§ [Relevant European Community documents: Document No. 10077/81 and the annual report on the economic situation in the Community (1981) and the economic policy guidelines for 1982.]4.50 pm
§ Mr. Peter Shore (Stepney and Poplar)
As the Chancellor resumed his seat after 5.30 yesterday, as his supporters waved their Order Papers and stamped their feet with approval, and as a flush of pleasure suffused the features of such wets as I was able to glimpse, I confessed to a sense of almost complete bewilderment, quickly followed by a recognition of the Chancellor's unexpected gift for sleight of hand and of the equally unexpected gullibility of his Back Benchers. Yesterday was an exercise in bluff and fraud; a skilful presentation that momentarily persuaded one half of the House of Commons that the Chancellor had presented, as he claimed, a Budget for industry, a Budget for jobs, a Budget for people, and tax cuts.
It is, however, invariably a mistake to deceive the House and country, for the truth will out and what is unpalatable becomes doubly so simply because of an attempt to conceal it. Yesterday's blooms are already dropping their petals. They will not survive this week's Budget debate.
My first duty is to tell the truth about the Budget—the whole Budget, not only the half presented yesterday, but the other half that was revealed last December. This full Budget has not cut personal taxation—it has increased it. This Budget will not reduce unemployment—it will continue to rise. This Budget offers a sop to industry but will do virtually nothing to deal with its basic problems of loss of competitiveness and lack of demand.
It is not difficult to document these assertions. In the White Paper on the Government's expenditure plans which 872 was released yesterday we find confirmation of the Government Actuary's forecast of last December about unemployment. He said:the number of unemployed persons (excluding school leavers etc.) will average 2.6 million in 1981–82 and 2.9 million in 1982–83 and subsequent years.When school leavers, adult students and others are brought into the picture, an additional 225,000 people must be added to the unemployed figures. Unemployment is to rise by some 300,000 during this year and to stay there in the years that lie ahead. So much for the claim that this is a Budget for employment; it is a Budget for unemployment.
The tax burden will obviously vary according to the size and nature of the incomes that people receive. In my remarks I must exempt the highest incomes, the top people whom this alleged Budget for the people so noticeably serves. In a full year, they will gain no less than £196 million as a result of the further and major relaxation in capital gains tax and capital transfer tax that the Chancellor has announced. What a disgraceful contrast with the shabby treatment meted out, above all, to the poorest in the land and those who, through no fault of their own, have been forced into unemployment and who have had their unemployment benefit cut by 5 per cent. last year and by the abolition of earnings-related short-term benefit on 1 January.
What is the position for the ordinary taxpayer and the great mass of British people at work? The Government last night issued their document, one of many, entitled "Income Tax and Indirect Tax: The Main Proposals". It contains a number of tables showing how the tax burden in 1982–83 compares with the tax burden of the year that has just ended, 1981–82. The tables show reduction in tax payments next year, which have been widely publicised today in most newspapers, but make no allowance for inflation. Therefore, they are seriously misleading. However, the last table in the Government's clutch of tables shows the crucial figures—the percentage of total income taken in income tax and national insurance contributions next year compared with this year. It does that on the very modest basis of a 7.5 per cent. increase in earnings.
Let us consider that table because it is that one that matters. For all single people within the range of income beginning at £3,000 a year and rising to £15,000 a year, the burdens of direct taxation will be higher in 1982–83 than they were in 1981–82. As for married couples, with the single exception of those on £3,000 a year, for whom there is a marginal improvement, all income earners from £4,000 a year to £15,000 will, as with single persons, pay more of their income in tax in this coming year than they did in the year that has just ended. The average family man on average earnings who paid, in income tax and national insurance, 27.5 per cent. in 1981–82 will pay after April 28 per cent.
Therefore, only those earning more than £20,000 a year clearly gain from the changes in direct taxation announced yesterday. So much for the Budget for people, the tax cut Budget—and I have not mentioned the impact of the Budget and public expenditure on the likely rate burden and the almost certain rent burden to be imposed within the next few weeks.
The Government have allowed local authority expenditure to increase in money terms by 6 per cent., bat they know that expenditure will increase by a great deal more. My guess is that rates will rise nationally by at least 873 15 per cent. in 1982–83. The Secretary of State for the Environment has already decided that overall local authority rents must be raised generally by a minimum additional £2.50 a week. So much for the Budget for people, the tax cut Budget.
What shall we say about the claim that it is a Budget for industry? No one who has read the Budget submissions of the TUC or the CBI can fail to recognise how massively short, not just of the TUC's proposals, but of those made by the CBI, this Budget falls. The Chancellor will not contest this point made by the CBI:in 1981 the real pre-tax, pre-interest rate of return for non-North Sea and industrial commercial companies fell to just over 2 per cent. , the lowest ever recorded in this country and almost certainly much lower than in any of our main overseas competitors.On the real profits of industrial commercial companies, less payments of tax and interest, the CBI said:in 1980 for the first time on record this total was negative. And we estimate that it remained negative in 1981 and our central forecast will continue to be negative on unchanged policies this year.It was against that background that the CBI called for a cut of two points in the national insurance surcharge, a 15 per cent. business de-rating and, much more important, for action to ensure a competitive exchange rate, including cuts in interest rates.
The real problem is, of course, that we have lost, in international competitiveness, about 30 to 35 per cent. since the Government came to power about three years ago. The question that must, therefore, be considered is how far the one point cut in national insurance surcharge and the other minor measures that the Chancellor announced will go in helping to cut into that massive loss of competitivenes that we have already sustained. Perhaps the Chief Secretary will give us the information, but I should be surprised if as much as 3 per cent. were to be regained by the Budget against the 30 to 35 per cent. loss in competitiveness. So much for the so-called Budget for industry.
Of course, this Budget has not been launched in a vacuum, but follows three previous Budgets and three years of monetarist madness, which have together inflicted more damage on the economy, industry and people of Britain than anything since the great slump of 1929 to 1931. We know what has happened. In the year that has just ended, in 1981–82 alone, investment in the future and in British industry has fallen by 5 per cent.—fallen from the reduced levels of the previous year. The number of people registered as unemployed has risen from 2.4 million last March to just over 3 million today—a rate of just over 50,000 a month. This year, taxes for the average family with two children, on average earnings, have taken 42.6 per cent. of personal income, compared with 39 per cent. in 1979–80.
Public expenditure, particularly on capital projects, has once again been reduced, including an unprecedented and spectacular fall in the number of houses completed and a further fall in houses started by the construction industry. The Chancellor of the Exchequer's deliberate deflation of demand—whether in the form of reduced public expenditure, increased taxation burdens, high interest rates or an uncompetitive exchange rate—has been at the very centre and core of Government policy. As we all recall, the right hon. and learned Gentleman's justification 874 for his measures last year was that they were the only way to reduce inflation, lower interest rates for industry and thus to prepare the way for that long-awaited sound expansion of the economy and the creation of "real" jobs.
This time last year, interest rates were reduced to 12 per cent. Within three months they rose again to 14 per cent. and then to 16 per cent. They then fell back to 15 per cent. What can we now expect? Of course, we can expect a reduction—surely at least to last March's figure of 12 per cent. But we do not know how long they will stay in that position. In March 1981 inflation stood at 12 per cent. Lo and behold, it is 12 per cent. in March 1982.
That was last year—a year on which, with incredible complacency, the Chancellor of the Exchequer and the Chief Secretary repeatedly congratulate themselves for their judgment and prescience. If they had really anticipated that unemployment would rise by an additional 600,000 between last year's Budget and this, and had foretold that interest rates would not fall below or even be sustained at last year's figure of 12 per cent.—but would rise to the level of 16 per cent., reached last summer—they were remarkably reticent in telling the House. Indeed, they were reticent not only at the time—last March—but in all our subsequent debates on the economy in the past year.
I have described only one year, but if I were to take the three-year period since the general election the record would be—as the House knows—still more appalling. Output is down. The gross national product has fallen by about 6.5 per cent. Industrial output is down still more dramatically, and manufacturing output has fallen by about 20 per cent. Worst of all, that has happened during a period when we have had the full benefit of self-sufficiency in North Sea oil.
That is the background against which the Budget proposals and the prospects must be judged. Only one component remains to complete the picture. I refer to that half of the Budget that the Chancellor of the Exchequer revealed in his statement on 2 December, some three months ago. The House will recall that he then announced an increase of 1 per cent. in the employee contribution to national insurance, to take effect on 1 April. At the same time, he announced the totals of public expenditure in the year 1982–83, the details of which are set out, with minor modifications, in the White Paper published yesterday.
It is, of course, only when those measures are brought into the total picture that the reality of the right hon. and learned Gentleman's measures for 1982–83 can be properly appraised. Here we find the simple answer to the myth of tax cuts in the Budget. It is the extra 1 per cent. increase in national insurance contributions, paid by the vast majority of our people at work, and which yields over £1,000 million, which negates that small relaxation in income tax and other tax payments, over and above the indexation of personal tax allowances that the right hon. and learned Gentleman announced yesterday. It was during our exchanges and debates last December that the apparent £5 billion increase in public expenditure that the right hon. and learned Gentleman had announced was found—on the the Chancellor's admission—to be in real terms no more than was necessary to maintain public expenditure in 1982–83 at the 1981–82 level. That was confirmed by the Chancellor of the Exchequer yesterday and by the contents of the Red Book.
The planning total for 1982–83—allowing for the figure of 9 per cent. for inflation—will be the same as it was last year. Of the total, an extra £1 billion must be allowed for 875 the financing of additional unemployment, and an extra £1 billion to £2 billion must be allowed for the necessary increased support for nationalised industries faced with still deeper recession and enhanced costs. Of course, that will mean cuts in other public programmes of expenditure.
I shall sum up where the Budget and public expenditure White Paper have taken us to. The Budget is broadly neutral on taxation, but the Chancellor of the Exchequer has been forced to make cuts in public expenditure to accommodate the recession costs to which I have just referred. Therefore, unemployment will rise—as the Government admit—by at least another 300,000 during this year. To adapt a famous couplet, the best that could be claimed by the Chancellor for his Budget is:Across the wires the electric message came, the economy is no better, it is much the same.So much for the Government's direct contribution—through tax policy and public expenditure programmes—to the level of activity of the flattened British economy. In the right hon. and learned Gentleman's statement and the Red Book, the gross domestic product is expected to grow by 1.5 per cent. from 1981 to 1982 and, taking the first half of 1982 to the first half of 1983, by 2 per cent. Where does that growth come from?
Consumer expenditure will contribute virtually nothing. According to the Red Book, the main stimulus is to come—surprisingly—from a recovery in private investment and from that interesting category, which represents at least half the increase, "statistical adjustments." The contribution from an increase in exports is more than matched by the anticipated growth in imports. It looks like rather precarious figuring to me. However, let us assume that the right hon. and learned Gentleman achieves his anticipated growth in gross domestic product. By the summer of 1983—four years after the Conservative party was elected to office—gross domestic product will be about 3 per cent. lower than it was when it took over. On the same favourable assumptions, manufacturing output will be about 13.5 per cent. lower over the same period.
No doubt, in this new Thatcher era of modest expectations, the Government will claim and hail such an outcome as an achievement. However, to those of us who have not lost all touch with reality, it will be treated with derision and contempt. Again, this achievement conceals the contribution that the Government have received from North Sea oil in the past three years. There has been a £6 billion bonus in tax yields and an increase in the value of output—between 1979 and 1981 alone—of over £7 billion.
What are the implications for unemployment and of the anticipated growth of gross domestic product? The Chancellor of the Exchequer has told us that productivity is increasing and that productivity per capita has returned to the level that existed three years ago. That productivity is expected to continue to grow, although not at the pace experienced during the past year. Let us assume that productivity stays on the trend of the despised and lethargic 1960s and that there is an increase of between 2 per cent. and 3 per cent.
If that figure were sustained the implication for unemployment is surely obvious. There could be no fall in the number of unemployed. Indeed, the underlying rate would inevitably rise. The only new factors that might mitigate the effects and cosmetically reduce the size of the 876 unemployment register are the type of measures so murkily outlined at the opening of the right hon. and learned Gentleman's Budget speech, which will affect some 100,000 unemployed people, and the more extensive measures announced last December by the Secretary of State for Employment—in other words, the creation on a more substantial scale of precisely those phoney jobs, as opposed to real jobs, that the right hon. Lady and her colleagues so contemptuously dismissed when in Opposition four years ago.
The Chancellor's forecasts for GDP, unemployment and other main aggregates are supported by virtually all the competent and independent forecasting bodies that assist us in these studies—the National Institute, the Cambridge economists, the St. James' Group based on the Economist Intelligence Unit, the London Business School, Simon and Coates, Phillips and Drew and others. But there is a major and additional point. We must now not talk, just about the short term—that is to say, the period up to mid-1983—but we must look at the situation that lies beyond.
The view here is again broadly shared by forecasters as different as the broadly monetarist London Business School and the more Keynesian group based on the Economist Intelligence Unit, as well as by the Government's own forecasts built into the public expenditure White Paper. The message is one that the country and the House should most seriously consider and absorb. Unemployment is here to stay. On the Government's policies, 3 million registered unemployed is to be the new normality for the British people in the 1980s. Not only has this figure been brought about by Government economic and monetarist policy, but it is to be sustained by the continuation of those policies into the indefinite future. At no point and on no occasion have the Prime Minister, the Chancellor or any other member of the Cabinet spoken of even a medium-term commitment to the restoration of full employment.
Yesterday, the Chancellor paid tribute—those tributes were re-emphasised and re-echoed at the beginning of our proceedings today—to his most distinguished predecessor, Lord Butler. I could not help thinking and recalling that Rab was, in his many different roles, a member of the wartime coalition Government and a member of the Cabinet that published and accepted that great commitment enshrined in the 1944 White Paper on "Employment Policy" to sustain full employment in the post-war period.
I recall that statement:The Government accept as one of their primary aims and responsibilities the maintenance of a high and stable level of employment after the war … A country will not suffer from mass unemployment so long as the total demand for its goods and services is maintained at a high level … The Government are prepared to accept in future the responsibility for taking action at the earliest possible stage to arrest a threatened slump. This involves a new approach and a new responsibility for the Stale.That commitment, for the first time in the post-war years, has been abandoned by the Treasury Bench. I challenged the Chancellor to deny it.
Of course, the Chancellor will say that he does not want unemployment. Of course, he will repeat the ritual regrets that we heard from him yesterday. Of course, he will say that there is no contradiction between his professed aim of reducing inflation and reducing unemployment, to which my short riposte isYe shall know them by their fruits".My longer riposte is to use words that will be familiar to the Chancellor and the Chief Secretary to the Treasury 877 in their professional capacity as members of the Bar. They will recall the many occasions when at the end of trials judges have addressed juries in broadly the following terms: "A man must be presumed to intend the natural and probable consequences of his conduct." In other words, it is no good for a villain to brandish a crow-bar, to bring it down on the skull of his victim and then to say that that was not what he meant to do at all, that the victim was an old friend and that he only wished him well.
No. People, including Prime Ministers and Treasury Ministers, must be judged and presumed to intend the natural and probable consequences of their conduct. Is it not a fact that mounting and high unemployment is the natural and probable consequence of throttling the economy with the medium-term financial strategy? Is not the inevitable result of a squeeze on the money supply that business is driven to bankruptcy and firms to liquidation as the cost of borrowing soars beyond their reach? Is it not a fact that, by cutting public expenditure regardless of whether resources of men and material are idle year in year out, the number of people employed, either directly by the public sector or in projects financed by public money, such as housing, will find themselves jobless? Is it not a natural and probable consequence that, regardless of circumstances, a Government pledged to reduce their borrowing requirement year by year will reduce demand in the economy and, therefore, the number of jobs available?
§ Mr. John Townend (Bridlington)
Surely the right hon. Gentleman's point is that unemployment is basically caused by a shortage in demand. Does he not agree that in many areas of industry there is no shortage of demand? For example, there is ample demand in the motor car industry; the problem is that British manufacturers are not building the right cars at the right price.
§ Mr. Shore
If the hon. Gentleman is willing to engage in that argument, I hope that the House will follow it up. Of course, in particular instances there may be a case for saying that there is not a shortage of demand, but what about the economy as a whole? There is more surplus capacity than ever before recorded. If Conservative Members think that that is peculiar to the people of Britain; if they think, as they undoubtedly do, that it is a kind of retribution for enjoying the benefits of full employment and the gradual amelioration of circumstances that come from a welfare State; if they think that over the years the British people have suddenly become corrupt and lazy; how do they explain the fact that unemployment throughout the whole Western world has risen from 8 million to more than 24 million in the last six or seven years?
The point is that there is a lack of demand, not only in Britain but in the world economy. That is the message we have been trying to get into the Conservatives' thick skulls, year in, year out, ever since the first oil shock hit Britain and had to be managed, in spite of all the difficulties—when we did not have a spot of oil ourselves—by my right hon. Friends from 1974 to 1979, and with far better results than we have had in the last two or three years.
§ Mr. Shore
In the light of what I said earlier, was not the real offence of the Leader of the House, when he got 878 into hot water just a month ago, that he spoke with an appalling frankness? He actually said what I have said—that the Government expect, and are planning for, a permanent level of unemployment of 3 million. Is that not what the right hon. Gentleman meant when he said:Britain … must endure much higher levels of unemployment than we have been used to always before in our history",andin the short run, living standards generally can only fall … and for some time to come we shall face the struggle to hold on to something like our present living standards"?That was the right hon. Gentleman's offence but I much prefer a candour of statement than the weasel words that we have had from some of his colleagues.
§ Sir William Clark (Croydon, South)
The right hon. Gentleman said that when his Government were in office they managed the economy much better than we are managing it now. Will he explain how, under his party's economic management, the country was near bankruptcy and also had to go to the International Monetary Fund to be bailed out?
§ Mr. Shore
There were overwhelming reasons for our difficulties. I know them well because I was Secretary of State for Trade in 1974. We had a balance of payments deficit of nearly £4,000 million mainly due to oil but partly due to what we inherited. We did our best to cut that deficit, but we ran out of reserves. In 1976 we had no option but to go to the IMF. That had nothing to do with the nonsense and mythology that the hon. Gentleman and his right hon. Friends have erected and created.
