Finance Bill

HC Deb 20 July 1981 vol 9 cc80-118

Order for Third Reading read.—[Queen's Consent signified.]

7.30 pm

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

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

Our debates in Committee and on Report have been wide-ranging and have quite rightly concentrated on the detail of what the Finance Bill does and does not contain. We can now take stock and look at the Bill as a whole in the context of the Government's overall economic strategy.

For many years our economy has suffered from low growth, caused by high inflation, low investment, and sluggish responsiveness to change. For many years successive Governments have failed to tackle the underlying problems.

This Government, however, are determined to tackle these problems at root. We have put at the forefront the goal of reducing inflation by responsible monetary control because by doing that we are tackling the problem that has been at the heart of our trouble. It is not a question of choosing to tackle inflation rather than unemployment. It is, rather, a recognition that past inflation has been the cause of present unemployment. To embark on a massive reflationary package such as that advocated by the Opposition would simply be to stoke up inflation for the sake of a very small, short-term improvement in the employment position, but with the ultimate consequence of unemployment at far higher levels than we are suffering today. I would be the first to agree that monetary policy by itself is not enough. The support of an appropriate fiscal policy is also needed. That is what this Finance Bill is about.

While adopting that approach in the Budget my right hon. and learned Friend the Chancellor of the Exchequer also fully appreciated that account had to be taken of the pressures and strains brought about by the world recession. The suggestion that the Government have pressed on regardless in an inflexible manner is the product of a fertile propagandist imagination rather than a reflection of what has been happening in the real world.

Mr. D. N. Campbell-Savours (Workington)

Who said that?

Mr. Brittan

I did. The hon. Gentleman should recognise the inimitable style.

That is certainly not the inflexible approach. It is certainly not how the Government's policy is seen in BL or BSC when confronted by substantial Government expenditure for both those bodies. None the less, action was clearly needed to secure a lower PSBR than would otherwise have emerged. Had the Chancellor presented a broadly neutral Budget the indications were that the PSBR would have been of the order of £14 billion this year. That would have implied the continuation of very high interest rates to fund such a borrowing requirement. Industry would have continued to be very hard pressed, with severe consequences for investment and employment.

The only way to take the pressure off interest rates, and thus help industry, was to raise taxes to cover at least some of the extra expenditure caused by the recession and already agreed to. Because personal incomes had continued to rise in real terms, despite the squeeze on companies, it was right that most of the extra revenue should come from personal taxation.

Between 1977 and 1980 real personal disposable income had risen by one-sixth, while output hardly rose at all. By our concentrating tax increases on personal taxation, industry was able to benefit from a 2 per cent. reduction in MLR as well as help on energy prices and an improved stock relief scheme.

But it is not only to the personal sector that the Chancellor has looked for revenue. The House will need no reminding that the Bill contains two new taxes—the special tax on banking deposits and the supplementary petroleum duty. Of course the bank tax was introduced with regret but the changes made to it during the passage of the Bill demonstrate my right hon. and learned Friend's willingness to be flexible in response to reasonable representations.

The new North Sea tax regime will ensure that the country as a whole continues to benefit from our possession of North Sea oil. Revenues from the North Sea make it easier for us to achieve a level of public sector borrowing that gives private sector industry a chance to borrow and invest on its own account.

The Bill also provides for a further major package of help for small businesses. Pre-eminent among this year's measures is, of course, the business start-up scheme. This is an imaginative and original scheme. Because it is without precedent in any other country, it is not surprising that there was a great deal of interest in the details when they were originally announced. We received a wide range of representations and reactions and obviously we have discussed the scheme at length. My right hon. and learned Friend was able to respond to many of the proposals put to us for strengthening it—for example, by increasing from three to five years the period during which a business qualifies as new.

We also made two significant extensions to the scheme on Report. Distributive trades are now included, and the relief has been adapted to cover the case where investment funds act as nominees so that investors can, if they wish, invest with the help of professional managers.

This is an extremely generous relief. It offers substantial incentives to those prepared to risk their capital to support enterprise, and it is clear that it is now widely welcomed. I am confident that it will make an important contribution to the problems of small firms seeking equity capital.

With this and the other enterprise measures that we have introduced since taking office we have set a climate in which, as the economy starts to come right, new and small firms can prosper and play a leading part in providing the jobs, the innovative ideas and the flexibility for the future.

Taken as a whole, the provisions in the Bill are designed to consolidate our progress in reducing the rate of inflation and to carry forward our anti-inflationary strategy. It will, of course, take time for these policies to bear fruit in terms of higher output and productivity and lower unemployment. We should not expect, nor have we ever expected, a dramatic adjustment in the economy to occur overnight. Yet, so far as the current recession is concerned, there are indications that the worst is behind us. Industrial-manufacturing output has stabilised since the turn of the year. Unemployment is still rising, of course, but progressively more slowly. Vacancies have stabilised and average weekly hours worked in manufacturing are increasing. There are signs of improved productivity—both in individual companies and in total manufacturing industry. Surveys show that business confidence is continuing to improve.

All those indicators are consistent with the forecasts we published with the Budget, and we have no reason to change our view that there will be some modest growth in output over the next 12 months or so. None of the evidence supports the Opposition's view of an accelerating decline in output.

None the less, the Opposition call for a policy of massive reflation. Night after night in Committee upstairs and on the Floor of the House they have endeavoured to press upon us a succession of amendments that would have deprived the Exchequer of vast sums of revenue. The consequence would have been a huge increase in public borrowing. That could have led only to a damaging collapse of financial confidence, higher interest rates and a reversal of the success that we had in the past year in bringing down the rate of inflation. Above all, except in the shortest run and to a very limited extent, it would not have improved the employment situation.

The right hon. Member for Stepney and Poplar (Mr. Shore) presents his call for reflation comparatively modestly, but the leader of the Opposition is more ambitious, though characteristically more vague. He talks in terms of a reflationary package of £6½ billion. However, it would be wrong to be unfair to the right hon. Member for Ebbw Vale (Mr. Foot), because he recognises that there are certain difficulties in following such a policy. Indeed, he said in Cardiff on 4 July: Of course, this would only be the start, and such a planned policy of expansion does have implications for our balance of payments, does pose problems of how we are to overcome the kind of bottlenecks in industry and the inflation we have known in the past. The right hon. Gentleman recognises to the full the problems presented by the policy of reflation which he was advocating so generously.

What is the right hon. Gentleman's answer to the problem that he analysed so candidly? It is an interesting but not particularly illuminating answer. Having outlined the problems that would be caused by the policy that he is advocating, the right hon. Gentleman gave his answer: These and all kindred problems we are examining afresh with our trade union colleagues. I do not find that an illuminating answer. It is a sad reflection of the shallowness of the official Opposition's diagnosis of the problem that they put forward their prescription, recognise the problems, but have only those few hollow and shallow words in answer to those problems.

Of course, our problems remain extremely serious. They have taken decades to develop and it would be astonishing if we had been able to overcome them in a couple of years. But the foundation has been laid for a return to prosperity and to steady growth. Inflation has been checked. There is encouraging evidence of greatly improved productivity. Above all, attitudes are changing—to pay, to industrial relations, to working methods. There is a growing awareness that living standards depend on co-operating to make our industry competitive once more. That is the course to which we must adhere. It is Britain's only hope for a sound economy in the future.

Lord Vaizey wrote in a letter published in The Times today: The present Government's policy … has one central feature … It is to make business more efficient by making it more competitive. Nationalized industries, big business, trade unions, public regulation—all unite to weave a web of restriction in which economic progress cannot be made. It is a heroic task to sweep this web of restriction away. Initially, as it is done, people lose their jobs. But if the attempt is successful (as it was in Germany after 1948) millions will get better jobs.

Lord Vaizey put the problem succinctly and well.

The objection to a radical change of course now is not that it would involve a U-turn or mean eating our words. The future of our country is far too serious a matter for me to regard either of those considerations for one moment as a serious reason for refusing to change tack if that would really give this nation new hope or new opportunities. But I am profoundly convinced that it would not. It would mean giving up the one serious attempt to tackle our deep-seated problems at their very root. It would mean throwing away the sacrifices of so many people just when those sacrifices are enabling us to emerge from recession with a real prospect of stable advance instead of continuing the steady slide downhill which has lasted for so many sad long years.

To relax now would be the easy way out. It has been followed often enough in the past. That is precisely why things are so difficult now. It is why the process of tackling our basic economic problems has become so painful and so protracted. But it is also why it is so vital not to abandon that task now. The Bill does not do that. It carries the task forward realistically and courageously. That is why it should be read the Third time.

7.45 pm

Mr. Peter Shore (Stepney and Poplar)

We have reached the final stage of the Third Reading of the 1981 Finance Bill. Having heard the Chief Secretary's speech, I am inclined to say "Thank heavens that we have reached this stage". I do not think that I could bear to hear another speech so full of complacency, wishful thinking, shallow thinking, and exhausted clichés as that to which we have been subjected for the past 15 minutes.

The Third Reading comes four months after the Budget Statement and three months after the Second Reading. In spite of debates on the Floor of the House, the most diligent and searching examination of the Bill upstairs in Committee, on the conduct of which I warmly congratulate my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and the Opposition Front-Bench and Back-Bench team, and two long days and nights on Report, the Bill in its final form is little different from the version presented to us just over three months ago.

Indeed, the only change that deserves a mention is that the Chancellor backed down on derv and halved his original proposed increase in duty, but promptly recouped the £85 million involved by a further impost on tobacco and an increase in a number of betting and gaming taxes.

The Chancellor can, for what it is worth, rightly claim that his Budget is intact. He is still seeking to raise the £3,600 million of additional revenue that he originally proposed and he is raising it in almost exactly the same way as he set forth in his Budget Statement. The taxpayers of this country have been cheated of even a partial uprating of tax allowances to take account of last year's inflation, in spite of all the pledges and promises that the Treasury team have given.

Those who drink, those who smoke and those who drive will pay an additional £2,000 million in taxation. The unemployed and the families of those on strike receiving social security benefits are brought into the tax net, while those at the opposite end of the income scale will benefit from the virtual destruction and gutting of capital transfer tax.

But if the content of the Bill has survived virtually unscathed during the past four months of debate, the economic environment into which it was originally launched and the assessment of economic developments during the next 12 to 18 months have changed substantially. The Budget is, as I hope to show shortly, already obsolescent, even within its own terms of reference, and totally unrelated to the needs of the nation.

The Chancellor of the Exchequer had the courtesy to inform me that he would not be here for the debate. With the Ottawa conference under way the House will readily understand why he cannot be with us. I only hope that he will not urge on his American counterparts the same disastrous high interest rate policies as he inflicted on us during last year. Secondly, I hope that we shall have an outcome from Ottawa that is less disastrously sterile from the point of view of world output and trade than was the Venice summit just a year ago.

During the course of these protracted debates the absence of the Chancellor has been a noteworthy and recurring phenomenon. It is as though he has become a fugitive from his own economic decisions. Although, as a consequence, we have not been able to debate directly with him since his winding-up speech in the Budget debate nearly four months ago, we learnt from the Chief Secretary in the Ways and Means debate on 6 July that nothing had changed in the real world of the economy to make the Chancellor alter his Budget judgment and, in particular, the size of the public sector borrowing requirement at £10½ billion. We had it on the Chief Secretary's authority that The Chancellor's view is that nothing has happened since that date to invalidate that judgment". I beg to disagree.

