New Clause 1

HC Deb 14 July 1981 vol 8 cc1041-92

National insurance surcharge

In section 1(1) of the National Insurance Surcharge Act 1976 for the words "3½ per cent." there shall be substituted the words "2½ per cent ."'—[Mr. Shore.]

Brought up, and read the First time.

Mr. Peter Shore (Stepney and Poplar)

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

The clause is simple enough. It is, as the House will readily recognise, a major amendment. If the Government concede it, it will mean the loss of about £1,000 million of tax revenue in a full year and about £700 million in this already advanced financial year.

The Treasury Bench will not be surprised that I have introduced the new clause. In the first speech that I made to the House as Shadow Chancellor on 15 January I called for five immediate measures to assist our ailing economy. The second measure in my list was a considerable reduction of the national insurance surcharge and eventually its repeal. In my reply to the Budget Statement on 11 March I returned to the same important matter. I asked for a cut of one-third this year. I said that if that cut proved unacceptable the Government should make the cut selectively in the surcharge raised on companies and enterprises that form our manufacturing industry.

The argument for such a cut seemed, when I first advanced it—my feeling has been strengthened as the months have passed—to be overwhelming. The national insurance surcharge is wholly within the Government's control. It bears directly upon the cost of British industry and its competitiveness in both the domestic and export markets. It is in the area of competitiveness that the United Kingdom has suffered its most serious setback since the Government took power. Indeed, from May 1979 to the end of 1980 our competitiveness declined by no less than 40 per cent. The Government may claim that part of this—25 per cent., I suppose—was due to the rise in relative labour costs in the United Kingdom as compared with the average among our industrial competitors. But they must also accept that a substantial part—15 per cent. —was due to the increase in the exchange rate of sterling.

8 pm

I pause at this point to say this. I know that occasionally the Chief Secretary has had exchanges with me on the subject of the national insurance surcharge. Whether the right hon. and learned Gentleman himself was responsible I cannot clearly recall, but occasionally Conservative Members have suggested that because the Labour Government introduced the surcharge the points that we now make are somehow invalidated. That is not a valid argument. Whether the timing of its introduction was wise leaves plenty of room for argument, but there is no room for argument in this respect. A national insurance surcharge against a background of an otherwise clearly competitive exchange rate and competitive industry is a very different matter from a surcharge when competitiveness has declined by an almost unbelievable 40 per cent. in the past two years.

On two points there can be little dispute. First, the massive loss of competitiveness to which I have referred has greatly contributed to the appalling increase in unemployment, above all in the past 15 months. A second major factor, contributing to the unparalleled loss of competitiveness, has been the Government's pursuit of monetarist policies, and in particular quantified targets for M3. Added to that is the associated deflationary fiscal stance that the Government have adopted.

It was the, albeit unsuccessful, pursuit of those monetary targets which led to the massive increase in interest rates in 1979–80, with no less than 17 per cent. MLR, which attracted large amounts of foreign currency into sterling, helping to drive the exchange rate up to what we regarded as a totally unrealistic level when in fact it should have fallen to take account of the underlying loss of competitiveness.

The monetarist doctrine also greatly affected the Government's approach to pay settlements. For a considerable period after the May 1979 general election it was their simple belief that by announcing and adhering to quantified targets for the money supply they would influence both the climate of pay settlements and the capacity of firms to meet excessive wage demands.

Whether, other things being equal, this could ever have happened, I am very doubtful, but other things were not equal. Through their own folly, the Government accelerated the inflation rate by budgetary and other actions and added at least 8 per cent. to the rate of inflation in the summer of 1979. That inevitably affected pay bargaining in those years, as trade unions fought to sustain and, where possible, to improve, their standards of living.

Since the Budget, there has been some change in the exchange rate. The fall of sterling has been most marked against the dollar—about 16 per cent. —but there has been little improvement in our position vis-a-vis other currencies, including European currencies. The improvement in the exchange rate, such as it is, owes nothing to the Government's policy. It is above all the consequence of, first, the pursuit of very high interest rates by the United States Administration, secondly, recent changes in oil prices and a temporary excess of supply over demand, and, thirdly, the increased understanding and apprehension in many countries that the Government in their economic strategy have embarked upon a failure course.

In spite of these changes, the benefit to Britain in improved competitiveness in the last three months is still small—about 6 per cent. effective depreciation, taking the basket of currencies as a whole. That is very small indeed compared with the massive 40 per cent. loss of competitiveness that we had experienced since May 1979.

It is important at this point to recall the considered judgment of the CBI as recently as March this year. In its document, "The Will to Win", which I am sure hon. Members on both sides have read with interest, the CBI asserted: To restore international price competitiveness to its level of two years ago would, at the existing exchange rate, take until early 1984, even assuming no pay rises at all and a 5 per cent. increase in productivity in each of the next three years". The Chancellor and the Chief Secretary should consider that judgment very carefully. The Chancellor, in particular, should consider it before addressing his next homily to the trade union movement. The last time that he addressed him self to this question, at the Birmingham Chamber of Commerce on 26 June, he acknowledged the seriousness of the loss of competitiveness but denied that there was anything that the Government could do about it. As he put it, it is no use thinking that the Government can conjure the problems away by engineering the devaluation of the pound. Instead, according to the Chancellor we shall have to get our costs down by keeping increases in labour costs in line with those of our overseas competitors from now on. We will actually have to do better than our competitors: lower pay rises or greater productivity gains or a combination of both". In effect, he is saying that the whole burden of adjustment and the recapture of competitiveness—the whole effort to regain the massive loss over the past two years—must now fall upon the trade union movement, which must accept minimal wage increases--or rather decreases—not just this year but for many years ahead, until we are once again competitive with our major industrial and trading rivals.

I repeat the most relevant passage from the CBI document, that it would at the existing exchange rate, take until early 1984, even assuming no pay rises at all and a 5 per cent. increase in productivity in each of the next three years. I do not believe that anybody in his right senses believes that we can have a period of three years with no pay rises and a 5 per cent. increase in productivity each year.

Mr. Peter Bottomley (Woolwich, West)

Will the right hon. Gentleman remind the House by how much the real pay of those still at work has increased in the past two years?

Mr. Shore

I acknowledge not only that pay has kept in touch with increases in the cost of living but that in a number of areas it has gone ahead. I am aware of that.

Mr. Bottomley

By how much?

Mr. Shore

If the hon. Gentleman knows the answer to his own question, let him answer it himself. Why waste the time of the House? I am aware of the position. My point is not whether that is to be welcomed in the present circumstances; it is that we have suffered a major loss of competitiveness. That is the matter to which we should address ourselves. With a going rate of inflation of 12 per cent. this year, which will almost certainly remain in double figures through 1982, it is impossible to contemplate the idea of no pay increases plus 5 per cent. growth in productivity which the CBI and the Chancellor seem to contemplate. There is no possibility of that at all.

That is the background against which we present our modest proposal for a cut in the national insurance surcharge. Apart from interest rate and exchange rate policy, this is one of the few measures available to the Government to help to lighten the burden and to increase the competitiveness of British industry.

The case for reducing the surchage can be argued negatively or positively. Negatively, clear disadvantages flow from the tax. They have been convincingly rehearsed by many critics, including the CBI, which I pray in aid once again, in its Budget representations to the Chancellor, which I believe were made in February this year.

First, the surcharge is a charge on exports but not on imports. It therefore reduces competitiveness both at home, against the imported goods of our trading rivals, and abroad, in our export markets. Connected with that, the national insurance surcharge raises prices at home and tends to increase labour costs. That factor also works through.

Secondly, it is a tax on jobs, which I should have thought was the last thing that we wanted—certainly at the present rate—at a time of unprecedented high and still rising unemployment.

Thirdly—this ought to appeal to the Government—it squeezes profits and damages or reduces the capacity of firms both to sustain existing production and to embark upon necessary new investment.

The impact on profits is not always—nor should it be—a prime concern. But as the Government know full well, owing to the disastrous effects of their own policies during the past two years, the profitability of non-oil companies in the United Kingdom has been reduced to probably the lowest-ever recorded level. Last year and this year, thousands of British firms have been forced into liquidation. Indeed, in the first quarter of this year, the share of company profits in GDP reached 5.9 per cent. , the lowest on record and well under half—this is how rapidly things have changed—the rate of profitability recorded only three years ago in 1978.

If the Chief Secretary needs further persuasion, I should add that the national insurance surcharge falls particularly harshly on small firms, as they are typically more labour-intensive than large capital-intensive firms.

I turn to the positive benefits that would undoubtedly follow from the proposed reduction in the national insurance surcharge. I am sure that the Chief Secretary will let us know if he has any reason to disagree with the figures that I am about to quote. A 1 per cent. cut in the national insurance surcharge rate will reduce unit wage costs by about 0.8 per cent. That in turn will within the year feed through into prices, as a result of which prices will be reduced by about 1½ per cent. That in turn will increase real take-home pay, and hence personal consumption, which could rise by up to 1½ per cent. over the next three years.

