I hope will be made in Committee, will help to enable them to continue the job they have done so well.

8.33 pm

Mr. Eldon Griffiths (Bury St. Edmunds)

Much of the debate has concerned the balance between the demand and supply sides of the economy. The biggest single enginering and capital goods project available to this country is the construction of the North Sea gas gathering line. I greatly regret that, due to bureaucracy and indecision, it will no longer be possible to start work on that project until well into 1984 or even later. I make that point very simply because that demand could and should be injected into the economy and would cost the public purse nothing.

It is the proper intention of the Government that since there is much profit in the North Sea, private companies—the equity owners of production and the private banks—should finance it. They are ready to do so, but a bumbling and inadequate approach has meant that this immense engineering project will not now proceed, at a time when it could inject genuine help on the demand side of the economy, without being accompanied by inflation.

I have rarely spoken in finance debates. The last time was in 1964 when, with Mr. Airey Neave, I voted against the Government. I have an amendment on the Order Paper which, if it had been called, could have led to my doing the same again tonight. But I want to make it plain to the Treasury Bench that I had a much wider purpose than reducing petrol tax in placing that amendment on the Order Paper. I wish to send a signal to the big spenders. Some of the big spenders are in local authorities—mainly the Labour authorities. Some are in our nationalised industries, which are among the most incompetent industrial enterprises in the industrial world. Some of the big spenders, however, I regret to say, are in the Cabinet, and it is to them that I wish today to send this simple message.

Since my right hon. Friend the Prime Minister, to her immense credit, tried, but without success, to persuade her colleagues to curb increases in expenditure, the time has come for the Conservative party in Parliament to intervene in that debate. It is our duty to say that if the big spenders in the Cabinet go on pushing up their spending some of us will not be prepared to troop through the Lobbies to put through the extra taxation to pay for it. I, for one, was elected to reduce public expenditure and cut taxation. I regret that public expenditure has continued to rise.

My objections to the increase in petrol tax are twofold. First, it is inflationary. Secondly, it is discriminatory. I speak of its being inflationary from my background experience as a Transport Minister. The Road Haulage Association, the Freight Transport Association and the National Farmers Union are right; there will be a substantial inflationary twist from the increased petrol tax and particularly from the tax on derv.

The increase is also discriminatory. My right hon. and learned Friend the Chief Secretary is living in a different world from that of my constituents when he says that the proportion of the tax to the total cost of petrol is no different from what it was in 1970. Since then, two big factors have occurred. First, there are very few bus services today, whereas in 1970 there were many. So many rural people no longer have any choice except to use their cars. Secondly, many small businesses, I am happy to say, have established themselves in remote rural villages. But they need to bring together their workers and their management, who all rely heavily upon petrol.

I am not a wet. If, as I suggest, the petrol tax increase were halved to lop, that would cost the Chancellor not less than £600 million. No one has any right to advocate such a large reduction of revenue unless he has the political guts to say pretty plainly how he would compensate for it.

I was glad to hear the Chief Secretary say that the various options of tax increases make little sense, and that taxing gambling, caravans and foreign holidays is not the right way. He said, and I agree, that such taxes would not raise the necessary money and would, in almost every case, do more harm than good.

I therefore recommend the Treasury Bench to ask themselves "What about spending less?" I am prepared to answer that question by describing precisely where the Government can save money. First, I welcome the reduction in the rate of increase in central Government expenditure. There has been some fall in the number of central Government employees and some reduction, I am glad to say, in the number of tax collectors. I also welcome the substantial improvement in EEC contributions wrung from the Community by the Prime Minister.

The bad news is that, overall, Government expenditure has continued to rise at an unacceptable rate. I understand the reasons. Recession inevitably has generated more losses in the nationalised industries. It has also generated unemployment, so unemployment pay must go up substantially. Rightly we have undertaken increases in defence expenditure and in law enforcement, for which I had some responsibility, and both these I welcome.

But while I well understand the upward pressure of central Government expenditure, there is one area where it appears to be out of control. I speak of rates of pay. The civil servants' dispute has demonstrated plainly that there are now two nations in Britain—but not of the kind that Disraeli described. One nation comprises the public sector, which has job protection, indexed pay and inflation-protected pensions. The other nation comprises the private sector, which more and more has no job security—indeed, it faces unemployment—and which no longer can afford inflation-protected salaries. Salary increases in the private sector are now very low indeed. Nor can private firms possibly afford the inflation-protected pensions available in the public sector.

Mr. Sheerman

Will the hon. Gentleman give way?

Mr. Griffiths

I cannot give way, because of the time.

The Chancellor would have been wiser to build into his estimates for the next year not a further 6 per cent. increase in pay for the public sector but an increase of 5 per cent. If he had done that he would have come close to saving about £200 million a year to offset petrol tax.

Mr. Sheerman

What about the police?

Mr. Griffiths

The hon. Member for Huddersfield, East (Mr. Sheerman) can make his own speech in his own way but the police, as I said, come under law enforcement, to which we are committed.

On the local government front, I welcome the Secretary of State's efforts to reduce expenditure. However, we all know from our own areas that there are many ways in which local government can and should reduce its spending further. Another £100 million can be saved from that source.

In the nationalised industries—in steel, in British Leyland and in shipbuilding—the subsidy received this year should be calculated on the basis of the amounts being paid over 13 months rather than 12 months. That adjustment, too, would yield a further £200 million in saving to the Exchequer.

Finally, in present circumstances it is not necessary to barrel ahead with fourth channel television. We can do without it for a year or more. The revenue consequence of that is as high as £80 million.

If the Chancellor of the Exchequer wished to do so, it is possible, in the various ways that I have described, to save on public expenditure the £660 million required to offset a halving of the extra duty on petrol and derv. I commend that suggestion and hope that the Minister will deal with it when he replies.

8.44 pm

Mr. John Horam (Gateshead)

In view of the lateness of the hour and the number of hon. Members still wishing to take part in the debate I shall confine my remarks to taxation policy.

There is no doubt that the overall burden of taxation has increased over the past two years. That is directly contrary to all the positions taken up by the Government before the election and since. The Financial Secretary admitted that in a speech in Zurich in January. I do not know why the right hon. Gentleman always goes to Zurich or Basle to make such admissions. He should occasionally make them in the House.

I hope that the Minister of State will enlighten us on the extent to which that tax burden has been increased. My calculations, made with the invaluable help of the Library, suggest that the tax burden has increased over the past two years from just over 39 per cent. of gross domestic product, at factor prices, to 43½ per cent. I hope that the Minister of State will give us the facts and figures. We should have a clear statement from the Government on what has happened to the overall burden of taxation. It is not enough to get Sibylline whispers and admissions from foreign parts about what has happened.

The Government came to power with clearly conceived ideas about reducing the burden of taxation. The hon. Member for Bury St. Edmunds (Mr. Griffiths) said that he was not elected to increase taxation. Nor was the Treasury Bench, and it is time that we had an explanation from the Government.

I would be prepared to accept an increase in the standard rate of income tax rather than a failure to index the thresholds, which is the main feature of the Budget. The consequence of that failure to index has been to make the burden of taxation bear most heavily on those least able to afford them—the poorest in our society. I am concerned because not only has the average burden of taxation increased but the burden has increased most on the poorest, on families and on women. They have suffered most.

As I said, I would rather increase the standard rate than fail to index the thresholds, but we must look at the matter in the longer term. I accept that if we are to reduce the tax burdens we must control expenditure, but the Government should also consider that we need to widen the tax base. We must do that systematically, slowly and carefully. I do not underestimate the serious problems involved, but the Government should consider that course.

We ought also to consider how the position of the family has deteriorated over the past 20 years. The taxation of families has got relatively worse compared with the taxation of single people. Even before we switched to child benefit we had not sufficiently indexed family allowances and child allowances, and the relative position of families had declined steadily.

In those circumstances, any Government ought to give serious consideration to abollishing the married man's allowance and increasing child benefit by an equivalent amount. That would concentrate resources where they are desperately needed—on the family unit with children.

It would damage the position of childless couples, but the majority of such couples have had children and are better off in real terms than when their children were at home. It would be redistributing taxation over their lifetime in a way which would help them most when they needed help most and damage them when they needed income less.