I refer the Chief Secretary to his statement on Second Reading on 13 April, when he gave his reasons for believing that the Budget measures enable us to look to the coming year with greater confidence". Among the encouraging signs to which he then directed us—I agree that he has produced one or two more today, but let us take the ones that he produced three months ago—was the fact that Output is likely to be on a rising trend over the coming financial year 1981–82. That, according to the Chief Secretary, was not just a Government forecast … reputable outside forecasters also see prospects of recovery".

The Chief Secretary reinforced his optimism by the behaviour of indicator series published by the Central Statistical Office. Longer leading indicators have been rising since November 1979, shorter leading indicators since November 1980 and coincident indicators have levelled out since last November".

Then there was the anecdotal evidence from industry, and the fact that housing starts rose sharply in January and in February". Finally, as he put it: There is hard evidence that the fall in output may be over … 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.".—[Official Report, 13 April 1981; Vol. 3, c. 37–38.]

At the time I thought that the cupboard must be pretty bare for the Chief Secretary to be clutching at so many fragile straws. That is precisely the impression that I got today when listening again to the assembly of inconsequential material with which he sought to fortify his renewed and revived optimism.

How do the scraps of evidence that were served up three months ago look today? First, we know that the Government have received a further short-term forecast—the Treasury June forecast. As that has been leaked to most of our serious newspapers, and as their accounts are virtually identical, I see no reason why we should challenge what they say. According to The Times The Treasury expects manufacturing output to go on falling and thinks that the country's total production will remain broadly stagnant between now and the end of 1982". The general view of outside forecasters about the outlook for the growth of industrial production and the GDP is shared by such authoritative forecasters as the OECD, the Brussels Commission and the National Institute.

What about the key indicators published by the Central Statistical Office? The main indicators, as the Chief Secretary knows, were published last week, on 16 July. The coincident indicator, which is supposed to show the current position, has fallen for two months running, after flattening out last winter. The longer leading indicators have shown a fall in the latest month, the first decline since last summer. Thus, both the key indicators published by the CSO, which gave the Chief Secretary such comfort in the April debate, are now showing the opposite trend to that which they showed three months ago.

Then there are the housing starts. We now know the figures not just for January and February but for March, April and May. I remind the Chief Secretary of what they indicate. In the past three months housing starts have been 4 per cent. down on the previous three months, and 14 per cent. lower than they were during the corresponding three months of 1980.

Lastly, we have the latest figure for the index of industrial production. As I said in the last debate, they do not show any rise. Indeed, they showed a small fall both in manufacturing and in total industrial output for the third month running.

Next, there is inflation, the falling trend of which gave the Chief Secretary such confidence on 13 April. He told us on that date that the underlying rate is … not much more than 10 per cent. Moreover, inflation is forecast to fall into single figures early next year."—[Official Report, 13 April 1981; Vol. 3, c. 37.] I wonder whether the Chief Secretary would care to repeat that forecast now. Is it not true that the Treasury's June forecast now shows inflation continuing in double figures throughout this year and most of next, with at best a fall to about 9 per cent. at the end of 1982? How far has even the Treasury's June forecast taken account of the recent overall depreciation of the pound against other currencies, which must add roughly 2 per cent. to the rate of inflation?

My last query concerns the vital matter of unemployment. The Treasury has always been reluctant to give estimates of the unemployment rate. Nevertheless, the public expenditure White Paper, published at the time of the Budget, gave the Government unemployment assumption for 1981, at 2½ million, and 2.7 million for next year.

In an earlier debate I drew attention to the fact that in June the Treasury had instructed the Government Actuary to revise upwards the 1981 unemployment rate to 2.6 million. However, I believe that that, too, is an underestimate. Tomorrow's monthly figures, as the Department of Employment made haste to inform us, will be inflated by the effects of the Civil Service dispute, which has meant that a number of those who have left the unemployment registers will not have been recorded as such. Meanwhile, the bulk of school leavers will be joining the register now that the school term has ended.

Nevertheless, I think that we are in for a shock tomorrow. The latest Treasury forecast—the June forecast—indicates that unemployment is now heading towards the 3 million mark, and, worse, that it will rise above it, and that there is no indication of any fall in 1982.

I have rehearsed this evidence of the present situation and our future outlook to underline my claim that the Budget—and the Finance Bill, which seeks to express the Budget judgment—is, clearly, four months later, obsolescent. In so far as it was designed to connect with the real economy, the evidence shows that it no longer fits. It is clear that with higher than estimated unemployment and lower than estimated output, public expenditure is bound to increase. I reckon that the cost of employment measures added to it will swell the outturn of the PSBR.

While I do not believe that the Treasury will seriously wish to contest what I have said, I do not think that the new evidence will make the slightest difference to the behaviour of Ministers. We are not dealing with a Government who are moved by evidence, compassion or reason. We are dealing with a Government who are themselves governed by dogma. The figures for unemployment, output, inflation and the balance of payments are not at the centre of their thinking. What matters to them is the money supply and the PSBR. The Bill is designed to achieve a particular outturn PSBR and to reinforce money supply restraint within the target figure of 6 to 10 per cent. The money supply and the PSBR have become the totem and taboo of the primitive monetarist sect which now dominates the Treasury. That is an apt analogy.

According to the Encyclopaedia Britannica, totems in primitive societies were considered to have superhuman powers and abilities … objects of awe and fear. Though it is generally agreed that totemism is not a religion, in certain cases it can contain religious elements of varying degrees, just as totemism can appear conjoined with magic. That is certainly the position that money supply, M3, occupies in the mind of the Government.

Equally, taboo, when applied to the customs of primitive peoples, may be defined as prohibition against certain kinds of behaviour, violation of which is believed to be punished automatically by supernatural means. That is very near to the Government's approach to the PSBR. We saw that clearly when it was violated by the impious decision to lower the tax on derv, a move that had to be punished automatically by the introduction of immediate and equivalent fiscal penalties.

Mr. David Winnick (Walsall, North)

On Friday's television programme "Newsnight", the Minister of Agriculture, Fisheries and Food made a clear criticism of the Government, though obviously in more guarded terms than those of my right hon. Friend. He warned that the Government should beware of economic dogma and the rest. It is interesting to note that no reference has been made by any Minister or Government supporter to that comment.

Mr. Shore

My hon. Friend is right. The truth is—and it will come to be recognised, because it will come out—that what I have described as the primitive monetarist sect which at the moment dominates the economic Departments and No. 10 in no sense represents even the majority view of Conservative Ministers. That will be clear for the record and for history, although it is the last thing that Treasury Ministers would dare to concede today.

It is one thing for the Government to worship the money supply totem and to venerate the PSBR taboo. It is quite a different matter when it comes to imposing these primitive beliefs on the men and women and the diverse institutions that make economic events in the country.

Last year the PSBR taboo was broken to the tune of £5 billion, when the outturn reached £14 billion against a Budget target of £8½ billion. This year, the evidence is already plain that the PSBR will again be higher than the sum for which the Government budgeted. The Government already face new and large demands for additional public expenditure. No one in his senses can doubt that large expenditures will be needed if the Government's promise of job training or work experience for all of this year's school leavers is to be achieved.

The £1,000 million package proposed by the Secretary of State for Employment to alleviate unemployment, especially for the young, is, we now know, still being discussed in the Cabinet. The events of the last few weeks in our cities have given the argument for such measures additional strength and urgency. This will come on top of the additional costs arising from higher unemployment and the additional financing for the National Coal Board and British Telecom, which has been announced since the Budget debate.

This autumn, when the present public expenditure exercise is resumed, the Government are committed to seek further cuts to reduce next year's PSBR along the lines of their medium-term financial strategy. I do not believe that further significant cuts will prove to be possible. If in some way they were achieved I do not believe that there would be any net saving in public expenditure arising from them. Further cuts are bound to have an impact upon other public expenditure programmes, including the financing of still higher unemployment. It will largely wipe out any apparent reductions in public expenditure.

As for the M3 targets, as I remarked during our last debate, there is a statistical fog which has followed from the Civil Service dispute. But here again I recall the outturn of last year. Then, M3 was supposed to fall within the range of 7 to 11 per cent. That was the most important objective of Government policy. In the event, it was almost double the top figure of the range. I shall be surprised if there is not a substantial overshoot in this year's 6 to 10 per cent. target.

All this must matter enormously to the Government and, I assume, worry greatly Treasury and other Ministers. They have said little about these matters in recent months and recent debates. Since I venerate neither totem nor taboo, the money supply and PSBR figures cause me little unease. I am much more concerned about the real indicators—unemployment and the output of our economy. But I am concerned with M3 and the PSBR, in that they are likely to influence the Treasury and to lead Treasury Ministers to still more damaging economic policies.

The Third Reading of the Finance Bill sets the seal on yet another year of economic failure and mismanagement. During the Second Reading debate on 13 April the Chief Secretary told us that the Government had two major objectives: first and foremost, to reduce inflation; secondly, to improve the supply side of the economy.

I have already described the outlook for inflation. For the supply side of the economy, it is clear that the Government have no policy. Here again they are the prisoners of dogma.

In a speech to the St James's club in Manchester last Friday the Chief Secretary spelt out in some detail what he meant by "supply side policy". He said that it was, in essence, to remove unnecessary distortions to market forces and to allow the invisible hand of the market to replace the visible hand of bureaucracy.

While all our competitors are trying their utmost to identify the growth industries in the 1980s and 1990s and to take Government action to assist their industries to exploit the opportunities of the future. Britain, under its present mangement, is doing its utmost to pull out of Government intervention in industry—to denationalise as much of the public sector as they can. These policies have not worked and will not work. There is a deficiency of demand in the British economy, and that deficiency has been increased enormously by this fiscally deflationary Finance Bill. Industry will not invest unless there is a reasonable prospect of selling its output, and with output as far below capacity as it is today the prospect of increasing investment is remote.

I do not know what further misfortunes must befall the British people and the national economy before this stubborn Government and their primitive economic doctrines are overturned—but overturned they will be. This is a bad Finance Bill, embodying as it does a perversely wrong Budget judgment about the needs of our economy. It is a Bill which not merely accommodates itself to the record unemployment level which existed in the early spring of this year but increases that unemployment deliberately by reducing purchasing power by a further £4,000 million.

The Government's excuse is that they must deal with inflation first, as we heard yet again today, and that we cannot have increasing employment unless and until we tackle inflation. There is no evidence for that assertion. While inflation has harmful social and economic consequences, experience here and in many other countries over the years has shown wide differences in growth rates and in unemployment and inflation levels. Germany has had low inflation and high output for many years. Italy, Japan and Brazil have been traditionally high inflation and high growth countries. Switzerland is a low-inflation and low-growth country. There is no simple relationship between growth and inflation. Against that background it is no good the Government pretending that they are as concerned about unemployment as the Opposition are. It is sheer hypocrisy for them to make such a claim.