Secondly, the reduction in company tax payments will lead to an immediate and substantial improvement in company profits in the first year. The impact has heen measured and appears to be about £½ billion. That is a substantial improvement.

I have used the Treasury's own model to look at the consequences, over time, of this proposed 1 per cent. reduction. They are particularly encouraging, as over the three-year period benefits increase rather than decrease or remain stationary. Therefore, by 1984, there would be an increase of 0. per cent. in GNP, a reduction of more than 80,000 in the numbers unemployed and a gain of about £300 million in the balance of exports and imports. In addition—this may be particularly attractive to the Government, knowing their obsession with the size of the PSBR—the offsetting effects of improved competitiveness and increased economic activity would reduce an initial tax loss of £1,000 million to half that figure in 1982 and to a mere £163 million by 1984.

I said that many factors other than national insurance surcharge affected competitiveness. I would not want the House to believe that this was our only proposal to assist our industries. In the Budget debate on 11 March I called for a reduction in duty on heavy fuel oil, a further cut in interest rates, a more realistic level for the £ sterling and measures to increase demand in the British economy. All those things are necessary if we are to begin to climb out of the deep pit into which the policies of the Prime Minister and the Chancellor have cast the nation's economy.

The urgency of this measure is made all the greater by the developments in the economy since the Budget was presented three months ago and the emerging, unfavourable trends in Government policy itself. We now know that the prospect of reaching single figure inflation even next year has been greatly reduced.

8.15 pm

Mr. Campbell-Savours

My right hon. Friend said that the introduction of this measure would result in a £500 million benefit by 1984. Will he comment on the relationship of that in terms of the incentive to companies to expand as against the concessions that have been given in capital gains tax and capital transfer tax since 1979? Is not my right hon. Friend's route a more effective way of establishing the objectives set out by the Chancellor in reply to me during the most recent Treasury Question Time?

Mr. Shore

I agree with my hon. Friend. If any money is available for tax concessions, I think that anyone who considers the real needs of the British economy today will agree that the most obvious way in which it should be deployed is to assist in the cost-competitiveness and expansion of our industry. That is so self-evident that it is amazing that it has not been reflected in the policies that the Government have pursued.

I was saying that the prospects of reaching single-figure inflation are now looking remote, even for next year. Last week the wholesale price index gave substantial evidence of the more adverse trends. From the reports that I have seen, the Treasury's own short-term forecasts now accept that this change in our prospects has taken place.

Furthermore, the prospect in the short term of any fall in British interest rates has also faded. Short-term interest rates have been rising. Inevitably, there was speculation last week that we would see an increase rather than a further cut in MLR. Although one cannot be entirely certain, it appears that the Government are abandoning their neutrality on the exchange rate and that the Bank of England has been intervening far more strongly in the exchange market, with the purpose not of making sterling more competitive but rather of making it less competitive.

Only this morning we saw the latest figures for the index of industrial production. I know that the Chief Secretary is a devotee of that index, as his last major speech in the House was based wholly on the previous month's results, which he found gave him a little encouragement. We now have a further month's figures, and it is all too plain that the prospect of an early revival of the British economy, however modest, has receded into the autumn mists and beyond.

It is against all these adverse trends of policy and events that are making for the continued, if not increased, uncompetitiveness of the British economy that we put our proposal to reduce the national insurance surcharge. It is the one positive contribution that can be made by the Government immediately to assist our hard-pressed industry. I strongly commend the clause to the House.

Sir Brandon Rhys Williams (Kensington)

I listened with interest to the right hon. Member for Stepney and Poplar (Mr. Shore) suggesting a reduction of 1 per cent. in what is, in effect, the total burden that the community places on the back of the creator of wealth. I wonder why he chose I per cent. I do not think that he made the most of his subject, because the relationship between national insurance and income tax is a large subject. He might with advantage have gone into it more deeply.

I shall try to touch on some of the points that might have been raised, because they include some fundamental issues. What burden should the community place on the back of the creator of wealth? Let us examine the present burden. We take 30 per cent. in income tax, The employer's contribution, including the surcharge, adds 13.7 per cent. to that and the employee is expected to pay 7.75 per cent. By my reckoning that comes to 51.45 per cent. on every £1 between £27 and £200 a week.

I have often recommended that we should end the national insurance scheme because it is becoming a ridiculous rigmarole and a farce. It might indeed be better to reduce the tax by 1.45 per cent. and make it a flat rate of 50 per cent. We would then be approaching clarity and comprehensibility in the relationship between the community and the individual. It would have the advantage of simplicity and equity.

I would go further and reform the income tax system so as to take out all the gaps and pockets and all the short and long ends in the areas in which the tax is levied, making good the losses to the employee by paying positive benefits instead. In other words, we should unify the tax allowances and the social benefits. We should then be paying a minimum income guarantee to every citizen, whether in work or not. Those in work would get the benefit of a minimum income guarantee, replacing their tax allowances; and those out of work would get the benefit of what succeeded the present rigmarole of national insurance, with all its unfairness and injustice.

In other words, the Government should reconsider the whole tax credit scheme which used to be a commitment of the Tory Party. Why are we waiting? There has been progress. We have made progress in amalgamating child tax allowances with family allowances, and now we have the unified child benefit. That was a great leap forward. The Government are also doing what I believe to be right in tackling housing allowances. There is more to be done before we have rationalised the different ways of subsidising housing in our tax, national insurance and other systems.

I hope that we can tackle the personal allowances next, and put them on a positive basis, too. If we amalgamate PAYE and national insurance, instead of keeping national insurance contributions separate from income tax, and collect them through the same mechanism, we shall have made a great leap forward both for payment and receipt in simplifying the administration of the Revenue and in clarifying national insurance.

I have often drawn attention to the fact that the redistribution-of-income industry employs well over 150,000 people. Including the number of people who have to work on behalf of the Revenue in employers' offices calculating F'AYE, the redistribution-of-income industry is now probably 200,000 people strong. Between the lot of them, they do not add £1 to the real national product. They are engaged either in taking wealth away from their fellow citizens or handing it back to their fellow citizens, without themselves producing any wealth. What is more, we ask them to do it by the most obsolete methods. I press the Government, for the sake of efficiency, transparency and incentives, to re-examine the whole business.

I know that Sir Derek Rayner has been sent out to see how he can improve Civil Service efficiency. I am sure that he has done a wonderful job, as a man might with a butterfly net in a locust storm, but that is not how we shall improve Civil Sevice efficiency or cut the cost of public administration.

Because of the troubles in the past week, which have attracted so much attention, I wish to make another point. We must hasten to end the division of the nation between those in need and those in work—the same Disraelian "Two Nations" as we had 150 years ago—a division that was the object of the Conservative Party's attention then as it should be now.

The entitlement to benefit when based on need is divisive. We place far too much emphasis on it in our social policy, when we have 4 million—or is it now 5 million? —people dependent on supplementary benefit. That is a two-nation division that we can no longer tolerate. The entitlement to benefit should be based on citizenship, because that is what makes for equality and social unity.

Hon. Members will ask how we afford a minimum income guarantee for every citizen that is enough to live on. The answer is that we afford it now, because nobody in this country, thank God, is destitute. I am not necessarily suggesting that we should increase anyone's standard of living at once by the reform that is now long overdue; I am simply saying that we should do what we are doing in the way of the redistribution of income in a rational way that accords with the principles of justice.

Tax will introduce the element of selectivity, because when people return to employment and start to earn money they will incur tax, which is the way of making their necessary contribution to society. For those with their own income, without destroying the principle of a minimum income guarantee based on citizenship, we can implement the principle of from each according to his capacity—through the payment of tax—and to each according to his need—by the payment of a minimum income guarantee. The income tax is what achieves selectivity. The means test, while we continue to apply it, simply brings disunity and social strife.

I return to the question asked by the right how Member for Stepney and Poplar: what is the rate at which we should be levying tax? What is the total burden that the community is entitled to place on the back of the creator of wealth? Indeed, what is wise? At present 50 per cent. probably must be the rate. I do not think that we can manage with less.

Underlying all this is the great moral question: what is mine and what is ours? That is what we must decide. How much are we entitled to take home of what we have created, and how much belongs to the community that provides the environment in which it is possible for us to create wealth? The nation must decide the rate of tax, but it must do it with a clear understanding of the moral implications and the way in which its decision will affect the amount of benefit that can be paid out in the form of the minimum income guarantee.

I come to the advantages of a tax credit or minimum income guarantee scheme. First, it becomes possible to abolish unemployment as a way of putting people into a separate category. We no longer have to push them down to become second-rate citizens under the yoke of enforced idleness. If everyone has a minimum income guarantee, he can take part-time or full-time work; he can moonlight, doing two or more jobs; or he can live without any income other than the minimum guarantee, though I hope that few people would choose to do that if the opportunities for work existed for them.