Contrary to the Government's proposals in their recent Green Paper, they should treat women as individuals for taxation purposes in respect of earned income but not in respect of investment income. This is the right way forward: to give women equal status in taxation matters whilst not opening up a chain of loopholes to be exploited by those fiddling around with investment income and transferring it to their wives or their children. In my view, the Government will have to consider this seriously before the next general election.

The country will get the message clearly that the obligations which this Government spelt out when they came to office have not been fulfilled. In terms of taxation, the average person is very much worse off, and so, particularly, are poorer people, families and women. That is to be deplored.

8.50 pm

Mr. Bowen Wells (Hertford and Stevenage)

I do not intend to take up any of the matters referred to by the hon. Member for Gateshead, West (Mr. Horam) other than to say that there can be no Government supporter who regrets more than I do that taxation has had to be increased in this Budget. In saying that, I include the Treasury Bench. It is directly contrary to the ambitions and objectives with which we sought power in May 1979. To that extent, the hon. Member is exactly right.

A valuable lesson which I learnt at university was never to trust economics and economists. We can all tell from the position into which the Government have got themselves that their projections and forecasts for last year have turned out to be wrong. Taxation has had to be increased to bring about a very necessary payment for the spending that the Government have continued to make. We have to realise that this Budget is based on a few undeniable, straightforward, common-sense truths. If we spend money we have to earn it, or we have to raise it. If we borrow too much money, by the laws of supply and demand interest rates will rise. If we print money, we increase the price of our imports and we get higher prices and higher wage demands—in short, inflation. Those are messages that we can all understand, whatever type of economic analysis we do, and that is what ordinary people understand.

We have been spending money on stimulating demand. As my right hon. Friend the Member for Worthing (Mr. Higgins) said, all that industry needs is orders. That is what industry understands by demand. The money which the Government have pumped into steel, British Leyland, Rolls-Royce and other programmes has had to be paid for, and it provides jobs and demand in the form of orders for small businesses.

This is the type of undogmatic approach that the Government have made to our problems, and they deserve support and encouragement. The alternative would have been not to make that investment and not to impose the taxation but to borrow more and more money, resulting in higher interest rates and a further generation of inflation.

In the interests of time, I skip over the speech by the right hon. Member for Stepney and Poplar (Mr. Shore). His remarks today and, for that matter, his speech in reply to the Budget debate are best categorised as yah-boo politics of the worst kind. They lacked depth of analysis and any kind of suggestion about what he would do as an alternative. Indeed, it took my hon. Friend the Member for Horncastle (Mr. Tapsell) to show the House the analysis and the depth of understanding of the position which the right hon. Member for Stepney and Poplar should have displayed, speaking, as he was, from the Opposition Front Bench.

The solution offered by the right hon. Member for Stepney and Poplar gave no idea of how the money should be raised. He gave us no idea by how much income tax and corporation tax would be raised as a result. He refused to estimate how much the public sector borrowing requirement would be raised, although the right hon. Member for Down, South (Mr. Powell) estimated it at £25 billion. The right hon. Member for Stepney and Poplar gave no indication about what would happen to the interest rate or to the minimum lending rate if his proposals were adopted. He did not say how his prices and incomes policy would work, but he showed us that he believed in a severely planned economy. Undoubtedly, that would lead to tariff barriers and trade protection of the worst kind. I suggest that his solution was truly the road of no hope.

The Budget gives the nation opportunities to recover its self-confidence and to realise the disciplines that come from the profit and loss account, both nationally and in companies. The one change that the Budget reinforces that will bring about an economic recovery is the sort of change in attitude occurring in every business in the country.

Mr. Sheerman

In Stevenage?

Mr. Wells

We are attracting more and more investment into Stevenage. We shall be the first town to show a positive recovery and a reduction in unemployment.

Mr. Sheerman

When`'

Mr. Wells

That will come about this year. That is the last reply that I shall make to sedentary comments.

The Budget and the change in attitude which it represents have stimulated management and trade unions to work together to produce a product which will be delivered on time and of which they can be proud. Because the Government have made the money available to provide the orders through nationalised industry and investment, we shall begin to see that recovery. Then Britain will be competitive and will be able to supply the goods to the home and export markets instead of having to import them. If the Budget's objectives are realised, the country will understand that the Budget is crucial and consistent with the objectives that we set out. It will enable us to achieve the aims that we set ourselves in seeking election in May 1979.

8.56 pm

Dr. John Gilbert (Dudley, East)

I shall confine myself to three parts of the Bill which strike me as peculiarly perverse. I was surprised that I got no further than page 2, where clause 2(3) says that the additional duty on higher tar cigarettes will be abolished. I have had no explanation of that from the Front Bench, either in the Budget debate or today. It is perverse that that useful health enactment of the Labour Government should be eliminated without explanation.

In addition, I regret that there has been no change in the taxation of cigarettes, which is still, since our conversion to the EEC basis of taxation, largely ad valorem. It also imposes a penalty on filter cigarettes, which do people less damage than unfiltered cigarettes.

Clauses 4 and 7 have had much attention in the debate. Most hon. Members, especially Conservative Members, have drawn attention to the savage effects that clause 4 will have on their constituents who are car drivers, but these two clauses together will have a serious effect not only on car drivers. For my constituents they are a two-pronged attack upon the car industry and those who make cars. The increase in clause 4 would, on its own, have been acceptable if the Government had given more help to rural bus services and railway lines but there is nothing of that in the public expenditure plans. Clause 4 would have been acceptable if vehicle excise duty had been abolished, but vehicle excise duty has been increased and the difficulties which the British car industry is already suffering are merely compounded by the Government. But my main attack on the Bill relates to clauses 88 to 90 and to schedule 11, which between them run a cart and horses through the capital transfer tax.

Clauses 88, 89 and 90 provide for an increase in the annual amount that a person can give away, exempt from capital transfer tax, from £2,000 to £3,000.

Clause 89 introduces an iniquitous 10-year exemption rule. As I read the Bill—I hope that the Minister of State will tell me that I am wrong, but I very much doubt it—if one gives a sum of money the day after the Bill becomes law, gives no more for 10 years, and then gives another sum of money, the second sum will attract no tax whatever, and one will start again at the lower limit of schedule 11—the lifetime rates of capital transfer tax.

I have done a modest calculaton. If a well-to-do married couple, the day after the Bill become law, were each to give away £50,000, and then at intervals of 10 years over the following 30 years were to repeat that act of generosity, they could, in 30 years, give away £400,000 under that heading. At £3,000 a year each—that would be £6,000 for a well-to-do couple—they could give away another £180,000 without attracting any tax. Over a period of 30 years after the Bill becomes law, a total of £580,000 could be passed on without a penny tax.

By taking advantage of the generous provisions for gifts out of income and gifts in connection with marriage, I see no reason whatever why a well-heeled couple could not pass on to their offspring nearly £¾ million without paying one penny tax. That is morally offensive to all of us on the Labour Benches, and I believe that it is offensive to many Conservative Members, as was made clear by the hon. Member for Bath (Mr. Patten) in his brave and witty speech.

When I and my right hon. Friend the Member for Heywood and Royton (Mr. Barnett)—I am glad to see that he is in his customary place this evening—introduced the capital transfer tax into this House in 1974, although there were objections from the Conservative Opposition as to the rates of tax and the threshold of the tax, many of them welcomed its principle because they also found it offensive that death duty should be so easily avoidable.

Now, by the combined provisions of clauses 88 to 90 and schedule 11 of the Bill, death duty—or capital transfer tax—will again be paid solely by the unlucky, the ungenerous and the unwise.

I regard this as a socially retrogressive measure. It is particularly obnoxious that a well-heeled married couple should be able to transfer a fortune of about £¾ million in 30 years, quite legally and free from any tax whatever, at a time when we are cutting down on old people's homes and day nurseries and when children are having to find money from their parents to pay for their books at school.

This item in the Bill stinks in the nostrils of Labour Members. It will, I believe, cause many Conservative Members to hold their noses as they go through the Lobbies tonight. If that were the only reason, I should be proud to vote against the Bill.