§ Mr. Shore
I will not give way.
I shall make my concluding points about the natural consequences of the Government's actions. Whether it is the judgment of history or whether it is to be the judgment of the electorate within the next 18 months, there is only one possible verdict on the Prime Minister and the Chancellor of the Exchequer and his colleagues on the great crime of the wilful creation of unemployment. That is "Guilty".
What I have just said brings me to the heart of my difference with the Government. The Chancellor sees his task as essentially one of fine tuning a slump. If I thought that that was the task, I would adopt some of the right hon. and learned Gentleman's Budget proposals. I urged reductions in the national insurance surcharge and extra help for high energy users in my response to the Budget 12 months ago, but the right hon. and learned Gentleman rejected those proposals out of hand.
I see the task of the Chancellor of the Exchequer not in terms of accepting or fine tuning the slump, but in terms of overcoming it. The task on which we should embark is the restoration of output and employment in Britain with the objective of the earliest possible return to full employment in our land. That will require a major and fundamental change of direction and of economic policy. It is because I believe that that I set out a week ago an economic statement in which I put the key proposals and the main judgments of the extent of the economic stimulus required, which should have shaped yesterday's Budget.
I have no doubt that we must bury and abandon the medium term financial strategy, if it has not been buried 879 already. I noted what had happened to the various monetary targets that the right hon. and learned Gentleman put before us. They have changed every year, they have been overshot every year and they have been broadened every year. Frankly, I fail to understand the utility of preserving them.
It is essential for interest rates to be cut and for a realistic and competitive rate for sterling to be achieved. Those are necessary first steps to a sustained recovery of output. They must be backed by measures to increase domestic demand, both in the form of increased capital expenditure and increased current expenditure on major social and community services.
§ Mr. Shore
My judgment was that about £9 billion should be spent on increasing expenditure and on what I described as cost restraint measures, including reductions in the national insurance surcharge. On our calculations the public sector borrowing requirement would increase by some £5½ billion. The predictable response of the Chancellor was, is, and will continue to be that any increase in the PSBR is bound to lead to an increase in interest rates and that any increase in demand is bound to lead not to an increase in output, but to an increase in inflation.
The idea that interest rates will be driven up seems to be based on the false notion that there is intense competition in the United Kingdom for capital funds. That is patently not so when British industry is in serious recession. That is true only to the extent that the Government have made it true by abolishing exchange controls and by allowing British capital—much of it the savings of people at work in Britain—to pour across the Channel and the Atlantic to wherever their managers believe the largest return is available.
Since exchange controls were abolished, the outflow of capital has been enormous. In 1978, the last full year of office of the Labour Government, about £4 billion was invested overseas, either in direct or portfolio investment. The total for 1981, based on the first three quarters' return, will be not less than £9 billion. That additional £5 billion could be and should be used to finance the restoration and revival of British industry and employment.
That is one reason why it is our intention to restore exchange controls the moment we have the opportunity to do so. But let me pursue the matter further. I can see no convincing reason, nor have I been presented with any past convincing evidence, to cause me to believe that the PSBR of the kind that I have in mind is something that can be achieved only at the cost of rising interest rates.
It is an obvious irony that the Chancellor's experience in office has been precisely contrary to what he expected and predicted. As he has sought to reduce the PSBR as a percentage of the gross domestic product, interest rates have not fallen, but risen. Interest rates are higher today than when he came to power three years ago, yet the PSBR in the last year of the Labour Government was 5½ per cent. of GDP as opposed to 4¼ per cent. in 1981–82 and the proposed 3½ per cent. for 1982–83.
Furthermore, as the Chancellor knows, and as the CBI stated in its Budget representations, when the British borrowing requirement is put on a comparable basis with that of other countries, it forms a smaller part of gross national product than in Japan, Germany, Italy and now 880 France. It is only because we, unlike other countries, classify and use the concept of PSBR to include the borrowing of publicly owned industries for capital investment and their future growth that we manage to push up PSBR towards the upper end of the international comparative table.
I do not pretend for a moment that the future for Britain is easy or that the achievement of economic success will not involve the greatest effort and utmost co-operation of the British people. That task has become immensely more difficult, given the hideous damage that the Chancellor and his colleagues have inflicted on our economy. What we shall invite our fellow countrymen to join with us in achieving is a programme that seeks to create new jobs, to increase the output and wealth of our society and, above all, to establish a more just distribution of what we have both between different income groups and between private and community needs.
In contrast, what the Chancellor offers, as his Budget confirmed, is a dead end: the continued and massive waste of human and material resources, the absence of hope and the encouragement of division and despair. It is a Budget that we must totally reject.
§ The Chief Secretary to the Treasury (Mr. Leon Brittan)
We have just heard from the right hon. Member for Stepney and Poplar (Mr. Shore) not just a somewhat distorted series of references to the Budget of my right hon. and learned Friend the Chancellor of the Exchequer, but a highly sanitised account of his prescriptions. If hon. Members had taken the trouble to look at the pre-Budget economic statement that the right hon. Gentleman published last week, they would have read a fuller account of what he has in mind.
To the right hon. Gentleman's colleagues, especially those who served with him in the Cabinet, the heat and passion that he brings to bear on these matters must revive old memories. My predecessor, the right hon. Member for Heywood and Royton (Mr. Barnett), has recorded what it used to be like in his book, "Inside the Treasury". He notes that the then Prime Ministerwas just not willing to push Peter, who could be so touchy and ill-tempered and ready to get passionate and thump the table … that everybody was frightened to upset him.To continue the quotation, the right hon. Member's technique apparently wasto behave in as prickly a manner as possible. Better still leave the impression that if you lose you might not only resign but become so convulsed with the strength of your case as to push your blood pressure right up and collapse on the Cabinet table.Having looked at the right hon. Gentleman's proposals, and having heard him put them forward in a somewhat sanitised form this afternoon, I cannot help feeling that I would fear not the right hon. Gentleman's collapse but that of the British economy if he were ever to come to office again.
§ Mr. Chris Patten (Bath)
While my right hon. Friend is talking about the sanitisation of the Labour Parry's budget proposals, will he say a word about the failure of the right hon. Member for Stepney and Poplar (Mr. Shore) to say anything about something called "the national economic assessment", which was supposed to be the central part of those proposals? We do not know whether that is a pay policy or something else.
§ Mr. Brittan
I am grateful to my hon. Friend, who has foreshadowed a point on which I was to touch. I notice with interest that, apart from an attempt to throw a certain amount of dust in our eyes about the Chancellor's proposals, the right hon. Member for Stepney and Poplar was extremely reluctant to talk about the proposals in the Budget. I have not been in the House for as many years as the right hon. Member has, but I cannot remember another speech from an Opposition spokesman that had so little to say about the Budget proposals. That reflects the fact that the Budget proposals were so well received that the right hon. Gentleman felt that the only thing to do was to attempt to distort them slightly and then generally throw mud at the background against which they were presented.
Before the right hon. Member for Stepney and Poplar seeks to intervene, I must tell him that, in general, his assessment of the nature of our economic problem is one that he has put to the House and been debated on a number of occasions. We have often discussed and considered the fact that the present rise in unemployment is caused by historic factors that have been present for the best part of a generation. Labour Members who point the finger and say that the rise in unemployment that has gone on for a generation is caused by the present Government are showing an inadequate understanding of the magnitude of the problem.
The right hon. Member for Stepney and Poplar also fails to ascribe any responsibility for the increasing unemployment to the steady loss of competitiveness in the British economy, caused by the adoption, for the majority of the period in question, of policies on all fours with the one that he once again put to the House.
§ Mr. Shore
The right hon. Gentleman knows that there have been many occasions when both Britain and other industrial countries have lost out in competitiveness with, if he likes, more dynamic and go-ahead competitors, but the adjustment that has been made in the past has been through the exchange rate. It was the doctrinaire pursuit of monetarist policies that drove up the exchange rates and added to the loss of competitiveness of the British economy, as the Chancellor and the Chief Secretary well know. That is why we are 35 per cent. less competitive than we were in May 1979.
The right hon. Gentleman made some allegations about my lack of comment on the Budget. I shall ask two essential questions, which I hope he will answer. First, is unemployment now to go up and stay up, as we suspect? Secondly, am I or am I not right in what I say about the weight of taxation on the broad mass of our people when we aggregate social security contributions with income tax?
§ Mr. Brittan
I was coming to those points, and I shall now do so. The right hon. Gentleman is making a third point that is not correct. I do not accept that the increase in the value of the £ sterling, which he so much deplores, was caused by the monetarist policies—as he describes them—of the Government. The increase in the value of the pound was due almost entirely to factors relating to North Sea oil and not to the monetary policies of the Government.
The right hon. Gentleman has raised a number of points about the Budget, although he has touched on it fairly lightly. He has not examined the policies in the Budget, but has made allegations about it. He began by talking 882 about unemployment and the impact of the Budget on that problem. The statements that he has made about the Budget and unemployment are based on a complete misreading of what is said in this year's public expenditure White Paper. That makes it clear that the figures are not a forecast or a prediction of unemployment in any sense. It clearly says that if developments on pay and world economic recovery are favourable there is a reasonable prospect that unemployment levels will fall.
If the right hon. Gentleman will recall what my right hon. and learned Friend the Chancellor said in answer to questions on 2 December after the public expenditure announcements, he will remember that he said that there had been no significant difference in these matters since then. My right hon. and learned Friend then said that those figures were consistent with the prospect of some fall in the total unemployment figure before the end of financial year 1982–83.
The right hon. Gentleman also ought to know that it is the long-standing practice to adopt as a convention, and no more, for the purpose of estimating public expenditure totals in the White Paper, the assumption in the first year carried over into subsequent years. That is exactly what was done in the last public expenditure White Paper issued by the right hon. Gentleman.
If the right hon. Gentleman is saying that the prospect of an immediate fall in unemployment is not before the House, he is saying no more than what my right hon. and learned Friend and my right hon. Friend the Secretary of State for Employment have frequently said. There can be no doubt that if one is examining the impact of the Budget—which is what we are talking about and about which the right hon. Gentleman is so reluctant to talk—it is in the direction of bringing nearer the moment when unemployment will fall.
The right hon. Gentleman looks askance, but it would be astonishing if a Budget that did the things announced by my right hon. and learned Friend yesterday to give assistance to industry by reducing the cost of employing people did not have an impact in the direction of reducing unemployment at an earlier stage than would otherwise be the case. It is not possible, as the right hon. Gentleman knows, from the practice followed by his Government, to give a forecast of the date on which unemployment will start to fall. That is not something that his Government did, and it was something that the Leader of the Opposition, when he was Secretary of State for Employment, steadily refused to do.
It is inconceivable that if the national insurance surcharge is reduced by 1 per cent. and if there is assistance to the construction industry by way of home improvement grants, that that will not help rather than hinder employment. Who will be carrying out the extra work that will be provided for by the money from the Exchequer for home improvement grants? Who will be assisted by the extra money in the energy package provided by my right hon. and learned Friend, except the firms that are at the moment experiencing difficulty and have had to lay off people? They will be materially assisted by the programme.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The estimating assumptions of 2.9 million unemployed people in Great Britain, excluding Northern Ireland, are for the 883 years 1982–83 to 1984–85, as the White Paper makes clear. This is what the White Paper is all about. Does the right hon. and learned Gentleman repudiate it?
§ Mr. Brittan
I am sorry that the right hon. Gentleman was not able to listen when I explained that the reference to the later years follows exactly the convention in the public expenditure White Paper issued by the Labour Government. It is a conventional assumption carrying forward the unemployment figures assumed for this year. It does not indicate anything at all about future years. I am sorry that I was not able to keep the right hon. Gentleman's attention when I was explaining this matter.
There has been talk of the effect on employment. Only those who are blind to the facts can possibly deny that the measures introduced by my right hon. and learned Friend in relation to the national insurance surcharge and the construction industry, and the measures that my right hon. Friend the Secretary of State for Industry will be amplifying to give assistance to the growth sectors of the British economy, which will lead to the jobs of tomorrow, point in the direction of increasing employment and not diminishing it. It is farcical and fantastic to present anything in a contrary sense.
The right hon. Member for Stepney and Poplar also made much of the tax position. Indeed, some Opposition spokesmen have even suggested that the Budget is, in some sense, deflationary. I find that a fantastic proposition. The tax cuts made by the Chancellor amount to £1,625 million in 1982–83 and to £3,055 million in a full year. On top of that there are the expenditure plans of £350 million in 1982–83 in addition to the £5 billion increase announced in December. Expressed in terms of the public sector borrowing requirement, the £1.3 billion addition that my right hon. and learned Friend announced over and above the level that would otherwise be the case speaks for itself. The percentage of gross domestic product taken in tax, if national insurance contribution and rates are included, will be reduced from 40 to 39.3 per cent.
If one looks at the impact on the individual, the net effect, including national insurance contributions, is beneficial—
Mr. Deputy Speaker
Order. The hon. Gentleman knows that, unless the Minister gives way, he must resume his seat.
§ Mr. Brittan
The hon. Gentleman knows perfectly well that I have already given way several times more than did his right hon. Friend. I am prepared to give the figures in any form that the hon. Gentleman wants. On a full year basis, the effect of the changes on individuals at work is that the personal tax allowances amount to a benefit of £2.4 billion, national insurance contributions are reduced by £1.2 billion, Excise duties are reduced by £0.8 billion 884 and child benefit is increased by £0.35 billion. The net total balance is approximately £750 million. Those are the figures. Of course, the impact on individuals in particular circumstances will vary. My right hon. and learned Friend has not put forward the Budget primarily as a series of tax concessions to the individual. He has sought to present the Budget as one designed to sustain and nurture an economic recovery that has already commenced.
§ Mr. Brittan
No, I shall not give way.
It is for that reason, and for that reason alone, that the bulk of the measures of assistance that my right hon. and learned Friend was able to announce were rightly given to industry and to business to assist growth and to assist the development of the economy and also to assist the recovery from present levels of unemployment.
§ Mr. William Hamilton (Fife, Central)
On a point of order, Mr. Deputy Speaker. The right hon. and learned Gentleman misled the House on personal taxation, and he should withdraw what he said.
Mr. Deputy Speaker
The hon. Gentleman has been here long enough to know that I have no control over the Minister's speech.
§ Mr. Brittan
I have not misled the House. Taxpayers at all income levels are likely to pay a smaller proportion of their earnings in income tax next year. I have said nothing that has misled the House. Opposition Members may choose or prefer to put forward selective figures on other bases, but the figures that I have given are correct. I should like now to proceed—
§ Mr. Shore
The right hon. and learned Gentleman can assist the House. We are simply trying to find out the facts. We are not quoting figures that we have concocted. We are quoting figures put out by the Treasury late yesterday evening. The table for single and married couples gives the charge for 1981–82, including income tax, national insurance contributions and the percentage of total income taken in tax and NIC. It then gives exactly the same figure for 1982–83. In all cases, until the level of £15,000 to £20,000 is reached, the percentage is higher in 1982–83 than in 1981–82. We may be wrong, but the right hon. and learned Gentleman has a duty to explain the matter. To ignore the plea of the House is unbelievable.
§ Mr. Brittan
I have given a detailed set of figures. I have explained the income tax position. I made it clear when we debated the matter earlier in the year that national insurance contributions needed to be increased to finance 885 higher benefit payments. Even taking account of the higher contributions, the right hon. Gentleman gives a misleading account. [HON. MEMBERS: "No."] The lowest and highest paid, the same groups that lost out last year, will still have a smaller overall burden. That is a factual statement. The lowest paid families will also benefit from the increase in family income supplement.
The right hon. Gentleman was really saying in the bulk of his speech that the measures put forward by my right hon. and learned Friend were not enough. It is not the case that he disagrees with them. It is his view that they are not sufficient. The right hon. Gentleman would fling a bucket of petrol on the fire of the economy. That is assumed to work because, contrary to all reason and experience, the bucket is believed to contain petrol of a newly discovered and unique character—it drives the engine, but is not combustible. All the measures put forward by the right hon. Gentleman on behalf of the Labour Party are deemed to have a beneficial effect, but in every case the down side is denied or ignored, however clear the evidence of the past. The past cannot be denied or ignored in that way. Low growth rates have afflicted the British economy for years.
§ Mr. David Winnick (Walsall North)
On a point of order, Mr. Deputy Speaker. As the Minister is clearly waiting to be briefed by his civil servants, may we have a short adjournment until they come back with the information?
§ Mr. Brittan
The right hon. Gentleman's prescriptions ignore the evidence of the past. Low growth rates have afflicted the British economy for many years. We have consistently lagged behind our competitors. Under the Labour Government, average annual growth was barely 2 per cent., yet the right hon. Gentleman now undertakes to provide a 5 per cent. growth rate.
The prospects for employment offered by the right hon. Gentleman are equally ambitious and equally incredible. Every time Governments have tried to deal with the upward trend of unemployment by spending more and borrowing more, as the right hon. Gentleman advocates, the result has been higher inflation. [Interruption.]
Mr. Deputy Speaker
Order. The right hon. Member for Stepney and Poplar (Mr. Shore), when speaking from the Dispatch Box, received a very fair hearing. I appeal to the House to give the same to the Minister.
§ Mr. Brittan
Every time Governments have tried to deal with the upward trend in unemployment, which has continued for so long, by spending and borrowing more, as the right hon. Gentleman advocates, the result has been higher inflation and a diminishing effect on jobs and output. The Labour Government saw the doubling of unemployment, yet the right hon. Gentleman now says that he can create at least 2½ million jobs in five years.
It is all supposed to be different this time, but what has the Labour Party to offer now that makes it so different? The formula offered is not new. It has been tried and found wanting. The effects of higher spending and borrowing are to be checked by price and exchange controls and a deal with the unions. That was precisely the strategy of the Labour Government.
886 I remind the right hon. Gentleman of the result, as we have seen it in action. The result was 27 per cent. inflation, 30 per cent. wage increases, steadily rising unemployment and then the forced resort to the IMF to bail us out. There was then a cut in public spending of 8½ per cent. in real terms between 1975–76 and 1977–78. That is what happened under the Labour Government.