The country is crying out for a change of policy, for measures that will reduce, not increase, unemployment generally and youth unemployment in particular, for measures that will increase investment in worthwhile projects in both the public and private sectors of industry, for substantial housing and infrastructure investment, and for the renewal and revitalisation of our decaying and tense inner cities.

The Finance Bill and the economic policy that it seeks to serve denies the real needs of the people and the economy. For these reasons, the Opposition will vote against the Third Reading.

8.9 pm

Mr. Peter Hordern (Horsham and Crawley)

The right hon. Member for Stepney and Poplar (Mr. Shore) indulged in a good deal of hyperbole. I am not clear from his remarks what his own prescription for our economic difficulties is. He said about my right hon. and learned Friend the Chancellor of the Exchequer that he was following a policy which involved the admiration of a totem pole so long as it was not taboo, but I am not clear which totem pole the right hon. Gentleman and the Labour Party are worshipping. He was critical about our level of interest rates and of the level of United States interest rates, but I was surprised when he ignored the fact that interest rates in France are a good deal higher than they are here. We are not a high-interest rate country at all.

I do not know what the right hon. Member would do if he were in the position of my right hon. and learned Friend, but if he were to reduce interest rates I assume that he would also increase the amount of money that the Government needed to borrow. I cannot see how the two would go together. The right hon. Gentleman was not anxious to spell that out this evening.

It is time that the Opposition made it clear, when talking about reviving our industry and our city centres, just how the money can be found. Is it by additional borrowing, taxation, or by printing money? All three have been tried. I notice that the Leader of the Labour Party has joined the ranks of those who say that they will cut taxes, so additional taxation is not open to them.

The Opposition would not borrow additional money because they must know that interest rates would rise significantly. They are left with only one alternative, and that is to print more money. That exercise has been tried before with the most disastrous results for inflation. Is that what the right hon. Gentleman is suggesting the Government should do? It is time that the Opposition spelt out their policies. I do not think that the Leader of the Opposition cares to spell out economy policy in any great detail or clarity. It is not possible to accept his statement that taxes can be reduced while at the same time not increasing borrowing.

The right hon. Member for Stepney and Poplar did not say what policy the Opposition would adopt to control inflation. He never mentioned his affection for a prices and incomes policy—that is the policy of the Social Democratic Party. He keeps very quiet about that. Now, when he is quite safe with the right hon. and hon. Members who are sitting behind him—there are very few of them—he could have spelt out his policy. However, he would not say that he believed that the only possible policy was that of prices and incomes. I am looking forward to the day when that policy is properly spelt out. I doubt that we shall hear it soon.

Dr. Jeremy Bray (Motherwell and Wishaw)

If the hon. Gentleman feels that a prices and incomes policy is a viable alternative to the monetary targetry in which the Government have been indulging, does he regard the Chancellor's talk of a national cash limit and the Chief Secretary's talk about targeting on GNP—national income—as indicating that the Government are making a gradual movement in the direction of an incomes policy?

Mr. Hordern

The hon. Gentleman is one of the nicest Members in the House. He always takes the charitable view that hon. Members share the same indulgent view of the prospects of the economy that he holds. I have not believed in a prices and incomes policy for many years. Experience has shown only too clearly that it is a disastrous policy.

Mr. Bray

Do the Treasury Ministers believe that?

Mr. Hordern

I do not sit on the Front Bench. The Treasury Ministers are capable of answering for themselves. I have observed no indication of a prices and incomes policy—I hope that there will not be one—save for the public sector, which is a different matter. It is of the greatest importance that wages and salaries should be controlled in the public sector. I do not know who, other than the Government, can be responsible for controlling them. The problem is not only the level of salaries—which was exacerbated by the level of settlements for which the Labour Government were responsible under the awards of Professor Clegg—but the number of people recruited, even by this Government. That has been taking place for 20 years. There has been a continuous growth in recruitment in the public sector, especially the National Health Service. In 1960, 21 years ago, 575,000 people were employed in the National Health Service. In 1980 there were 1.2 million. That number grew last year by 25,000.I have no doubt that the figures will show a further increase this year. Furthermore, the Secretary of State for Social Services has no intention even of inquiring into the purpose of that recruitment. Therefore, it will continue until something is done.

The additional cost of wages and salaries in the NHS last year was £980 million. I do not think that it is possible to defend such an enormous increase in one year. It would have been a great deal better had we spent some of that money on construction and capital expenditure rather than current expenditure. Nor, I regret to say, is it only the NHS where recruitment has continued to advance quickly for very many years. It has happened in the education service. I find it remarkable that among those who serve in that area, who neither lecture nor teach on a part-time basis, the number increased from 93,000 20 years ago to 475,000 today. I do not need to be persuaded that there is considerable scope for reduction in current public expenditure if the Government will only seize the opportunity of stopping continuing recruitment in the NHS and other areas of our economy. That will provide an opportunity to increase capital expenditure, which Britain so badly needs.

Mr. Campbell-Savours

The hon. Gentleman criticised the NHS for hiring additional people during the past 12 months. Does he accept that his policy would mean a reduction in the number of nurses and doctors, and perhaps even the closure of hospitals, in his constituency? Does he think that his constituents elected him to promote that policy?

Mr. Hordern

The hon. Gentleman must try not to be too absurd. I am suggesting that there should be a curb on recruitment in the NHS. It is quite unreasonable to cut the services in the NHS—which is happening—and at the same time to continue to increase the numbers employed, especially the number of administrators. The proportion of administrators to doctors has doubled during the past 10 years.

One concern should be the level of capital expenditure in the public service. I should like to see that increased as long as it is done within the confines of the PSBR generally. There is a strong argument, which my right hon. and learned Friend the Chief Secretary put forward, about the element of what is called crowding out. If the public sector needs to borrow too much money there will be less money for the private sector to borrow, and if it can borrow it will be at advanced rates of interest. I do not think that the argument about crowding out is as straightforward as has been suggested.

I have observed that the institutions that provide funds for investment and Government are at the same time, quite properly, investing considerable sums of money abroad. Last year they invested £2,000 million aboad. It is strange that, for example, the Prudential should invest enormous sums of money in the American Telegraph and Telephone Company and the Hong Kong Light and Power Company, without being able to invest in, for example, the Electricity Council if it wished to build nuclear power stations. It is strange that the institutions can invest in such companies without investing in telecommunications in Britain—for the simple reason that that industry happens to be in the public sector. I do not wholly accept the crowding out argument, but I accept my right hon. and learned Friend's argument, which he put forward strongly, that we cannot allow such industries to be financed from outside and yet retain an element of Government guarantee. I am firmly of the view that investments in the telecommunications industry—and perhaps in British Rail, although I am not convinced of that—should be allowed. If they are not to be denationalised, at least they should be privatised so that the majority stake can be sold outside and a genuine element of risk imported. I hear my right hon. and learned Friend ask "How?"

Mr. Brittan

I did not.

Mr. Hordern

I am so sorry, but if my right hon. and learned Friend wishes to know how, I refer him to an article that I wrote in The Daily Telegraph a short time ago. I genuinely believe that there is some method of financing such investment, and that a way should be found of doing this. I cannot believe that it is right for a Conservative Government to spend most of their capital expenditure on trying to prop up the steel industry and the ailing motor industry without allowing any money to be available to the telecommunications industry or some of the more progressive parts of industry that happen to be within the public sector. I hope that my right hon. Friends will consider these matters during the coming year. Such investments should not be ignored solely because they happen to lie within the confines of the public sector. The answer is to get at least part of them out of the PSBR, to let them be financed and to let them find their way in the market.

8.20 pm

Mr. John Horam (Gateshead, West)

The fundamental message of the Finance Bill is one of deflation at a time of severe slump. The equally clear message of the Warrington by-election is that that is unacceptable to the British population. The second clear message from Warrington is that the absurd economic policies of the Labour Party are also unacceptable.

Mr. Campbell-Savours

We won the by-election.

Mr. Horam

I remind the hon. Member for Workington (Mr. Campbell-Savours) that there was a 23 per cent. swing against the Labour Party and to the Social Democratic Party, with Liberal Party support. People are clearly turning to the sensible reflationary measures outlined by Roy Jenkins during his campaign.

We need, for example, a worthwhile programme of investment in public industries. I am glad to note that the hon. Member for Horsham and Crawley (Mr. Hordern) has grasped the point about crowding out. It is one that his colleagues on the Treasury Bench ought to have grasped a long time ago. It has been made repeatedly by many commentators and I am sure that it is valid.

Of course we should choose our public investments with care. Like the hon. Gentleman, I am sceptical of some of the more fashionable suggestions. British Telecommunications is a example that the hon. Gentleman cited and is one which I support. There are smaller companies engaged in high technology, such as Nexus and Inmos. These companies are helped by the National Enterprise Board. They are sensible candidates for more public investment. That policy could be embarked upon with a probability of its showing a good rate of return. Indeed, it could meet the rate of return put forward by the Treasury. I have no doubt that 5 per cent. would be achieved by most investments of that sort.

Secondly, we need a major programme of housing renovation. Shelter calculated recently that the number of unfit houses has increased from about 2.5 million in 1980 to around 3.5 million now. That is where the Government's cuts have hit hard. Their effect on the housing programme will have serious social consequences. If we invested in housing, the effect on imports would probably be less than in any of the other areas that have been mentioned.

Thirdly, it is apparently beginning to be accepted by the Government that we need a package of measures to help the 16 to 18-year-olds. More Government financial assistance is needed for the industrial training boards. The Government should be thinking not of pulling out, but of re-inforcing their help for the boards.

We must ensure that youth employment and youth opportunities schemes provide more real traning. So few of the schemes have a real training element, and so few of the young people who take part in the programmes have something that they can use after they have left the programmes. Grants could be given to employers to take on more apprentices. We should be concerned about the decline in the munber of apprentices and apprenticeship schemes. We can do much in that area for the 16 to 18-year age group.

Fourthly, we could do a great deal in direct job creation for those who have been unemployed for more than six months. We must not forget that about 1 million have been unemployed for this length of time. It is perfectly feasible to encourage private employers to take on those who have been unemployed for six months or more. It costs the Government about £70 a week to keep each unemployed person on the dole. That money could be used as a grant to help employers take them on as additional labour.

Fifthly, some of the social services, especially those that rely on female labour, could be re-expanded. I am thinking, for example, of home helps. To re-expand that service would be sensible from an employment point of view. It would help to keep down costs within the public sector. It would also be beneficial to the elderly, who face severe problems as a result of many of the measures taken by the Government over the past two years.

In the five areas to which I have referred, which are similar to those to which Roy Jenkins drew attention at Warrington, we have a sensible reflationary, job-oriented package. We calculate that it would cost about £3 billion over 12 months. If it were run for two years it would cost about £6 billion. That level of reflation could be afforded without taking exceptional risks in terms of inflation and the balance of payments. I think that we could probably go further than that in a policy of reflation, but I accept that if that were done we would need a tough incomes policy to accompany a further degree of reflation.

The measures that I have indicated in the five areas to which I have referred could be implemented while continuing with present policies without unacceptable risks of inflation and an unhealthy balance of payments. If we were to go further, we would have to have a severe incomes policy to contain the inflationary effect and the balance of payments effect. I am glad to see that the hon. Member for Motherwell and Wishaw (Dr. Bray) appears to accept that.