9.4 pm

Mr. Robert Sheldon (Ashton-under-Lyme)

My right hon. Friend the Member for Dudley, East (Dr. Gilbert), because of his experience in sitting through the long hours of the night discussing the capital transfer tax, has a vested interest in preventing the erosion of that tax. It is a matter that I also consider to be very important. That is why we shall be debating clauses 88 and 89 at considerable length.

The debate has been notable for two speeches—that of my right hon. Friend the Member for Huyton (Sir H. Wilson) and that of the hon. Member for Horncastle (Mr. Tapsell). the Government, who pride themselves on what they are doing, must compare what they are doing with the damage that they are causing. They have great pretensions that they are responding to the small firms section of the Wilson report. The House is entitled—the speech of my right hon. Friend the Member for Huyton revealed this—to hear a considered reply. My right hon. Friend asked for a White Paper dealing with 15 points made in the Wilson report. It is right, when the Government attach so much importance to the small firms section, that my right hon. Friend should be given that White Paper or much better documentation in response to the arguments made in the report.

Hon. Members listened with great interest to the speech of the hon. Member for Horncastle. I believe that the whole House has a great deal of sympathy for the hon. Gentleman. His difficulty is that he knows too much about the gilt market and too much about the financial situation and the way to sell gilts. If he had not possessed that knowledge he would have had the possibly happy experience of sitting in the only air-conditioned room in the Treasury—that of the Chief Secretary to the Treasury. It is his knowledge of what is happening and the way in which gilts can be financed that brought him to an understanding of what is wrong with the Government's policy rather than starting off, like so many hon. Members, with an instinctive feeling that the Government have got it wrong and seeking to discover the reasons.

The hon. Member for Horncastle made a blistering attack, to which the whole House listened with close attention. He pointed out the errors of the Government and listed four particular errors, confirmed by many subsequent speeches. The hon. Gentleman mentioned the high level of interest and the high level of the exchange rate. He dealt with the tight credit policy and also examined the levels of energy pricing. He pointed out a fact that must be clear now to all hon. Members, that the level of 17 per cent. minimum lending rate was a grave error which, in his words, fed inflation rather than countered it.

I wish to discuss two major aspects of the Bill. The first concerns the total of tax increases and their effect on the economy. The second concerns the manner in which the Chancellor of the Exchequer seeks to raise the money. The Bill proposes one of the largest increases in taxation, as a proportion of gross domestic product, in recent times. All hon. Members heard, I think with concern, the cri de coeur of the hon. Member for Bury St. Edmunds (Mr. Griffiths), who announced to the House that he and his right hon. and hon. Friends were not elected to increase taxation. Elected or not for that purpose, that is what they have done. The financial statement shows that the levels of taxation have been increased by £3.611 billion. No one can deny that figure, whatever view one takes of the deflationary effect of it. That level of increased taxation has to be added to what happened last year.

This is proving very much a Government of tax increases rather than of tax reductions, with one or two interesting exceptions, to which I shall come. We are told that the increases in taxation are to provide for the large increases in public expenditure. Not everyone looks at the matter in this way. It is interesting that France and Germany, acting together, are bringing about a measure totalling £3 billion to increase investment and to stimulate the economy. The German economy has increased at 4½ per cent. over the last couple of months. That is a figure that we would be delighted to see. Nevertheless, it is the view of the Germans that they need to stimulate their economy. They are doing so through the type of investment suggested by many hon. Members and by people outside.

The chairman of the 1922 Committee, the right hon. Member for Taunton (Mr. du Cann), called for those investment measures. Even Alan Budd, the noted monetarist, who resigned from the Treasury and Civil Service Select Committee because he felt that it was not monetarist enough, said in The Times of Friday 10 April, talking about the Treasury and Civil Service report: The report rightly criticises the cuts in public investment. I believe that this part of the Government's policy is barely defensible". I am sure that we all echo that sentiment. There must be room to allow industry the means for investment.

The Chief Secretary said today that the purpose of the Finance Bill is to help the corporate sector by taxing those who have done well, reflecting the Bill's priorities in favour of business and industry. The Government make much of the assistance that they are giving industry. The CBI forsees a reduction of 20 per cent. of manufacturing output in the three years 1979–82. One-fifth of the country's output will be lost in those three years of Conservative rule.

The problem is real, and we can understand the need for help, but what is the result of the Budget? The CBI has done its own sums. It has added up the various items. Stock relief is a modest item. Small companies' corporation tax is shown as £12 million. Then there is the threshold on VAT at £5 million. The changes in energy prices are shown at £115 million. Those are small items and total, according to the CBI's figures, £315 million on the credit side.

On the debit side, heavy oil costs industry £270 million, the business share of vehicle excise duty £100 million, and the extra payments on national insurance contributions a further £175 million. So £315 million is received and £865 million is paid out. The CBI reaches the hardly surprising conclusion that the Budget is clearly deflationary.

A number of hon. Members, too, consider that it is deflationary. As the hon. Member for Horncastle said, Treasury Ministers themselves seem to be unclear. There are three Treasury Ministers, and there are three views. One says that it is not deflationary, one says that it is not too deflationary, and the third says that it is not contractionary. That is a new word. We must always be suspicious when civil servants introduce new words for old concepts, because we understand the arguments that go on behind closed doors.

When I consider the CBI's argument that it is clearly deflationary, and when I overhear the discussion between the pickpocket and the victim about how much was taken, I have a natural preference for the victim's view. In this case, the CBI is right when it says that we have a deflationary Budget and a deflationary Finance Bill.

We must also consider how the money has been raised. Three items are involved. Two are considerable sums and the third is an important principle. The two sums are hydrocarbon oils and petrol and derv increases, and the failure to revalorise the allowances at the same time—as my right hon. Friend the Member for Dudley, East said—as giving relief for capital transfer tax. The third item is the taxation of benefits, to which I shall come later.

Imposing a 20p increase in the price of petrol is the kind of action that one takes when dealing with an overheated economy. We can compare that increase with the 5½p increase that we debated only four years ago, in the context of the problems that we had then. We must await with interest the further debates and arguments that will take place in Committee.

I deal first with the failure to revalorise the allowances. The present Chancellor of the Exchequer talked on 25 July 1977 about the need to index the allowances, following the Rooker-Wise amendment. He said: By failing to keep personal allowances in line with the dreadful ravages inflicted by inflation, the Government have extended the range of disincentives and deepened the poverty trap. Social benefits have risen with full indexation while personal tax thresholds have not. Therefore more people are moving into the band where their earnings in work hardly exceed their earnings out of work.…the real thief is inflation. It is the promoter of this increased burden of taxation and we are angry because, due to the Treasury' s failure to change the tax system in line with inflation, the Treasury itself becomes the main body to profit from the inflation that it has failed to check. The House should feel quite entitled to impose the indexation obligation on the Government."—[Official Report, 25 July 1977; Vol. 936, c. 70.] It will be interesting to see what happens in Committee. Will hon. Members feel as strongly now, on a much more important matter?

The finance will be necessary to pay for the public expenditure. I mentioned earlier the way in which Germany and France were dealing with the matte'. Our problem in raising the money is to examine the various sources that are available. The Chief Secretary mentioned a number of other problems

The arguments about how much petrol and derv should be valorised for can go on for ever. There never was a golden time when it was exactly right. We must see how much the economy can stand and how we may avoid the violent changes in prices that change people's expectations and lead to abrupt changes. The Government should have learnt their lesson from the increase in value added tax. Even if they thought that 15 percent. was the right amount for the tax, to increase it to that level at one moment brought about such a fundamental change in the operation of the distribution and production systems that it would have been better if the change had been carried out over a longer time.

The Chancellor is right to draw attention to the importance of the rural motorist. The Chief Secretary talked about the smoother journeys that people make in rural parts of the country, as a result of which, he says, they should not spend much more on petrol than city motorists spend. Indeed, he says that they might spend even less. That fails to take account of what was said in an intervention—that there are a number of places where there is no alternative form of transport.

Last year I went to a village in Scotland with which I had a past connection. Thirty years ago the bus service to the market town consisted of about one bus every hour. Now the bus runs twice a day. People living in that village cannot earn a living unless they have a car or access to car transport. That is what we are talking about—not whether they are more or less out of pocket. They have no choice.