The really significant feature of that period was the intervention of the IMF and the subsequent pursuit of policies which actually led both to lower inflation and to lower unemployment. Yet is is precisely the policies which were then successully pursued that the right hon. Gentleman now denounces. He tells us that it is possible safely to embark upon an inflationary policy of increasing public expenditure and reducing taxation by about £9 billion. He calculates that that would mean an increase in borrowing of about £5½ billion. All experience shows that to suggest that that would lead to anything other than a massive rise in interest rates is a travesty of history. The right hon. Gentleman denies that.
§ Mr. Brittan
No, I shall not give way.
We are told that some of the money borrowed by the Government would go back to the companies, which would then reduce their own borrowing. If that is so, there would be no beneficial impact on output and jobs. We are told that exchange controls would be reimposed to keep money in the country for the Government to borrow. As my right hon. and learned Friend the Chancellor told the House on 11 February, it is clear that the effect upon interest rates of removing exchange controls is very small. The proposition that the reverse effect would be different is therefore unworthy of support.
The right hon. Gentleman then says that there is no need to worry about interest rates because we can abandon the monetary targets, which can be relaxed and forgotten about altogether. If that is true at all, it is true only in the very short term. It is no accident that countries with low interest rates are those with low inflation rates and monetary targets.
In the years after the first oil shock, we enjoyed—if that is the right word—an inflation rate at least double that of Germany. Like the more successful countries, we must maintain monetary targets if we are to bring down inflation and interest rates. This is not some kind of aberration. Governments throughout the world now set such targets. In the United States, Germany, Canada, Switzerland and even in France, that is the position.
§ Mr. Straw
I am very grateful to the Chief Secretary for giving way. On the question of interest rates, now that I have the rare privilege of asking him a couple of questions, perhaps he will confirm what he has so far refused to confirm and what his right hon. Friend refused to confirm yesterday. It seems that the Government are unwilling to answer any questions put to them by the Opposition about personal taxation. Will the Minister confirm that for the average family man on average income the burden of direct taxation—that is, national insurance and income tax—will be a higher percentage of his income in 1982–83 than it was in 1981–82?
§ Mr. Brittan
If the hon. Gentleman thinks that that is a question about interest rates, he has certainly lost me.
The right hon. Member for Stepney and Poplar does not like it, of course, but I am following through the 887 implications of the policy that he has put before the House and showing that the consequences of abandoning the monetary targets are bound to be highly inflationary. The risk of creating extra demand is that it will be spent on foreign goods. The right hon. Gentleman envisages that, to avoid the increase in money supply being spent on foreign goods, there must be a trade strategy to protect the plan from being frustrated by our propensity to attract imports. It is difficult to imagine what distinction there might be between a "trade strategy" and the more familiar "import controls". If we impose import controls, what is to prevent others from setting in place a trade strategy designed to prevent their plans from being frustrated by their own propensity to attract our exports? That would certainly not help British jobs.
Perhaps the proponents of this plan have in mind other inducements, in the form of subsidies or direction, to persuade people to buy British goods. The truth is that with vastly increased borrowing and import controls to prevent foreign competition, and with monetary control abandoned, the inflationary pressures that would build up would be enormous.
It is here that the point made by my hon. Friend the Member for Bath (Mr. Patten) arises, because the only solution that is put forward by the Opposition is the so-called annual economic assessment—the Government, employers and the unions will work out what is to go where and how. However, an incomes policy agreed with the unions appears to be struggling to get out from the deliberately anodyne and bashful proposal of an annual economic assessment.
No doubt we shall also be told how the share of national income going to profits, rents, social benefits and other incomes will be determined. The one thing that we can say with certainty is that an economic assessment of that kind—however wrapped up, however bashful as an incomes policy—will not work, because it is one of a long line of such attempts. There was thesolemn and binding undertakingwhich—I use the words of the right hon. Member for Leeds, East (Mr. Healey)—melted away like butter in the sun.In addition, there was the social contract, of which the right hon. Member for Heywood and Royton has written:The only give and take in the contract was when the Government gave and the unions took.Therefore, the belief that it is possible to deal with the inflationary consequences of rampant monetary growth and of borrowing, on the scale that the right hon. Member for Stepney and Poplar suggests, by some kind of economic assessment is simply cloud-cuckoo-land. We have exchange controls, import controls, incomes policy, and control of profits, rents and so on. It is all very coyly expressed, but it is all there. Then we have a dash of commitment on all sides to industrial plannning to ensure that each major company plays its part in the national plan for recovery.
It is the same mixture of direction and control as before. As the right hon. Member for Down, South (Mr. Powell) has noted in a recent critique of the right hon. Gentleman's proposals—[HON. MEMBERS: "He said 'Vote Labour' ."]. —once there is borrowing on the scale put forward, the only consequence is inflation. The attempt to deal with inflation caused by interest rates soaring as a result of these irresponsible policies can only mean, in the words of the right hon. Member for Down, South, that 888there must be control—comprehensive, thorough. rigorous control of every aspect of the economy".Therefore, let not the right hon. Member for Stepney and Poplar beguile the House or Britain into believing that there is a prospect of reaching prosperity and full employment under his proposals in a free economic society, because there is not. Once we embark on the road advocated by the right hon. Gentleman there is no alternative but the siege economy, which he is reluctant to endorse in full, but undoubtedly puts forward in his document.
§ Mr. Shore
The right hon. Gentleman really must show a little more sense of history and temperance than that. The whole Western world—not only Britain—had full employment without any undue inflationary pressures for three decades up to the great upheaval of the mid-1970s. Germany had less than 1 per cent. unemployment. Therefore, to say that we cannot have full employment and contain inflation without reverting to a kind of siege economy is to talk through one's hat. May I put a last point—[Interruption.] I am sure that the right hon. and learned Gentleman heard the bugles of the fifth cavalry riding to his rescue. Will he answer that point and the one that was put to him a few moments ago?
§ Mr. Brittan
The right hon. Gentleman knows perfectly well that I am not the one who says that inflation and unemployment cannot be dealt with without a siege economy. It is the right hon. Gentleman who is saying that. The references to economic management and economic assessment and all the matters that. I have put forward are from his programme. The inexorable logic of the siege economy emerges from an attempt to deal with the problem of unemployment by building more inflation in the system.
Of course it is possible to deal with unemployment and with the long-term ills of the economy. It is to deal with those problems by improving the competitiveness of the British economy that we have embarked on our policy, and the signs of success are beginning to be increasingly apparent.
My right hon. and learned Friend has put forward a series of measures which are designed to give assistance to the one area of the British economy which can furnish further advances on the road to success—British industry and business.
For the right hon. Gentleman to seek to decry the assistance given to the construction industry—an industry which the Opposition always have on their lips—is a piece of arrant hypocrisy. For the right hon. Gentleman to say that the reduction in the national insurance surcharge will not help economic revival is another piece of arrant hypocrisy. For the right hon. Gentleman to ignore the impact of the measures to help the new technologically-based industries is a piece of blindness or hypocrisy. For him to ignore the changes in the tax system designed to assist enterprise is to ignore totally the measures that my right hon. and learned Friend has taken to assist the recovery of the British economy.
It is painful for the right hon. Gentleman to hear his massive reflationary policies exposed as failures in the past and doomed, if followed, to lead to hyper-inflation and economic collapse. It is painful for the right lion. Gentleman to hear the sustained policy put forward by my right hon. and learned Friend to increase the competitiveness of the British economy and assist recovery. It is 889 because the policy that my right hon. and learned Friend has put forward will assist in recovery, without leading to further inflation and massive problems with interest rates, that it has commended itself to my right hon. and hon. Friends, and to the House and the country.
§ 6.6 pm
§ Mr. Richard Wainwright (Colne Valley)
I hope that during my introductory remarks the Chief Secretary will now get together with the Financial Secretary, because I intend to question him on his failure to own up to his Treasury documents in regard to the undoubted increase in the direct tax burden.
Thanks to an ancient local skill, the largest meat pie in the world was baked and eaten in my constituency to celebrate the recovery of George IV from madness.
§ Mr. Wainwright
George III. I accept correction more graciously than the Chief Secretary does.
Every so often, in the splendid township of Denby Dale, we have nostalgic pie bakings to remind us of those celebrations, and everyone says to everyone else how terrible it must have been for the people of Britain to know that the Head of State was eating his meals off the carpet and thought that cows could fly. They imagine how marvellous it must have been when people suddenly realised that the King was back to normal mental health.
That experience enables me to understand precisely the feelings of Tory wets when the Budget made it clear yesterday that monetary madness had been exorcised and that the whole nonsense of M3 had been virtually banished from the Chancellor's policies and calculations. It must have been a good moment and we cannot grudge Tory Members their temporary demonstration of immense relief.
My only complaint concerns the extremely undignified way in which the heresy was banished, not by a quiet burial or a modest requiem but by the cruel business of exposing it to a derisive caricature, for the Chancellor said that in future he would look at all the indicators and would act accordingly.
Imagine an episode in "Yes Minister" when the Chancellor is seated before a great number of dials and, as almost always happens—and as the Red Book shows—half the dials point to the monetary figures going backward, while the rest of them point to the monetary figures increasing rapidly and alarmingly. There is also the exchange rate, which the Chancellor says he will look at in the future—a very big change—and money GDP. Faced with all that mutually contradictory evidence, the Chancellor flees from the room clutching his forehead and saying that he cannot possibly make head or tail of it—and he will be right. However, that is a rather undignified exit for the sheet anchor of the policy of the past three disastrous years.
Now we can breathe again, because undoubtedly monetary pragmatism now rules. The recommendations of the Select Committee on that subject have at last penetrated the skulls of Treasury Ministers.
It is interesting that regional comments on the Budget have been far more acidly critical than the comments of the moguls who do well out of pretending to represent 890 national industry from a desk in London. Indeed, the nearer to the miserable coal-face of our battered economy, the more pungent the criticism. I am not surprised. Taken with the December measures, which the Chancellor characteristically kept quiet about yesterday, the net effect of the Budget is depressive. No wonder that it gives rise to the official assumption that there will be a further 300,000 unemployed during the coming year.
A particularly impudent part of the Chancellor's speech was his priggish accusation that previous Governments, including those of his own party, hadplundered the store of investment for the future."—[Official Report, 9 March 1982; Vol. 19, c. 730.]How can that lie on the lips of a Government who yesterday published a White Paper on public expenditure showing that we are ruining our higher education? What could be more important as an investment store for the future than training students in the new technologies and educating our scholars and intellectuals of the future? How can a Government who are sabotaging universities such as Bradford, Salford and Aston criticise their predecessors in this way?
In neglecting urgent capital projects, the Government are doing the traditional work of the business shyster who takes on a business that urgently requires a lot of annual repairs but who fails to have them carried out and thus produces fictitious profit figures. He sells out the company when its assets have been virtually brought to ruin. It is therefore not acceptable to us for the Government to claim credit for a Budget which aids industry.
I turn to direct tax. By a mere token recovery of only 2 per cent. in the 17 per cent. rate of inflation, which the Chancellor ignored last year when dealing with personal tax thresholds and allowances, the Chancellor is once again condemning many poor people to paying direct taxation. The thresholds for direct taxation in this country are the lowest of any country in the free world, except Italy which levies a rate of only 18 per cent. on its low thresholds. Even after the Budget indexations, a single earner will start paying 38.75 per cent. direct tax on earnings of just over £30 a week. A man working, with a wife at home, earning only £47 a week will start paying direct tax at the punitive rate of 38.75 per cent. That is the highest rate for starting direct taxation anywhere in the free world except, perhaps, Australia. It is that fact which the Labour segment of the Opposition rightly brought to the attention of the House and which the Chief Secretary refuses to answer.
Table 9, published by the Treasury yesterday, which the Tory press for the most part unfortunately failed to print, makes it clear that after the indexing of pay by a modest 7½ per cent., people on incomes right up to £16,000 will be paying a higher percentage of their incomes in direct taxation as a result of the Budget than they paid during the year 1981–82. If the Chief Secretary wishes to contest the Treasury press release I shall be happy to give him the opportunity to do so.
§ Mr. Shore
The House is in difficulty. An important part of the Budget debate concerns whether overall tax rates have increased or diminished. Obviously that affects what we shall say to the country. We can argue about matters of opinion, but we want, as far as possible, an agreed basis of fact. What the hon. Gentleman has suggested either is the case or it is not.
891 The tables clearly show one thing, but the Chancellor and the Chief Secretary have asserted another. It is the duty of the Chief Secretary and the Treasury team to tell us what is the truth.
§ Mr. Wainwright
I shall be willing to leave off in mid-sentence—I do not have Ministers' obsession with syntax—if the Chief Secretary decides to reply. It may stimulate his efforts if I remind him that the present Prime Minister said in 1977:We pay the highest rate of income tax at the lowest level of income of any country in the EEC. That is the measure of Socialism—the effect on the poorer people of this country."—[Official Report, 29 March 1977; Vol. 929, c. 293.]Whether it is an effect of Socialism or Toryism, it is intolerable to Liberals that the whole basis of the Welfare State should be destroyed by making the poor pay for their own benefits. That is a principle which, given the opportunity by the British people, we shall reverse. It will undoubtedly be one of the first aims of an alliance Government to work towards a position where income tax would cease to be significant to anyone earning less than half national average earnings.
I do not say that as a proud boast, because when I was first elected to the House, which is not that long ago, people needed to bother about income tax only if they were earning more than the full average wage. All that I am saying is that we would struggle to get back to a position where those on half average national earnings would not be subject to income tax.
§ Mr. Harry Ewing (Stirling, Falkirk and Grangemouth)
As the Chief Secretary has not accepted the hon. Gentleman's invitation to confirm or deny the figures that he quoted from table 9, does the hon. Gentleman agree that, for the sake of the record of the House and for the country, we must assume that the figures in the table are correct and that the Chief Secretary does not have the courage to admit it?
§ Mr. Wainwright
That appears to be the position, but I never give up hope and I shall carry on, with the bare tolerance of the House, in the hope that the Chief Secretary will intervene in the next few minutes.
The appalling thing is that all these miseries have been inflicted on the country when it is in an extraordinarily privileged economic position which no previous Government have had the good luck to enjoy. The Government do not have to worry about the traditional balance of payments crises that bedevilled the economic efforts of previous Governments of both parties.
The Government have the incredible gift from Providence of North Sea oil, but all that they are using it for is to maintain an army of 3 million or 4 million in enforced idleness. Meanwhile, the country's physical assets are, in many cases, going to rack and ruin.
Turning to other important matters, we had hoped that, in view of the appalling winter suffered by so many, the Chancellor would find it in his heart to reduce the gas tax. It is not widely known, but it is a fact, that the Government levy a tax of 5p on every therm extracted from the North Sea.
§ Mr. Wainwright
Perhaps I was rash to offer to be interrupted in mid-sentence, because I am referring specifically to domestic gas prices. I referred especially to those who live in the colder and wetter parts of Britain and, more than ever, to those who live in substandard accommodation where they suffer from cold and damp. That the Government's tax on North Sea gas should bring about—there was no other cause—an increase of 23 per cent. in domestic gas prices from April to October last year is a scandal. It is no good trying to palm it off on the British Gas Corporation. It is a direct result of Government taxation. We had hoped to see a reduction in the rise of domestic gas prices.
Another meanness in the Budget is the refusal adequately to uprate child benefit. Even if the Chancellor had been fair and considerate enough to increase child benefit by £1 , which was our proposal and that of many others, he would still not have returned child benefit to the purchasing power that it had when the right hon. Lady entered 10 Downing Street. To deny child allowances in that way seems peculiarly hard.
The sad fact is that all the pratings about monetarism and the new economic outlook and the policy are making no lasting structural improvement either to our industrial relations or to our capacity for output. There may be temporary boons for some privileged people. Unfortunately, there are benefits for some if 3 million or 4 million of their fellow countrymen are idle, but there is no permanent improvement. Ministers are well aware that if ever, by some miracle, the economy is stoked up again and is working properly, we shall find that there has been no improvement in methods of restraining or bargaining over pay and no improvement in basic industrial relations and we shall be struggling to do all that with manifestly decaying industrial assets.
This Budget will not benefit the real economy about which the Chancellor so often speaks. In desperation, many people who are over-taxed, with their real disposable income at 1978 levels, may be driven to the black economy. Only the black economy stands to benefit from this Budget, which we reject.
§ Mr. Nicholas Winterton (Macclesfield)
I wish to raise only two or three points with the Treasury Bench. However, it is a good opportunity for an independent Back Bencher on the Government side to express approval of some aspects of the Budget and at the same time to express criticism of other aspects that he believes will be damaging to some sectors in industry.
The hon. Member for Colne Valley (Mr. Wainwright), and the right hon. Member for Stepney and Poplar (Mr. Shore) who spoke for the official Opposition, were less than reasonable in their criticism of the Budget because, although I have described it as a modestly industry-oriented Budget, it has some extremely good features. My right hon. and learned Friend the Chief Secretary to the Treasury was correct to criticise the right hon. Member for Stepney and Poplar for failing to tackle the details of the Budget in his speech. I do not believe that the hon. Member for Colne Valley, who spoke on behalf of the Liberal-SDP alliance, reflected the views of many small business men and industrialists who have in the past 24 hours welcomed the Budget—even if it be only lukewarm welcome—because it is moving in the right direction. It would be wrong not to admit that much more ground must 893 be made up, but I hope that my right hon. and learned Friend does not accept all the criticism and believe that the Opposition feel that there is no good in what was announced yesterday.
A matter close to my heart is the caning that the beer industry has had from my right hon. and learned Friend the Chancellor of the Exchequer. I declare an interest as non-executive chairman of CAMRA (Real Ale) Investments PLC. The House should be aware of the savage increases that the brewing industry has had to take by way of extra tax since the Government came to office. In the 1981 Budget my right hon. and learned Friend the Chancellor increased the tax on beer by almost 40 per cent., which was well ahead of inflation. That biggest ever Government increase added between 4p and 5p in Excise duty and VAT to the price of a pint of beer. Is my right hon. and learned Friend aware that the industry is a substantial employer? It employs tens of thousands of people not only in breweries but in pubs and off-licenses. In the past two years, as a result of increases in excise duty and VAT, the consumption of beer has gone down by 3 million pints a day. We have seen the effect of that on the revenue that the Government receive from the brewing industry.