Dr. Bray

I take it that the hon. Gentleman is advancing his view. Presumably the inference to be drawn is that this is not the Social Democratic view but the Liberal view.

Mr. Horam

No. I am not making a speech on behalf of the Liberal Party; its members can speak for themselves. I was saying that beyond the programme that Roy Jenkins set out in Warrington I feel that we could afford more reflation. However, in my view we would require a tough incomes policy to accompany it. In the absence of such a policy the risks would be unacceptable. I was interested to note that Lord Kaldor was arguing in these terms only recently. He seems to have changed his tune somewhat on import controls. He is now arguing for a tough incomes policy.

The programme that I have outlined made sense to the electors of Warrington. What would be wrong in the present circumstances would be to embark on the wild splurge of reflationary measures outlined by the Leader of the Opposition in Cardiff. The right hon. Gentleman attached no bill to that programme. Various attempts have been made to estimate what it would cost. One estimate is £15 billion. That was from the Conservative Party and is perhaps slightly biased. Another estimate was by an economist working for a television company, and therefore perhaps slightly more independent-minded. That estimate was £22 billion.

That sort of figure is fantastic and absurd, and would lead to the level of inflation that the Leader of the Opposition faced when he was Secretary of State for Employment in the early years of the last Labour Government. Inflation would be at 25 or 27 per cent. if we went in for that sort of wildly reflationary approach. That would be ridiculous in terms of any sensible, controlled reflation of the economy.

It was clearly the view of the electors of Warrington that that policy was not acceptable. Moreover, the Labour candidate there clearly insisted that he was fighting on the policies of the Labour Party. [Interruption.] I have indicated clearly what my programme costs. It is the Labour Party which always refuses to indicate the costs of its programme. The electorate of Warrington rumbled the Labour Party and swung heavily against it. Never in the history of party politics has a programme been so expensive, so ill-conceived and so unappreciated.

8.30 pm

Mr. Hugh Dykes (Harrow, East)

Earlier in the speech of the hon. Member for Gateshead, West (Mr. Horam) we saw just the beginnings of a real row breaking out between the former Labour Party and the new Labour Party, if I may use that title.

Mr. Horam

The SDP is not in any sense the new Labour Party.

Mr. Dykes

I stand corrected on the title of the new formation. It will all have to emerge later, in order to clarify the understanding of people here about the SDP, so that we may know in a little more detail what some aspects of SDP policy will be. We have had a glimmering tonight of the campaign speeches of the party's candidate in Warrington. Certainly the former Labour Member for Gateshead, West—now the SDP Member—was right in saying that the old Labour Party has no recipes whatever to give to this country or to this House to solve the problems of the British economy.

The whole context and background of the debate—and, I suppose, the whole necessity for severe Budgets in recent years under the Conservative Government—has been that years of decline were injected into the British economic system by Labour policies of one kind or another. I cite mostly the disastrous, wasteful and useless nationalisation that the Labour Government insisted on inflicting on a hapless British economy at a time when no one wanted it.

In the previous debate, on the EEC budget, the right hon. Member for Stepney and Poplar (Mr. Shore) said, as usual, how terrible it was that our net contribution to the budget was £500 million-plus. Yet previous Labour Governments, from 1964 to 1970 and from 1974 to 1979, spent, at current prices, more than £10 billion on wasteful, useless nationalisation, mainly of industries such as steel, which are now in a parlous state and, coincidentally, producing a deficit of about the same size as our current net contribution to the EEC budget.

When the Labour Party—ailing, flaccid, quasi-Marxist and worn out with its own internal arguments—has the impertinence to put to the House any economic solutions, the whole House will collapse in laughter. I am sure that that must have been the reaction in Committee whenever Labour spokesmen put forward any so-called constructive ideas. They have nothing to propose or suggest to the House.

At least one was able to listen with interest to the new party, the SDP, and perhaps we shall hear the Liberal spokesman, if he catches your eye, Mr. Deputy Speaker. They perhaps have some new ideas about the British economy, but there is nothing at the moment from the official Opposition. After last week's by-election result one wonders how long the Labour Party will remain the official Opposition.

There have not been any very significant changes in the Finance Bill, but those that have been made are welcome improvements. I have in mind, for example, the changes in the agency workers' clause and in the business start-up scheme. The documentation on the scheme remains extremely complicated. I suppose that it is too late to hope for simplification of the text. None the less, the fact that collective entities can now join in the start-up scheme is a very good development.

I so should like to make one point in connection with VAT. It is a special one relating to small shopkeepers and those in the category of repayment traders. It may have been debated in Committee. I am thinking particularly of pharmacists who may have a very high prescription content in their businesses.

I have been in the Chamber all day and may be out of touch with the latest news, but if the civil servants are now to end their industrial action and accept the Government's latest offer I plead with my colleagues, the Treasury Ministers—and in particular with the Minister of State, who is to reply to the debate—to bear in mind the severe plight of people in the category to which I have referred. I have several local cases and I shall be sending the details of one to the Department.

Pharmacists who have a high prescription ratio can easily end up—as some have done—being absolutely stripped cash, on the verge of bankruptcy and having to overdraw at high interest rates from the banks to support their cash flow deficit because the Customs and Excise has not made the VAT repayments. Pharmacists have to pay VAT on their inputs, but not on the outputs if they are prescriptions and other registered transactions within the National Health Service. That is only one example, but a severe one, on an important category of small trader. If the civil servants are to return to work quickly I hope that the Customs and Excise will make the repayments speedily, without any further undue delay—or will at least make ex-gratia payments of a significant size to bear the interest charge equivalent to people in the worst plights, depending on the evidence, and perhaps with independent attestation. That may be a small point, but it is so important that I register it and I hope for an answer tonight or at least in the near future.

I come now to perhaps the most important part of any Third Reading debate on a Finance Bill as traditionally encapsulated in the House—the economic situation. I do not think that I shall be misunderstood on the Conservative Benches if I reiterate in a fairly mild form—because we understand how difficult it is to run the British economy, which is awkward to administer—my feelings of at least relative dismay at the nature and tenor of this Budget. There was a substantial impression that a huge amount of additional deflation at this time was wrong. I can understand why my right hon. and learned Friend the Chancellor of the Exchequer thought that it was necessary. His main priority was to try to control the public sector borrowing requirement upsurge and the money supply. I have deep sympathy for my right hon. and learned Friend because it is not his fault. It is just an irony of the operational characteristics of the economy and the public sector that things have not worked out like that, even if his intentions were good.

My right hon. and learned Friend the Chief Secretary is extremely resilient and a first-class member of the Front Bench. I know, therefore, that he will not burst into tears if I say that I thought that some of his remarks were slightly complacent. A worrying economic situation is developing, and it is not merely registered by the perhaps more extreme theatrical utterances of people such as William Keegan, in The Observer. It has also been mentioned in other papers, including Sunday newspapers that have supported the Conservatives strongly in recent years on the main tenor of the Government's strategy—the reduction of inflation. I think that all hon. Members would still support that as the priority.

However, as time goes on, the other priority of unemployment begins to rise. When does it pass the priority of inflation? Perhaps not yet, but it probably will do so in the near future, on current indications and patterns—

Mr. Austin Mitchell (Grimsby)

It did, in 1980.

Mr. Dykes

Bearing in mind my earlier remarks about the Labour Party's ideas on the economy, this economic debate is confined to the SDP, the Liberals and the Conservative Party. The Labour Party has nothing to contribute on these ideas. By definition, it is the party of inflation, so I do not have to listen to sedentary comments from that quarter.

There is a worrying scenario developing whereby it may be difficult to achieve a significant additional reduction in the rate of inflation. That is what the indicators are likely to bear out. If that is so, it is not right just to continue with a reiteration of the old message. It is a cardinal and respectable tenet of Tory philosophy, in Opposition as well as in Government, to adjust policies as time goes on in a pragmatic and empirical way to deal with the new development of economic problems. The combination is therefore giving rise to anxiety in many quarters, including, of course, among captains of industry. There is a disturbing combination of a fall in output and a progressive rise in unemployment, and an indication that inflation may be beginning to rise again, although the Government are determined—we respect and support them wholeheartedly—to try to continue the reduction in the rate of inflation. Now we have this latest anxiety of a renewed rise in interest rates.

Although I accept the extreme difficulty of measuring these things properly, I believe that the margin of spare capacity in the British economic system is large in all respects—in human and capital resources. It is an unprecedentedly large margin, at least in the post-war period, and we have to go back to the 1930s to see similar percentage figures. If that is so, and if there is manifestly no demand pull inflation in the system, it is possible to take respectable expansionary measures of one kind or another—the House needs a separate debate on what they could be in more detail—without giving rise to an increase in the rate of inflation at the margin. Indeed, in so far as costs would, therefore, be spread over a larger output, I presume—that is classic but none the less unchanging as a reality—that it would have a depressant effect on the rate of inflation, rather than increasing it.

It is in that context and against that background that I hope that the Government will realise, when they discuss the question of more cuts in Cabinet and elsewhere—and I agree with my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) on the virtues of further cuts in revenue and current spending—that that may be difficult to achieve now because of the stage that the economy has reached. Although I was extremely keen on that, and have been all the way through, it is perhaps now harder to contemplate that than it was a year or two ago.

We are coming to a time when there will be new ideas and proposals coming up from all quarters, including the Conservative Party, on what has to be done in taking the economy forward and getting recovery both nationally and in co-operation with our allies and the United States. The Ottawa conference is, therefore, an apposite topical background. I am optimistic that there will probably be new thinking there because the world leaders are so concerned about the situation.

We cannot just go on contemplating an inexorable rise in unemployment without considering additional measures to deal with it. There may have to be a fully-fledged programme that would guarantee a job or a job equivalent post of the kind alluded to earlier for every single young person. Indeed, the more that time goes on, the more we see that the pressure for concerted international action to get the Western world economy going again is growing and becoming inevitable and should, therefore, be recognised realistically by all concerned.

The Finance Bill is really the operational mechanistic expression of the Government raising money, changing some tax laws and continuing their manifesto programme. That is all very well and there is therefore no problem about it intrinsically, but in that context, because it does not go far enough itself, we are bound to see in the future additional measures, some of which may come in other Finance Bills.

8.42 pm

Mr. David Ennals (Norwich, North)

Although the hon. Member for Harrow, East (Mr. Dykes) speaks for a party that obtained only 7 per cent. of the votes in Warrington, I shall not now make deductions from that event, as we are here to debate the Finance Bill.

However, I cannot let pass the hon. Gentleman's accusation that our Front Bench has made no proposals for expanding the economy. My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) has done so on a number of occasions. Indeed, the Chief Secretary referred to policies put forward by my right hon. Friend and my right hon. Friend the Leader of the Opposition. He pooh-poohed the idea that we should discuss with the trade union movement ways to expand our economy and rescue Britain from the devastation created by the Conservative Party. However, it makes no sense for the Government to proceed as they are without discussions with the trade union movement and the CBI.