Let us examine what the then Chancellor said on this matter in May 1977, when we were talking about a 5p increase, and not a 20p increase. He said: This is a selective tax. As has been pointed out by the Chief Secretary's hon. Friends and others, it is deliberately biased against those who have no option about the method by which they travel to work. It is deliberately biased against those living in rural areas. It is deliberately designed to have precisely the wrong effect on the reverse yield gap between going to work and staying at home, which is the very point about which the Chancellor of the Exchequer has been expressing himself so eloquently for so long."—[Official Report, 9 May 1977; Vol. 931, c. 937.] This Chancellor of the Exchequer has been making the same point. It is a pity that he was not convinced by his own arguments and has thought it right to moderate his opposition to such tax increases. If the increase in the petrol duty had been brought about slowly over a longer period—although I do not wish to see this—it might have been more manageable, because increases would have been smaller and spread over a period.

The Government are always anxious to tell us how much industry is benefiting from their lower interest rates. It is a new fashion in Budget debates to announce drops in minimum lending rate so that one can call it an advantage to industry. If anyone ever thought previously that a 12 per cent. rate would be a bonus presented to industry to enable it to expand he would have been laughed out of court. I think that that is the situation today.

We compare the damage done to industry by the increased cost of derv. About £1 billion of revenue is to be raised on derv, with a £270 million increase this year. There will be an amendment by the Opposition and possibly by others to reduce this burden upon industry.

I now come to the failure to revalorise the income tax allowances. As a result of this, 1.2 million people will be coming into tax. One-third of them are those with age allowance, those who will not find their tax thresholds raised. Then we take into account the point made by my hon. Friend the Member for Birmingham, Perry Bar (Mr. Rooker), who showed that women aged between 60 and 64 who are in receipt of only a pension, but a pension that happens to be a State graduated pension, will exceed the tolerance levels and find themselves subject to tax. The important question is this: do they then become liable not just for tax on the State graduated pension, which pushes them into tax, but for tax also on receipt of the pension? Are those tolerance levels not to be applied to them? Will the Minister of State give an undertaking tonight that he will increase those tolerance levels to make sure that those people do not come into tax? That is the very least that he can do. There is great unfairness both to the lower-paid and to the elderly.

Looking at the question of the basic rate staying at 30 per cent. when the threshold is reduced, we must ask ourselves why the basic rate was ever reduced to 30 per cent. when the Government had to go to such extreme lengths in order to deny people the uprating of their allowances. We know that the 30 per cent rate was for the incentive effect. We do not hear much talk about incentives now. It seems that every now and again the Government believe that incentives matter and they lower the basic rate, or they lower the rate at top level, or adjust the higher thresholds, whatever they may be, and that is the last that we hear about it. The next thing we see is that the tax burden on the less-well-off starts to increase.

The tax and prices index will race ahead. I am afraid that the Minister and his hon. Friends will be rather surprised if those who negotiate pay matters pay more attention to the retail price index than to the tax and prices index, which has been confirmed as the most relevant to their particular case.

Many of us find it especially offensive that in a Bill that imposes such burdens on those at the lower end of the scale those paying capital transfer tax on lifetime gifts will have the maximum obligation reduced from 70 per cent. to 50 per cent. If, for example, there is a lifetime transfer of £2 million, the tax will be reduced from 70 per cent. to 50 per cent. and every 10 years the slate is wiped clean and the accumulation principle for lifetime transfers comes to an end. We must oppose this. This is clearly wrong, without the shame of adding to the burden of the bulk of population and to that of older people.

We are not opposed to the taxation of benefits, but we understand that last year the Government failed to increase benefits by 5 per cent. We need that money back. The money was withheld because there was no method of increasing taxation. We thought that the argument, the practice and the principle were wrong, but we understood that there was a basis that we could understand and on which we could disagree. That does not apply now that we are proceeding to the taxation of benefits.

The most iniquitous and spiteful part of this section of the Bill concerns the repayment of income tax. If a person is on strike and not in receipt of any benefit he will be denied the refund of the tax which is his due. For example, a person might be earning £100 a week at the beginning of a tax year. His tax might be about £16 a week. If he is a member of a union that is in dispute with his employer it is possible that his earnings for the second week of the year will be zero. As a result, his income for the two weeks is an average of £50 a week and he is entitled to a refund of £14. That money belongs not to the State but to the person who is exercising the right given by Parliament to refuse to work when he does not wish to do so.

Those who are in that position are not on schedule D. The State withdraws the money before the individual receives it. It keeps it and refuses to give it to him. The schedule D system allows the self-employed to keep their money and to pay the tax on it many months later. Payment is often made after discussion and negotiation. We understand the inequities that apply between a person on schedule D and a person on schedule E. Every one of us is rather ashamed of the difference, but the system is workable. We know that the system has to be a little rough and ready in certain areas. Of course, schedule D taxpayers have a claim to a wide range of expenses and the right to pay tax many months later. In a period of inflation, that is worth money. By withholding the tax, the capital may be put to use.

Those who are in the pay-as-you-earn system must pay on the nail. There is a brush-off from the Revenue if the individual so much as attempts to obtain tax relief that goes outside the most rigorously designed list of expenses. There is the danger that the difference in the systems can lead to the contempt of the tax system. The Bill uses tax as a means of punishment. The clause prevents access to one's own money. If this is accepted, there is only a short step to take before the Revenue withholds other moneys belonging to strikers, such as national savings. The principle is the same. It is their money and the State has the mechanism to pay out, but it refuses to do so.

Under clause 27 the social security department may wish to check on the tax that a person pays. A letter may be written to a one-parent family, to a mother who has a part-time job.

The officer notifies her that she has received a benefit which is worth so much. According to clause 28, if she does not make an objection within 30 days, any objection made at a later stage will not be valid. Many such people are not used to writing letters. They are not used to dealing with officialdom. They are not like the Minister of State, who is used to dealing with such matters. Those people are suspicious of officials and are much in awe of them. They may not have kept any records of such benefits. They do not have filing cabinets. They are people who are under pressure from events and circumstances and are more to be pitied than anything else, and are to be assisted.

In such cases, a kindly person may help out and discover that an error has been made by the benefit officer—the social security officer, for example. He may take up that error. I shall read out clause 28(2) in order to convey its full horror. It states that if no objection is made within 30 days. that amount shall not be questioned in any appeal against any assessment in respect of income including that amount. However right the original figure may be, it is intolerable that we can act in that way. However right the poor, unfortunate claimant may be, according to the subsection he is not entitled to contest officialdom's view. That must not and can never be the law of our country. We shall vigorously seek to oppose it.

Many of us had hoped to see a suspension of the operations of the Government in relation to their control over the economy, and a move towards some inflation of demand. At any rate, we hoped for a suspension of the axe when unemployment was over 10 per cent. About one-sixth of 16 to 19 year-olds are unemployed. We have never had such an experience before. Before the war there were always a number of dead-end jobs for such people—errand boys, and so on. The social consequences which will arise from having no jobs for our young people will take us by surprise and will lead to devestating effects.

It was said that destocking would come to an end in the second half of 1981. The Financial Secretary said that the upturn would come in January or February. In the Red Book we read that output would be increasing by½ per cent. I am always suspicious of½ percent. increases, particularly when there is a footnote. One sees the reservations in the footnote and one can see that it is no more than whistling in the wind, as many hon. Members have said.

Iain Macleod once said that a Budget that was cheered in April tended to look unattractive in July. The Budget looked bad in March and it looks deplorable now. The Finance Bill has proved to be worse than the Budget, and we shall vote against it tonight.

9.34 pm

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

It is inevitable and perhaps right that a substantial Finance Bill should have generated such a substantial and wide-ranging debate. We have moved from the grand sweep of macro-economics to a more detailed consideration of the Finance Bill itself.

I make no apology, not even to my right hon. Friend the Member for Crosby (Sir G. Page), for the fact that this is a long Finance Bill. It is slightly shorter than that of 1965. I am glad that we were able to see, if only momentarily, the right hon. Member for Cardiff, South-East (Mr. Callaghan), who introduced that Finance Bill, gracing our debates.