If wages are paid net of tax, we can abolish income tax on earned income, because if employers pay the same to the community as they pay to the worker, which is what a 50 per cent. rate of tax means, the worker can have the whole of his pay. He can come to a net-of-tax pay agreement, and if he then proceeds to earn more he can have the whole of the increase. Looked at in this way, the employers' surcharge entirely absorbs pay-as-you-earn and national insurance. Income tax is not 50 per cent. of gross taxable earnings; it becomes a social contribution of 100 per cent. of net pay.

I do not wish to bewilder hon. Members with these considerations, but they arise directly out of the new clause. I beg the right hon. Member for Stepney and Poplar to bend his thoughts to the philosophy that I have expounded. There is a social need to make major reforms in the way in which we deal with each other in terms of cash. We shall not solve our problems as a nation until we see things as they are.

8.30 pm

Mr. Richard Wainwright

I am happy to speak after the hon. Member for Kensington (Sir B. Rhys Williams). He has added his own highly distinguished contribution on tax credits to the pioneering work done by his mother. I admire his continued persistence and ingenuity and the way in which he has survived all the rebuffs that he has received at the hands of Conservative Governments—including this one—as well as at those of other Governments. It is a little depressing to my spirit to recall the eloquence of his late mother and the way in which she advocated a tax credit scheme of great ingenuity and originality over 30 years ago.

Sir Brandon Rhys Williams

Forty years ago.

Mr. Wainwright

I stand corrected. I heard her speak just over 30 years ago. However, the House has in those years been afflicted by an absurd two-party zig-zag. Time has been wasted by bandying epithets across the Chamber. As a result, such tax credit proposals have been neglected. Of the Government's many perversities, none will be recalled with a sense of greater absurdity than the way in which they have persisted with a tax on jobs at a time when self-inflicted unemployment is out of control, is seriously damaging the chances of millions of people and is threatening our nation's coherence. The Conservative Party was the first to attack when a Labour Government first proposed the tax as a temporary expedient. However, the Government are now defending it as if it were the Ark of the Covenant. It is a deliberate tax on jobs.

As long as the surcharge remains, the bill for national insurance to the employer and employee—the tax on jobs—will continue to get worse. We are afflicted with another perversity—a system whereby those who manage to remain in work and their employers—who suffer more and more from the recession—are expected to bear the cost of unemployment benefit. I hope that the Chief Secretary will give us his estimate of the total percentage of employer and employee contributions in a year's time. The contributions continue to rise because of the absurd convention that the survivors from the wreck shall pay all the benefits and compensation to those who are deliberately deprived of their jobs. As has been said, that contribution figure now stands at 21.5 per cent.

My hon. Friends and I support the amendment because it has the advantage—at a time when the nation is becoming increasingly and perilously divided—of being advocated by both sides of industry. In its recommendations of February this year for the Budget, the Association of British Chambers of Commerce—which is often closer to industry's pulse than the CBI—took great pains to recommend that the Chancellor of the Exchequer should reduce the employers' national insurance liabilities. It pointed out that apart from the benefit to industry and employers, such a reduction would reduce some of the financial pressure on local authorities, which, of course, pay substantial sums for their own employees. Responsible local authorities will thus be enabled to reduce their rate needs, providing further aid to industry and commerce. In a welcome way, the Association of British Chambers of Commerce was joined by the TUC. It produced an interesting document—which has a lot to be said for it—entitled "Plan for Growth" and dated February 1981. It states: National Insurance contributions starting in April must be reversed, and the employers' National Insurance Surcharge should be cut by ½ per cent. to 3 per cent., provided the money is used to save jobs. Finally, the CBI pointed out, as has been mentioned in the debate, that this is a tax on jobs, a charge on exports but not imports and that it greatly reduces our competitiveness. The CBI also reminded us: Of the total tax paid by the market sector, manufacturing … pays nearly two-fifths. The bulk of the remainder is paid by the construction industry … the distributive trades … by sectors connected with the invisible trade … and shipping. In those circumstances it requires extraordinarily special reasons for the Government to refuse to move. A drop in the tax take of approximately £700 million would be the beginning—the first glimmer of hope of some resurgence of the national demand that industry so badly needs. The Government could send no more encouraging message to a beleaguered country at present than that signalled by an acceptance of the amendment.

Mr. Eggar

I was interested in the remarks of the right hon. Member for Stepney and Poplar (Mr. Shore). It must have been of some comfort to the hard-pressed and loyal civil servants in the Treasury that all they had to do when they saw the right hon. Gentleman's amendment was to reach up into the cubbyhole and dust off the brief that they had last given the right hon. Member for Leeds, East (Mr. Healey) and, I dare say, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon).

I do not wish to tread over the same waters that the right hon. Member for Stepney and Poplar covered. I recognise that the Government have made a clear Budget judgment which will not produce sufficient funds to permit a reduction in the national insurance surcharge this year. I accept that, but I hope that my right hon. and learned Friend the Chief Secretary is considering seriously the suggestion by my hon. Friend the Member for Bath (Mr. Patten) in an interesting article in The Times. My hon. Friend suggested that in view of the considerable importance that the Government are attaching to the next wages round they should, in the relatively near future, tell industry that if wage levels are set at 5 per cent. or below, the Government will be able in the next Budget—all other things being equal—to reduce that national insurance surcharge by, let us say, 1 per cent.

The argument that has always been put by this Government and the Labour Government is that the national insurance surcharge should not be reduced, because that reduction would be a straight addition to wages. My right hon. Friend shakes his head, but I am sure that he will set me right later.

One can easily reverse that argument and suggest that a possible reduction in the surcharge should be used as an incentive to employers to keep wage settlements at a reasonable level next year. I trust that my right hon. Friend will consider that suggestion. I shall be interested to hear his comments on it.

Mr. Campbell-Savours

The whole House will be indebted to my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) for his able comments on the major 40 per cent. decline in competitiveness, to which he drew the attention of the House. Most hon. Members will be conscious of the effect that a decline of that magnitude has on introducing and retaining the sort of social services that are necessary if we are to avoid the difficulties that confront not just the Government but every hon. Member, especially those who represent inner cities.

In the light: of the developments of the last few weeks, it is not just a question of blaming the Government; we must all accept responsibility for what has happened in a large number of areas. We must examine the general developments in competitiveness over the years, certainly since the early 1970s.

If hon. Members in all parts of the House accept that there is a decline, they should show the kind of unanimity that exists outside on the need to reflate the economy in such a way that we can generate the increased wealth necessary to fund all the social services. As the hon. Member for Colne Valley (Mr. Wainwright) said, there has been unanimity between the Confederation of British Industry and the Trades Union Congress on the need for an initiative in this area.

At the time when the national insurance surcharge was introduced in 1976 there was a general feeling of alarm in the House. There was alarm on the Labour Benches when the then Labour Chancellor of the Exchequer introduced the measure, because it was felt that it would have an impact on employment. Certainly there was alarm expressed on the Conservative Benches, and in particular by the then Shadow spokesman.

I should like to quote the comments that were made by the right hon. Member for St. Ives (Mr. Nott) when he rose to reject the argument that was put from the then Government side for the introduction of the national insurance surcharge. He said: To talk about a 2 per cent. surcharge on national insurance does not emphasise the fact that it is an increase of about one-quarter—nearly 25 per cent. —on the only tax that we now have on jobs, and particularly on the productive, wealth-creating part of the private sector. Like all taxes—it has nothing to do with national insurance or other benefits—it will no doubt find its way out of people's pockets into the Consolidated Fund where the Government will use it to employ more people in the public sector, to finance further extravagant projects and to ensure that the parasitic public sector continues to suck the life blood out of the wealth and job-creating private sector of the community. The right hon. Member went on to say: The Government's proposed increase will not finance higher benefits. It will go straight into the Consolidated Fund where it will be used as part of the general pool of taxation and it will destroy jobs in the process." — [Official Report, 30 November 1976; Vol. 921, c. 863.] So there was a recognition at that time that the measure would destroy jobs. If that was the attitude of the Conservatives in 1976 on the introduction of the measure—that it would destroy jobs—we must presume that today the same people believe that it is directly responsible for the absence of jobs in the economy.

It was suggested by my right hon. Friend that about 80,000 jobs would be created over the next two years, based on the computer model that we used. How many new jobs does the Minister think our amendment would create if the Government were to accept it?

8.45 pm

I hope that ray right hon. Friend's comments made it clear to the House that the effects on the public sector borrowing requirement would be far less than would appear at first glimpse. It seems that by 1984 they would be down to about £160 million, and we can presume that as the years pass the impact would increasingly reduce. I wonder to what extent that has been taken into account in the rejection that we presume the Chief Secretary will now make.