The hon. Gentleman said that the Chief Secretary was slightly complacent. I believe that his presentation was extraordinarily complacent. He said that he was talking about the real world. He appears to have escaped from it in the Treasury. He said that certain things would happen as the economy began to come right. Tragically, it is not coming right; it is still getting worse. He said that the worst was past. I wish that that were true, but the unemployment figures when they are published will show that the worst is not past. The hon. Gentleman mentioned signs of productivity and slower increases in unemployment. He was taking credit for the decrease in the inflation rate. It is no use the Minister shaking his head. Let us consider the taxes and prices index. That index, which was created by his party and which he thought would be fairer than the retail price index, now stands at about 14½ per cent. Even the retail price index is unlikely to go into single figures for a very long time.

The Chief Secretary's whole approach in talking about new hope, new opportunities, the return to prosperity, and all the other fine phrases in his beautifully written brief, is not part of the real world. I do not know whether he has looked at the survey on which the Association of Metropolitan Authorities based its programme, "Investing in Recovery". That programme was based on an independent study of the economic and Treasury model and produced some striking conclusions. I quote just three: National output, as measured by Gross Domestic Product continues to fall throughout 1981 and 1982 with the end of the recession not being reached until mid-1982. Manufacturing output, investment and employment undergo a severe decline throughout the period although the rate of decline moderates towards the end of the period. By the end of 1983, manufacturing output is 12 per cent. lower than at the end of 1980"— far lower than when the Conservatives took over from the Labour Government— there are 1,331,000 fewer jobs in manufacturing industry, a reduction of 5 per cent. Manufacturing investment is forecast to fall by over 20 per cent. in 1981, followed by a further 13 per cent. fall in 1982. Unemployment rises steadily throughout the period to reach 4 million by early 1984, representing an unemployment rate of almost 17 per cent.

The right hon. and learned Gentleman knows that our levels of unemployment are far higher than those of our competitors and our colleagues in the Common Market. The Government know that as we consider the final stages of a Finance Bill designed to put our economy right things are getting worse on almost every index that one might look at.

The Government are whistling in the dark if they think that this Finance Bill, which in my view has worsened the situation almost beyond measure, will somehow be the saviour of our economy for which they hope. I fear for this country and for our people as unemployment figures steadily rise and the Government produce no significant proposals to rectify a situation which has now reached desperation.

It is therefore right not only that the Opposition should put forward alternative proposals for reflation and an expansion of our economy, but that we should also say at the end of this Finance Bill that it is probably the most disastrous that the House has ever passed in the worst economic circumstances that we here have ever faced. The mess that the Government have made in well over two years in office is viewed with no confidence by the people, as was well shown by the 7 per cent. vote that the Conservative candidate managed to collect in the Warrington by-election on Thursday.

8.49 pm

Mr. Richard Wainwright (Colne Valley)

If the wise warnings of the hon. Member for Harrow, East (Mr. Dykes) about the flattening out of the decrease in inflation, the remorseless rise in unemployment and the catastrophic drop in output back to levels below those of the 1930s, had come not only from a respected Tory Back Bencher but from the Treasury Bench, those of us who are optimists by nature might have felt that there was at least a candle in the darkness. Instead, the Chief Secretary's speech reminded me of the utterances of a deck steward on the "Titanic" just before the iceberg came within view.

Equally, I did not find consolation in the speech of the right hon. Member for Stepney and Popular (Mr. Shore). He was on dangerous and shaky ground when he chose the image of a totem as his concept of what the Treasury is worshipping. At least a totem can be seen and photographed. People can sneak out in the darkness and cut it down. But the image which the Government, especially the Treasury, worship is not as solid and attackable as a totem. It is a medley of shifting images.

Perhaps this news has not reached Stepney and Poplar, but the Government are no longer targeting mainly on the money supply. Pressure of questioning in the Treasury Select Committee has elicited the fact that the shrine at which Treasury Ministers now worship is that of money national income as the target for Government policy. That is significant, and I think that we shall hear a great deal more about it during the season of party conferences and at some more by-elections. In fact, a change has already taken place and Ministers are in retreat from the simplistic concept of targeting on money supply. I look forward with great interest to revelations of their further thinking on that central subject.

In the meantime, this has undoubtedly been the Finance Bill of the missing Chancellor. The moment that the Second Reading vote was announced, the Chancellor disappeared from view. Even the Prime Minister put in a brief and commendable appearance at the Standing Committee, but the Chancellor was never to be seen. [Hon. Members: "She was looking for him."] The only fleeting impression that the Chancellor made was to announce his petty, niggling make-weight for the sensible decision on derv which Conservative Members wisely forced on the Government.

I do not say that simply to score a political point. At a time when the economic indicators have been moving in such a contrary direction to what the Government had previously expected, the Chancellor had a duty to influence the content of the Bill. In the present appalling state of the world economic system it is simply not enough for a Chancellor to wind up the clock of a Finance Bill in a Budget in March and thereafter to let the main aspects of economic policy remain unchanged into July. There were other moments when the Chancellor should have intervened to modify the restrictionary stance that he took in the Budget debate.

The Budget, and the November measures that preceded it, withdrew about £5 billion from the economy. Although many hon. Members felt at the time that that was a perverse judgment, its perversity has doubled and even trebled since then. Yet there was no action from the Chancellor. He was content for the measures that he had devised to go their way substantially unchanged.

The consequence is all too manifest to the nation as a whole. The New Standard, in its market report this evening, sums up the whole grisly situation clearly when it says: Gloom, doom and disaster dominated the gilts market today. As prices fell away, yields emerged that have not been seen since the sterling crisis of 1976. There are only two stocks which now stand above par … In the money markets, the position is worsening daily. This morning, interest rates took another lurch upwards. The article say that the pressures on the clearing banks to raise their base rates are very strong. It adds: Under the old system, the Bank of England would by now have been forced to raise MLR, and the banks would be able to follow. The picture was just as gloomy on the equity pitches. That is the position today after the Government have had their way with the Finance Bill. They have certainly not succeeded in lifting the spirits or the hopes of investors. However, it is not primarily investors that one worries about. The withdrawal of £5 billion from the economy by virtue of this Bill and other Budgetary measures has contracted our economy just at a time when the world recession would have indicated the need for the beginnings of a gentle reflation to combat unemployment.

I should like to say straight away how much I and my hon. Friends agree with the remarks made by Mr. Roy Jenkins in his so-successful Warrington campaign and reiterated tonight by the hon. Member for Gateshead, West (Mr. Horam). We have to reverse the present heavy taxes on jobs and turn the situation into one where there is a positive incentive to employers to take on young people so that they can have some kind of industrial training, an introduction to industry and, one hopes, be placed on the threshold of sustained employment.

I was even more glad to hear the hon. Member for Gateshead, West go on to say that this should be only the beginning of an expansionary programme. The hon. Gentleman was right to emphasise that as soon as a sustainable incomes policy can be put in place—it cannot come too soon for Liberal Members—further expansion should be set on foot. If the hon. Gentleman can fully and quickly persuade his Social Democratic colleagues that this is the right course, the accord between the Liberal Bench and the Bench that he occupies will, so far as I am concerned, be complete on the economic front.

Mr. Austin Mitchell

Then we can have one speaker instead of two.

Mr. Wainwright

That is not for me to say. In the meantime, the country has to bear the consequences of the highly restrictive set of taxes that are embodied in the Finance Bill. I shall recommend my right hon. and hon. Friends to vote against Third Reading.

8.58 pm

Mr. Austin Mitchell (Grimsby)

I do not propose to follow the remarks of the hon. Member for Harrow, East (Mr. Dykes), who was defending, with irrelevant arguments, a policy of which he does not approve, as his speech made clear. The hon. Gentleman obviously has to attack the Opposition to cover his disloyalty to his own Government. Nor do I intend to take up the arguments of the hon. Member for Gateshead, West (Mr. Horam), who is now rapidly receding from the Chamber. The hon. Gentleman has been emboldened by the chimera of a moderate by-election success—all by-election successes except those at Grimsby are chimeras—into speaking and acting as a turncoat, attacking the party from which he sprang, to which he owes his seat and with which he basically agrees. That is a question of taste, but I note in passing that the hon. Member for Gateshead, West, on behalf of the Euro-fun party, pointed out in his speech on the Budget that he would expand the economy and pay for the expansion by increasing the standard rate of income tax. A slightly better proposal, according to the hon. Gentleman, would be to put a surcharge for one year on all rates of income tax. That comes from the man who accuses the Labour Party of wilful overspending. I agree with the hon. Gentleman that we must expand the economy but the expansion must be more vigorous than he indicated. We should pay for it, as he says, by increasing the public sector borrowing requirement and, if necessary, by increasing taxation.

In the main those who accuse us of misguided expansion must face the fact that the burdens of unemployment, lost tax, lost productivity, lost output, and the expenditure of benefits, particularly on unemployment benefits, are now a major drag and constraint on this economy. If we could ease those burdens, expansion would be possible—and expansion itself must ease the burdens.

Our main job today, however, is to say farewell—particularly those of us who sat with the Bill in Standing Committee and throughout the debates in the Chamber night after night—to a bad Budget. The essential fact is that in this Budget we are also saying farewell to monetarism—a policy that is now going out not with the promised bang of prosperity and growth, not with a bang but with a whimper, at the whim of the bankers who instigated it in the first place.

This Budget underlines all the faults of the monetarist policies with which the Tories came in. It is essentially a deflationary Budget. It is a deflationary Finance Bill at a time when the economy desperately needs an expansion of demand and the stimulus to get the economy growing again and to reverse the decline of the last two years.

In the period over which we have been discussing this Budget, all the evidence on which it was claimed by Conservative Members that it was based has changed. It is clear that the economic crisis is getting worse—not better, as they optimistically predicted before the Budget. Yet the Government have averted their face from this situation. The Chancellor has plodded on. Instead of relaxing, when his own Back Benchers allowed him the opportunity, the financial stringency and the deflationary impact of this Budget, he persevered and made the situation worse by the petty, vengeful increase in the taxes on tobacco, bingo, betting and gaming machines—the pleasures of the working man—to get his own back after what his Back Benchers have made him do.

It is too much to say that this Budget is irrelevant, because it is more positively harmful than that. This Budget is the revenge of the small-minded, monetarist dogmatists on the Conservative Benches who, as their only defence, bleated for so long that there was no alternative to policies which have been positively harmful to our economy that they are now well on the way to reducing the economy to a situation so disastrous that there really will be no alternative to the mess that they have created.

All the justifications for the Finance Bill, argued from the first, have now gone. Monetarism is an exploded economic philosophy. I quote from Professor Galbraith, writing in the latest issue of The New York Review of Books. He says: A case can readily be made that the English-speaking countries, the United Kingdom and the United States in particular, are currently getting the economic policy that they deserve. Theology, wishful thinking, and a modest resort to necromancy have extensively replaced practical judgment on both sides of the Atlantic. The results are in keeping. They are in keeping. We are now putting up with the disastrous results of that escape from reality.

Monetarism is a discredited philosophy. The hopes of revival that the Government hold out are themselves discredited. The hope of the unity of the industrial countries in deflationary policies has been removed by the expansionary policies which will now be adopted in France, and by the fact that the Japanese economy is still growing. The American economy, despite all the wilful perversity of the Reagan Administration, is still growing.