The beer drinkers' tax burden has almost doubled since the Government came to power. I warn my right hon. and learned Friend that he is in danger of throttling the goose that laid the golden egg. I appreciate that the increase this year might have been larger and perhaps we should be thankful for small mercies. However, in the way that this sector of the economy is being caned, there is a limit to the burden that it can accept. I hope that that message is taken well and truly on board.
If we add to that the proposal that the licence fee for 5p and lop gaming machines will be increased in clubs and pubs, I assure my right hon. and learned Friend, sadly, that that will result in the closure of pubs in certain areas which currently operate only on a marginal profit. It will also create great problems for clubs. Perhaps again we should be grateful for small mercies in that the Government did not introduce an ad valorem tax on gaming machines. I am grateful for the attention that the Treasury paid to the representations that were made about that proposal.
However, many areas are served by pubs that operate on a touch and go profit margin. The additional burdens could well drive those establishments out of existence, thereby creating a vacuum of facilities both in urban and rural areas. I hope that my right hon. and learned Friend will take that message to my right hon. and learned Friend the Chancellor so that he does not believe that this goose can continue to lay golden eggs. He will know from his returns that the amount of excise duty and VAT is down substantially and that his increase, although it may temporarily bring him additional resources, could well result in a fall in revenue from this sector of the economy.
Having got that hot potato off my chest, may I say that the overall package of proposals for small businesses is warmly to be welcomed. The extension of some schemes announced by my right hon. and learned Friend the Chancellor last year, which have been promoted so brilliantly by the Under Secretary of State for Industry, my hon. Friend the Member for Norfolk, South (Mr. MacGregor), will pay handsome dividends to the 894 Government. Perhaps many of the little trees that have started to sprout from those acorns will produce the upturn in employment that Britain so desperately requires.
It is interesting that the schemes announced by my right hon. and learned Friend the Chancellor, which are an extension of the new training initiative, the community workshops and the work scheme that featured so prominently in the Budget yesterday, were not mentioned by the right hon. Member for Stepney and Poplar today. It would be helpful if we could reduce the dole queue by 100,000, even if those people will be only moderately remunerated, in order to carry out worthwhile community projects. I sincerely hope that we receive the support of the trade union movement for this scheme, because it will give a meaningful purpose to work for many people who are at present out of work and who want to contribute in some way to the community and the economy.
I want to raise one other point of substance, which was raised earlier. Would it not be possible for the Government to look again at the threshold at which those who are out of work through no fault of their own can draw supplementary benefit? It seems grossly unfair that people, particularly over the age of 50, who find themselves redundant—I repeat, through no irresponsible action of their own, but because of the economic problems of the country and, no doubt, of the industry in which they were working—should have to dig into their savings over £2,500 which they had put aside for retirement? It is a disincentive to thrift and saving, and it is an injustice which many Conservative Members hope will be rectified.
Would it not be possible for the threshold to be raised to a figure closer to £5,000? It could be triggered so that when a person over 50 was made redundant compulsorily, he would be entitled to social security if his savings were £5,000 and no more. The figure at which a younger person would qualify for supplementary benefit could be accordingly lower. I hope that this matter can be looked at, and that the trigger sum of £2,500 will be reconsidered. There is a severe injustice here, and I hope that my right hon. and learned Friend will take note of what I say.
I commiserate with my right hon. and learned Friend, because he has been caught slightly with his guard down in connection with the tax tables. Table 9 was mentioned by several Opposition Members. Since this Government came to power, let alone during the past 12 or 24 months, the average family man on the average wage has paid more tax, taking into account national insurance contributions. Perhaps I can help my right hon. and learned Friend. I have not raised the matter to be unhelpful. I hope that he will come clean in this connection, if that is the right expression to use, because the media are well aware of the situation, and certainly I, as a salary earner, am well aware of it. It would be wrong if the Government sought to mislead the House and the country in any way. This Government are committed during their term of office to reduce the overall burden of direct taxation.
§ Mr. Robert Sheldon
In the request that the hon. Gentleman is making to his own Front Bench to give the figures, will he also take into account table 10? Two tables are involved, as I am sure he knows.
§ Mr. Winterton
The right hon. Gentleman is speaking through me to the Chief Secretary on the Treasury Bench, who has perhaps got the message that both tables 9 and 10 should receive attention in the Government's winding-up speech.
895 I welcome the Budget, with some reservations. It is perhaps the first Budget that is moving towards reflation. It has given modest confidence to industry and commerce. It will ensure that industry can maintain its current work force. In 12 months' time, I hope, the desperate unemployment figures will slowly begin to come down. The various measures announced for small businesses and the energy package are most welcome. They will bring benefits to industry and commerce. However, it is only a start.
I hope that the British work force, and particularly the trade union movement, will see a glimmer of hope for the future and continue to put in moderate wage demands, so that the economy which has begun to get off the ground can maintain the progress that it is making. Then, as the hon. Member for the Colne Valley said, all our people, whatever their position in life or salary, will benefit from the improvements in the country's economy.
§ Mr. Tam Dalyell (West Lothian)
By leave of the House, I wish to say a few words. Last night, in 15 seconds, I blurted out one sentence at 6.59 pm. In normal times, or at any time during the past 19 years that I have been a Member of the House, I would not make a narrow speech pertaining to the Budget. However, the situation is not normal—at least, I hope that it is not normal—in the constituency of West Lothian. Unemployment there is 24 per cent. Among young people, unemployment is now 40 per cent. in some areas.
That brings me to column. 747 in the Budget speech. My purpose is to engage the interest of Ministers, and particularly of their civil servants, because in my view Treasury civil servants can do something about the situation before it is too late. I wish to bring to the attention of Ministers the proposed closure of MOTEC at Livingston. It was visited by a Select Committee of the House, my hon. Friends the Members for Newcastle-under-Lyme (Mr. Golding), Glasgow, Maryhill (Mr. Craigen) and Thurrock (Dr. McDonald), and also I believe, by a number of Conservative Members, some time ago.
MOTEC of Livingston has a record of 1,500 apprentices, not one of whom has failed external City and Guilds examinations. In fact, it is the flagship of the road transport industry training board's training scheme. For a moment I shall address my remarks to Scottish Members of Parliament. I hope that the Scottish Whip, the hon. Member for Galloway (Mr. Lang), the hon. Member for Perth and East Perthshire (Mr. Walker) and all hon. Members representing the North of England realise that if Livingston is shut there will not be a skills testing centre north of Gainsborough. Livingston serves not only Scotland but the North of England.
I excuse myself for raising this matter in the Budget debate by saying that, unlike Plessey, British Leyland and the International Synthetic Rubber Company, this is a problem of the North. Apprentices come to Livingston for their training from the whole area north of the Humber.
Is it really value for money for the Chancellor to talk about help for small engineering firms? Is it sensible to spend money on the Services—in fact, I do not dispute this—for allowing youngsters to clamber over rocks, while at the same time closing a purpose-built centre which allows them to clamber over vehicles to considerable effect? I, as the constituency Member of Parliament, have 896 visited the facility on several occasions, most recently last week, and I have seen the purpose-built paint shop, the diesel fuel injection pump unit, again purpose-built, £4 million-worth of training machinery with special gadgets whereby faults can be picked out on special simulators, by apprentices. Moreover, there is £2 million-worth of land and buildings.
I particularly welcome the presence of my hon. Friend the Member for Edinburgh, Central (Mr. Cook) on the Opposition Front Bench, because he knows the situation in Livingston, and he knows exactly what I am talking about. Is it not a crying shame that the road transport board should apparently make proposals—as it has done, because the letters of possible redundancy are actually going out—without the Under-Secretary of State for Employment knowing about it? I think that the Under-Secretary of State for Employment did not know that this was the proposal until I put down a parliamentary question.
I am not scolding the Government. I am asking for help on behalf of the road transport committee at Livingston, the chairman of which is Alec Kitson. The local trade unions feel strongly on this issue. They are united with the management. The management has my admiration for having sweated for 10 years to build up this establishment to achieve something. The idea that it can be economically consolidated or merged with High Ercall on the Shropshire border is ridiculous. I have nothing against High Ercall—it has my regard—but it is a different kind of establishment from that at Livingston. Livingston is a craft engineering centre.
I listened hawk-like to the Chancellor and heard him say that there was to be special help for small engineering firms. Among small engineering firms are many garages. The problem is that the levy has been cut. The Scots should be careful, for reasons that each one of us knows. A 44 per cent. cut in the grant for the road transport board throughout Britain means a 90 per cent. cut in Scotland. They can draw their own political conclusions from that. I will not go into it further.
This is a valuable establishment which stands on its own merits. When the Government are getting into expenditure to help small employers, could not the Treasury consult the road transport board before it goes any further? Could it not ask its colleagues at the Department of Employment whether it is wise to go ahead with the sort of scheme outlined in column 747 with the right hand, and with the left hand pass by like a biblical Levite on the other side of the road and say that it is a matter for the road transport board, which must take its own decisions.
The purpose of my speech is to plead with Treasury officials and Treasury Ministers to get in contact with their colleagues at the Department of Employment. They should prepare the Prime Minister for Question No. 4 next Thursday which asks her to visit Livingston. I am writing a long background letter to her because I do not believe that civil servants should waste their time wondering what open questions are about. They should brief the Prime Minister before then.
The Government should consider the situation carefully before 13 April, when the transport board will be making a final decision. We do not want to see the closure of a firm which is precisely the kind of establishment which on their own definition the Government say they want to encourage, at the same time as other schemes which are 897 less satisfactory are set up in non-purpose-built premises. Ministers, particularly the Under-Secretary of State for Scotland who has come in to the House, presumably because he saw a Scottish MP's name on the screen, should interest himself in it. Action would be not just for me as a constituency MP but for every MP, regardless of party, north of the Humber.
§ Mr. David Knox (Leek)
The hon. Member for West Lothian (Mr. Dalyell) has just made a speech about a point obviously of great importance to his constituency. I hope he will not mind if I do not follow the detailed points he made. No doubt he will hear in due course from the Treasury about these matters.
I have been critical of the economic strategy of the Government, and I still am, but it would be churlish not to welcome, and indeed commend, certain features of the Chancellor's Budget. First, I should like in his absence to congratulate my right hon. and learned Friend on the manner in which he introduced his Budget. His was a confident parliamentary performance. Despite the lengh of his speech, which was understandable in the circumstances, he retained the attention of the House throughout. He may not consider that I am being quite so complimentary if I add that his speech was also a highly skilful political performance.
Several of the measures which were introduced deserve a particularly warm welcome. The increase in the retirement pension obviously comes to mind straight away, an increase which covers not only the projected rate of inflation but in addition the 2 per cent. shortfall in the past year. The Chancellor's decision to have second thoughts on the increase in other benefits should be warmly welcomed, as should his decision to exempt the mobility allowance from income tax.
Although I do not think that my right hon. and learned Friend went far enough, I was pleased about the reduction in the national insurance surcharge, which is a step in the right direction to reduce industrial costs, to increase profits and to help slow down the increase in unemployment.
The increase in personal tax thresholds is also to be welcomed. The failure to do so last year caused widespread resentment. The fact that the Chancellor has increased the thresholds by 2 per cent. more than the rate of inflation is all to the good.
Although I welcome these aspects of the Budget, like my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), I think that the parts are better than the whole. Of course it is a much better Budget than last year's. Despite what the Chancellor may say, last year's Budget was deflationary. Despite what the Opposition may say, this Budget is not deflationary. Neither is it reflationary; it is a neutral Budget. At a time when we have 3 million people out of work and when there is massive under-utilised capital capacity in the economy, this is a mistake.
This brings me to the central thrust of the economic policies of the Government over the last three years, about which I have the gravest doubts which remain unaffected by yesterday's Budget. I am not alone on these Benches in having these doubts. It would be surprising if I was, because the economic policies of this Conservative Government are very different from those of all the other 898 post-war Conservative Governments. We think of this particularly today following the tributes paid earlier to R. A. Butler, in my view by far the most successful Chancellor of the Exchequer since the end of the war.
When the Government came into office in 1979 they claimed that the cause of the country's economic problems had been a failure to control the money supply and that if that was done all would be well. It was suggested that when the supply of money increased, prices rose, and that if the supply of money was controlled inflation would be eliminated and somehow everything else would fall into place.
But that was always nonsense—first, because no one knows which measure of money supply should be used; secondly, because no one knows whether, the measure having been chosen, the actual quantity can be accurately determined; and, thirdly, because in any event the velocity of circulation of money cannot be controlled. Monetarism is therefore a policy based on shifting and dangerous sands. I had the impression yesterday, I hope not wrongly, that my right hon. and learned Friend was himself beginning to think that.
Whether the money supply has been under control over the past three years, no one really knows. It will never be known, and it does not matter very much. What matters is that in the past three years the Government have pursued a policy of severe deflation. The results have not been tremendously successful. Unemployment has risen from 1.3 million to 3 million. We have permanently lost a great deal of industrial capacity through bankruptcies, many of them of firms that were very efficient. Manufacturing output has fallen by about 20 per cent. Despite all the claims about increased productivity, manufacturing output per head is up by only 1 per cent. since the Government came to office. Despite the fact that a reduction in the rate of inflation has been the principal aim of the Government's policy, it is today at about the same level as it was when they came to office, and projections suggest that it will remain for some time at a rate considerably above the post-war norm.
I believe that the reason for the lack of success has been a faulty analysis of our economic problems and in particular of the problem of inflation. There are two kinds of inflation—demand-pull inflation and cost-push inflation. Unfortunately, the Government have not distinguished between the two, which call for different policies to right them. Indeed, in answer to an oral question of mine on 30 April last year, my right hon. and learned Friend said that it was not "elucidatory" to make such a distinction. I take a different view.
Demand-pull inflation occurs when total effective demand for goods and services in the economy as a whole is in excess of supply potential. As total effective demand has fallen short of supply potential since 1966, the British economy has not suffered from demand inflation for quite a long time, and it certainly is not suffering from it now, yet the deflationary policies of the present Government, and of the last Labour Government, have been geared to reducing demand inflation.
Cost inflation, on the other hand, takes place when income costs rise faster than output; when indirect taxes and excise duties are increased; or when import prices rise.
There is not much that we can do about increases in import prices. It is regrettable, and often politically unwise, when Governments add to cost inflation by increasing indirect taxation and excise duties. But the main 899 type of cost inflation that this country has suffered, not only during the past three years, but for a considerable time, is income cost inflation. This has been caused by wages and salaries rising faster than increases in output. In the battle against inflation it is this to which the Government should have directed their attention during the past three years and before, rather than the deflation of demand.
Some people argue that income cost inflation exists only in conditions of demand inflation, but that presupposes that we have a perfect market for labour. Clearly we do not, for a number of reasons. First, no one has a complete knowledge of the labour market or job opportunities, nor is there complete knowledge of availability of workers. Secondly, no one has sufficient skills to do all jobs. Thirdly, mobility of labour is hindered by factors such as housing and children's education. Fourthly, and far and away most important, the labour market is distorted by monopolistic forces of trade unions and professional bodies. That means that those monopolistic forces can demand and obtain wage and salary increases which are not necessarily related to the demand for labour, either in general or in specific areas.
That is the main cause of Britain's inflation problem over the past 15 years. How can it be tackled? There are three ways. First, we could deflate the economy to the point where unemployment reached such a level that overall wage and salary increases would be in line with increases in output. That would mean that members of strong unions would still secure increases and members of weak unions and non-unionists would have reductions in their wages. But the level of unemployment at which that would be achieved would certainly be higher than the present 3 million, and therefore would be totally unacceptable for economic and political reasons.
Secondly, we could tackle income cost inflation by attacking directly the monopoly power of trade unions and professional bodies. I would reject that course, as it clearly is not within the bounds of practical politics in the foreseeable future, and it would result in social unrest. In the longer term there may be something in that argument, but in the short term it will not be very helpful.
The third way would be to return to an incomes policy, which seems to me the most acceptable course—or perhaps I should say the least unacceptable course. Of course, an incomes policy will not provide a perfect solution. Of course, it has severe disadvantages, but I know of no perfect solution to any problem, nor do I know of any policy that does not have disadvantages. I also know that the incomes policy of my right hon. Friend the Member for Sidcup (Mr. Heath) restrained income increases considerably during 1972–73 and that the Labour Government's incomes policy had a similar effect from 1975 to 1978.
I readily accept that at present it would not be easy to introduce an incomes policy and obtain the necessary consensus, but the sooner we start to look for such a policy, the better for everyone. I am convinced that if it were put squarely to the people that an incomes policy that was universally accepted and observed would mean lower unemployment, they would embrace the concept with considerable enthusiasm.
I have no doubt that the principal problem facing the country today is the level of unemployment. We all know the devastating effect of unemployment on our society in the 1930s. Although unemployment today does not result 900 in the same economic deprivation, it is doing great social damage. The feeling of not being wanted or needed has undoubtedly embittered many people, especially young people. It has alienated them not only from the mixed economy, but in some cases from democracy itself.
As in the 1930s, today's unemployment has already adversely affected the quality of the lives of many of those concerned. The effect will stay with them all their days. Today's unemployment has undoubtedly damaged the cohesion and stability of our society. Immediate action is required to halt the increase and then reduce the level.
Although in my view a neutral Budget—I think this is a neutral Budget—will stop the rise in unemployment after a certain time lag, it will do nothing to reduce unemployment. That is why the Budget should have been reflationary. That is why it should have aimed to increase the demand for goods and services and so in turn increase the demand for labour
The degree of reflation should have been of the order suggested by my right hon. Friend the Member for Chesham and Amersham—£5 billion to £6 billion. Of course, this sounds a lot but it is really a very moderate amount. We have spare capacity in the economy today of about £40 billion. Trying to take up £5 billion to £6 billion of that in the coming year is scarcely irresponsible. Indeed, it would take seven years of expansion at this rate to use up all the spare capacity and, of course, by then there would have been a further increase in capacity.
I have no desire to be dogmatic about the nature of the reflation I would have liked to see, except that I would have preferred to see it in the form of tax cuts rather than increases in Government expenditure. There is a strong case for a larger reduction in the national insurance surcharge. If it had been reduced further, it could have made a greater contribution than the Chancellor will make to the reduction of industrial costs, increase of profits and reduction in unemployment. In addition, I should have liked to see a reduction in VAT, which would have had a beneficial effect on the retail price index and in turn, one would hope, on wage and salary increases. It would have helped to increase the demand for consumer goods and so increase living standards and reduce unemployment.