Opposition Members presume that this matter is to be rejected, because over the last few months we have learnt that when the Government are about to take an initiative and make a statement at the Box they always leak it. This Budget has been a particularly leaky Budget. It was interesting that many of the matters that were included in it were foreshadowed in press comment prior to the Budget Statement. Therefore, on this occasion we can presume that once again we shall not win the argument, because there has not been a leak to the effect that we would do so.

It is clear that this measure would have a major impact on our export prices. Manufacturers would be able to reduce their costs. I also wonder whether the Chief Secretary accepts that it would be beneficial to our export performance. I am sure that he has done his projections on the value of our new clause. Will he say to what extent he accepts that it would affect our ability to compete in export markets?

It would be highly beneficial to many companies who are currently wearying of their cash flow problems. I presume that because it would be beneficial in terms of cash flow, it would have the same effect as tile introduction of the kind of subsidies that Conservative Members have already said. that they wish for energy prices. If Conservative Members press aggressively for energy price subsidies—to the paper, board and steel industries and to other areas of energy-intensive manufacturing industry—I cannot see why the same hon. Members, recognising that this would have an effect in the same way on the cash flow of companies, should not on this occasion wish to support our new clause.

Perhaps a number of Conservative Members will feel tempted to come into our Lobby tonight. I am sure that if they were to do so they would find that many people in the country and certainly many in industry would congratulate them. That is our information. We get the same kind of correspondence as Conservative Members. I am sure that the Chief Secretary will be aware that many industrialists in his constituency and, indeed, in the whole of the Northern region, have expressed repeatedly at meetings with Members from that region the need for some concession in this area.

Mr. Peter Bottomley

My initial anger at the emptiness of the speech of the right hon. Member for Stepney and Poplar (Mr. Shore) is disappearing, because I want to convert him and my Front Bench to a different way of considering this problem.

The right hon. Gentleman talked about a reduction of 1 per cent. in the national insurance surcharge, which he rightly said would amount to about 0.8 per cent. of the pay bill. Unless something dramatic happens, we are likely to face an increase in nominal rates of pay during the next year of about 8 per cent. —10 times as much as the money being considered now. The cost of the new clause is £1,000 million. The level of pay settlements in the coming year, if around 8 per cent., will cost an extra £10,000 million. The cost to the Government will be substantially higher than the £1,000 million involved in the new clause. The people who will suffer, besides those driven out of work, are the people with family responsibilities.

The cost of the new clause is the equivalent of £1.50 a week on child benefit. Apart from agreeing with almost all that my hon. Friend the Member for Kensington (Sir B. Rhys-Williams) says, I raise the issue of child benefit to enable the House to consider the implications of a general pay increase of even 8 per cent. on the lower-paid with children. If a person with a spouse and two children received a 50 per cent. increase from £60 to £90 a week, he would keep £1 in every £6 and would be better off by £5 out of the extra £30. If his pay went up by 8 per cent., and the same applied to everyone else who had a job, the manner in which inflation operates differentially against family interests would make the poor with family responsibilities worse off.

I ask the Government and the Opposition to consider more strongly the impact on the economy of trying to get the level of pay settlements down to 4 per cent. rather than 8 per cent.—the dynamic effect on the PSBR, the likely consequence on the level of employment, which I suspect would be substantially better than the 1 per cent. off the national insurance surcharge, and the likely effect on interest rates that have some association with inflation. I believe that all the benefits to which the right hon. Member for Stepney and Poplar referred apply 10 times as much to anything that can be done fairly—I emphasise "fairly"—to reduce the level of nominal pay settlements.

The House should concentrate on the long-term plans put forward by my hon. Friend the Member for Kensington and the short-term improvements that need to be made now to such matters as child benefits if there is to be any chance of running an economy during the next 12 months that may conceivably get anywhere near the Government's planned PSBR target while achieving the ambition shared by all hon. Members to ensure that more people are not driven out of work. We need also to ensure that during the difficulties involved in not granting real pay increases to those still at work, those who need help get it at the time it is needed. The rest have to realise that when we are child-free or higher-paid, we shall not receive the kind of advantages that we have taken during the last two or three years from the unemployed and from people with children.

Mr. David Winnick (Walsall, North)

The hon. Member for Woolwich, West (Mr. Bottomley) should understand that trade unionists have a duty and obligation to try to defend their living standards. I accept the sincerity of the hon. Gentleman's general approach on child benefits. The fact is that a very different line is now taken by Conservative Members regarding incomes compared with that heard at the time of the last election. At that time, we were told that incomes policy was unnecessary and that it would not work. Such criticism may have been right and justified. The attitude adopted was the need for market forces to determine these matters.

Now we are told that incomes restraint is necessary and that without it the country cannot survive. The present trouble with the Civil Service shows only too well what occurs when a Government lay down the line on what should be the norm for income increases.

I support the new clause moved by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). I see it as a way of beginning to start reflating the economy. Every time Treasury Ministers and the Prime Minister speak they say that there is light at the end of the tunnel, that an upturn is coming and that the situation will improve. In real life, outside the Treasury, deflation bites deeper into the economy and unemployment continues to grow substantially. That is the contrast in the country with what Treasury Ministers are constantly predicting in an optimistic and, in my view, totally unjustified way.

In considering the need for reflation and the need to overcome the present depression in our economy, one has to look only at two forecasts. One is from the Henley centre for forecasting, which shows that for the next six years the economic growth of this country will be worse than previously and that unemployment will grow substantially. The other is the outlook of the OECD, which shows that unemployment in Great Britain is now worse than in France, Germany, the United States, Canada, and even Italy. That is the position in which we find ourselves. We know what is happening on the ground in our constituencies—redundancies, closures, and the resultant hardship. The outlook is bleak.

I therefore believe that any incentive which would encourage employers to take on labour should commend itself to the House. It is more important, if I may say so, to provide jobs for the people who are at the bottom of our social heap, whose plight is so acute, and whose behaviour over the past week can to a certain extent be explained by the Government's economic policies, than it is to legislate for CS gas, water cannons, rubber bullets and the like. We need to change the course that the Government have embarked upon.

The Treasury's view on deflation is no different from what was advocated in the pre-war years. At that time we were told that there was no alternative, that deflation was inevitable, and that whatever the difficulties of the unemployed there was no other way. It was argued that if the Government intervened it would mean inflation, and so on. There is no basic difference between what was advocated before the war, which rationalised and justified mass unemployment, and what is now being argued in defence of the return of mass unemployment in this country.

My right hon. Friend's amendment should be supported to the extent that it will help to start reflating the economy, encourage employers to take on labour, and help manufacturing and exporting. No doubt the alternative that we shall be given by the Chief Secretary will be a continuation of the present course, which can lead only to more unemployment and perhaps to the same sort of disturbances on our streets as we have seen during the past week.

Mr. Woolmer

I follow my hon. Friend the Member for Walsall, North (Mr. Winnick), who commented on the contrast between the Government's optimism in May 1979 and the grim reality of the picture that we see today. In this Government's first Budget I vividly remember the way in which Conservative Members waved their Order Papers in glee at the new economic policy—the new liberating, enterprise Budget of incentives that was launched on the unsuspecting country. What a sorry sight the Government Benches now are, bearing in mind the difference between the two occasions, not simply in this debate—in which speeches are lacklustre and seek almost hopelessly for a way out of the appalling mess into which the Government have got the country—but at Chancellor's Question Time when there is scarcely a smiling face on the Government Benches.

At Quest ion Time, the Prime Minister talks about incentives and enterprise in a grim battle to explain away the disaster. The sheer misery of the depth of the problems into which the country has been plummeted by the Government's policies makes me think that the Government are like corks tossed about in a stormy sea, not knowing where to turn.

9 pm

When I watch Ministers and Government supporters I feel that they sense that they have got themselves and the country into such an appalling mess that they feel a sense of helplessness and hopelessness. Initially they mouthed the phrase that there was no alternative. Now they promise upturns which do not come. Even that little piece of optimism has almost ceased to fall from Ministers' lips. There is a sense of helpless and hopeless doom about the Government's policies. It is typified by a matter on which the Minister and I exchanged views yesterday, involving the farcical notion that resources are not available to build houses when there is a desperate housing shortage. The Government claim that resources are not available to replace collapsing sewers. They say that the resources are not available to build a modest amount of electrified railway line when a few miles away across the Channel the French Government are launching an enormous programme of modernising the railways.

To the ordinary person the Government's policies have taken on a manic insanity. They have lost the hearts and minds of the country. People do not understand how a Government can justify their policies by saying that the resources are not available. People cannot understand the Government arguing that if they take action something will happen to the money supply or the rate of interest when people can see factories where people are working only two or three days a week. They see factories grossly below capacity. Not only manual workers but managers know that they could and should be producing more commodities. The labour and the materials are there. People cannot understand.