Today, the Chief Secretary says that the Conservatives never said that monetarism alone was enough; that fiscal measures were also necessary—although they did once give the impression that monetarism alone was enough. The fiscal measures that they are proposing in this Finance Bill will make the situation worse. The Government are now in a trap. Spending is rising remorselessly as the pressure of unemployment builds up, as more and more people are put out of work and as the decline of the economy hits the nationalised industries. With that, the Government's financial predictions will all go awry, because as spending rises the tax receipts are threatened by the same depression as that which requires the increase in spending. That is the cause of the "we need the money" syndrome that the Minister treated us to so liberally in Committee and that excused all the petty increases in taxation and the Government's failure to increase allowances. Indeed, that was probably the most monstrous aspect of the Budget.

At the end of the "we need the money" syndrome, which has been produced by the economic decline that the Government have generated, we find that the average family will pay more. Instead of starting to pay tax at 45 per cent. of average earnings, tax will start at 38 per cent. of average earnings. The basic rate will be increased from 25 per cent. for the lowest payers to 30 per cent. In the Conservative Party's manifesto, hopes were held out of eliminating the poverty trap. However, it will become wider and deeper because the numbers of those in it will increase by about 40 per cent. In addition, we must consider the way in which the Government are treating single women aged between 60 and 64, with their "little pensions".

The final obscenity is that in addition to those increases in taxation the Government have cut capital transfer tax for the very wealthy. They have given a straightforward set of handouts to a class that toil not, neither do they spin At the same time they call for sacrifices from the rest of the community. The only consolation is that the Finance Bill will be the swan song of those narrow dogmatists who have dominated Treasury policy for so long. The change will be forced not by the miners, the Government's Back Benchers or the Minister of Agriculture, Fisheries and Food—who is the siren voice of a Government on the rocks—but by the burning that has taken place in the cities of our blighted Britain of 1981. That will force the Government to change their policies and to start the expansion that they have long told us is impossible. That will be the result of the policies embodied in the Bill.

The Government will change course because their policies are in ruins and the longer they persevere with such policies the bigger will be the dose of Socialism, of Government spending and of Keynesian stimulus that will be needed to get the country out of the mess that they have created. In addition, there will be a greater need for planning and for the arts that we have advocated for so long. Those arts alone can turn the Government round. Recovery will not follow inevitably, as night follows day, as the Chief Secretary told us. It must be worked for, spent for, planned for and engineered. The Government will have to turn to those arts—which are alien to them in the desperate situation to which they have reduced Britain. They will change course. The Finance Bill is the last monument to the dead sheep, the Chancellor of the Exchequer.

To say that the economy has been savaged by a dead sheep is perhaps too facile an image. That savaging has caused disastrous damage to an economy that can ill afford to suffer. The budget makes the damage worse and must be the sheep's final whimper before it is carried off to the last resting place of dead sheep, namely, the Woolsack. The Government will need to make that change of leadership and of policy. They must admit the truth, namely, that they have wilfully pursued wrong policies for too long and have taken the country down a disastrous road. They have wasted precious time and precious jobs.

British industry has lost one in eight industrial jobs during the two years in which the Conserative Party has been in office. The Budget has made everything worse. It will be reversed because it must be reversed.

9.9 pm

Mr. Clive Soley (Hammersmith, North)

The Government set out in 1979 to squeeze inflation out of the system and to encourage growth by encouraging entrepreneurs. They have not achieved either objective and have not succeeded in producing a Budget to help to achieve them.

In opening the debate, the Chief Secretary said that he thought that we were through the worst. I note that he did not suggest, as he has acknowledged before, that we might bump along the bottom for some considerable time with a worsening of the unemployment figures. Inflation is still as high as it was when the Conservatives took office, perhaps a bit higher. The indications are that it will go higher and we still have the problem of collapsing industries and bankruptcies. The Government's policy has not been successful and there is no evidence to lead us to believe that the Budget will lift us out of the mess.

It is significant that when the Tories took over they virtually doubled VAT, which had the effect of pushing up inflation. They are now saying to the nation "We have brought inflation down". The only way that inflation has been reduced to its present level—which is still higher than it was in May 1979—is by allowing VAT to work its way through the system.

Several Labour Members have spoken about the tax cuts. I should mention the Minister of State's performance in Committee. I have watched him and listened to him with great interest on a number of occasions. In many ways, he is a rather endearing character. He is unique in this place in the arguments that he uses. He is incredible. I am sure that he works far harder than anyone else. He is obviously a work horse. I am sure that in the mornings the civil servants in the Treasury look for him under mounds of paper, to find him scribbling away with papers flying over his shoulder with all the enthusiasm of an agitated doormouse. He is doing a fantastic job in his own right.

When we discussed the tax in Committee the hon. and learned Gentleman said over and over again that the Government needed to raise the money, but at the same time the Government are bringing people on low incomes into the tax net and allowing people on high incomes out of it. The cuts in or the virtual obolition of capital transfer tax have troubled us. That is where the hon. and learned Gentleman is unique, because he has argued on the Floor and in Committee that this is a moral question, which has nothing to do with taxation. Time and again he has said that this is a highly emotive subject and that he would prefer not to have morality involved in taxes. I cannot believe that any hon. Member, since the establishment of this place, has argued that there is no connection between morality and political economy. That is bizarre in the extreme. I cannot imagine a political theory for that view. Yet that is what the Minister argues.

There is an immense amount of evidence to suggest that wealth in the United Kingdom is grossly unequally distributed—indeed, more unequally distributed than in any comparable country where incomes are similar. The argument has been that the money will generate wealth. There is no evidence for that. It is difficult to get rich by saving. The way in which people get rich is by inheriting wealth. If the Government want to raise the money and reduce the tax burden that they have been increasing, despite their claims to the contrary, they should begin by taxing wealth.

The Chancellor of the Exchequer will say that that is not possible, that he cannot do it, that that is a moral question and has nothing to do with taxation. In fact, it is crucially important, because nothing is more annoying—to put it mildly—to the average PAYE payer than to see people like the Vestey family or other families, against whom I have nothing individually, getting away with enormous sums of money and paying nothing in tax. At the same time, those at the lower end of the income scale, including those on supplementary benefit, are asked to pay more. That is totally unacceptable.

The Government claimed that they would encourage entrepreneurs to regenerate growth, but there is no evidence of that. The money has gone in investment overseas. I acknowledge that some of that money returns in the form of profit but it does nothing to regenerate industry or to produce the employment that we need.

The attempts to cut public expenditure across the board have massively aggravated the problems in our economy. The Conservative Party is the party not only of high inflation but of mass unemployment. There are no ifs or buts about that. Unemployment is partly a result of the present Government's attack on public expenditure. There is a need to increase expenditure, particularly on infrastructure—roads, sewers and telecommunications. If we do not do that we shell be in trouble.

Housing is also of crucial importance. The two sectors of the economy that have been worst hit by the recession are industry and construction. Construction could benefit most from reflation because it would not produce imports from abroad.

The key importance of the issue is shown in the recent street disorders. When skilled, particularly young, workers are unable to get employment in our inner cities they move out. They are followed by companies, because they then cannot get skilled labour in the inner cities. A spiral of decline occurs. There is an urgent need for a sensible housing policy to discourage that trend.

A country which does as we have with education must have gone out of its mind. We are not only eating our seed corn; we are burning it. Not to invest in education, particularly adult education and training, is crazy.

It is tragic that in the Western world there are between 20 million and 30 million unemployed people. Money is washing around looking for the highest rate of interest in country after country without being used to meet the needs of the communities involved. It is urgent for the leaders of the main economies in the West to get together to work out a new Bretton Woods agreement. When I read the comments particularly of Conservative Members, it is clear to me that they are saying that they can do nothing, that market forces are at work and outside their control. They are not outside their control any more than they were in the 1930s. If we do not do something, we shall pay dearly.

9.17 pm

Mr. David Winnick (Walsall, North)

My hon. Friend the Member for Hammersmith, North, (Mr. Soley) made an excellent contribution. The Chief Secretary read his Treasury brief like the lawyer he is. I do not know whether he believed a word of what he read. Unlike the Financial Secretary and, perhaps, the Minister of State, the Chief Secretary has, I think, no particular attachment to any economic theory. He is a lawyer, he was given his Treasury brief, and he read it accordingly. He read it well.

We are debating the Third Reading of the Bill at a time of acute economic crisis. Unemployment continues to rise substantially and there is no sign of industrial recovery. That is the background to the great concern that we feel tonight.

The standard ministerial reply to our questions about the economy and unemployment, nationally and locally, is always the same, regardless of the Minister or the Department. The reply is that the Government's task is to provide the climate in which industry can prosper. We say on the Labour Benches that the climate provided by the Government is one in which redundancies, extensive short-time working, bankruptcies and yet more closures are taking place. That is the pattern of events in Britain in 1981.

The Chief Secretary cannot deny that unemployment will continue to rise. The latest figures will be out tomorrow. It will continue to rise throughout 1981 and probably throughout most of 1982.

Not all Ministers, it seems, believe that the right approach is being taken. I intervened during the speech by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) arising from an interview with the Minister of Agriculture, a senior member of the Government, on television's "Newsnight". He was asked various questions arising from the Warrington by-election. He was asked about any change in economic policy. The right hon. Gentleman said: I'm asking the Government … to examine the current problems on their merits … and to take pragmatic decisions to get them right. He added: If you go for efficiency and don't bother about compassion, then you'll find a situation where such will be the deprivation … that the hostility of society generally will ruin the efficiency. In a clear reference to the Prime Minister's monetarism, the right hon. Gentleman said that it was wrong for any Government, "including my own", to have a doctrinaire approach to economics.

Any prize for what he was talking about? The Minister also said in the same programme: As new problems emerge we have to tackle them with new weapons and new methods, and you have to take note of the social and economic changes that are taking place.

I do not know whether the Minister of Agriculture will suffer the same fate as the right hon. Member for Chelmsford (Mr. St. John-Stevas) and get the sack. Perhaps he would consider it better to resign and to state his views more openly on the Floor of the House. Because of the right hon. Gentleman's ministerial position, he has to be more guarded in his media interviews, but he went as far as he could on Friday to dissociate himself from the economic policies being pursued by the Government.

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

Does my hon. Friend recognise that the Minister of Agriculture may be speaking for many silent Conservative Members, particularly those in marginal constituencies in Yorkshire and Lancashire who see the textile industry facing such a massive decline? How would he advise those hon. Members to vote in the Division on Third Reading?

Mr. Winnick

My advice to those hon. Members is the same as that which my hon. Friend would give. They should vote with us against a Third Reading.

The charge against the Government is that they have rewarded the rich and prosperous while the vast majority of our constituents are paying more not just in indirect taxation, but in direct taxation as well. The Government probably won the 1979 general election because of their promise to cut income tax. If we asked our constituents how much they have gained from the tax changes in the Government's Budgets they would laugh dismissively. They are paying more in tax, and that is likely to continue.

We are in a plight which is similar to that of the 1930s. The Treasury and Ministers continue to argue that demand must be reduced. As demand is being reduced, deflation bites deeper into the economy and the recession is turning into a slump.