Some people argue that British industry is too inefficient to cope with such a rise in demand and that it would merely lead to an increase in imports. I am surprised to find that those who use that argument often in the next breath say that British industry is leaner and fitter than it has been for years. That apart, while accepting that there may be some risk in such a policy, the longer we put off the expansion of consumer demand, the greater will be the risk. If we cannot take risks of this sort now, when we have North Sea oil, we will never be able to do so.
If a reflation of about £5 billion to £6 billion had been introduced in this Budget, as I have implied already, it would have had to be accompanied by some form of incomes policy. We are told today that there is a mew atmosphere and new attitudes in industry. Therefore, presumably, the time is right for the start of talks between Government and all interested parties with a view to getting some sort of consensus on income increases. After all, that was suggested in the manifesto we produced at the last general election.
Even if we do not have reflation, there is surely a case for pursuing such a policy which can only be in the 901 interests of Britain; if we have a greater understanding of these issues and if there is a new atmosphere in industry, surely now is the time to cash in on this.
§ 7.4 Pm
§ Mr. Bruce Douglas-Mann (Mitcham and Morden)
I congratulate the hon. Member for Leek (Mr. Knox) on what was undoubtedly a very brave speech. I substantially agreed with his analysis, although I felt that his conclusions, on the scale of the increase, level of demand recommended and the direction to which it should be applied, were inadequate. I agree that it is possible to eliminate the waste in our economy, in unemployed people and resources and to engage all these capacities for the benefit of the entire society. However, concentrating it on reductions in taxation rather than public expenditure is not the right way.
The hon. Gentleman said that this was a neutral Budget, but I ask him to look at the public expenditure White Paper. The Government have changed their manner of presentation of figures from a presentation in real terms at constant prices to a presentation in cash terms. When one considers the last page of the second volume of the White Paper, one discovers that in order to convert figures in the 1981 White Paper into the figures appearing in the current White Paper, one must add on 41 per cent. The hon. Gentleman will discover that a great many of those things presented as being increases and improvements in the contribution to particular industries turn out to be reductions in overall expenditure. He is wrong in thinking that this is a neutral Budget. He will find, in practice, that the Budget will increase unemployment and is a deflationary rather than a neutral Budget.
I was anxious to speak to express my vehement disagreement with the economic strategy being pursued by the Government, and also to explain why I found it necessary to leave the Labour Party. I relate my remarks particularly to the speech of the right hon. Member for Stepney and Poplar (Mr. Shore) today, to his speech on 28 January and to the economic package he recently presented. I listened with great interest and enjoyment to the right hon. Gentleman's analysis of the Government's policy and I also had little sympathy for the Chief Secretary to the Treasury when he was wriggling and blustering on the hooks of the shafts which the right hon. Gentleman had directed at him in his analysis of the dishonesty and incompetence of the Government's approach to management of the economy.
I had, however, sought something more constructive in the right hon. Gentleman's speech; to indicate how, were a Labour Government to be returned to office, they would be able to deal with the problems of unemployment and restore the economy to a state of which I believe it is capable. This country should be a leader rather than a follower—a provider rather than a supplicant in world economic circles. However, I found little or nothing. He has said practically nothing today on that subject but we have the benefit of the economic package that he presented last week, and of his speech on 28 January.
I left the Labour Party because of my commitment to a rapid reduction in unemployment, to a large increase in public spending in order to restore public services to their former levels and then to a continuing improvement from 902 that base. My commitment on such matters is too great for me to remain in a party whose economic policies have a guarantee of failure built into them.
I agree, of course, that the Government's policies are built on the assumption of a level of unemployment that I regard as degrading for those affected, destructive of our economic future, inhumane and totally unnecessary. They also deprive everyone in Britain, apart from the very rich, of adequate health, housing, education and other services that we all need. They prevent us from playing the part we should be playing in alleviating world poverty.
§ Mr. Douglas-Mann
I will give way in a minute. We should play our part in alleviating world poverty and averting the threats of world starvation. There is a better way of dealing with this and it is not that adopted by the Labour Party or, indeed, the Conservative Party.
§ Mr. John Townend
Does the hon. Gentleman believe the statement he made about health when this Government have increased nurses by 22,000, increased spending on the Health Service in real terms by 5 per cent. and reduced the waiting lists by over 120,000?
§ Mr. Douglas-Mann
I do not accept that. The hon. Gentleman is no doubt better informed on the overall figures but I suspect, when one comes to a detailed analysis, that those figures will not bear out what is asserted. I am very conscious that the waiting lists are growing. Hospitals in my constituency, such as the Cumberland hospital, which had a valuable service, are being closed. Families wishing to visit elderly relatives must travel further and further, and the whole quality of service in the Health Service has deteriorated remarkably during the Government's period in office.
§ Mr. Tom Benyon (Abingdon)
I endorse every word that my hon. Friend the Member for Bridlington (Mr. Townend) said. There are many things wrong with the Budget, but it is not right for the hon. Gentleman to misrepresent the reality of what the Conservative Party has done. One of our major successes is on health. I totally endorse my hon. Friend's figures and one must not misrepresent, by using a little local problem which might be of concern in one's constituency, the national position.
§ Mr. Douglas-Mann
I do not pretend to be an expert on the Health Service. If hon. Gentlemen wish to ask me about housing figures, I will debate them.
However, I receive a great many complaints from constituents and from everyone involved in the Health Service. Doctors plead with me to use my influence in the House—little as it is—to prevent the destruction of the more valuable aspects of our Health Service and to ensure that we sustain the standards of education and higher education in the health service. Everybody that I speak to says that the situation is deteriorating, is dangerous and is alarming.
I return to the main thrust of my speech, which concerns the Labour Party's economic policies and the prescription that we are invited to believe will be presented if the Labour Party is returned to power. The Labour Party's economic policy is based on a massive injection of demand into the economy. I certainly agree with that. However, I do not pretend to be capable of as fine an economic judgment as to know whether the sum should be the £9,000 million mentioned by the right hon. Member for Stepney 903 and Poplar in his economic package, the £8,300 million advocated by the TUC in its programme for recovery, or the £6,000 million referred to by the right hon. Member for Crosby (Mrs. Williams) in her speech in the House on 27 February. However, I suspect that the figure mentioned by the hon. Member for Leek and recommended by the right hon. Member for Chesham and Amersham (Sir I. Gilmour) is inadequate to cope with the problems, for the reasons that the hon. Member for Leek suggested: it will take seven years to absorb the wasted resources.
§ Mr. Douglas-Mann
I accept that. It is a question of fine economic tuning rather than fundamental judgments about the direction in which the economy will move. However, all of those whom I have mentioned agree that we should move towards a substantial reflation of demand. I agree with the hon. Member for Leek that our problems have stemmed from income cost inflation rather than demand inflation. I believe that we need a substantial increase in demand.
Suggested figures for the level of increase have been given from several quarters, and most of them have been fed, on various assumptions, through the Treasury model. On certain assumptions, the larger figure mentioned by the right hon. Member for Stepney and Poplar and by the TUC would not necessarily involve massive inflation. However, a prediction from the Treasury model about the effect on the economy of an additional £1,000 million cannot necessarily be multiplied by eight to ascertain the effect of a £8,000 million injection. Therefore, I am inclined to keep within the lower rather than the upper band of the scale, at least in the early years.
The Labour Party's strategy is based on assumptions that are incapable of realisation. The last Labour Party conference reaffirmed its commitment to free collective bargaining, and to the rejection of any form of incomes policy by an overwhelming vote of acclamation. A minority no doubt dissented, but none of those who disagreed dared to demand a vote, because they knew well that their support in such a vote would be derisory.
In a speech on 28 January, the right hon. Member for Stepney and Poplar said:I fully understand the danger of inflation which will then be created. It is a challenge that we must meet and overcome with the aid of a tax policy, a price policy, and a national understanding, to which reference has been made, with the trade unions."—[Official Report, 28 January 1982; Vol. 16, c. 1022.]The right hon. Gentleman knows as well as I do that if demand is rapidly increased, with no control over money incomes, in the period before our industries can increase their output of goods and services to satisfy that demand, the money will be spent in two ways. First, it will force up the prices of goods and services and, secondly, it will suck in additional imports.
The Labour Party's answer to the second point is import controls, coupled with a commitment to cut ourselves off from the EEC, which provides a market for about 45 per cent. of our exports. The Labour Party has no answer to domestic inflation other than price controls. I have no objection to controls on profiteering, but price controls, with growth in money incomes unchecked, will inevitably lead to rationing and to black markets that are enforceable only in a rigidly controlled economy.
904 Of course, I recognise that the right hon. Member for Stepney and Poplar would like to reach some new form of social contact with the unions and to establish a voluntary incomes policy. Indeed, he implied as much on 28 January. However, even if the union leaders wished, in those circumstances, to deliver—understanding, as most of the more informed of them do, that only an incomes policy will make possible the expansion of the economy that their members so badly need—they will be unable to deliver. It must be remembered that control of much of the middle hierarchy of the trade unions has been seized by unrepresentative militant activists, in much the same way as control of many constituency Labour Parties has been seized.
I opposed the Government's Employment Bill and disagreeed with many of my hon. Friends in the Social Democratic Party in doing so. I concluded that on balance the harm that that Bill would do outweighed its benefits. However, I would support legislation that made the trade union structure more democratically representative, but, I very much doubt whether we shall see such legislation before the next general election. Such a change will certainly not take place if the Labour Party wins that election.
If the Labour Party won the next election and the right hon. Member for Stepney and Poplar became the Chancellor of the Exchequer, he would face a trade union movement, the bulk of whose branch and district officials were implacably opposed to co-operating in any form of voluntary incomes policy. Even if the right hon. Gentleman, in desperation, and with a majority in the House, were to turn to the threat of a statutory incomes policy—whether in the form of an inflation tax, as I would favour, or any other—he would find that his hon Friends would be unwilling to carry it through.
If the Labour Party were to gain a majority in the House in the next Parliament, the political complexion of the Parliamentary Labour Party would scarcely bear contemplation. The candidates being selected now for seats that the Labour Party will have to hold or win if it is to succeed at the next election are, on balance, much more likely to support the views of the right hon. Member for Bristol, South-East (Mr. Benn) than those of the right hon. Member for Stepney and Poplar.
§ Mr. Michael McGuire (Ince)
On a point of order, Mr. Deputy Speaker. Are we discussing the Labour Party and its internal politics, or the Budget?
§ Mr. Douglas-Mann
We are discussing the Government's policies and those presented by the Opposition. We are also discussing whether the Opposition would be able to carry into effect any of its policies. As I have said, their policies have a built-in guarantee of failure. It is perfectly in order for me to elaborate on whether proposals put by the Opposition are likely to succeed. Whether the Opposition have a credible alternative is directly relevant to the Budget and to the economic situation. If the official Opposition have no credible alternative, we must search for other policies. The policies that I advocate will, I hope, provide a solution. We must consider what is happening within the various parties. Indeed, the press has told us today that the wets have been defused as a result of the smokescreen that the Chancellor of the Exchequer put up yesterday. However, I was pleased to note that the hon. Member for Leek was not completely satisfied.
905 I fear that the Parliamentary Labour Party—which has, until now, been the bulwark against the unthought out extremism of the resolutions hurriedly passed through Labour Party conferences—would find that that bulwark had disappeared if the Labour Party were to return to power.
Whether the right hon. Members for Ebbw Vale (Mr. Foot), Stepney and Poplar, Birmingham, Sparkbrook (Mr. Hattersley), Manchester, Ardwick (Mr. Kaufman) or other hon. Members on the Opposition Front Bench wish to remain as nominal leaders of a Parliamentary Labour Party which fairly accurately reflected the current attitudes of recent Labour Party conferences is a matter for them to judge. I am glad to be out of their dilemma.
They are also committed to policies on import controls which must have extremely damaging effects not only on world trade and on our export markets but on the economies of Third world countries. They are committed to leaving the European Economic Community, which will cut off the market for a large part of our exports and destroy our farming industry, because at present Britain is 75 per cent. self-sufficient in food. The Labour Party's own research group concluded that if we are to avoid having crippling subsidies to our farming on leaving Europe—
§ Mr. Michael McGuire
On a point of order, Mr. Deputy Speaker. I realise that men with greater knowledge of the rules of the House sitting directly in front of you will guide you, but I cannot see how labouring this point about Labour Party policies and some of the difficulties we have is relevant to a discussion of the Budget. I appeal to you to call the hon. Member for Mitcham and Morden (Mr. Douglas-Mann) to order and ask him to concentrate his remarks on the Budget.
Mr. Deputy Speaker
Order. I shall deal with one point of order at a time. We are having a debate about the Budget. The hon. Gentleman was commenting on—
§ Mr. Douglas-Mann
The hon. Member for Anglesey (Mr. Best) has made the point that I was hoping to make. If the Labour Party no longer considers itself to be a credible alternative Government, perhaps my points are irrelevant.
We must work on the assumption that the case presented by the official Opposition would be presented to the country and carried into effect if enough Labour Members of Parliament were elected. If the Labour Party were to take Britain out of the European Community it is acknowledged within its own discussion groups that it would be necessary to reduce the output of food from 906 British farms by a third. Instead of being 75 per cent. self-sufficient in food, Britain would then be 50 per cent. self-sufficient. That means that we would be competing in world markets in a hungry world for food that we could be producing ourselves.
§ Mr. Douglas-Mann
If we add to that the virtual repudiation of the NATO Alliance, we have a picture of a Britain totally friendless with soaring inflation and disastrous balance of payments troubles. It is not surprising that Mr. Patrick Wall and his Militant Tendency friends who did not make his mistake of breaking cover before being endorsed by the national executive as Labour Party candidates say that revolution and the seizure of arbitrary power which will bring to an end parliamentary democracy as we have known it is the only answer.
They are right. Under the Labour Party as it stands, and is likely to stand at the general election, revolution is the only way to keep out of the hands of the International Monetary Fund and another bout of deflation and unemployment.
§ Mr. Douglas-Mann
The hon. Member for Ince is trying to intervene, but my points are directly relevant to the alternative economic policy presented by the Labour Party. If that policy is not capable of being carried into effect without either running the country into enormous inflation and the effects Britain experienced in 1976 or the breakdown of parliamentary democracy, it is properly debatable in the House in the context of the economic policy that Britain is to pursue.
If either of those results were to come about—I fear that they would be likely—how could we help solve the problems of world poverty to which the Brandt commission has pointed us? Neither the revolutionaries—
Mr. Deputy Speaker
Order. I am not sure that the Brandt commission appears anywhere in the Budget documents.
§ Mr. Douglas-Mann
With respect, Mr. Deputy Speaker, there are figures in the public expenditure White Paper for the overseas aid contribution that Britain makes to the rest of the world. That forms part of the Budget. The contribution that we can make to the finances of the Third world, and to trade within the Third world, is relevant to the state of the British economy.
As has been repeatedly pointed out, the state of the British economy cannot be isolated from the state of the world economy. In the interests of both Britain and world peace, it is important that the entire world economy should be stimulated. It is unlikely that we shall get such a stimulus either from the present Conservative Government, who have completely ignored the recommendations of Brandt, which are central to economic policy generally, or from the bulk of the Labour Party, which seeks to replace them.
There is a very much better way than that presented by either the Conservative Party or the Labour Party. As the hon. Member for Leek (Mr. Knox) said, we need a substantial expansion of the economy. I wish to see the bulk of that go on public expenditure in our social services, 907 particularly housing, construction, education, the restoration of our industrial infrastructure and the generation of new investment funds.
Incidentally, among more radical measures, I should like to see the use of the ideas promoted by the hon. Member for Surrey, North-West (Mr. Grylls). But these must be coupled with a policy to ensure that the additional funds released use assets that are presently being wasted—the 3 million people unemployed, the empty factories and the disused quarries and brickworks. All those resources are going to waste as a consequence of the Government's deliberate action.
There is a desperate need for a vastly increased programme of public expenditure. Housing is only one example, and it is one on which I shall be happy to accept a challenge from Conservative Members. It is an issue on which the Secretary of State for the Environment has repeatedly refused to make any assessment of the extent of the need. Day after day in my constituency I see the extent to which the Government are failing to meet the housing needs of ordinary people.
Only the other day, I met a constituent who is a single parent with two children, one aged 2½ and the other two weeks. All three share one bedroom, with no bathroom, no hot water, and an outside lavatory in a flat that is damp and smelling of mould. That constituent complained of slugs in both the lavatory and the kitchen. She has 32 points on the housing list, but requires 42 points to have any prospect of being rehoused. She will accumulate one point a year, and would have to wait ten years for the chance of rehousing were it not for the fact that the children are of opposite sex and that after a certain period there will be additional points for overcrowding.
It is an utter disgrace that a country such as ours, with relative wealth, should condemn people to such living conditions, with little prospect of their emerging from them. Such a problem is unlikely to be remedied as a result of the housing figures contained in the public expenditure White Paper, nor will this disgrace be alleviated by the changes announced in the Budget.
If one analyses the public expenditure White Paper and relates it to the figures issued by the Select Committee on the Environment as to likely housing output as a consequence of the figures published last year, and adjusts the figures to take account of the inflationary changes that have taken place, one will find that the probable output will be down rather than up.
Every hon. Member could add his own details to the catalogue of defects and deterioration in our public services. The Government and the Labour Party alike are crippling themselves from solving those problems. That is why the only hope lies in the Social Democratic and Liberal alliance.
§ Mr. Tim Eggar (Enfield, North)
I hope that the hon. Member for Mitcham and Morden (Mr. Douglas-Mann) will forgive me if I do not follow his mea culpa or if I refrain from joining in the fratricidal battle. We must be grateful for one thing. The hon. Gentleman does not appear to think himself capable of entering into the economic battle and argument that is likely to take place in his party and between the two parties of the alliance. After his contribution tonight, I look forward with renewed confidence to the by-election that will take place shortly in his constituency.
908 Yesterday we witnessed the first political Budget that my right hon. and learned Friend the Chancellor of the Exchequer has introduced. I welcome that. I do not criticise it. We were elected to exercise political judgments, not to take part in economic experiments. Sometimes I feel that we have forgotten that.