The Government are failing the nation by being obsessed and [rapped in an intellectual straitjacket. They must break out and turn away from a method that has served them badly. If they do not break out of the straitjacket the country will be plunged into suffering 3½ million people unemployed. At the same time billions of pounds of savings are being invested in other countries to provide work for other workers. That is sheer insanity. The Government must escape their intellectual straitjacket and accept that it is insane to invest £4 billion a year in other countries' stock exchanges to provide capital for other people's jobs when our workers do not have work.

Ministers may come to the Chamber—and I suspect that they will tonight—and talk about money supply and interest rates. The Government must address themselves to the total unreality of the way in which they are governing and the enormous waste of human resources, savings and capital. They must seize the fact that they must change their policies because the present policies have led us to disaster.

Mr. R. D. Cant (Stoke-on-Trent, Central)

Does not my hon. Friend agree that the only realistic scenario as regards crowding out is what is happening to pension and insurance funds as a consequence of the export of about £8 billion worth last year, leaving insufficient resources at the disposal of the pension and insurance funds to invest in gilts and equities? That explains why the price of gilts is so low and why the stock market is struggling.

Mr. Woolmer

I am grateful to my hon. Friend, who has touched on a number of valid points. I have always recognised that the problem of how to expand the economy and to avoid inflation and wage push inflation—the problem of wage demands pushing up prices—is difficult.

It is certain that investment in this country is low because profits are low. Profits are low because the Government, as a conscious act of policy, deliberately overvalued the pound in such an exaggerated manner and deliberately kept up interest rates. Profits are now so desperately low that almost any individual measure on its own is only tinkering with the problem.

Unless businesses are able to produce more and to expand the use of their capacity, their profits will not recover. The biggest single boost to profits—here I differ slightly from my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) in his introductory remarks—would come about if the Government would set themselves on a policy of expansion in the economy. Some factories are working three days or two days a week and others are working one week in three. No individual measure, even of this nature, will restore confidence and profits to the degree necessary. Nothing less than a radical and diametric shift of policy will achieve that. I note that the Chief Secretary disagreed on that matter earlier. I recognise that there are differences of opinion. We differ, but I feel exceptionally strongly that unless those policy changes come, that tragic waste of human wealth and resources will carry on.

The measure relates to a proposal to reduce the national insurance surcharge. I shall support it tonight, not because I believe that it is the best way of going about things, or that it will mark anything other than an indication of the Government's willingness to change direction. I am sure that my right hon. Friend will agree that in itself, it has its own problems. I would sooner see £1 billion worth of spending that went immediately to create jobs and to expand demand, linking spending to jobs in such a way as to secure the co-operation and agreement of trade unions and workers to see that that expansion was immediately linked with jobs and not with wage demands. That is preferable.

Mr. Shore

I assure my hon. Friend that it is in the nature of the way in which we take the new clauses and amendments that we must discuss matters as they arise. At the time of the Budget I referred to at least a five-point programme. The first of those points is an increase in public expenditure, which I believe is essential.

Mr. Woolmer

As my right hon. Friend knows, I readily acknowledge that. At the time, his programme was greeted on Government Benches not so much with scepticism as with derision. It is now seen as a voice of sanity. Those who opposed the views put forward by my right hon. Friend at the time of the Budget debates have, as a result of continuing to back Government policies, seen not success but further unemployment, a further collapse of investment and a further outflow of valuable money and savings. It is simply not good enough to continue plunging us deeper and deeper into misery. I readily recognise my right hon. Friend's point that he had advocated many other things. He made his proposal in the context of a series of measures that would be essential.

I wish to reiterate that if any Government are to get us out of the mess that we are in they must impress firmly into the minds of the trade unions and employers that any expansion must be related to an expansion of jobs and not to an expansion of monetary claims, big wage demands or big profit demands simply to pay out dividends. Expansion must be linked to job creation and to the physical expansion of capital and the necessary resources. If expansion is seen simply as a monetary boost that is unrelated to an expansion of real production, goods and services, the opportunity to come out of the gloom will be lost.

My reservations about the measure in isolation—I recognise that it would not be taken in isolation in an overall change of policy—is that the boost that it would provide if the Government were willing to consider a change of direction would be better provided in other ways in the first instance.

The debate has ranged wide because it touches upon a number of problems. I hope that when the Minister replies he will take the opportunity to spell out in words that the average man and woman can understand—not in a cloud of dogma and economic theory—why, with massive unemployment and with the money that appears to be available to go into other countries, the Government are not capable of seizing the problem by the scruff of the neck and providing jobs and expansion in the economy.

All those to whom I speak simply do not understand what the Government are doing. They feel almost as though the country is not being governed at all. The atmosphere around the country is one of helplessness. My great fear is that that helplessness—my right hon. Friends know that I have no illusions—will lead not to a move towards Left-thinking and radical policies but, as we are already seeing in some elements on the streets, to a Right-thinking emphasis. People who feel helpless often shift to remarkably outdated and outworn theories about how to solve problems. I hope that the Minister will put the problems into that context.

The Government seized the public's imagination before the last election. They employed agents to sell their theme. I do not say that lightly. They seized the notions of incentives, of the incentive to work and the need for enterprise. They have lost the good will and the understanding of the British people.

Mr. Brittan

The debate has consisted of three aspects. First, the right hon. Member for Stepney and Poplar (Mr. Shore) presented the new clause as part of his general economic strategy. Secondly, there has been a consideration of the national insurance surcharge in its own right. Thirdly—I do not say this in any disparaging sense—others, such as my hon. Friends the Members for Kensington (Sir B. Rhys Williams) and Woolwich, West (Mr. Bottomley), have perfectly properly taken the opportunity to express their views on the wider social aspects of the matter.

I hope that my hon. Friends will not take it amiss if I do not seek to follow their arguments in entirety. In dealing with the new clause I feel that to attempt to take up the wider issues that they have raised would be to do them less than justice and would not reflect the thought and care that have gone into their presentation.

9.15 pm

I proceed to the central propositions advanced by the right hon. Member for Stepney and Poplar, which were followed through most carefully and caringly by the hon. Member for Batley and Morley (Mr. Woolmer). The new clause is considerable in scale, but the right hon. Gentleman over-emphasised the cost of implementing it. The cost would be £840 million in a full year and not the £1,000 million that he suggested. It is a component part of the strategy that the Opposition put forward, which is one of substantial expansion. The right hon. Gentleman argued in support of it in no other sense. The hon. Member for Batley and Morley spelt that out still further if need there was to do so.

The hon. Member for Batley and Morley asked me to talk in language that was capable of being understood in an ordinary sense. My answer is that the Opposition's policy has been tried and found not to work. The person who came to the conclusion that the option of spending our way out of the recession was not open to us was not a Conservative Chancellor of the Exchequer nor a Conservative Prime Minister but the right hon. Member for Cardiff, South-East (Mr. Callaghan), the former Labour Prime Minister.

The right hon. Gentleman was right. He was driven to that conclusion. The experience of the period immediately behind us was not the same as the experience of the 1930s. In recent times we have had a combination of ever-increasing inflation and ever-increasing rates of unemployment. That applied while the previous Labour Government were in office as it has since the present Government took office. It may be possible to score points by saying that the growth of inflation and that of unemployment was faster at certain times. However, the message of the immediate period through which we have lived is that inflation has been the engine and the cause of unemployment instead of there being a trade-off between one and the other.

I hope that the Opposition will accept that if I seriously thought that it would be possible to secure a substantial reduction in the rates of unemployment that are so grave a scourge on life in Britain I should do so. I see the result of unemployment in my constituency. We may differ about what constitutes the right approach, but I can assure Labour Members that if I took their view I should not shirk the consequences of implementing it. However, I do not happen to think that they are right. I happen to think that I would not be justified in taking the action that they suggest.

My right hon. and learned Friend the Chancellor of the Exchequer took a view in the Budget on the proper level of the public sector borrowing requirement and decided that if he went beyond it the pressures of inflation would mount, in a way which would have exactly the consequences that I have described. We would then see what we have seen in the past—an increase in inflation, in the short term a limited and temporary amelioration of unemployment, and ultimately, and after no undue delay, a massive increase in unemployment to follow the increase in inflation. That would be the consequence of following such a policy.

Mr. Winnick

What the right hon. and learned Gentleman is saying—he will correct me if I am wrong—is that there is absolutely no alternative to unemployment rising and in due course, not very long from now, reaching 3 million. It is a cry of despair. The right hon. and learned Gentleman is telling the House and the country that there is no alternative policy and that we must simply accept massive unemployment, although he expresses his sympathy with the unemployed. We note his sympathy, but he tells us that there is no alternative.