Our objective is still a tax regime of lower rates, greater simplicity and fewer reliefs, but I doubt whether hon. Members, particularly my hon. Friends, would ask us to eliminate the considerable number of special reliefs and provisions, which undoubtedly complicate the statute book but which serve a distinct purpose, until we have moved further down the route which we mapped out for the country in the summer of 1979 and which was so singularly approved by the electorate.

I do not know whether it deserves a long analysis, but I turn briefly to the speech of the right hon. Member for Stepney and Poplar (Mr. Shore). I hope that he will not think me discourteous, but it was a rehash of his speech on the Budget. He itemised five distinct points, and. in doing so he had the almost apocalyptic support of my hon. Friend the Member for Horncastle (Mr. Tapsell), who perhaps gave him a little more intellectual substance than any of his right hon. and hon. Friends gave him.

The right hon. Gentleman said that the Budget was deflationary. We have heard that criticism from many parts of the House, but it does not automatically follow that that makes it a bad Budget. I shall not enter into the semantic debate that was started on the Opposition Benches, because I am not sure whether it advances an understanding of the issues involved. However,] remind the right hon. Gentleman that our fiscal measures are designed to redress the balance between the personal and the corporate sectors. I do not know whether he disputes that as a worthy objective. It is perfectly possible to envisage growth within the money supply figures that we have set.

The right hon. Gentleman then referred to the burden of increasing costs. I remind the House that there has been a rapid response by the Chancellor and the Secretary of State for Energy to the NEDC task force, and the right hon. Gentleman will recall the measures of alleviation that my right hon. and learned Friend proposed in the Budget debate. Beyond that, the increase in the retail price index likely to flow from the increase in indirect taxes is slightly less than 2 per cent.

The right hon. Gentleman said that we had singled out particular industries, but he was evasive when pressed. He approves of the special levy on bank profits and the supplementary petroleum duty. He harped a little on beer, but had the Labour Administration put up the duty on beer at the same rate as the duty on other consumer goods we should not have been in this predicament.

The right hon. Gentleman and various of his hon. Friends who have a personal interest in the issue, as they were involved in the original measure, attacked with all the sound and fury at their flaccid command our proposals for mitigating the impact of capital transfer tax. The right hon. Gentleman suggested that a further measure of redistribution of assets was called for, so will he answer my question? Is a wealth tax still on the menu that the Labour Party is offering the country? Is the right hon. Gentleman prepared to answer "Yes" or "No"? I shall willingly give way to him. My hon. Friends realise that he needs considerable notice of such questions. His party is split in so many directions that he has to go back to Transport House to reconcile the divergent views before he can speak authoritatively from the Dispatch Box.

Let me ask the right hon. Gentleman an easier question, which I put to him in the Budget debate. As it is difficult to reconcile his figuring, will he tell us what public sect or borrowing requirement he would regard as acceptable in 1981.82? I gave him plenty of opportunity to think about it. I even gave him a slight lead——

Mr. Woolmer

rose——

Mr. Rees

Tempted though I am, I shall not give way

Mr. Woolmer

rose——

Mr. Speaker

Order. I heard the Minister say that he would not give way.

Mr. Woolmer

He said that he wanted to give way.

Mr. Speaker

Order. I think that he caught the wrong fish.

Mr. Rees

I must try to bait my hook again, Mr. Speaker. I intend no discourtesy to other right hon. and hon. Gentleman, but they do not speak with the full authority of the Labour Party in these matters.

So that we, too, may do our figuring, we should like to know where the right hon. Gentleman stands on this issue. Until he tells us, his whole theme falls apart and we know how hollow is his criticism of the Budget.

Mr. Walter Harrison (Wakefield)

Does the hon. and learned Gentleman require guidance?

Mr. Rees

That is a novel intervention in our debate. Of course I should like to hear the right hon. Gentleman's views but on some other occasion. Perhaps he will even be encouraged to give his evidence to the Treasury and Civil Service Committee. That, too, would be a novel diversion, but I do not wish to encourage him on this occasion. Nor, indeed, would I wish to encourage my hon. Friend the Member for Horncastle to supplement the views of the right hon. Member for Stepney and Poplar, because I suspect that on this occasion it must be the Labour Party's views that we hear and not those of my hon. Friend, however distinguished or apocalyptic they may be. I turn to the eloquent contribution of my right hon. Friend the Member for Worthing (Mr. Higgins)——

Mr. Richard Wainwright

rose——

Mr. Rees

I shall not give way. I am moving to a new subject. I shall deal with the Liberal contribution in a moment. I am glad that there is at least an almost full Liberal Bench to contribute to the debate.

Dr. Gilbert

Why is the Minister afraid to give way?

Mr. Rees

I shall come to the right hon. Gentleman's puny contribution in due course. For the meantime, I shall make my own speech without assistance from him. It was almost nostalgic to see the right hon. Members for Heywood and Royton (Mr. Barnett), Dudley, East (Dr. Gilbert) and Ashton-under-Lyne (Mr. Sheldon) all concentrated in one debate. I was taken back, as, I am sure, was my right hon. Friend the Financial Secretary, to those keen debates on capital transfer tax in Committee Room 10. I shall come to their contributions in due course.

As a matter of courtesy, I must say to my right hon. Friend the Member for Worthing that of course I appreciated the points that he made, but he seemed to be asking me to conduct some kind of exegetical examination of the speech of my right hon. Friend the Financial Secretary examining his own speech to the Institute of Fiscal Studies. Whichever right hon. Gentleman was unworthy enough to suggest that my right hon. Friend spoke only abroad should recognise that he has made his real lapidary contributions on the Floor of the House and to such distinguished bodies as the Institure of Fiscal Studies. However, I had better leave my two right hon. Friends to debate the particular points in their own time and their own place. I should be only a third onlooker to that Homeric contest.

My right hon. Friend the Member for Farnham (Mr. Macmillan) dealt with matters of more fiscal importance and reminded us of the importance of share incentive schemes. There I will give something to the Liberal Party. It was the Lib-Lab pact, which we must remember from time to time in our debates——

Mr. Richard Wainwright

The golden age.

Mr. Rees

I hope that those words will be written in letters of gold on the hon. Gentleman's election manifesto next time, but I suspect that he will be a little coy about his rather indelicate and indecent relationships with the Labour Party. However, they are a matter of history. It was the Lib-Lab pact that enabled the House to debate again the well-thought-out measures that were introduced reversing the actions of a previous Labour Administration and reviving share incentive schemes. My right hon. Friend the Member for Worthing played a distinguished part in reviving those measures. We came back to that issue last year and I dare say that we shall have occasion to look at it again.

The right hon. Member for Huyton (Sir H. Wilson)—I hope that I do not sound presumptuous when I say how delighted we were to hear him make a contribution to the Finance Bill debate—invited us to look more closely at the report of his great committee. I found that report so gripping that I was able to read almost all 800 pages of it in the peace of the Tuscan hills last summer. I cannot say that I took his earlier point, but I have refreshed my memory of it.

I hope that the right hon. Gentleman will recognise that we have deferred considerably to the recommendations of that committee. We have not been able to implement all of them, and some of them are not strictly budgetary matters. I hope that he will be the first to appreciate that we are, for instance, proposing to introduce measures to enable a company to purchase its own shares. I feel that that may adequately meet—although it may not entirely satisfy him—his interesting suggestion that companies should be able to raise equity capital in a redeemable form. I believe that the same objective can be met in that way.

The right hon. Gentleman referred to discrimination in the over-the-counter market, and I was puzzled by that because I thought that by now the secondary market had been established. He invited us to consider the small firms investment companies. That is an interesting possibility. Again, I hope that when he has considered in more detail the business start-up provisions he will feel that we will channel a steady flow of investment into that area. If it is necessary to go further I shall be happy to debate the possibilities with him on some other occasion.

We are introducing a loan guarantee scheme, and on publicity my right hon. and learned Friend the Chancellor announced with a fanfare that will, I hope, delight the heart of the right hon. Gentleman and the whole House, that there is to be a business opportunities programme. Finally, the right hon. Gentleman said a little wistfully that Aunt Agatha was dead. I have have news for him. She was revived last year. The kiss of life was given by my right hon. and learned Friend in last year's Finance Act, and now she is so active and rejuvenated that she will be able to take advantage of the business start-up provisions to the tune of £10,000 a year. I hope that the right hon. Gentleman is therefore reassured in his concern for Aunt Agatha.