The Bill is further poison for the economy and for many of our constituents. It is a disastrous Bill, which can only inflict untold damage on the British economy. We all know that by the time of the next Budget the situation will be even worse and there will be even more in the dole queues. That is why we have every justification in voting against the Third Reading.

9.23 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

In rising to oppose the Third Reading my first thanks must be to my hon. Friends the Members for Blackburn (Mr. Straw) and Edinburgh, Central (Mr. Cook) and to the innovation, at least on the Opposition side, of our talking Whip, my hon. Friend the Member for Grimsby (Mr. Mitchell).

Mr. Campbell-Savours

The cannot-stop-talking Whip!

Mr. Sheldon

In looking at the main features of the Bill—those that will remain in our recollection of what took place on the Floor of the House as well as upstairs in Committee—we see that as recently as last year the Government introduced, in section 24 of the Finance Act 1980, indexation as a fixed approach to Finance Bills of the future and were immediately the first Government to repudiate their own enactments when they failed to index allowances this year.

We are also aware of the taxation of short-term benefits in the Bill and the many injustices that we debated in Committee and on Report. We know that the contrast that we observed in the failure to revalorise allowances must be seen in the context of the handouts on capital transfer tax, whereby the slate is wiped clean and the liability ends every 10 years. It is the contrast between what is given to a few at the top end of our incomes scale and what is denied to the many at the lower end which to many of us will be the abiding recollection of this Finance Bill.

The background to the Finance Bill was probably best set by the Financial Secretary to the Treasury, who made a speech to the Zurich Society of Economics in the Kongresshaus in Zurich. He described something that was happening in this country in January—something which most of us had failed to detect. He spoke of The breath of fresh air that is blowing through British industry today". He went on: we have now"— that was in January of this year— more or less reached the bottom, and better times are clearly in sight … As a result, British companies throughout the length and breadth of the country are becoming more efficient, cleaner, tauter, fitter and more productive". That was the background to this Finance Bill.

It was a time of great hope. It is surprising how a Budget and a Finance Bill never look the same in July as they did in April. However, the difference between the two periods was probably never greater than this year. The first was a time of great hope and great optimism. Possibly the prize for the most ineffable comment, following the publication of the Budget and the Finance Bill, went to the Chief Secretary to the Treasury. He said, in a comment on the Budget on 20 March 1981: This was a Budget for industry and for economic expansion. We have seen the effects on British industry during the past few months.

In a Budget for industry and economic expansion one would have expected an investigation into what industry wanted and what it was that those people with responsibility in these matters were wanting. What did industry want, and what did it need? One thing that industry clearly wanted was expressed by the CBI in its demand for a cut in the national insurance surcharge burden, about which we tabled an amendment. It asked for an extra £1½ billion to £2 billion three-year programme of public investment and, in particular, an improvement in the national infrastructure.

The Guardian on 18 July said: After meeting groups of industrialists, trade union leaders and bankers in the North-west, the Industry Secretary, Sir Keith Joseph, said yesterday that he felt no need for a change of course in the Government's economic policies. 'I have not seen any coherent alternative analyses or set of policies', he said. There is an interesting comparison between what the Chief Secretary and the Secretary of State for Industry said, and what the Manchester Chamber of Commerce and Industry said in its North-West industrial report. This is what it said was happening in that part of the country: Despite optimistic statements to the contrary, there are no indications that anything more than a deceleration of the downward slide of the U.K. economy is taking place. Indeed, both company liquidations and bankruptcies rose appreciably during the first quarter of 1981". There is an alternative analysis for a start, which is different from that of the Government. The Secretary of State for Industry failed to see that when he went to Manchester. The Manchester Chamber of Commerce and Industry went on to say: Levels of industrial production … dropped in the year to the fourth quarter of 1980 by approximately 15 per cent. and represented the largest fall in any year since the war".

Is this a Budget for industry? The Manchester Chamber of Commerce and Industry, according to its North West industrial report, does not think so. It goes on: Despite considerable reductions in stock in the first half of 1980, company borrowing from the banking system was at an extremely high level and there is some evidence that many companies have borrowed merely to stay in business. Is that a Budget for industry? The Chamber's economic and Industrial Committee is extremely apprehensive that the current depressed state of industry in the North West could lead to the region being unable to take advantage of any possible future economic revival, thus leaving the region in a permanently semi-depressed situation. Is there no need to change Government economic policies, as the Secretary of State for Industry said?

The chamber went on to say that government intervention in the North-West and capital investment in the infrastructure could bring significant benefits to the region. It believes that transport, communications … are all desperately in need of further capital investment. Those are alternative sets of policies which the Secretary of State for Industry did not see.

Finally, the Chamber says that it is apprehensive that the last budget which took approximately £5½ billion out of the economy will have a further adverse effect on economic activity and give no help to hard pressed industry.

Is that the Budget for industry that was required? Is that the Budget for economic expansion that was needed?

What worries me most of all is why the Secretary of State for Industry and the Chief Secretary to the Treasury went to the North-West. What is the point of the Prime Minister's going to Merseyside if she hears only what she wishes to hear? Never have we had a Government with their ears so shut to the anguished complaints of industry and the people.

The Budget is supposed to be for industry and economic expansion. Who are the Government fooling? Who are they deluding? Who do they think believes this chicken-scratching? They have not begun to touch the surface of the problem, let alone to approach the causes.

In the first quarter of 1981, bankruptcies increased by 37 per cent. over the same period in the previous year. Company liquidations increased by 67 per cent. This is the result of the disastrous actions of this Government, as my hon. Friend the Member for Grimsby said.

When industry rightfully complains about the level of the pound, the Government reply by stressing their need for supply side economics. That is a splendid notion. Of course, everyone wants to see quality and design improved and improvements in technology. Meanwhile, we see the savage cuts at Salford, Aston and Bradford universities, which does not seem the right way to go about bringing in supply side economics.

The Government cannot do very much about the supply side, but they can help to make British industry competitive. They can improve competitiveness by acting against the level of the pound. They can improve it by adjustments to the pound. They can improve the profitability of exporting and reduce the profitability of importing, and the profit that goes into industry can find its way into research, design and other matters.

Sir William Clark (Croydon, South)

How would the right hon. Gentleman decrease the value of the pound and decrease the minimum lending rate?

Mr. Sheldon

The hon. Gentleman should read the report of the committee of clearing bankers. I agree with that, and I advise the hon. Gentleman to study it with great interest. It stretches to more than eight pages, and it details how the Government can reduce the value of the pound in accordance with what is required.

Sir William Clark

How would the right hon. Gentleman do it?

Mr. Sheldon

I have referred the hon. Gentleman to my sources.

The constriction of home demand and the high interest rates that we have seen have made it impossible for firms in Britain to have a home market for their goods, and, because of the higher value of the pound, they have found it impossible to get export markets for many of their goods at the same time as imports have been coming in at cheaper and cheaper prices.

I can understand that if devaluation and deflation are joined together, industry is forced into export markets. This was traditionally the way that it was done. It was not done very well or very cleverly, but it had that effect. By making it impossible for firms to increase their exports and difficult for them to increase production for the home market, we are constricting them completely. That is what we see in industry today. The Government must intervene in the currency markets of the world. Lord Lever, in his two fine pieces in The Times, headed "The World's Currency Casino" showed the need to intervene in the way that I mentioned. The committee of clearing bankers showed the way that that could be done.

The trouble is that the Government have a theology in these matters—a belief in the free market. Nothing that they see happening in industry convinces them that their preconceived ideas are necessarily wrong. Because the Government have not intervened in the currency markets of the world, much of British industry has been gambled away on the gaming tables of the world's international currency dealers. Industries have been closed, never to be reopened. Many others have been severely damaged.

The effects of Government policies are not bearing specifically on the older industries, while saving, rescuing and improving newer industries. They are impartial in their effects, and affect the computer industry, the man-made fibre industry and the machine tool industry. All those industries blame the high pound and the recession, as well as the Government, for their troubles and woes. We need to take control of our currency to make it work for us and for the industry of Britain.

In the 1970s we heard that whoever was in Government in the 1980s would gain the inestimable advantages of North Sea oil, and would have the greatest opportunity in the post-war world to bring about the transformation of our economy. All the glory and credit would rightly go to them. What has happened? We have North Sea oil now, but what have we done with it? North Sea oil revenues this year amount to nearly £6 billion. It will be £7 billion in a year's time. Where is that great bonanza that was to do so much to revive the fortunes of Britain? It has gone in high unemployment pay. According to the Chief Secretary's figures, it costs about £3,500 per unemployed person per year. I would put the figure higher. I shall take his figures, however, and even his figure of 2½ million unemployed. That gives a cost of £8¾ billion a year for unemployment pay. It is more than we are gaining from North Sea oil. Even when North Sea oil revenues peak in a few years' time, unemployment pay will be roughly in balance. That is what we have done with our great advantage, which should have been used for our industries and to provide for our future. North Sea oil was our nest egg for the future, not overseas assets. The real nest egg in which we can invest is to pay our people and put them in employment, using and creating skills. That is the only way that we can earn our living, and that is what we always assumed would be the purpose of North Sea oil.

The Bill was seen as increasingly irrelevant before the effects of 3 million unemployed were thought of and while hope in the Government remained. The Bill is like a gravestone. It records the economic mismanagement of the Government and the continuing decline of the economy, as well as the opportunities that have been squandered. The Government appear to be without hope. It is time for them to go. For that reason we shall vote against Third Reading tonight.

9.39 pm

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

Tonight we conclude our debates on the Bill. Except for those aficionados who formed the ranks of the Standing Committee, the House may feel that the conclusion is coming not a moment too soon.

I hope that I shall be allowed, without presumption, to congratulate the newcomers to the Opposition Front Bench—the hon. Members for Blackburn (Mr. Straw) and for Edinburgh, Central (Mr. Cook). The hon. Gentlemen were buttressed by the enormous experience of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). I think that those who formed the Standing Committee will agree that they made a notable contribution. I am only sorry that the rigours of the Standing Committee have dispatched the hon. Member for Blackburn to hospital. I hope that he will not long be detained there. I think that he and perhaps everyone else will recognise that Finance Bills are rather masochistic exercises, but at any rate they serve a purpose.

The Bill is long and complex. I take no pride in that. I should like to revert to the four or five-clause Victorian Bills. However, the complexities of the Bill reflect the increasing complexity of our national life and especially our industrial life. There is a feeling that we should attempt to legislate with certainty and precision. I recognise that those are objectives that much too often elude us.

The Bill has been subjected to a good deal of good natured scrutiny and debate. I dare say that no Finance Bill in living memory has provided an opportunity for so many Second Reading speeches. We have had many tonight.

The clichés of the class war were much in evidence during the early stages of the Bill's passage through the House. Mercifully, they receded until tonight.

The Standing Committee came to grips in a practical way with some of the real issues. I am sorry that the right hon. Member for Stepney and Poplar (Mr. Shore) did not involve himself with the Standing Committee. If he had done so he might have developed a clearer understanding of what the Bill is attempting to achieve. All that we have had are six or seven apocalyptic interventions from the right hon. Gentleman.