Mr. Brittan

That is not what I said. The hon. Gentleman does neither himself nor the House justice. Of course there is an alternative. There is, for example, the alternative put forward by the right hon. Member for Stepney and Poplar, but I have explained why I believe that that alternative would lead to a worse outcome. We are not suggesting that nothing can or should be done. That is quite untrue. Clearly, any Government will put forward a policy in which they believe and then carry it out. Anyone can be wrong, of course—

Mr. Shore

You are.

Mr. Brittan

That is not proved by an assertion from a sedentary position. The level of most of this debate has in fact been somewhat higher than interventions of that kind would suggest. It is absurd to say that because the Government support a particular policy and follow it and do not believe that an alternative is to be preferred, that is a counsel of despair. It is quite the reverse.

Mr. Shore

Do the Government really believe that their policy is succeeding? It is all very well for the right hon. and learned Gentleman to say to those of us who advocate a very different approach that we have not had perfect success. God knows, we all concede that. What is unique to the present Government is that they have actually managed to double unemployment in two years, to decrease the national income and output and at the same time to maintain inflation. For God's sake, when do Ministers start thinking and reconsidering policies that are clearly driving the country to disaster?

Mr. Brittan

When unemployment doubled under the Labour Government, that did not lead the right hon. Gentleman or the Labour Government to change their policies.

Mr. Shore

Of course it did. You have been complaining about the level of public expenditure, the public sector borrowing requirement—

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. Mr. Leon Brittan.

Mr. Brittan

The right hon. Gentleman will not find that light is generated by heat. I do not think that he does his cause justice by that kind of reaction when I try to answer the points that he makes.

Mr. Shore

I am concerned about this country.

Mr. Brittan

So am I, but I do not choose to show my concern by synthetic anger of the kind displayed by the right hon. Gentleman. Moreover, when presented with an argument for which I have sufficient respect to try to answer it, I do not find it a useful or constructive exercise, or a genuine or sincere show of concern, to come to the Dispatch Box in a petulant fit of anger in the way that the right hon. Gentleman has. I am dealing with a specific new clause. Because I have sought to puncture the right hon. Gentleman's optimistic but ill-founded economic strategy, there is no excuse for his reacting in the way that he has.

I have explained my general view on the economic strategy. I was about to say, if the right hon. Gentleman can contain himself, that there were aspects of his speech with which I actually agreed. In particular, what he said about the competitiveness of the British economy was absolutely right. We may differ as to the right way to approach the competitiveness problems of British industry, but many of the points that have been made about wage rates and the effect of excessive wage claims on unemployment and on the economy are matters on which I would agree.

I turn to the national insurance surcharge, which is what the debate is about. Although the right hon. Gentleman was defensive in his opening remarks, it is relevant to point out that the surcharge was introduced by the Labour Government. It is also relevant to point out that all the criticisms levelled against it, which one hon. Member quoted my right hon. and learned Friend the Chancellor as making, were as true at the time it was introduced as they are now.

The right hon. Gentleman may say that economic circumstances make those deficiencies more apparent now than they were then, but he sowed that seed and introduced a tax which, if it has inherent economic disadvantages, had them from the outset, even if the conclusions may now be greater.

I hold no brief for the national insurance surcharge, but the right hon. Gentleman, with his experience of Government, knows perfectly well that it is easier to create taxes than to abolish them. He knows that whatever their effects, if they are built into the system the fiscal consequences of moving towards their abolition are considerable. To the extent that it is possible to look at the comparative merits of different taxes, I readily concede that it would assist British industry if it were possible to abolish the national insurance surcharge.

Mr. Shore

I have held no particular brief for the national insurance surcharge at any stage. The essence of the debate is the competitiveness and cost of British industry, which has declined by 40 per cent. in the last two years. But following the depreciation of the pound we were in an extremely competitive situation when the previous Chancellor introduced the tax. Therefore, there is a difference. We are not talking about a petty matter. There is now a major difference in the competitiveness of British industry—a 40 per cent. loss.

Mr. Brittan

That is what the right hon. Gentleman said at the beginning of the debate. However, I pointed to my right hon. and learned Friend's general economic strategy and talked about the consequences if the right hon. Gentleman's recipe for disaster was ever inflicted on the British people. I am now referring to the inherent defects of the tax as well as the structural defects and disadvantages which the right hon. Gentleman has found to be new, although he cheerfully sat as a member of the Government who introduced it.

If we were in a position to give further assistance to British industry, the national insurance surcharge reduction would be a strong candidate for action. To that extent I accept the case. Obviously, the priorities would have to be considered when the time arose. However, in this year's Budget my right hon. and learned Friend rightly took the view that the first priority for giving assistance to British industry was to have a fiscal and monetary framework in which it was possible for interest rates responsibly to be allowed to fall. That is what happened. My right hon. and learned Friend took other steps, such as the stock relief measures, to give direct assistance to British industry.

Within the context of the essential Budget judgment made by my right hon. and learned Friend it is not possible to commend the new clause to the House.

Mr. Richard Wainwright

rose—

Mr. Brittan

I have sat down.

9.30 pm

Mr. Robert Sheldon

We did not hear the word "monetarism" from the Chief Secretary, a Minister in a Government committed to monetarism. They base themselves entirely on its doctrines, but for the first time we have had such a debate without hearing about some of the essential philosophy underlying the Government's actions so far.

The Government will have to reconstruct their policies. The right hon. and learned Gentleman was unwise, and not at all far-seeing, when he said "We cannot spend our way out of this recession." I think that that will happen as a result of actions taken by the present Chancellor or by whoever replaces him.

The Government, who placed so many hopes on monetarism, expected that there would be what my hon. Friend the Member for Batley and Morley (Mr. Woolmer) called enterprise. They thought that incentives would produce great results. The Conservatives believed that by controlling the money supply the rational expectations of trade unions would lead to the kind of pay settlements that had not been possible in the past. They believed that there would be more realism, more real employment and eventually the recovery of our nation.

The beauty of the system that the Government introduced was, they believed, that there would be no messy involvement in incomes policy. Monetary policy itself would force the trade unions to settle sensibly, and cash limits would force the Government's own employees to do the same. It is clear that the Government's policies have failed to control even the settlements within the Civil Service.

So far from leading to the recovery that the Chief Secretary said would come as surely as day follows night—I am not sure why he chose that expression; it seems to be much more a case of night following day, but perhaps he did not like that thought—the Government's policies have brought about record bankruptcies. They have also resulted in the irrecoverable loss of some of our most important industries, the lack of which we shall feel in the years to come, anger caused by unemployment, and turmoil in our streets.

The retreat from monetarism is being accepted even in the august columns of the Financial Times and The Times. Even Sam Brittan, in a late recantation, looks forward to a merger of some of the views of Keynes and Friedman. It is a bit late in the day to look for that. The Times asked in a leader Where are we going? and an adjoining article said that the world's bankers were asking why monetarism had failed. We see a change among the Government's strongest supporters.

The reason has been given by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). It is that the value of the pound has contributed to our industry's 40 per cent. loss of competitiveness. Combined with high interest rates, that has created difficulties for industry at home. We have had the worst of both worlds. Instead of restriction at home forcing industry to export, which is what normally happens when there is deflation, the high level of the pound has meant restriction overseas as well. We have throttled industry, denying it home and export markets and allowing it to face overseas competition at subsidised rates because of the level of the pound brought about by this Government.

When the national insurance surcharge was introduced in 1976 it was a temporary tax. As my right hon. Friend said, the balance of trade was improving then. We have declined from what was then an extremely good level of competitiveness. The surcharge is not a tax that I like. I always compare it with VAT. It has some similar characteristics.

Mr. Brittan

If it was a temporary tax, when was it planned to abolish it?

Mr. Sheldon

The surcharge was clearly introduced in 1976 as a temporary tax. If the right hon. and learned Gentleman had taken an interest in such things at the time, he would have known the reasons for its introduction. However, he was concerned with other matters and perhaps he was not aware that agreements with the trade unions were being negotiated and consequently there were certain advantages in introducing the surcharge in that way—

Mr. Brittan

Answer the question.

Mr. Sheldon

The right hon. and learned Gentleman is interrupting from a sedentary position, although he condemned almost every one of my hon. Friends for doing the same thing. If he wishes to intervene, he will probably know that I am more willing to give way than he usually is.

Mr. Brittan

I wished to make the same point. I sought to repeat it from a sedentary position in order to remind the right hon. Gentleman that I had asked him when the previous Labour Government intended to abolish the surcharge.

Mr. Sheldon

I answered the right hon. and learned Gentleman. If he had been listening instead of interrupting from a sedentary position, he would have heard that I said that the surcharge was introduced temporarily in 1976. The Government have kept it for two and a half years, although they said that they did not like it either. However, demand can now be increased. We can now give some assistance to industry. I wonder whether the right hon. and learned Gentleman listens to the representations made to him by industry.