Sir Harold Wilson

The hon. and learned Gentleman referred to the over-the-counter market now doing what we hoped it would. Will he say in how may cases it has been involved? He can count them on the thumbs of two hands.

Mr. Rees

I regret that I cannot answer the right hon. Gentleman without notice. This is not primarily a matter of Treasury responsibility. However, if I can extract the information I shall do so.

The right hon. Member for Norwich, North (Mr. Ennals) cannot have noticed what we did for charities in the Finance Act last year or what we are doing for them in this Finance Bill. If he feels uneasy on this score it can only be because he was a distinguished Secretary of State for Social Services in the last Administration and was singularly unsuccessful in persuading his colleagues to do anything in that direction.

Mr. Ennals

The point that I raised, and that the Minister recognised, is that we were dealing then with a VAT of half the current rate. That is why the problem exists.

Mr. Rees

The rates were not half what they are now. They were 8 per cent. and 12½ per cent.

The right hon. Member for Ashton-under-Lyne largely raised issues that I have already dealt with, but I shall come in due course to capital transfer tax.

Mr. Robert Sheldon

Will the Minister of State also deal with the question of tolerances for women between the ages of 60 and 64 who are in receipt of State pensions?

Mr. Rees

I recognise the sensitivity of that issue. However, it would be a bad precedent to increase those tolerances. I regret that we cannot do it.

I turn to the two new taxes in the Finance Bill. In contrast to the right hon. Member for Leeds, East (Mr. Healey), we introduced the two taxes without any relish. The bank tax has been ventilated at length. I shall deal with the question whether the tax can be regarded as retrospective. I hope that the House will accept that no hon. Member is more sensitive about retrospection than I am. The tax is not retrospective, because it catches only banks that were in business on Budget day, although I admit that the amount of tax will be calculated by reference to chargeable deposits on three earlier dates. There are respectable precedents for that—corporation tax is one. The Finance Bill is not exceptional, in that it imposes a rate of corporation tax for 1980 by reference to accounting periods in that year.

Mr. Budgen

Will the Minister deal with the Chancellor's suggestion that it is not a retrospective tax because he gave a warning to the banks that such a tax was possible when he spoke about it in the 1980 Budget? Will he compare that argument with the first of the "Rees rules" which he adumbrated in 1977 to guide the House in the Tories' attitude towards potential retrospection? The Minister said then that the warning must be precise in form. He stated clearly that that was the first of the rules that would guide the Tories in deciding whether there was retrospection.

Mr. Rees

My hon. Friend knows that the rules, which unfortunately are associated with my name, have nothing to do with this case. The rules were devised to deal with tax avoidance. No one has pretended that what we are discussing is tax avoidance. I shall be delighted to debate tax avoidance in the context of certain provisions in the Finance Bill. I rest my case on the basis that the way in which the tax is framed is respectable and precedented by corporation tax.

We are sensitive to the need to balance two factors to ensure a proper return for the country from the exploitation of the North Sea. We are equally sensitive to the need not to discourage people from investing in the North Sea, where the circumstances are hazardous and the amount of capital that must be invested is enormous. A delicate balance must be struck. Such a balance was not struck by the last Administration. There was a perceptible pause when there was no investment in the North Sea.

We shall have plenty of opportunity to debate the technicalities in Committee. If, whether by the oil companies or by any other source, a more constructive or sensitive tax regime can be devised, we shall be happy to come back next year. We are enacting this tax for only three accounting periods, which end in June next year

Mr. Robert Sheldon

The Minister of State will recall that I mentioned the problem of those who were losing 5 per cent. as a result of the benefit cuts because the Government were waiting to bring in the taxation of benefits. Now that that taxation is being introduced will those cuts be restored? If so, when?

Mr. Rees

The right hon. Gentleman knows that that taxation measure does not come into effect until the next financial year. We shall have plenty of opportunity to explore that point.

Although we have had to devise two new taxes and to increase the yield of excise duty, the Bill also has a positive theme—to encourage investment and activity by businesses, particularly small businesses. I am sure that we shall carry the right hon. Member for Huyton on that.

Mr. Sheerman

Peanuts.

Mr. Rees

If the hon. Member for Huddersfield, East (Mr. Sheerman) looks through the record of the previous Administration he will search in vain for comparable measures. I remind the House of the new special income tax relief for investment in new trading companies. Some may crititcise it as too modest and too complex, but it is an unprecedented measure and it is right that we should move cautiously.

I remind those who are concerned about the flexibility of the corporate sector of the demerger provisions that we introduced last year. We propose to move on in the next year to enable companies to purchase their own shares. We do not want to see large sums of capital locked inn) companies that have served their purpose. We shall be moving on that in parallel with the Companies Bill.

We are providing relief for sums borrowed to invest in partnerships and co-operatives. I hope that that will encourage the Liberal Party and the Social Democratic Party. We propose to increase the industrial buildings allowance from 50 per cent. to 75 per cent. We can consider whether capital allowances should be increased further in the context of the Green Paper that will be produced in the next year. We have also liberalised the development land tax.

The capital transfer tax has exercised the minds of those who were concerned in hatching it in the dog days of 1975. Although we have not yet achieved the capital taxation objectives set out in our manifesto—I remind the Opposition that we, too, have sacred manifesto objectives—I hope that my hon. Friend the Member for Bath (Mr. Patten) will recognise that we clearly put our objectives to the country at the election and they were approved.

The reduction of lifetime rates and the reduction of the accumulation period should encourage lifetime transfers, which is surely what the previous Administration wanted, since they introduced a special lifetime rate. Why should Labour Members complain about our carrying that theme a stage further?

We hope that the relief that we propose for agricultural property will preserve a proper balance between let land and land in hand. Even the Opposition must recognise the fairness and desirability of that. If we want young men without capital or connections to enter farming we must surely not provide a fiscal penalty for landlords who let land.

Of course we must go further, and next year we shall apply ourselves to the intricate problems of trust property. It is our stated objective to ensure that we are not a one-generation society and that capital transfer tax does not destroy the industrial and agricultural pattern of this country.

My right hon. Friend the Member for Taunton (Mr. du Cann), writing to The Times on Saturday with all the authority of a former Chairman of the Public Accounts Committee and the current Chairman of the Treasury and Civil Service Select Committee, encouraged us to show imagination and determination. We are always suitably respectful of, and pay attention to, the massive contributions of those Committees, the memberships of which have been represented in the debate. We shall look forward to any advice that they feel able to give about those of the Government's activities which can be more rigorously and economically controlled.

I hope that I can say that this Budget is one which shows determination and imagination—determination to match our needs and resources, and imagination to encourage the small business sector, the charities and the disabled. It is a Finance Bill which I commend to the House unhesitatingly.

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

The House divided: Ayes 309, Noes 253

Division No.154]	[10 pm
AYES
Adley, Robert	Biffen, Rt Hon John
Aitken, Jonathan	Biggs-Davison, John
Alexander, Richard	Blackburn, John
Alison, Michael	Blaker, Peter
Amery, Rt Hon Julian	Body, Richard
Ancram, Michael	Bonsor, Sir Nicholas
Arnold, Tom	Boscawen, Hon Robert
Aspinwall, Jack	Bottomley, Peter (W'wich W)
Atkins, Rt Hon H.(S'thorne)	Bowden, Andrew
Atkins, Robert(Preston N)	Boyson, Dr Rhodes
Atkinson, David (B'm'th, E)	Braine, Sir Bernard
Baker, Kenneth(St. M'bone)	Bright, Graham
Baker, Nicholas (N Dorset)	Brinton, Tim
Banks, Robert	Brittan, Leon
Beaumont-Dark, Anthony	Brooke, Hon Peter
Bell, Sir Ronald	Brotherton, Michael
Bendall, Vivian	Brown, Michael(Brigg & Sc'n)
Benyon, Thomas (A'don)	Browne, John (Winchester)
Benyon, W. (Buckingham)	Bruce-Gardyne, John
Best, Keith	Bryan, Sir Paul
Bevan, David Gilroy	Buchanan-Smith, Alick