I cannot remember whether it was the right hon. Gentleman or the hon. Member for Grimsby (Mr. Mitchell) who complained of the absence of my right hon. and learned Friend the Chancellor of the Exchequer. The right hon. Gentleman will be the first to acknowledge that it would be difficult for my right hon. and learned Friend to be present tonight. In my limited experience of Finance Bills I cannot recall any Chancellor who involved himself in the proceedings of the Standing Committee considering the Finance Bill. I am sure that my right hon. and hon. Friends will concede—I hope that some right hon. and hon. Members on the Opposition Benches who bring a fair mind to these problems will recognise this—that my right hon. and learned Friend has made a notable contribution at various stages. No Chancellor has been more assiduous in the conduct of his great responsibilities than has my right hon. and learned Friend.

The right hon. Member for Stepney and Poplar seemed to be bent tonight on an economic rehash of Frazer's "The Golden Bough". I have spent some happy hours with "The Golden Bough". I did not recognise the mutilation which the right hon. Gentleman inflicted on it. He chose to describe the present Treasury team as primitive monetarists. I readily concede that I am no macro-economist. I merely perceive a connection between the money supply and the level of prices. I am not certain whether I should be acknowledged in the select company of Professor Friedman. I am conscious that perhaps Professor Lapper would not give us as high marks for our performance as some of my hon. Friends would like. However, to describe us as primitive monetarists shows a rather crude misunderstanding of what we are attempting to do. It indicates a rather crude misunderstanding of the methods that we have employed.

If we happen to be primitive monetarists, I think that the right hon. Member for Stepney and Poplar, and especially the hon. Member for Grimsby, are primitive Keynesians. Whether Professor Keynes should be regarded as a totem or a taboo I leave to the House to determine.

I ask the Opposition to reflect on their last period in Government between 1974 and 1979. I ask them to reflect on whether their management of demand in the long run left the economy and industry in a stronger or weaker position. [Interruption.] Let me remind the hon. Member for Grimsby that the real growth in domestic product annually between 1974 and 1979 was 2 per cent. On the other hand, the growth in the retail price index was 15 per cent., and the unemployment figures doubled. Either they were remarkably unsuccessful in their demand management, which suggests that it may be a more difficult exercise than they are now prepared to concede—

Mr. Ennals

Will the hon. and learned Gentleman recognise that there is a difference between even a modest growth and a devastating fall in output, which is the record of the present Government? During the period of the Labour Government the unemployment figures may have doubled, but the present figure is dramatically greater, and he knows it.

Mr. Rees

I listened to the right hon. Gentleman's speech, and I recognise the contribution that he makes to our social security debates. I was not certain whether he was well advised to intervene in these debates. Indeed, his intervention just now was singularly ill-advised, because I shall now remind the House of the cost in terms of the debilitation of British industry, the collapse of profits and the increase in the retail price index on an annualised basis of 15 per cent.

The right hon. Gentleman may feel that it was a price worth paying for what was achieved by the Labour Government. [Interruption.] The verdict of the electorate is conclusive in these matters. Let the right hon. Gentleman reflect on that. If he takes comfort from the Warrington by-election, he must be a masochist. His former hon. Friend the Member for Gateshead, West (Mr. Horam) took a rather different view of the sentiments of the electorate of Warrington last week. However, these are small matters, and I should not be tempted into the byways.

As for the apocalyptic utterances of the right hon. Member for Stepney and Poplar, one wonders who writes his speeches for these occasions, because there is a remarkable similarity between them. I think we were told by the right hon. Member for Ashton-under-Lyne that a Budget does not look the same in July as it did in April. I do not know whether my right hon. and learned Friend's Budget and Finance Bill look the same now as in March, but the speeches that we have heard from the Opposition Front Benches have not altered by one iota. The sentiments, the language and the clichés are precisely the same.

I have always believed that the point of a Third Reading debate was to draw together the threads of a Finance Bill. I know that in your benevolence, Mr. Deputy Speaker, you have allowed the debate to run wide. Whether it has advanced our understanding of the problems I leave to posterity to decide, but let me attempt to identify the themes of the Bill.

My right hon. and learned Friend was faced with the need to raise a considerable sum of money—£64 billion—by way of taxes on income, expenditure and capital. I was moved to state the problem with a certain vulgar directness in the Standing Committee, when I said that we needed the money. I have been given a slight Gladstonian colour in the brief period on which I have been privileged to serve in the Treasury. That should warm the heart of the hon. Member for Colne Valley (Mr. Wainwright).

Mr. Richard Wainwright

rose—

Mr. Rees

Apparently it does not warm the hon. Gentleman's heart.

Mr. Wainwright

Does the Minister really suppose that Mr. Gladstone would have debased the House with the persiflage that he has just given us?

Mr. Rees

I am tempted to recall that in high spirits Mr. Gladstone used to dance around with Mrs. Gladstone in the evening. There was a side to his character that perhaps the hon. Gentleman does not recall at the moment. However, I can say with utter confidence that Mr. Gladstone would have approved of my right hon. and learned Friend's attempt to set the PSBR this year at £10½ billion. He would have appreciated his candour and integrity. [Interruption.] There are sterner Gentleman behind me, and I defer to their rigorous approach.

I have been accused of being frivolous and of not detecting a moral feeling in our debates. I say to those who accuse me of that that I find that gentleman of the cloth are not perhaps at their best when discoursing on political subjects, and therefore I am a little hesitant to moralise on these questions.

I am persuaded that my right hon. and learned Friend was right to set a lower PSBR. Of course, the House will know that there is a certain marginal imprecision in such targets, but if the containment of inflation—sound money, if I may put it in language that I am sure the whole country will understand—and modest real interest rates are essential elements in our recovery, a restrained PSBR—a limited pre-emption by the public sector of the resources generally available—is equally important. That is why I am certain that Mr. Gladstone—and I hope therefore, the Liberal Party—would have supported the Government in the Lobby tonight.

If Liberal Members hesitate about that, let them contrast the objectives that my right hon. and learned Friend sets with the profligacy of the right hon. Member for Stepney and Poplar and his right hon. Friend the Member for Ebbw Vale (Mr. Foot). I have never been able to get out of the right hon. Member for Stepney and Poplar in our many debates this summer exactly what PSBR he feels could be supported by the economy. I give him his final chance tonight. I shall give way if he will tell us candidly what figure he nails his colours to—[HON. MEMBERS: "Go on."]

My right hon. and hon. Friends recognise, as I do, that if there is frivolity and incoherence in these debates it is in the contributions of the right hon. Gentleman and his right hon. Friend.

Mr. Barry Sheerman (Huddersfield, East)

If the hon. and learned Gentleman cannot agree with my right hon. Friend the Member for Stepney and Poplar (Mr. Shore), perhaps he can agree with the Minister of Agriculture, Fisheries and Food. What does he feel about his right hon. Friend's behaviour and speeches? That is more to the point.

Mr. Rees

The Cabinet, of course, speaks with one voice, and my right hon. Friend is a gifted contributor to its debate. However, since I am not privileged to attend, I do not know the nuances of his contributions, but history will no doubt disclose them.

As I said, I contrast the rigour and self-discipline of my right hon. and learned Friend with the utter frivolity and incoherence of the right hon. Member for Stepney and Poplar. I have tentatively costed out the programme that he and his right hon. Friend have so far produced. On the most cautious estimate it would involve a PSBR of about £17 billion—[Hon. Members: "Is that all?"] I make every allowance for the fact that the right hon. Gentleman is innumerate, like myself. I should like him to reflect a little and, the next time that we have an opportunity to debate these great themes, to tell us what that would do for interest rates or, indeed, to tell us what level of real interest rates British industry could support. Perhaps he will tell us how many jobs he believes his programme would create and at what cost—unless, of course, he agrees with his friends on Stirling council and the Greater London Council in the belief that merely padding the public sector payroll will solve this difficult and intractable problem.

The Government recognise—and this is explicit in the Finance Bill—that a public sector borrowing requirement of that level must be paid for. It is being paid for, I readily concede, by an increase in direct taxation, and it is proper and legitimate to debate whether we have the mixture right. I can say only that the pattern of our tax system now is not so very different from that of our Continental competitors who over the past two decades or so have done perhaps a little better than we have.

I readily concede that this is being paid for by a standstill in personal allowances, but I emphasise to Opposition Members, who affected to believe that the Government's tax measures affected only the less well off, that last year we proposed measures for indexing the higher rates which we have not put into effect. Overall, therefore, the income tax burden has borne more heavily on them than on others.

Mr. Soley

Will the hon. and learned Gentleman give way?

Mr. Rees

The hon. Gentleman will forgive me if I do not give way. I have only five minutes left. The hon. Gentleman and I exchanged many pleasant words in Standing Committee.

Finally, there are two new taxes, which I at once admit that no Conservative Administration would readily introduce—the special petroleum duty and the bank tax. The right hon. Member for Ashton-under-Lyne affected to believe that there was a great bonanza which could solve all our problems, but that it was being frittered away on unemployment benefit. He may care to reflect how much has gone into preserving the nationalised sector of our economy—an objective which must surely be close to his heart if not to those of some of my right hon. and hon. Friends.

Having touched upon the more difficult aspects of the Bill, I remind the House of the continuing theme of my right hon. and learned Friend's Finance Bills and Budgets, which is to encourage and stimulate entrepreneurial activity in the private sector. I remind the House of the recasting of stock relief, the enhanced interest relief that will encourage investment in co-operatives and partnerships, the loss relief for investment in unquoted shares, the increased initial allowance for industrial buildings that I hope will stimulate the construction industry and the business start-up scheme that we spent many hours refining and embellishing in the Standing Committee.

Mr. Sheerman

Changing.

Mr. Rees

The hon. Gentleman prefers to call it "changing". I would call it refining and embellishing. The main outlines remain the same.

I also remind the House of the modest measures to humanise and rationalise capital gains tax and capital transfer tax. If the right hon. Member for Ashton-under-Lyne accuses us of disproportion in this area, I remind the House that the first-year costs o f our measures will be a mere £5 million and the subsequent year's costs £20 million. I am more afraid that my right hon. and hon. Friends will say that more needs to be done—indeed, I agree with them, but perhaps not this year.

Against the background of what I readily concede is a rather grey sky, which overshadows the economies of most of the developed world, I therefore believe that the Government may claim without immodesty that this third Finance Bill is a solid legislative achievement.

Mr. Sheerman

It is a disaster.

Mr. Rees

The hon. Gentleman says that it is a disaster. Let us wait upon events. To pretend that one can say on 20 July what the precise consequences will be is a rather arrogant intervention by the hon. Gentleman, who I know can put on a more agreeable face. This Finance Bill marks another milestone on the road—an undeniably hard road, I concede—to put the finances of this country on a healthier basis, to achieve a more sensible fiscal mixture, to strike a better balance between the private and public sectors and to lay the basis for solid and sustained recovery.

On that basis, without, I hope, too much immodesty—indeed, with a certain pride—I am delighted to commend the Bill to the House.

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

The House divided: Aves 279, Noes 236.

Question accordingly agreed to.

Bill read the Third time, and passed.