I notice from the national press today that my right hon. and learned Friend has succeeded in pleasing most of my hon. Friends. We can all pick out certain proposals in the Budget that give us great pleasure. I notice also that neither the wets nor the dries, in popular press parlance, are able to claim a great victory. There is not enough reflation for one group, and the other group has not fully realised that the medium-term financial strategy is destined for oblivion.
I welcome the Budget because of the broad way in which it has approached the problem. I shall pinpoint four detailed measures that I particularly welcome. The first is the continuation of 100 per cent. capital allowances for teletext television sets. That will be of help to the indigenous television manufacturing industry, particularly to Thorn, which is a major employer in my constituency.
Secondly, I welcome the increase in mobility allowance. We have a fine record in that area. I welcome the decision to make mobility allowance non-taxable for disabled people in work. That is the sort of incentive and help that we should give to these unfortunate people.
Thirdly, I welcome the changes in the North Sea oil taxation system. The House has probably underestimated the damage that the Government have done to the level of North Sea exploration and development as a direct result of their taxation policies. I shall look carefully at the detailed proposals to see whether the changes that have been announced give enough assistance to companies that are trying to develop marginal and satellite fields.
Finally, I welcome the closing of the tax avoidance loopholes that can arise through the leasing of various sorts of items. I declare my interest as a banker. I regret having to say that I believe that the major United Kingdom banks have seriously abused the leasing system over the past year. I can only comment in their defence—if defence is needed—that the decision of my right hon. and learned Friend to impose the windfall profits tax last year was unacceptable and un-conservative in its origins. However, I trust that my right hon. and learned Friend and the banks will come to a reasonable agreement about the level of taxation that banks should pay next year, because I recognise that they cannot go on making the profits that they have been making without making a higher contribution to the national Exchequer.
As welcome as those four measures are—and there are others that I support—they are insignificant when compared with the broader macroeconomic picture. As my right hon. and learned Friend made clear yesterday, Britain is unable to isolate herself from world economic forces. We must accept that. Our industries' output, productivity and so on are inextricably linked to the level of world trade. I feel strongly that the level of world trade will be influenced more by factors such as the level of oil prices than by any action that the Government might take. Equally, I feel that the level of interest rates in this country, despite all that has been said, will be influenced more by the level of world interest rates, particularly United States interest rates, than by any action that we may take internally on the PSBR or in any other way.
909 The day after the Budget it is perhaps all too easy to overestimate our ability to control our economic destiny. We must always remember that in this country we are completely at the mercy of world economic forces. We can only temper those forces. We cannot divert them in any way.
My right hon. and learned Friend's speech contained two major decisions. I beg to differ from the first, but I generally welcome the second. My right hon. and learned Friend would have been fully justified in aiming at a higher PSBR than the one that he chose. I should have gone for a figure between £10.5 billion and £11 billion. I say that in full knowledge that, if we compare this coming year's PSBR on a similar basis to last year's, the true level of the PSBR is more like £11 billion than £9.5 billion. That £1.5 billion difference arises, first, because of the £1 billion worth of taxes that should have been collected last year, but will go to reduce the PSBR next year, and, secondly, through what I believe to be a deliberate underestimate of the amount of money that the Government will receive from asset sales.
To a certain extent I agree with my hon. Friend the Member for Leek (Mr. Knox). We cannot deny that we are suffering from a lack of demand in the economy. There are many successful firms in my constituency which have invested and have done everything that we say they should, but which are still operating at 70 to 80 per cent. of capacity. That is for one reason only—a lack of demand.
An increase in the PSBR of a further £1 billion to £1½ billion would help. That should have been done through a further reduction in the national insurance surcharge, through higher personal tax allowances and additional help to the construction industry. That £1 billion to £1½ billion would have had a beneficial effect on the level of demand and output without leading directly to inflation. I noticed with interest this morning that Dr. Alan Budd, who is recognised by many as one of the leading advocates of monetarism, supported my broad line of argument and admitted that he would have liked a higher PSBR.
I make my argument with some reservation and concern, because I recognise that the economic growth that my right hon. and learned Friend predicts at 1½ per cent. is, to say the least, fragile. It is based almost entirely on the assumption that there will be an end to destocking and an increase in restocking. The decision on stocking levels is taken by many business men at different levels throughout the economy. Their decision on whether to restock will depend crucially on the level of confidence. A slightly more expansionary budget would have increased confidence. However, I must admit that a higher PSBR might mean higher interest rates, which might increase the cost of carrying stocks and decrease confidence.
It is worth spending a little time on the argument about the inter-relationship between the PSBR and interest rates, because it is crucial. If all things were equal, clearly a higher PSBR must inevitably lead to higher interest rates, but there is only one certain thing in economics, and that is that all things are never equal for more than about a second at a time. So, to say the least, the correlation is not exact. The empirical evidence points out clearly that our interest rates are influenced far more by the level of world interest rates than by the level of the PSBR.
910 I recognise that this is a matter of fine judgment. There is no absolute right and there is no absolute wrong. The Chancellor has access to many more details and information than I have, and in the last analysis one has to bow to his judgment in this matter, although I state my preference clearly.
A second and more welcome decision that my right hon. and learned Friend took yesterday was much more important, and much more surprising. It can be expressed in seven letters, RIP MTFS—rest in peace the medium-term financial strategy. It was given a courteous but rather brief funeral yesterday. There is no doubt that the funeral oration was lacking. We have to remember that it was my right hon. and learned Friend's sacred belief in the importance of controlling sterling M3 that led to many of the decisions on interest rates and exchange rates that gave us so much difficulty in the past couple of years.
It may have escaped the notice of the House that monetary policy was given less time in the Chancellor's speech yesterday than the section that he devoted to tax havens and company residence. He glossed over it and consigned it to the realms of technicality. It is worth quoting what he said:I propose next to describe to the House how monetary policy will operate in the year ahead. I shall, nevertheless, do so as briefly as I can. The technically-minded will find ample solace in the lapidary prose of the Red Book."—[Official Report, 9 March 1982; Vol. 19, c. 732.]That is rather extraordinary when we remember that this time last year monetary policy was the cornerstone of the Government's economic policy.
§ Mr. Eggar
I did what my right hon. and learned Friend suggested. I went to the Red Book and found that it says in paragraph 2.14:The path shown in Table 5 applies to both broad and narrow measures of money: £M3, (and PSL2), and Ml.In other words, sterling M3 has been ditched as the sole important aggregate. It goes on:The target for 1982–83 implies a significant reduction in recent rates of growth of the wide aggregates. It has been set above the illustrative range for £M3 shown last year"—because they could not reach it—to reflect the changes to savings behaviour and the institutional developments discussed above. The ranges for 1983–84 and 1984–85 will be reconsidered nearer the time.In other words, this is now a moveable feast and the Government will decide what measures they want, when they want them and when it happens to suit them. I do not regret that, but it is a significant change.
Later on, in paragraph 2.16 the Red Book says:Interpretation of monetary conditions will continue to take account of all the available evidence, including the behaviour of the exchange rate.In other words, we have seen in the Chancellor's speech—and this has not been adequately picked out by the press this morning—a dramatic and significant change of policy.
§ Mr. Eggar
I welcome that change, in answer to the hon. Member for Glasgow, Cathcart (Mr. Maxton), because sterling M3 is regulated in importance, pragmatism has won the day and yesterday we saw the triumph of experience over expectation.
911 The control of the monetary aggregate is no more important than it ever should have been. It is a necessary but not a sufficient tool of economic management. I recognise, as do many hon. Members on both sides of the House, that a modern economy cannot be run without using both monetary and fiscal measures. They have to go together. To put one up as of overriding importance, as we did with sterling M3, is a mistake and I welcome that this has been admitted.
Despite everything that has been said in the Budget, and everything that I have said, the most pressing problem that our country faces is that of the level of unemployment. Some of the measures announced yesterday, when combined with the new training initiatives, will help. They put the lie to the accusation from Labour Members that we do not care about unemployment. We have done more for the unemployed than they ever did. We should be happy and proud to admit that.
Having said that, we should not rest on our achievements. We should constantly be looking for new ways to help. Above all, we must not deceive people into thinking that there is any real hope of a significant reduction in unemployment over the next 18 months. Whatever the economic policies put forward by either the Labour Party or the Conservative Party, if any of us pretend that we can, from this place, significantly reduce unemployment in the short term, we are exercising a cruel and vicious deception on the British people.
Nothing that the right hon. Member for Stepney and Poplar (Mr. Shore) says can surprise me. There are no depths to which he is not prepared to sink. But I find it surprising when I listen to the arguments from the other Opposition parties, particularly the SDP, that there are those who find the economic policies suggested by the right hon. Member for Crosby (Mrs. Williams) rather beguiling. She is absolutely economically illiterate. Anyone who can claim that she can create 1 million more jobs in two years for an extra expenditure of £5 billion a year is more of a magician than an economist. I cannot believe that the British people will be foolish enough to fall for that line.
I am sorry that the hon. Member for Gateshead, West (Mr. Horam) is not here, because I feel rather sorry for him. He has tried valiantly to put forward a coherent economic policy on behalf of his party and he has been bounced, for that is the word, by the populism and the economic illiteracy of the right hon. Member for Crosby.
I suspect that in a few weeks, or even months, the Budget will have disappointed the hopes of some of its most vocal supporters. I suspect that it may improve output marginally and have some impact on slowing down the growth in unemployment, but the fundamentals will not have changed. That is not because of the content of the Budget. They would not be any different, whatever the economic policies in the Budget. The fundamentals will not have changed because the lessons of the last 20 years are clear. Government economic policies can do very little in the short to medium term to achieve those ultimate aims that we so much want—full employment and higher output. Those must be our aims. We should not deceive ourselves that the Government can really influence them.
§ Mr. John Maxton (Glasgow, Cathcart)
The acceptance and almost delight of the hon. Member for Enfield, North (Mr. Eggar) in seeing the medium-term 912 economic strategy of the Government deserted is remarkable considering that he has never voted as far as I am aware against a previous Budget presented by his right hon. and learned Friend. I do not see why he welcomes it so grandly when he might have shown his opposition in the past by voting in the Lobbies against the monetarist policies that he now condemns. The hon. Gentleman told the hon. Member for Mitcham and Morden (Mr. Douglas-Mann) that he was awaiting with some delight the by-election in that constituency. I should like to say that following the result of the by-election in Glasgow, Hillhead on 23 March it is unlikely that there will be a by-election in Mitcham and Morden.
§ Mr. Douglas-Mann
Would the hon. Gentleman care to have a word with his right hon. Friend the Opposition Chief Whip to whom I have written inviting him to discuss when a by-election can take place? I remain ready, willing and anxious to fight a by-election irrespective of the result in Glasgow, Hillhead.
§ Mr. Maxton
I am glad to have that assurance. I am glad to know that within a short period the hon. Gentleman will not be representing that constituency.
What we have heard today of the Social Democratic Party's economic policies shows that it attacks the Government for their policies and attacks the Labour Party and the proposal of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) as a mish-mash of all the things that the hon. Gentleman believes to be wrong with the Labour Party. I have heard nothing of SDP plans if it came to power except a cobbling together of different parts of machines to be put together into one machine to be driven down the middle of the road. The best way to start an accident is to drive an unsafe car cobbled together from different machines down the middle of the road. It is a recipe for disaster. That is what the SDP is all about.
Those hon. Members who represent Scottish constituencies perhaps felt some warmth from the Budget speech because there can be few Budgets this century in which so many references have been made to Scotland. I do not know whether most hon. Members noticed these references. Those hon. Members representing Scottish constituencies certainly did. Every so often, when the Chancellor was talking about Britain, there would appear references to Scotland and to Glasgow. Apart from the hon. Member for Perth and East Perthshire (Mr. Walker) and myself there are probably no Members present in the House who read the Glasgow Herald. It has a headline today saying "The Hillhead Budget". It has a cartoon with the Chancellor of the Exchequer holding a bottle of whisky on which it says "Old Tory Vote Catcher—Scotch whisky".
If, however, vote catching was the intention of the Chancellor of the Exchequer and the Government, I have to say that the by-election is either too late or too early. If the by-election was tomorrow the smokescreen put up by the Chancellor in the Budget might have been just sufficient to allow the Conservative candidate in Hillhead to win. In a fortnight's time, when the smokescreen has cleared, most people will be able to make a proper assessment of what the Budget means to them and to the voters in Hillhead.
By that time they will also be paying more for their cigarettes, for their petrol and for their whisky. The increase may not have been as big in percentage terms as 913 that on claret, but people buying a bottle of whisky are not concerned whether the increase is 20p, 30p or 50p. They are concerned that it is an increase and that this week they are paying more than they paid last week. This is what matters to them. The small tax benefits that they may receive from the Budget will not appear in their pockets by the time that the by-election takes place. The Chancellor has badly misjudged matters if he thinks he can win the by-election with this Budget.
Far too many people in Glasgow are unemployed. In my constituency, unemployment among those living in the Castlemilk housing scheme amounts to 25 per cent. of the total population. In certain areas of the housing scheme, the figure is over 50 per cent. Anyone who knows Glasgow will be aware that most Glaswegians like a smoke. I am a recent convert against smoking. I succeeded eight weeks ago in stopping smoking. For the first time ever, I am therefore not adverse personally to the Chancellor putting up the price of cigarettes.
§ Mr. Maxton
That is right. I took my hon. Friend's advice. However, many of my constituents and many constituents in Hillhead, especially those who are unemployed, enjoy a packet of cigarettes. They will resent the increase. Those who are working will also resent it. There have also been increases in the price of beer and drink. The poorer people who own cars have to pay for their own petrol. They will resent the increase in the price of petrol.
§ Mr. Bob Cryer (Keighley)
Will my hon. Friend accept that the Budget is an interesting demonstration of the Government's view of market forces? They always purport to support market forces and want them to have more play. However, when market forces apparently reduce the price of petrol in the consumer's favour, the Government immediately intervene to put up the price of petrol.
§ Mr. Maxton
Yes. Anyone who listened to the Chancellor's speech will know that this is exactly what the right hon. and learned Gentleman said. My hon. Friend is right. His view is that 9p on a gallon of petrol makes no difference because it has come down by that amount in the last few weeks anyway. However, many people had come to like the lower price. It was having an effect on the cost of living, so the Chancellor has put the price back up.
The Chancellor's excuse for putting up Excise duties was that they would be kept in line with the rise in the cost of living. That is not what he says to public sector workers. They cannot have an increase in their earnings to keep pace with the cost of living. They are kept to 4 per cent.
§ Mr. Campbell-Savours
Has my hon. Friend noticed that the reason that the Chancellor implied for raising revenue was that he was worried that additional money might unnecessarily boost demand? His fine tuning has therefore been extended to increasing the price of petrol simply to reduce demand.
§ Mr. Maxton
Yes. I did not catch that point as fully as my hon. Friend. He has a copy of the Chancellor's speech. It makes nonsense of what the hon. Member for Enfield, North said about increasing demand. There is an 914 anomaly in terms of increasing Excise duties in line with the cost of living while not being prepared to take the same attitude to people's incomes.
The Government have made great play of the importance of the construction industry in Scotland, which is linked to housing. Both the Chief Secretary and the Chancellor have made great play with what they are doing for the construction industry. Somehow or other, the Budget is supposed to be a big deal, which will create jobs in that industry and solve the housing problem. I shall examine that first in the light of what the Treasury said in its statement.
The beginning of that statement says:In his Budget Statement, the Chancellor announced measures aimed particularly at helping the construction industry. Last year's Budget included similar measures.I do not know whether anyone in the construction industry would say that he has seen the impact of last year's similar measures. I do not believe that the construction industry in Glasgow or Western Scotland would think that it had benefited from those measures. One must ask, therefore, if the new measures are similar to those introduced last year, whether they will have any more impact.
The Government's White Paper on expenditure plans for Scotland says that between 1982–83—they are now talking in cash terms; they no longer take account of inflation—capital expenditure on housing in Scotland will be £167 million. The figure for last year was £180 million. That is a reduction of £13 million. Is that £13 million reduction arrived at after taking account, as it must, of the £10 million? I am making a rough estimate—£100 million for the Government's energy and renovation proposals, and estimating £100 million for the United Kingdom. Roughly 10 per cent. is allocated to Scotland and that becomes £10 million. If my calculations are correct and if Scotland does not receive that sum, capital expenditure on public sector housing in Scotland will be reduced by £23 million.
Under the scheme set out by the Chancellor for expenditure on improvements in housing, applications had to be received by the end of 1982 to gain any benefit, presumably so that expenditure could be taken up by the end of the coming financial year. Does that mean that next year there will be the same reduction in capital expenditure in Scotland and that it will be £23 million or more, rather than £13 million as it is this year?
If there is to be a net loss in capital expenditure on housing in Scotland of £13 million, Glasgow's share would be reduced by about £3 million or £4 million or more. That must be added to the £13 million reduction on current expenditure on housing. If those figures are correct, there will be no boost for the construction industry in Scotland or the United Kingdom. Instead of extra money being given, so that more work has to be taken into account and more workers will come off the unemployment register, the proposals will prevent a few people from going on the unemployment register. We shall stop people going on the register, rather than bring them off it. More construction workers will go on the dole if £13 million less than this year is spent on housing in Scotland next year.
Will the Minister confirm that that will be the effect? The housing situation in Glasgow is desperate. We have a chronic housing need. Many people are living in damp houses. There is a long-term dampness problem. Constituents have come to my surgery week in and week out for the past month. Five weeks after the freeze they 915 still have no water and are still not back in their own homes because ceilings have not been repaired. The enormous damage done during the severe frost has not been repaired. Those people are living in misery. Also, a gale in Scotland, rising to a force of 105 miles per hour, caused further damage to housing.
Those are short-term problems. If housing authorities in Scotland, especially in Glasgow, must find extra money to pay for that damage out of their own expenditure, any extra money that they receive from the Government will be completely absorbed in carrying out those short-term repairs. No new building will take place. It is extremely unlikely that the long-term problems will be solved.