Earlier this year, the columns of The Times contained a letter from the CBI. The letter refers to the surcharge and states: It raises costs overall, it infiltrates into all prices … Our calculations suggest that of the total NIS burden on the private sector and the public corporations, taken together, over 70 per cent. is now accounted for by business … from manufacturing to constructing, from tourism to distribution and many more. A two per cent. cut in the charge"— we are asking only for a 1 per cent. Cut— could mean a balance of payments improvement, lower retail prices, and within two years perhaps 200,000 more jobs; most important of all, an improvement in profit levels and a consequent impact on investment. Other Budgetary measures to help industry, such as a cut in the fuel oil duty and some measures to ease the burden of rates—both high on the list of CBI priorities—would be no substitute for imaginative action on the NIS. The Chief Secretary has failed to respond to that point. The national insurance surcharge is a charge on exports, not on imports. It makes exports dearer and imports cheaper. There are also consequences in terms of cash flow. The revenues from North Sea oil are not benefiting British industry. The money from North Sea oil is largely going overseas for investment, while factories in Britain close. Part of the money also goes into unemployment pay. As time goes on and as unemployment increases, the right hon. and learned Gentleman will see more and more of the revenue from North Sea oil go into unemployment pay.

At present, unemployment pay is greater than the revenues from North Sea oil. That is the magnitude of the problem. Many years ago we had great hopes and expectations about what we would do with the enormous advantage of North Sea oil. If anyone had thought that we would squander that wealth—not by frittering it away on consumer goods alone, but by keeping people unemployed—he would have concluded that it would be impossible to have such a Government. However, we have such a Government and we shall vote against them.

Question put, That the clause be read a Second time:

The House divided: Ayes 216, Noes 292.

Division No. 269]	[9.40 pm
AYES
Adams, Allen	Callaghan, Jim (Midd't'n & P)
Allaun, Frank	Campbell, Ian
Anderson, Donald	Campbell-Savours, Dale
Archer, Rt Hon Peter	Canavan, Dennis
Ashley, Rt Hon Jack	Cant, R. B.
Ashton, Joe	Carter-Jones, Lewis
Atkinson, N.(H'gey,)	Clark, Dr David (S Shields)
Bennett, Andrew(St'kp't N)	Cocks, Rt Hon M. (B'stol S)
Bidwell, Sydney	Cohen, Stanley
Booth, Rt Hon Albert	Coleman, Donald
Boothroyd, Miss Betty	Concannon, Rt Hon J. D.
Bottomley, Rt Hon A.(M'b'ro)	Conlan, Bernard
Bray, Dr Jeremy	Cook, Robin F.
Brown, Hugh D. (Provan)	Cowans, Harry
Brown, Ron (E'burgh, Leith)	Cox, T. (W'dsw'th, Toot'g)
Callaghan, Rt Hon J.	Craigen, J. M.

Crowther, J. S.	Lestor, Miss Joan
Cryer, Bob	Lewis, Arthur (N'ham NW)
Cunningham, G. (Islington S)	Lewis, Ron (Carlisle)
Cunningham, Dr J. (W'h'n)	Litherland, Robert
Dalyell, Tam	Lofthouse, Geoffrey
Davidson, Arthur	Lyon, Alexander (York)
Davies, Rt Hon Denzil (L'lli)	Lyons, Edward (Bradf'd W)
Davies, Ifor (Gower)	Mabon, Rt Hon Dr J. Dickson
Davis, Clinton (Hackney C)	McCartney, Hugh
Davis, T. (B'ham, Stechf'd)	McDonald, Dr Oonagh
Deakins, Eric	McElhone, Frank
Dean, Joseph (Leeds West)	McKay, Allen (Penistone)
Dempsey, James	McKelvey, William
Dewar, Donald	MacKenzie, Rt Hon Gregor
Dixon, Donald	McMahon, Andrew
Dobson, Frank	McNally, Thomas
Dormand, Jack	McNamara, Kevin
Douglas-Mann, Bruce	McTaggart, Robert
Dubs, Alfred	Magee, Bryan
Duffy, A. E. P.	Marshall, D(G'gow S'ton)
Dunn, James A.	Marshall, Dr Edmund (Goole)
Dunwoody, Hon Mrs G.	Marshall, Jim (Leicester S)
Eadie, Alex	Martin, M(G'gow S'burn)
Eastham, Ken	Mason, Rt Hon Roy
Edwards, R. (W'hampt'n S E)	Maxton, John
Ellis, R. (NE D'bysh're)	Maynard, Miss Joan
Ellis, Tom (Wrexham)	Mellish, Rt Hon Robert
English, Michael	Mikardo, Ian
Ennals, Rt Hon David	Millan, Rt Hon Bruce
Evans, loan (Aberdare)	Mitchell, Austin (Grimsby)
Evans, John (Newton)	Mitchell, R. C. (Soton Itchen)
Ewing, Harry	Morris, Rt Hon A. (W'shawe)
Faulds, Andrew	Morris, Rt Hon C. (O'shaw)
Field, Frank	Morris, Rt Hon J. (Aberavon)
Fitch, Alan	Moyle, Rt Hon Roland
Fletcher, Ted (Darlington)	Newens, Stanley
Foot, Rt Hon Michael	Oakes, Rt Hon Gordon
Ford, Ben	Ogden, Eric
Forrester, John	O'Halloran, Michael
Foster, Derek	O'Neill, Martin
Foulkes, George	Orme, Rt Hon Stanley
Fraser, J. (Lamb'th, N'w'd)	Palmer, Arthur
Freeson, Rt Hon Reginald	Parker, John
Freud, Clement	Pavitt, Laurie
Garrett, John (Norwich S)	Pendry, Tom
George, Bruce	Powell, Raymond (Ogmore)
Ginsburg, David	Prescott, John
Golding, John	Price, C. (Lewisham W)
Graham, Ted	Radice, Giles
Grant, George (Morpeth)	Rees, Rt Hon M (Leeds S)
Grant, John (Islington C)	Richardson, Jo
Hamilton, James (Bothwell)	Roberts, Albert (Normanton)
Hardy, Peter	Roberts, Ernest (Hackney N)
Harrison, Rt Hon Walter	Roberts, Gwilym (Cannock)
Hart, Rt Hon Dame Judith	Robertson, George
Hattersley, Rt Hon Roy	Robinson, G. (Coventry NW)
Haynes, Frank	Rooker, J. W.
Healey, Rt Hon Denis	Roper, John
Hogg, N. (E Dunb't'nshire)	Ross, Stephen (Isle of Wight)
Holland, S. (L'b'th, Vauxh'll)	Rowlands, Ted
Home Robertson, John	Ryman, John
Homewood, William	Sandelson, Neville
Hooley, Frank	Sever, John
Howell, Rt Hon D.	Sheldon, Rt Hon R.
Howells, Geraint	Shore, Rt Hon Peter
Huckfield, Les	Silkin, Rt Hon J. (Deptford)
Hughes, Robert (Aberdeen N)	Silkin, Rt Hon S. C. (Dulwich)
Hughes, Roy (Newport)	Silverman, Julius
Janner, Hon Greville	Skinner, Dennis
Jay, Rt Hon Douglas	Snape, Peter
John, Brynmor	Soley, Clive
Johnson, James (Hull West)	Spearing, Nigel
Johnson, Walter (Derby S)	Spriggs, Leslie
Jones, Rt Hon Alec (Rh'dda)	Stewart, Rt Hon D. (W Isles)
Jones, Barry (East Flint)	Stoddart, David
Jones, Dan (Burnley)	Stott, Roger
Kerr, Russell	Strang, Gavin
Kilroy-Silk, Robert	Summerskill, Hon Dr Shirley
Leadbitter, Ted	Taylor, Mrs Ann (Bolton W)
Leigh ton, Ronald	Thomas, Jeffrey (Abertillery)

Thomas, Dr R. (Carmarthen)	Whitlock, William
Tilley, John	Wigley, Dafydd
Tinn, James	Willey, Rt Hon Frederick
Torney, Tom	Williams, Rt Hon A.(S'sea W)
Urwin, Rt Hon Tom	Wilson, Gordon (Dundee E)
Varley, Rt Hon Eric G.	Wilson, William (C'try SE)
Wainwright, E.(Dearne V)	Winnick, David
Wainwright, R.(Colne V)	Woodall, Alec
Walker, Rt Hon H.(D'caster)	Woolmer, Kenneth
Watkins, David	Young, David (Bolton E)
Weetch, Ken
Welsh, Michael	Tellers for the Ayes:
White, J. (G'gow Pollok)	Mr. Frank R. White and
Whitehead, Phillip	Mr. George Morton.