Buck, Antony	Hawkins, Paul
Budgen, Nick	Hawksley, Warren
Burden, Sir Frederick	Hayhoe, Barney
Butcher, John	Heddle, John
Cadbury, Jocelyn	Henderson, Barry
Carlisle, John (Luton West)	Higgins, Rt Hon Terence L.
Carlisle, Kenneth (Lincoln)	Hill, James
Carlisle, Rt Hon M. (R'c'n)	Hogg, Hon Douglas (Gr'th'm)
Chalker, Mrs. Lynda	Holland, Philip (Carlton)
Channon, Rt. Hon. Paul	Hooson, Tom
Chapman, Sydney	Hordern, Peter
Churchill, W. S.	Howe, Rt Hon Sir Geoffrey
Clark, Hon A. (Plym'th, S'n)	Howell, Rt Hon D. (G'ldf'd)
Clarke, Kenneth (Rushcliffe)	Howell, Ralph (N Norfolk)
Clegg, Sir Walter	Hunt, David (Wirral)
Cockeram, Eric	Hunt, John (Ravensbourne)
Colvin, Michael	Hurd, Hon Douglas
Cope, John	Irving, Charles (Cheltenham)
Corrie, John	Jenkin, Rt Hon Patrick
Costain, Sir Albert	Jessel, Toby
Cranborne, Viscount	Johnson Smith, Geoffrey
Critchley, Julian	Jopling, Rt Hon Michael
Crouch, David	Kaberry, Sir Donald
Dean, Paul (North Somerset)	Kershaw, Anthony
Dickens, Geoffrey	Kimball, Marcus
Dorrell, Stephen	King, Rt Hon Tom
Douglas-Hamilton, Lord J.	Kitson, Sir Timothy
Dover, Denshore	Knox, David
du Cann, Rt Hon Edward	Lamont, Norman
Dunn, Robert (Dartford)	Lang, Ian
Durant, Tony	Langford-Holt, Sir John
Dykes, Hugh	Lawrence, Ivan
Eden, Rt Hon Sir John	Lawson, Rt Hon Nigel
Edwards, Rt Hon N. (P'broke)	Lee, John
Eggar, Tim	Lennox-Boyd, Hon Mark
Elliott, Sir William	Lester, Jim (Beeston)
Emery, Peter	Lewis, Kenneth (Rutland)
Eyre, Reginald	Lloyd, Ian (Havant & W'loo)
Fairbairn, Nicholas	Lloyd, Peter (Fareham)
Fairgrieve, Russell	Loveridge, John
Faith, Mrs Sheila	Luce, Richard
Farr, John	Lyell, Nicholas
Fenner, Mrs Peggy	McCrindle, Robert
Finsberg, Geoffrey	Macfarlane, Neil
Fisher, Sir Nigel	MacGregor, John
Fletcher, A. (Ed'nb'gh N)	MacKay, John (Argyll)
Fletcher-Cooke, Sir Charles	Macmillan, Rt Hon M.
Fookes, Miss Janet	McNair-Wilson, M. (N'bury)
Forman, Nigel	McNair-Wilson, P. (New F'st)
Fowler, Rt Hon Norman	McQuarrie, Albert
Fox, Marcus	Madel, David
Fraser, Rt Hon Sir Hugh	Major, John
Fraser, Peter (South Angus)	Marland, Paul
Fry, Peter	Marlow, Tony
Galbraith, Hon T. G. D.	Marten, Neil (Banbury)
Gardiner, George (Reigate)	Mates, Michael
Gardner, Edward (S Fylde)	Maude, Rt Hon Sir Angus
Garel-Jones, Tristan	Mawby, Ray
Gilmour, Rt Hon Sir Ian	Mawhinney, Dr Brian
Glyn, Dr Alan	Maxwell-Hyslop, Robin
Goodhart, Philip	Mayhew, Patrick
Goodlad, Alastair	Mellor, David
Gorst, John	Meyer, Sir Anthony
Gow, Ian	Miller, Hal (B'grove)
Gower, Sir Raymond	Mills, Iain (Meriden)
Grant, Anthony (Harrow C)	Mills, Peter (West Devon)
Gray, Hamish	Miscampbeli, Norman
Greenway, Harry	Moate, Roger
Grieve, Percy	Monro, Hector
Griffiths, E.(B'y St. Edm'ds)	Montgomery, Fergus
Griffiths, Peter Portsm'th N)	Moore, John
Grist, Ian	Morgan, Geraint
Grylls, Michael	Morris, M. (N'hampton S)
Gummer, John Selwyn	Morrison, Hon C. (Devizes)
Hamilton, Hon A.	Morrison, Hon P. (Chester)
Hamilton, Michael (Salisbury)	Mudd, David
Hampson, Dr Keith	Murphy, Christopher
Hannam, John	Myles, David
Haselhurst, Alan	Neale, Gerrard
Havers, Rt Hon Sir Michael	Nelson, Anthony

Neubert, Michael	Sproat, Iain
Newton, Tony	Squire, Robin
Normanton, Tom	Stainton, Keith
Nott, Rt Hon John	Stanbrook, Ivor
Onslow, Cranley	Stanley, John
Oppenheim, Rt Hon Mrs S.	Stevens, Martin
Osborn, John	Stewart, Ian (Hitchin)
Page, Rt Hon Sir G. (Crosby)	Stewart, A.(E Renfrewshire)
Page, Richard (SW Herts)	Stokes, John
Parkinson, Cecil	Stradling Thomas, J.
Parris, Matthew	Tapsell, Peter
Patten, Christopher (Bath)	Taylor, Robert (Croydon NW)
Patten, John (Oxford)	Taylor, Teddy (S'end E)
Pattie, Geoffrey	Tebbit, Norman
Pawsey, James	Temple-Morris, Peter
Percival, Sir Ian	Thomas, Rt Hon Peter
Pink, R. Bonner	Thompson, Donald
Pollock, Alexander	Thorne, Neil (Ilford South)
Porter, Barry	Thornton, Malcolm
Prentice, Rt Hon Reg	Townend, John (Bridlington)
Price, Sir David (Eastleigh)	Townsend, Cyril D, (B'heath)
Proctor, K. Harvey	Trippier, David
Pym, Rt Hon Francis	Trotter, Neville
Raison, Timothy	van Straubenzee, W. R.
Rathbone, Tim	Vaughan, Dr Gerard
Rees, Peter (Dover and Deal)	Viggers, Peter
Rees-Davies, W. R.	Waddington, David
Renton, Tim	Wakeham, John
Rhodes James, Robert	Waldegrave, Hon William
Rhys Williams, Sir Brandon	Walker, Rt Hon P.(W'cester)
Ridley, Hon Nicholas	Walker, B. (Perth)
Rifkind, Malcolm	Walker-Smith, Rt Hon Sir D.
Rippon, Rt Hon Geoffrey	Wall, Patrick
Roberts, M. (Cardiff NW)	Waller, Gary
Roberts, Wyn (Conway)	Walters, Dennis
Rossi, Hugh	Ward, John
Rost, Peter	Warren, Kenneth
Royle, Sir Anthony	Watson, John
Sainsbury, Hon Timothy	Wells, John (Maidstone)
St. John-Stevas, Rt Hon N.	Wells, Bowen
Scott, Nicholas	Wheeler, John
Shaw, Giles (Pudsey)	Whitelaw, Rt Hon William
Shaw, Michael (Scarborough)	Whitney, Raymond
Shelton, William (Streatham)	Wickenden, Keith
Shepherd, Colin (Hereford)	Wiggin, Jerry
Shepherd, Richard	Wilkinson, John
Shersby, Michael	Williams, D. (Montgomery)
Silvester, Fred	Winterton, Nicholas
Sims, Roger	Wolfson, Mark
Skeet, T. H. H.	Young, Sir George (Acton)
Smith, Dudley	Younger, Rt Hon George
Speed, Keith
Speller, Tony	Tellers for the Ayes:
Spence, John	Mr. Spencer Le Marchant and Mr. Anthony Berry.
Spicer, Jim (West Dorset)
Spicer, Michael (S Worcs)