Conservative Members constantly mention improvements in the Health Service. They make great play about how we have more, presumably qualified, nurses and doctors in the Health Service than ever before. That means, they argue, that there are shorter waiting lists. That is true, but it takes at least three years to train a nurse and five or six years to train a doctor. Therefore, the new qualified nurses and doctors that have come into the Health Service during the past 18 months to two years started their training under the Labour Government, not the present Government. It is hypocritical for the Government to claim the credit for those extra nurses and doctors when they were recruited under the Labour Government.
§ Mr. John Townend
Surely the hon. Gentleman will admit that the present Government have provided money to employ those nurses. Surely he will admit also that waiting lists have been reduced during the present Government's term of office. Although I might accept that training was started during the Labour Government, it is unfair and ungenerous to complain that the Government have reduced the level of the Health Service.
§ Mr. Maxton
For a start, some nurses cannot find a job. The Government have not employed all the nurses that the Labour Government intended should be employed. Of course, if there are more doctors and nurses the waiting lists will be reduced, but the waiting lists have been re-written a little so we must be wary of the figures.
I do not believe that the Government have changed their major strategy. Examining the public expenditure White Paper from a Scottish point of view, one sees that the basic theme of the Government's economic policy is that somehow public expenditure must be cut and money put back into the pockets of those who are likely to invest it in industry to solve all our economic problems. That seems to be the main strand of the Government's economic policy, but it will not solve our economic problems.
Under the Budget, those who make large capital gains will benefit again. There is not much mention of that in the press. Again, it is the rich who benefit from capital transfer tax rather than, as the Government claim, those at the bottom end of the scale. In cash terms, the real benefit is going to the top end. The Government have consistently done that since they came to power. They have given to their rich friends and taken from the poor on the principle that their friends will then pour extra money into the British economy by investing it and the economy will improve as a result.
That is absolute nonsense. It has not worked. There has been no increase in investment—it is falling. The Government have given money away to the rich and there has been no benefit or return for the economy. Their 916 friends have benefited but the economy has not. The more public expenditure is cut, the more private industry is damaged. I wish that the Government would learn that lesson.
I should have thought that in the construction industry, if nowhere else, that lesson should have been learned. How many building companies have gone out of business as a result of the cuts in housing expenditure of the past three years? The answer must be many thousands. Nowadays, even big companies rely increasingly upon Government expenditure and Government contracts to survive. Some are Government contracts from abroad, but it is still public expenditure, whether it is our own or someone else's. The lesson must be learned that nowadays one cannot divorce public and private expenditure as the Government would like because they depend upon each other. If anything, private expenditure depends more upon the public purse for survival than the other way round. The Budget shows that the Government have failed to learn that lesson, and it is time that they went, so that my right hon. Friend the Member for Stepney and Poplar may become Chancellor of the Exchequer and begin to solve our economic problems.
§ Mr. Tom Benyon (Abingdon)
I am grateful for the opportunity to make what I hope will a brief contribution to the debate.
First, I should say that, in the round, I very much appreciate and applaud the Budget. I believe that it was last year's much-reviled Budget that made this one possible. My right hon. and learned Friend the Chancellor has begun to create a proper basis upon which we can build.
There are those who ask the very important question, which the Government seem to find difficult to answer: are people earning £15,000 a year or less better or worse off as a result of the Budget? I believe that indexing levels of income and tax puts people exactly where they were a year ago. It would be illusory to pretend that they will be better off. Nevertheless, I believe that in the main the people of this country will be substantially better off, provided that our industries manage to become more productive, which in turn will lead to increased prosperity and further job security for employees. I believe that my right hon. and learned Friend the Chancellor has created a climate in which this will be possible.
I applaud the comment of my hon. Friend the Member for Enfield, North (Mr. Eggar) that it would be a cruel deception to pretend that the Government can somehow reduce unemployment. I believe that we shall go into the next general election with at least 2¾ million or 3 million unemployed, because we are going through an industrial revolution. I do not know whether we are perhaps too close to events to realise what is happening, but I firmly believe that we are going through an industrial revolution, and no Government of any complexion can do very much about that.
Over the past 15 years, with predictable steps, unemployment has risen. To pretend to our constituents and to the electorate that somehow we can wave a magic wand and solve the problem simply by feeling more compassionate and caring more is the most illusory primrose path down which we can march and it serves our constituents ill. I also believe that our constituents are well aware of that. Politicians have often patronised the 917 electorate, believing it to be more stupid than it is. I believe that our constituents understand the truth when they hear it, and telling them that we can wave a wand and reduce unemployment will be of no help at all to them.
Many of those who, tragically, are unemployed have been so for many years—hidden within our overmanned industries—and it has taken a world recession, which no Government can possibly buck, to make that clear. There is no way in which we can isolate Britain or its unemployment problems just because we care more, when the problems are similar in Australia and New Zealand, on the Continent and in America. We cannot wave a magic wand and reduce unemployment overnight.
I commend to the House an idea put to me by my hon. Friend the Member for Peterborough (Dr. Mawhinney), which I know some of my colleagues have also taken up. My hon. Friend took this step to try to reduce unemployment in his constituency and I have copied it in mine. It is the creation of a small, local enterprise area. I asked the National Westminster Bank whether it would be prepared to lend money to people with good business ideas—several of them unemployed as the unemployed should not be precluded from such a scheme—unsecured, but for charges over the assets of the small businesses thus created. I then asked a firm of lawyers and accountants whether they would give free advice for one year to people wishing to start such businesses. I also asked my local chamber of commerce whether it was prepared to give free advice, and the local college of further education whether it would provide a free administrative course. The package was wrapped up and called "Enterprise Abingdon and Didcot 1982", and I am pleased to say that it worked well.
My theory was that many people with excellent ideas are frightened of going to banks. They do not understand how to put a package together. They do not know whether they should form a limited company, trade as sole traders or form a partnership. They do not know what the building requirements or local authority restrictions on starting a new workshop might be. They need a great deal of help. In Abingdon we had 42 replies, many of which are still being processed by people who put civic duties before profits, and in Didcot last week I had the privilege of handing over the first cheque, for £3,000, to Mr. Ivan Gibbs to start a model aeroplane shop in the High Street. I take this opportunity to wish him very well.
My knowledge of economics is very thin, but when I heard the speech of the right hon. Member for Ebbw Vale (Mr. Foot) yesterday my confidence in my skills as an economist were enhanced. I find the Opposition's approach singularly depressing and arid, when the Chancellor has produced a Budget which, in the main, has met with balanced criticism from many commentators, but is regarded overall as good.
§ Mr. Robert Sheldon
Just to get the picture clear as to the success of the hon. Gentleman's venture, how many jobs does the hon. Gentleman reckon have been created so far?
§ Mr. Benyon
The operation began last month, and out of the 42 inquiries many are still being processed. Until last week, Mr. Ivan Gibbs was unemployed. This is the first job that he has had in more than two years, so that is 918 one job that I have created in my constituency. I shall be happy to give way if the right hon. Gentleman wishes to tell me how many jobs he has created in his constituency.
When I hear the speeches of the Opposition, my courage and confidence in my own economic performance is enhanced. I find it depressing when charges are made against the Government which are patently and simply not true. The idea put forward is that if we pump £9 billion into the economy—or £8 billion or £7 billion—that will create more jobs. I ask people who think that that is possible whether they have considered that investment in plant can lead to less employment, because new plant often means fewer jobs.
I have never heard an argument which would convince me that if £6 billion were poured into the economy it would necessarily go into new jobs. I believe that Sir Terence Beckett is a superior economist to the right hon. Member for Ebbw Vale and that he is right when he says that as our businesses have been reduced in capacity because of the world recession—the economic holocaust that has hit us during the past two and half years—if extra money were put into the economy much of it would probably go into imports and rising prices, as has happened in the past. Therefore, I have yet to be convinced that we could do what has been suggested without its leading to further high levels of inflation.
Our complex social security and tax systems have been built piecemeal and are now in serious disarray. I commend to the House an excellent article written by the hon. Member for Birkenhead (Mr. Field) on 5 March 1982, in which he said thatthe Chancellor will make little mention of the hundred or so tax reliefs—or tax benefits, to describe them more accurately—which exempt more than 50 per cent. of the nation's personal income from tax.Here is an issue on which MPs across the parties should be able to find some agreement. A radical reform of all the tax benefits offers the chance to increase personal freedom. Tax benefits are granted only if taxpayers spend their money in a way which the Government thinks is desirable. Reform offers the chance of cutting the rates of tax—so increasing the taxpayer's freedom of choice—while increasing expenditure on social security benefits.Means-tested benefits build a ceiling over the heads of the poor, thereby cementing them into poverty. Others, like child benefit, act as a floor on which people can build by their own efforts without being penalised. Additional expenditure here allows claimants to spring themselves from poverty. The individual and collective gains on the freedom front should be clear to most taxpayers.I agree with that article without any exception. I hope that the Chancellor and his team will be able to make some strides and try to unpick some of the enormous complications from both our tax and social security system. Only in that way will we get a more sensible system. Lower levels of tax are still too high, and that is one way which will enable us to reduce them.
The complexities of the social security and the tax systems confound experts. Most of our supporters and the well over 1 million small business owners know that the State is still alive and well, still on their backs and in their pockets. We were expected to simplify both those systems and to make tax cuts, which we have not done.
Can we do it? Are we powerless to act? Is the enormous system that we have created so vast that we simply cannot change it? Are we too close to the current systems to see how absurd they are? Is the machinery of government so 919 vast that we cannot make the necessary changes, or have we been "Yes Ministered" out of the intentions that we had before we came into power?
The tax and the social security systems infuriate our supporters, because it is there that the machinery of officialdom is at its most potent. At the moment the scheme is a hotch-potch of anomalies, expensive to run, complex, ambiguous, and regarded with trepidation and hostility by the taxpayer and those on social security benefits. In its application it operates a series of traps to catch the wary and the unwary alike.
I commend the Chancellor for the simplifications that he announced yesterday in the capital gains tax legislation by starting to abolish that tax. I quote from a book entitled "The British Tax System", second edition, at page 239:There is a maze of taxes on different kinds of income, each tax with its own rules for determining taxable income and liability. The interaction between these taxes is difficult to comprehend, and, because of this, is rarely brought out into the open when tax changes are discussed. To take one obvious example of the general problem, in addition to income tax there are distinct and separately administered surcharges on each of employment incomes, investment incomes, and income from self-employment. The first of these is levied non-cumulatively on current earnings of less than a stated amount, the second cumulatively on current earnings of more than a stated amount, and the third cumulatively on preceding year earnings in excess of one amount and less that another amount.Nobody could possibly design such a system on purpose, and nobody did. Only a historical explanation of how it came about can be offered as justification. However, that is not a justification, but a demonstration of how seemingly individually rational decisions can have absurd effects in aggregate. One hopes that the Chancellor will make it an urgent priority to start cutting away some of the thickets which confound many people in Britain, who simply do not understand.
At the other end of the scale, many needy families who rely on benefits do not claim, either because they are too proud or because they do not know their rights. To police this complex system is very difficult and expensive. Many benefits go into the pockets of people who do not need them, but, far more commonly, many needy families do not get the benefits that they need.
I was distressed yesterday by the fact that the Chancellor did not see his way forward to put right the invalidity trap. There are many invalidity pensioners whose incomes are too high for them to qualify for the ordinary rate of supplementary benefit but whose incomes fall below the amount they would receive if they were eligible for the long-term rate of supplementary benefit. As they do not qualify for the former, they can never qualify for the latter. Even though their situation is one of long-term sickness and disability, they are condemned to try to subsist on benefit rates which are below the minimum long-term rate of supplementary benefit set by the Government.
§ Mr. Campbell-Savours
The hon. Gentleman has picked on two areas in the Budget. One is capital transfer tax and the other is the specific area of benefits for those who do not have many assets. May I remind the hon. Gentleman that the Chancellor, while not doing what the hon. Gentleman is now demanding, has allocated almost £170 million additional money to cover capital transfer tax and capital gains tax concessions to the better-off in society? In the light of what the hon. Gentleman was saying, does he think that the Chancellor has the balance right?
§ Mr. Benyon
I am grateful to the hon. Gentleman for raising that point. I am all for simplifying the tax system. That must be done. I am distressed by the fact that the Chancellor did not put right the anomaly to which I referred, although, as I said earlier, I believe that he has done a considerable amount for the worse-off, but I do not think that the Chancellor got the balance right in regard to the invalidity trap.
About 100,000 invalidity pensioners are caught in the trap, and because they happen to be on particular rates of invalidity benefit they can never get on to the high rate of supplementary benefit, which is one of the passport benefits enabling people to get free transport and other forms of assistance which cannot be obtained by people on invalidity benefit. As the costs involved are about £50 million, one hoped that the Chancellor would have felt able to bring it within his orbit and make the necessary concession. I hope that he will see fit to do so as soon as he possibly can.
I believe that the entire crazy system of tax rates and benefits must be changed. We must continue what we had started to do. If we do not do it, who will? If we do not do it now, when shall we do it? The system is complex, unfair, expensive, disliked and misunderstood. I hope that the Chancellor will feel able to do what is necessary at the earliest possible time. It will take a long time to put the system right. I am not saying that it can be done overnight, but, unless we are looking at the problem and facing in the right direction with a plan, it will take 10 years to put it right. If we do not make a start soon, we shall never get there.
§ Mr. Michael McGuire (Ince)
Having sat through most of the debate, I want first to apologise to you. Mr. Deputy Speaker, because—uncharacteristically for me—I was forced to intervene a couple of times and I probably taxed your patience. As some people might say, I took advice. My objection about the broad nature of this debate on the Budget—I think it was shared by one or two Conservative Members—was to some of the comments made by the hon. Member for Mitcham and Morden (Mr. Douglas-Mann). I shall take up the remarks of the hon. Member for Abingdon (Mr. Benyon) because this is a debating Chamber, although we sometimes tend to forget that. He appeared to suggest, when the Opposition and some of his hon. Friends questioned whether the Government had done enough to tackle unemployment, that there is not a great deal that the Government can do to reduce the 3 million unemployed.
The hon. Gentleman quoted figures and I know that they were a riposte to the right hon. Member for Chesham and Amersham (Sir I. Gilmour), a former Cabinet Minister and Lord Privy Seal, who is identified as leading the "wets". The hon. Gentleman said that if £5 billion—the amount suggested by the right hon. Gentleman—will reduce unemployment by a certain amount, why not pump in £10 billion or even £15 billion? The hon. Gentleman appeared to pour scorn on anyone who advocates positive action by the Government.
What will the Government do if unemployment doubles? Will they then say that if there is nothing they can do when 3 million are unemployed there is nothing they can do when 6 million are unemployed? It would be electoral suicide to do nothing to reduce unemployment if it reached such a level. The main thrust of the Budget 921 should have been substantially to reduce unemployment. For that reason alone the Budget is a failure. It is not addressed to the main problem facing the country of more than 3 million unemployed—a figure which is likely to grow.
§ Mr. McGuire
I can see that the hon. Gentleman wishes to intervene. I did not make an intervention as such in his or any other speech. Other hon. Gentlemen have sat patiently, like me, and I do not intend to rob them of their time.
The impression that the ordinary man will get of the Budget—
§ Mr. Douglas-Mann
On a point of order, Mr. Deputy Speaker. Is it in order for an hon. Member to misrepresent what another hon. Member said and then refuse to give way to him?
§ Mr. Douglas-Mann
The hon. Gentleman has misrepresented what I said. I strongly believe that the Government have the power and the capacity to reduce unemployment. Labour Party policy, in many respects, has that objective, but it is crippling itself by its rejection of an incomes policy.
§ Mr. McGuire
I was right to give way to the hon. Gentleman. It was fair to give him the opportunity to make that correction. I did not make it clear that my remarks were directed to the hon. Member for Abingdon who questioned whether £X billion would do the job.
I intend to be brief. Some hon. Members took a long time to say relatively little. I hope that that accusation will not be hurled at me. I recognise that others want to speak.
The main thrust of the Budget should have been directed towards tackling the cancer of unemployment, which is eating away the heart of the nation, and is frightening people. At one time unemployment was considered to be a visitation on what I call my class of people—the unskilled and labouring class. It is now affecting all classes, including the professions. The tragedy is that fear is stalking the land. Those with high qualifications and highly skilled people are terrified of losing their jobs. Confidence has gone. It was the duty of the Government in the Budget to find a way to restore that confidence, but they did not do so.
I do not believe in the class warfare theory. We devalue politics, perhaps more on our side, by introducing arguments about classes. However, the Budget can be fairly described as a middle-class Budget. If it benefits any group it will benefit the higher paid. It ought to have benefited the poor.
My hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) gave details of the unemployment in his constituency and said that it ws 25 per cent. in one part. The tragedy of our present plight is that many of us can match those figures and some of us can beat them. Hon. Members who have been here for a few years will remember that Skelmersdale new town suffered some bad blows when the Labour Government were in power. We lost jobs galore, including about 3,500 in only a few months. The best guess that one can make of our male 922 unemployment rate is that it must be about 35 per cent. We cannot get the exact figures. The percentage is diluted because we are linked with a neighbouring town with a lower unemployment rate. Of course, it would not make the unemployed feel any better if we had the exact percentage rate, but we guess that it is in excess of the terrible figures given by my hon. Friend the Member for Cathcart.
I do not believe that the public were much concerned about whether 4p or 5p was put o the price of a pint of beer. Of course they grumbled, and no politician would say that it does not matter how much tax is put on cigarettes, beer, whisky or petrol, but if people had seen that the revenue drawn from them in that way was to be used to reduce unemployment substantially they would have said that at least it would be well spent. That has not happened and, for that reason alone, the Government stand condemned.
I do not say that Tory Governments welcome unemployment. No one likes taking actions that are electorally unpopular, but I believe that because Tory Governments have a fixation about increased public expenditure, which would be one of the quickest ways of reducing unemployment, they sometimes cannot see the wood for the trees and they make fundamental errors.
In the North-West, the birthplace of the industrial revolution, we have an old industrial system and an overwhelming need for public investment. That would profit the nation. There would be no question of paying one to dig holes and another to fill them in. Imaginative investment in public works would quickly and substantially reduce the terrible level of unemployment.
My hon. Friends and I meet Tory Members as friends and colleagues and no one claims that they deliberately want to put people on the dole. However, although they may not be indifferent or callous, their fixation about public investment stops them implementing the remedies that they know are needed.