NOES
Adley, Robert	du Cann, Rt Hon Edward
Aitken, Jonathan	Dunlop, John
Alexander, Richard	Dunn, Robert (Dartford)
Amery, Rt Hon Julian	Durant, Tony
Ancram, Michael	Dykes, Hugh
Arnold, Tom	Eden, Rt Hon Sir John
Aspinwall, Jack	Edwards, Rt Hon N. (P'broke)
Atkins, Rt Hon H.(S'thorne)	Eggar, Tim
Atkins, Robert(Preston N)	Emery, Peter
Atkinson, David (B'm'th,E)	Eyre, Reginald
Baker, Nicholas (N Dorset)	Fairgrieve, Russell
Banks, Robert	Faith, Mrs Sheila
Beaumont-Dark, Anthony	Farr, John
Bendall, Vivian	Fell, Anthony
Bennett, Sir Frederic (T'bay)	Fenner, Mrs Peggy
Benyon, W. (Buckingham)	Finsberg, Geoffrey
Best, Keith	Fisher, Sir Nigel
Bevan, David Gilroy	Fletcher, A. (Ed'nb'gh N)
Biffen, Rt Hon John	Fletcher-Cooke, Sir Charles
Biggs-Davison, Sir John	Fookes, Miss Janet
Blackburn, John	Forman, Nigel
Blaker, Peter	Fowler, Rt Hon Norman
Body, Richard	Fox, Marcus
Bonsor, Sir Nicholas	Fraser, Rt Hon Sir Hugh
Boscawen, Hon Robert	Fraser, Peter (South Angus)
Bottomley, Peter (W'wich W)	Gardiner, George (Reigate)
Bowden, Andrew	Gardner, Edward (S Fylde)
Boyson, Dr Rhodes	Garel-Jones, Tristan
Braine, Sir Bernard	Glyn, Dr Alan
Bright, Graham	Goodhart, Philip
Brinton, Tim	Goodhew, Victor
Brittan, Rt Mon Leon	Good lad, Alastair
Brotherton, Michael	Gorst, John
Brown, Michael(Brigg & Sc'n)	Gow, Ian
Browne, John (Winchester)	Gower, Sir Raymond
Bruce-Gardyne, John	Grant, Anthony (Harrow C)
Bryan, Sir Paul	Gray, Hamish
Buchanan-Smith, Rt Hon A.	Greenway, Harry
Buck, Antony	Grieve, Percy
Bulmer, Esmond	Griffiths, Peter Portsm'th N)
Burden, Sir Frederick	Grist, Ian
Butcher, John	Grylls, Michael
Butler, Hon Adam	Gummer, John Selwyn
Cadbury, Jocelyn	Hamilton, Hon A.
Carlisle, John (Luton West)	Hamilton, Michael (Salisbury)
Carlisle, Kenneth (Lincoln)	Hampson, Dr Keith
Carlisle, Rt Hon M. (R'c'n)	Hannam, John
Chalker, Mrs. Lynda	Haselhurst, Alan
Chapman, Sydney	Hayhoe, Barney
Churchill, W. S.	Heddle, John
Clark, Sir W. (Croydon S)	Henderson, Barry
Clarke, Kenneth (Rushcliffe)	Heseltine, Rt Hon Michael
Clegg, Sir Walter	Hicks, Robert
Cockeram, Eric	Higgins, Rt Hon Terence L.
Colvin, Michael	Hogg, Hon Douglas (Gr'th'm)
Cope, John	Holland, Philip (Carlton)
Cormack, Patrick	Hooson, Tom
Corrie, John	Howe, Rt Hon Sir Geoffrey
Cranborne, Viscount	Howell, Rt Hon D. (G'ldf'd)
Critchley, Julian	Howell, Ralph (N Norfolk)
Crouch, David	Hunt, David (Wirral)
Dean, Paul (North Somerset)	Hunt, John (Ravensbourne)
Dickens, Geoffrey	Hurd, Hon Douglas
Douglas-Hamilton, Lord J.	Irving, Charles (Cheltenham)

Jenkin, Rt Hon Patrick	Pawsey, James
Jessel, Toby	Percival, Sir Ian
Johnson Smith, Geoffrey	Pink, R. Bonner
Jopling, Rt Hon Michael	Pollock, Alexander
Joseph, Rt Hon Sir Keith	Prentice, Rt Hon Reg
Kaberry, Sir Donald	Price, Sir David (Eastleigh)
Kellett-Bowman, Mrs Elaine	Prior, Rt Hon James
Kershaw, Sir Anthony	Proctor, K. Harvey
Kimball, Sir Marcus	Pym, Rt Hon Francis
King, Rt Hon Tom	Raison, Timothy
Kitson, Sir Timothy	Rathbone, Tim
Knight, Mrs Jill	Rees, Peter (Dover and Deal)
Knox, David	Rees-Davies, W. R.
Lamont, Norman	Renton, Tim
Lang, Ian	Rhodes James, Robert
Langford-Holt, Sir John	Rhys Williams, Sir Brandon
Latham, Michael	Ridley, Hon Nicholas
Lawrence, Ivan	Ridsdale, Sir Julian
Lawson, Rt Hon Nigel	Rifkind, Malcolm
Lee, John	Roberts, M. (Cardiff NW)
Lennox-Boyd, Hon Mark	Roberts, Wyn (Conway)
Lester, Jim (Beeston)	Rossi, Hugh
Lewis, Kenneth (Rutland)	Rost, Peter
Lloyd, Ian (Havant & W'loo)	Royle, Sir Anthony
Lloyd, Peter (Fareham)	Sainsbury, Hon Timothy
Loveridge, John	St. John-Stevas, Rt Hon N.
Luce, Richard	Scott, Nicholas
Lyell, Nicholas	Shaw, Giles (Pudsey)
Macfarlane, Neil	Shelton, William (Streatham)
MacGregor, John	Shepherd, Colin (Hereford)
MacKay, John (Argyll)	Shepherd, Richard
Macmillan, Rt Hon M.	Shersby, Michael
McNair-Wilson, M. (N'bury)	Silvester, Fred
McNair-Wilson, P. (New F'st)	Sims, Roger
McQuarrie, Albert	Skeet, T. H. H.
Madel, David	Speed, Keith
Major, John	Speller, Tony
Marland, Paul	Spence, John
Marlow, Tony	Spicer, Jim (West Dorset)
Marshall, Michael (Arundel)	Spicer, Michael (S Worcs)
Marten, Rt Hon N. (Banbury)	Sproat, Iain
Mates, Michael	Squire, Robin
Mather, Carol	Stainton, Keith
Maude, Rt Hon Sir Angus	Stanbrook, Ivor
Mawby, Ray	Stanley, John
Mawhinney, Dr Brian	Steen, Anthony
Maxwell-Hyslop, Robin	Stevens, Martin
Mayhew, Patrick	Stewart, Ian (Hitchin)
Mellor, David	Stewart, A.(E Renfrewshire)
Miller, Hal (B'grove)	Stokes, John
Mills, Iain (Meriden)	Stradling Thomas, J.
Mills, Peter (West Devon)	Tapsell, Peter
Miscampbell, Norman	Taylor, Teddy (S'end E)
Moate, Roger	Temple-Morris, Peter
Monro, Hector	Thatcher, Rt Hon Mrs M.
Montgomery, Fergus	Thomas, Rt Hon Peter
Moore, John	Thompson, Donald
Morgan, Geraint	Thorne, Neil (Ilford South)
Morris, M, (N'hampton S)	Thornton, Malcolm
Morrison, Hon C. (Devizes)	Townend, John (Bridlington)
Morrison, Hon P. (Chester)	Townsend, Cyril D, (B'heath)
Mudd, David	Trippier, David
Murphy, Christopher	Trotter, Neville
Myles, David	van Straubenzee, Sir W. R.
Neale, Gerrard	Vaughan, Dr Gerard
Needham, Richard	Viggers, Peter
Neubert, Michael	Waddington, David
Newton, Tony	Wakeham, John
Normanton, Tom	Waldegrave, Hon William
Nott, Rt Hon John	Walker, B. (Perth)
Onslow, Cranley	Wall, Sir Patrick
Oppenheim, Rt Hon Mrs S.	Ward, John
Page, John (Harrow, West)	Warren, Kenneth
Page, Rt Hon Sir G. (Crosby)	Watson, John
Page, Richard (SW Herts)	Wells, John (Maidstone)
Parkinson, Cecil	Wells, Bowen
Parris, Matthew	Wheeler, John
Patten, Christopher (Bath)	Whitelaw, Rt Hon William
Patten, John (Oxford)	Whitney, Raymond
Pattie, Geoffrey	Wickenden, Keith

Winterton, Nicholas
Wolfson, Mark	Tellers for the Noes:
Young, Sir George (Acton)	Mr. Spencer Le Marchant and
Younger, Rt Hon George	Mr. Anthony Berry.

Question accordingly negatived.

1. New Clause 2
cc1067-9
2. TAX AVOIDANCE AND EVASION 1,379 words
c1069
3. BUSINESS OF THE HOUSE 19 words
cc1069-92
4. Finance Bill 13,228 words, 1 division