NOES
Abse, Leo	Callaghan, Rt Hon J.
Adams, Allen	Callaghan, Jim (Midd't'n & P)
Allaun, Frank	Campbell, Ian
Alton, David	Campbell-Savours, Dale
Anderson, Donald	Canavan, Dennis
Archer, Rt Hon Peter	Cant, R. B.
Ashley, Rt Hon Jack	Carmichael, Neil
Ashton, Joe	Carter-Jones, Lewis
Atkinson, N(H'gey)	Cartwright, John
Barnett, Guy (Greenwich)	Clark, Dr David (S Shields)
Barnett, Rt Hon Joel (H'wd)	Cocks, Rt Hon M. (B'stol S)
Beith, A. J.	Cohen, Stanley
Benn, Rt Hon A. Wedgwood	Coleman, Donald
Bidwell, Sydney	Concannon, Rt Hon J. D.
Booth, Rt Hon Albert	Conlan, Bernard
Boothroyd, Miss Betty	Cook, Robin F.
Bottomley, Rt Hon A.(M'b'ro)	Cowans, Harry
Bradley, Tom	Cox, T. (W'dsw'th, Toot'g)
Bray, Dr Jeremy	Craigen, J. M.
Brocklebank-Fowler, C.	Crawshaw, Richard
Brown, R. C. (N'castle W)	Crowther, J. S.
Brown, Ronald W. (H'ckn'y S)	Cryer, Bob

Cunliffe, Lawrence	Jones, Dan (Burnley)
Cunningham, G. (Islington S)	Kaufman, Rt Hon Gerald
Cunningham, Dr J. (W'h'n)	Kerr, Russell
Davidson, Arthur	Kilfedder, James A.
Davies, Rt Hon Denzil (L'lli)	Lambie, David
Davies, Ifor (Gower)	Lamborn, Harry
Davis, Clinton (Hackney C)	Lamond, James
Davis, T. (B'ham, Stechf'd)	Leadbitter, Ted
Deakins, Eric	Lestor, Miss Joan
Dean, Joseph (Leeds West)	Lewis, Arthur (N'ham NW)
Dempsey, James	Lewis, Ron (Carlisle)
Dewar, Donald	Litherland, Robert
Dixon, Donald	Lofthouse, Geoffrey
Dobson, Frank	Lyon, Alexander (York)
Dormand, Jack	Lyons, Edward (Bradf'd W)
Douglas, Dick	McDonald, Dr Oonagh
Douglas-Mann, Bruce	McElhone, Frank
Dubs, Alfred	McGuire, Michael (Ince)
Duffy, A. E. P.	McKay, Allen (Penistone)
Dunn, James A.	McKelvey, William
Dunnett, Jack	MacKenzie, Rt Hon Gregor
Dunwoody, Hon Mrs G.	Maclennan, Robert
Eadie, Alex	McMahon, Andrew
Eastham, Ken	McNally, Thomas
Edwards, R. (W'hampt'n S E)	McNamara, Kevin
Ellis, R. (NE D'bysh're)	McTaggart, Robert
Ellis, Tom (Wrexham)	McWilliam, John
English, Michael	Magee, Bryan
Ennals, Rt Hon David	Marks, Kenneth
Evans, Ioan (Aberdare)	Marshall, D(G'gow S'ton)
Evans, John (Newton)	Marshall, Dr Edmund (Goole)
Field, Frank	Marshall, Jim (Leicester S)
Fitch, Alan	Martin, M(G'gow S'bum)
Fitt, Gerard	Mason, Rt Hon Roy
Flannery, Martin	Maxton, John
Fletcher, Raymond (Ilkeston)	Meacher, Michael
Foot, Rt Hon Michael	Mellish, Rt Hon Robert
Forrester, John	Mikardo, Ian
Foster, Derek	Millan, Rt Hon Bruce
Foulkes, George	Miller, Dr M. S. (E Kilbride)
Fraser, J. (Lamb'th, N'w'd)	Mitchell, Austin (Grimsby)
Freeson, Rt Hon Reginald	Mitchell, R. C. (Soton Itchen)
Freud, Clement	Morris, Rt Hon A. (W'shawe)
Garrett, John (Norwich S)	Morris, Rt Hon C. (O'shaw)
Garrett, W. E. (Wallsend)	Morris, Rt Hon J. (Aberavon)
George, Bruce	Morton, George
Gilbert, Rt Hon Dr John	Moyle, Rt Hon Roland
Ginsburg, David	Newens, Stanley
Golding, John	Oakes, Rt Hon Gordon
Gourlay, Harry	Ogden, Eric
Graham, Ted	O'Halloran, Michael
Grant, George (Morpeth)	O'Neill, Martin
Grant, John (Islington C)	Orme, Rt Hon Stanley
Grimond, Rt Hon J.	Owen, Rt Hon Dr David
Hamilton, W. W. (C'tral Fife)	Palmer, Arthur
Hardy, Peter	Parker, John
Harrison, Rt Hon Walter	Pavitt, Laurie
Hart, Rt Hon Dame Judith	Pendry, Tom
Hattersley, Rt Hon Roy	Penhaligon, David
Haynes, Frank	Powell, Raymond (Ogmore)
Heffer, Eric S.	Prescott, John
Hogg, N. (E Dunb't'nshire)	Price, C. (Lewisham W)
Home Robertson, John	Race, Reg
Homewood, William	Radice, Giles
Hooley, Frank	Rees, Rt Hon M (Leeds S)
Horam, John	Richardson, Jo
Howell, Rt Hon D.	Roberts, Albert (Normanton)
Howells, Geraint	Roberts, Allan (Bootle)
Huckfield, Les	Roberts, Ernest (Hackney N)
Hudson Davies, Gwilym E.	Roberts, Gwilym (Cannock)
Hughes, Mark (Durham)	Robertson, George
Hughes, Roy (Newport)	Robinson, G. (Coventry NW)
Janner, Hon Greville	Rodgers, Rt Hon William
Jay, Rt Hon Douglas	Rooker, J. W.
John, Brynmor	Roper, John
Johnson, James (Hull West)	Ross, Ernest (Dundee West)
Johnson, Walter (Derby S)	Ross, Stephen (Isle of Wight)
Johnston, Russell (Inverness)	Rowlands, Ted
Jones, Rt Hon Alec (Rh'dda)	Ryman, John
Jones, Barry (East Flint)	Sandelson, Neville

Sever, John	Urwin, Rt Hon Tom
Sheerman, Barry	Varley, Rt Hon Eric G.
Sheldon, Rt Hon R.	Wainwright, E.(Dearne V)
Shore, Rt Hon Peter	Wainwright, R. (Colne V)
Short, Mrs Renée	Watkins, David
Silkin, Rt Hon J. (Deptford)	Weetch, Ken
Skinner, Dennis	Wellbeloved, James
Smith, Rt Hon J. (N Lanark)	Welsh, Michael
Snape, Peter	White, Frank R.
Soley, Clive	White, J. (G'gow Pollok)
Spearing, Nigel	Whitehead, Phillip
Spriggs, Leslie	Whitlock, William
Stallard, A. W.	Wigley, Dafydd
Stewart, Rt Hon D. (W Isles)	Williams, Sir T. (W'ton)
Stoddart, David	Wilson, Gordon (Dundee E)
Stott, Roger	Wilson, Rt Hon Sir H. (H'ton)
Strang, Gavin	Wilson, William (C'try SE)
Straw, Jack	Winnick, David
Summerskill, Hon Dr Shirley	Woodall, Alec
Thomas, Dafydd (Merioneth)	Woolmer, Kenneth
Thomas, Jeffrey (Abertillery)	Wrigglesworth, Ian
Thomas, Mike (Newcastle E)	Young, David (Bolton E)
Thomas, Dr R. (Carmarthen)
Thorne, Stan (Preston South)	Tellers for the Noes:
Tilley, John	Mr. James Hamilton and Mr. Hugh McCartney.
Tinn, James
Torney, Tom

Question accordingly agreed to.

Bill read a Second Time.

c112
1. BUSINESS OF THE HOUSE 49 words
c112
2. FINANCE BILL 90 words