If unemployment rose and the cancer got even worse, would Treasury Ministers say that because there was nothing that they could do when the jobless total stood at 3 million there was nothing that they could do when faced with levels of 5 million or 6 million? They would not remain indifferent. Why, then, do they do little more than tinker with the problem when unemployment stands at 3 million? The Government are behaving as the equivalent of the captain of the "Titanic" rearranging the deck furniture while the ship is taking on water after hitting the iceberg. They have not addressed themselves to the real problem but are simply tinkering with it.
§ Mr. Campbell-Savours
My hon. Friend makes an interesting point. Is there not evidence to suggest that the whole free market machine cannot fund the social wage and that what we used to argue in the Labour Party 10 or 20 years ago must change to comply with the new reality? What we were saying philosophically and ideologically is now becoming practical, and increasing numbers of British people, even those who do not vote for the Labour Party, recognise that the system cannot provide for the social requirements of the people. That is perhaps our biggest weapon.
§ Mr. McGuire
If my hon. Friend the Member for Workington (Mr. Campbell-Savours), by that intellectual intervention, means that we cannot have unbridled capitalism and that we must tune finely a mixed economy to bring about that happy result, I agree with him.
923 If one is honest, one admits that even in this Budget there are welcome proposals. I especially welcome the modest increase in the cut-off figure for supplementary benefit to £2,500. However, it must be considered carefully, because we have found that even at that figure the measure will create unnecessary hardship and will rob some people who have been given a reasonable amount of redundancy pay and who have lost their job prospects for life. The proposal is not a panacea but a start. I hope that the Government will work on it.
I hoped that the Government would do something about the death grant. I believe that they have offered to do so. It is now a mockery and it must be increased substantially. I take on board the fact that the Labour Party had the chance to increase it, but we did not and we stand to be condemned for that. However, I remember that when Conservative Members were in Opposition they used to attack us for such matters as not increasing the death benefit.
I especially welcome the decision on the mobility allowance, which was long overdue. The 40,000 people who benefit from it will also be grateful.
A point in the tax system that has never been given sufficient consideration is the age allowance. I address that remark to the Financial Secretary to the Treasury, who is sitting on the Treasury Bench. The age allowance has a long history. Contrary to what many people believe, it does not expressly help retirement pensioners. One does not need to be a retirement pensioner to benefit from it. From answers that I have received to questions that I have put down, the age allowance seems to cost Britain about £400 million a year net. I suggest that there are better ways in which one can use that money.
For example, if I am not fully retired at the age of 65, my personal allowances will be increased per se simply because I am in that age bracket and in a certain income band, even if my wife is many years younger. There are better ways of helping people in that group. If it is designed to help pensioners—which it is not—one could probably increase the retirement pension by about £2 a week for a married couple and about £1.20 for a single person. There are other ways of using that money, but I shall not take any more of the House's time in suggesting them. I merely say that the allowance should be looked at to see whether it is relevant and necessary in today's circumstances. I hope that the Government will provide the answers.
This Budget does not even pretend to deal with the serious problem of unemployment and the poverty that springs from it. However, no doubt it will receive the approval of the Conservative Party. I hope that the people will soon be given a chance to pass judgment, not only on this Budget but on all the other Budgets that have been introduced by the Conservative Party during its three calamitous years of office.
§ Mr. Keith Best (Anglesey)
The House will be grateful to the hon. Member for Ince (Mr. McGuire), because, although he was critical of the Government, he advanced his arguments in a fair manner and complimented certain aspects of the Budget with which he agreed. Sadly, that cannot be said of all his right hon. and hon. Friends. We are therefore all grateful to him for the manner in which he approached this debate.
924 This is a cautious Budget, and I suspect that its effects will be cautious, too. As my right hon. and learned Friend said yesterday, it is part of a step in a long-term approach and one that will involve more than one Parliament. In this House we tend to concentrate on immediate issues arid seek solutions to those issues in the short term, without contemplating any matter beyond the next election. This is the first Government in my memory to look beyond the next election. They decided that the problems affecting our economy need a longer-term solution than has been sought by previous Governments.
I did not have the privilege of knowing the late Lord Butler when he was a Member of the House, but his political philosophy has shaped the way in which I think about politics. When I was beginning to show an interest in politics, Butskellism became part of the political vocabulary of this country. Of course, the situation then was quite different—something that is conveniently forgotten by some hon. Members who criticise the Government for what they are doing today. At that time we had an expanding economy and we were building 300,000 houses a year. The situation was thus quite different from that which exists under this Government—or, indeed, which existed under the Labour Government—as a result of external factors.
Sadly, Butskellism is a dead concept. Many of us would like a greater convergence of policies on major issues between the two major parties, but, unfortunately that is not possible today because of the way that the Labour Party has veered to the Left. When the right hon. Member for Stepney and Poplar (Mr. Shore) delivers his catechism of what he might do, one realises that he would probably not be admitted as a member of the party of Gaitskell. That shows the way in which politics have polarised in this country.
The Government are on extremely dangerous ground. My right hon. and learned Friend the Chancellor can be certain that, unfortunately, even the more sensible aspects of his Budget will not receive universal support from the Labour Party, as might have happened 25 years ago.
Even though Butskellism may be dead, I hope that the ideals of the late Lord Butler are not dead. I should like to examine whether this Budget will enhance those ideals. I ask myself what is needed in a Budget. The Budget should deal with unemployment. Those hon. Members who watch Brian Walden's programme will realise that if the Government are to be re-elected and put their policies into effect in the long term, they must capture the 19 per cent. target vote, 45 per cent. of whom believe that unemployment is the greatest problem confronting, us. In my constituency the rate of male unemployment is approaching 25 per cent.
There is also a need to ensure that those least able to look after themselves as a result of the recession are not made to suffer because of the recession. I investigate in my brief remarks whether the Budget has achieved that. First, I ask about unemployment. The whole House will want to know where the growth is to come from in the period of recession that we are experiencing.
It will not come in the older manufacturing industries. That is why I was glad that there was no more than a 1 per cent. reduction in the national insurance surcharge. There had to be some reduction, because this was a matter on which industry had concentrated. It had become a talisman for industry, so it was right to propose a reduction of 1 per 925 cent., but no more, because it will benefit only older manufacturing industries. Indeed, one-third will go to the public sector, which has almost the worst record.
In Anglesey and in most other parts of the country we need a stimulus for small businesses. I know that my hon. Friend the Member for Luton, East (Mr. Bright) will concentrate upon this. His record in this respect is particularly fine. We need more small workshops, and small business men need more access to loan capital. Without specifying or reiterating what is in the Budget, I believe that it will lead to an improvement in these areas. Perhaps it is not doing as much as some people would like, but, nevertheless, it is making a substantial contribution.
The Manpower Services Commission, along with other bodies, reckons that the number of long-term unemployed is in excess of 1 million. Obviously that problem needs to be tackled quickly. I am glad that a scheme is to be worked out by the Manpower Services Commission to bring the long-term unemployed into doing useful community work.
One of the greatest problems of unemployment is the absence of pride that it can create. There is the feeling of being superfluous to the society in which one lives and therefore a meaningless contributor to that society. This scheme should help to overcome that. Of course, it is not creating real jobs. I sometimes wonder what the rhetoric is about real or unreal jobs. It is necessary to involve people in doing something for the community so that they can feel part of it.
The young workers' scheme has been criticised but Labour Members should acknowledge that there has been a heavy initial demand for application forms. By the second week of December more than 15,000 forms had been sent out in response to requests. That is another matter which should be dealt with carefully, because it will help young people. In Wales we are seeing the largest programme of capital investment ever, which I welcome. It is also right that the Budget should concentrate on housing. In Wales there are 100,000 houses lacking one or more of the standard amenities. There should be more concentration on improvement grants.
The increased capital allocations to local authorities are also welcome, but there is a need for further expenditure on the construction industry, not least because the beneficial effects on employment are disproportionately good when one spends money on the construction industry. It is not necessary to draw up grandiose schemes. The Government should consider such things as grants for improving substandard properties for letting as well as for home improvement. I welcome what is being done there.
I end by saying something about those least able to look after themselves. The whole House will be glad that my right hon. and learned Friend agreed to make good the 2 per cent. shortfall. I suspect that he realised that had he not done so he would not have got his Budget through the House. Quite a number of us on the Conservative Benches would have contributed to that.
However, I am concerned that the 5 per cent. shortfall in unemployment and sickness benefit has not been made good. I am glad that in his statement today my right hon. Friend the Secretary of State for Social Services said that he would reconsider the matter. It comes down to a fundamental question of fairness and whether the House will feel that it has been misled. My right hon. Friend the former Secretary of State said on 30 April 1980 that 926as the employment benefit comes into tax so the rationale for the 5 per cent. abatement ends. It is an interim scheme in lieu of taxation. One will give way to the other."—[Official Report, Standing Committee B, 30 April 1980; c. 526.]I can construe that statement in only one way. I hope that the Government will reconsider the matter and make sure that it is remedied.
I also hope that there will be no haggling over the £2,000—now to be £2,500—income disregard for the purposes of supplementary benefit. That matter must be reviewed constantly to ensure that there is no unfairness.
Politics is not about reality—I suspect that Opposition Members are glad about that—but is about people's perception of reality, even if the two are completely different. If we on the Conservative Benches are perceived as belonging to an uncaring party, we shall be so labelled and we shall not have the support of the electorate. I believe that the Budget and today's statement by my right hon. Friend the Secretary of State for Social Services have ensured that any possible myth about that will be dispelled. The idea that the Government will not succour those in the greatest need will be seen to be a myth which cannot be given credence.
My right hon. and learned Friend the Chancellor perhaps gave the greatest tribute to the late Lord Butler when he presented his Budget yesterday, because in it he was able to satisfy many of us on the Conservative Benches, who were beginning to have doubts, that the ideals of the late Lord Butler are not dead.
§ Mr. Graham Bright (Luton, East)
I thank my right hon. and learned Friend the Chancellor of the Exchequer for putting forward a package that I believe will substantially help to reduce inflation and taxation and assist industry to revitalise our economy. It has taken tremendous courage to pursue consistent policies during the world's worst recession for 50 years.
I particularly welcome the special assistance that my right hon. and learned Friend has given to disabled people by exempting the mobility allowance from income tax. That has been particularly welcomed by many people in my constituency.
I thank my right hon. and learned Friend also for the changes that he is introducing to help charities, but I hope that my hon. Friends will forgive me if I make a special plea to exempt them altogether from VAT. The Conservative Party must support that, because it helps people to help themselves.
The Budget's main purpose is to help industry. The expansion of the economy, which every hon. Member wishes to see, is possible on a sound basis only if industry is free to improve its profitability and productivity, to attract more investment and provide long-term employment. That is clearly the objective of us all. It is right to help industry along that path by cutting the national insurance surcharge. All levels of business, both large and small, will benefit.
I hope that this is the first step towards further reductions of this surcharge. I hasten to add, of course, that this is a tax on jobs and that it was introduced by the Opposition when they were the Government. Therefore, I hope that they will genuinely join us in wishing that this tax is further reduced.
I am even more pleased that the Government have maintained and strengthened their support for small 927 businesses. There is no doubt that the Government have done more than any other in this respect. They have transformed the whole area in which small businesses operate, and raising the threshold for VAT and allowing for deregistration will ensure that very small traders will be kept out of that net.
Small companies will gain extra benefit from the lifting of profit limits on corporation tax. However, I hope that the Chancellor will not rule out the possibility of eventually having a graduated scheme of corporation tax, which will help small businesses still more and, hopefully, iron out the hump that comes in the middle, which discourages the medium-sized company from moving forward.
I know from personal experience the difficulties often faced by small companies in attracting new equity. They will be eased now that unquoted trading companies are to be less exposed to tax on the sell-back to them of shares held by United Kingdom residents. It will be easier in future for full-time directors to get relief on interest due on loans for investment in their companies.
It is important to encourage working directors in small companies to invest in them. I also welcome proposals to increase the annual value of shares that employees can receive and to make it less onerous for employees or directors to take up share options. Conservatives believe that a property-owning democracy is more than an empty phrase and are determined to see real ownership more widely distributed among all those working in industry.
The success of the business start-up and the loan guarantee schemes introduced in last year's Budget has come as no surprise to those of us who pushed hard for them. New funds from outside investors have been tapped by the income tax relief provided for the start-up scheme and the Chancellor's proposals to carry forward any unused balances from this financial year and to double the limit to £20,000 will make this imaginative scheme even more attractive. It could have been still further enhanced by a relaxation of the rigorous conditions imposed by the Inland Revenue under which it operates. If that could be expanded a little more during debate in Committee upstairs, it would help immensely.
The expansion of funds available for the loan guarantee scheme by a further £50 million to £150 million this year and another £150 million next year is a testimony not only to its success in meeting a long-standing need, but to the Government's good sense in backing a proven measure. However, the limit of £75,000 on each loan is too low and excludes too many worthwhile schemes. It would be much more appropriate if we raised that level to help the medium-sized firms, which probably have more potential to expand and certainly more potential to provide employment, to a limit of about £250,000.
The prospects of small companies seeking to generate internal funding and attract external equity or loans have been transformed in the past three years. I hope that my right hon. Friends on the Treasury Bench will give long and careful consideration to the Grylls report, which I commend to the House. It has the potential to help small businesses. It will help all businesses to borrow money and will assist many smaller firms who are paying the extra penalty of corporation tax.
Encouraging production at lower costs with higher productivity is the target at which my right hon. and learned Friend the Chancellor aimed yesterday. The simple solutions of printing money and reckless borrowing 928 have often been tried and they have always failed. Inflation must be defeated to enable us to improve employment prospects.
It is in industry that the battle is being fought, and to industry that every help possible must be given. Small businesses have a large part to play in the campaign. The emphasis placed on both by my right hon. and learned Friend yesterday is the reason why his Budget will be welcomed in the House and in the country. We are on the way to winning not only the battle against inflation, but the war to revitalise the economy.
As a result of my right hon. and learned Friend's tactics and those of the Government, Britain has a great future. I am sorry that I have been unable to say more about small businesses, but this year's package is the third that the Chancellor of the Exchequer has presented for small businesses. As I have said, the area in which small businesses operate has been transformed. We have changed the climate, so that small businesses have much better opportunities than ever before. Indeed, small businesses probably have better opportunities than big businesses. That, I believe, is a step in the right direction.
§ 9.5 pm
§ Mr. Robin F. Cook (Edinburgh, Central)
The twill themes of the Government's record on unemployment and of the tax burden have run throughout the debate and I shall address myself mainly to them. Before I go through the issues involved, I shall refer to the speeches that do not fall conveniently under those two headings.
My hon. Friend the Member for West Lothian (Mr. Dalyell) raised a subject of acute interest to his constituents and to all youngsters north of the Humber. which provides the catchment area for the MOTEC at Livingston. That MOTEC—which I know well—was set up by the Road Transport Industry Training Board and since its construction has been a showpiece for what can usefully be done by the public sector for training in the private sector. In addition, it caters for an industry that is notorious for containing a major proportion of small firms which are unlikely, or perhaps unable, to organise an in-house training programme.
Not only would closure or reduction in the use of the facilities further reduce employment opportunities in, tragically, one of the worst unemployment black spots in Scotland, but it would also remove a valuable training facility, where 70 per cent. of the trainees come from outside Scotland and from the area of England that is north of the Humber.
I hope that the Financial Secretary will answer the detailed questions asked by my hon. Friend the Member for West Lothian, particularly as I understand that he has been given advance notice of them.
My former hon. Friend, the hon. Member for Mitcham and Morden (Mr. Douglas-Mann), spoke at length. I am sorry that he is not in the Chamber, because I should like to put it on record that I was saddened by his contribution. In the past, he and I have collaborated closely on several issues connected with housing policy. We have sat on many Committees dealing with housing legislation. Through the medium of Hansard I should tell him that in the years since then it is not I who has changed, but he. I do not propose to say any more about his speech tonight. On reflection, he will probably agree that that is the kindest thing that I can do.
929 The hon. Member for Enfield, North (Mr. Eggar) was here a moment ago, but has apparently disappeared with meteoric speed. He suggested that the Budget showed the triumph of experience over expectations. As the hon. Gentleman described it as the Chancellor of the Exchequer's first political Budget, it might have been more fitting to say that it was the triumph of expediency over expectations. I regret to have to say in his absence that his exchange with my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) went to the heart of his contribution. It is bizarre that after three years of Conservative Government one of the most regular attenders at our economic debates should speak from the Conservative Back Benches and should welcome the fact that the Government have abandoned the central part of their economic policy. After all, the hon. Member for Enfield, North has been supporting that very same Government for the past three years. If they were so profoundly mistaken in thir central economic plank, the hon. Gentleman surely owed it to the House, to his constituents and to the country to say so more loudly than he has done in the past three years.
The hon. Member for Luton, East (Mr. Bright) could not have expressed my attitude more succinctly or aptly when he said that the Government had transformed the climate in which small businesses operate. Indeed they have. The most notable feature of the change in climate is that small businesses are going out of business at a record rate, topping any level since records began.
I found it curiously fitting that the night before the Chancellor brought his Budget Statement to the House the nation should be treated to the former Paymaster General appearing on television and advising his audience that, while Paymaster General and responsible for Government propaganda, he had been accustomed to writing out set phrases which he then passed to his colleagues in Government in order that they might mouth them together at the weekend, on the engaging principle that what is said often enough must be true.
The right hon. Member for Stratford-on-Avon (Sir A. Maude) may have departed from the present Administration, but plainly his maxim lives on in the Treasury. In the past nine months, the Treasury has given every sign that it is trying to achieve economic recovery by the simple device of telling us every week that it has commenced. It is a process that started with the Chancellor at the end of last July, when, in reply to my supplementary question, he stated:we are now at the end of the recession."—[Official Report, 30 July 1981; Vol. 9, c. 1148.]My colleagues will recollect that when we challenged him on that point in correspondence we received a letter justifying that statement on the basis that, although things were still getting worse, they were not getting worse at quite the same appalling rate that they had been before.
By December, the Chief Secretary had redefined the process of emerging from the recession. He stated to the House during the debate on the December measures that the recovery that the Government were hoping to achieve wasa continued gradual emergence from the low point." — [Official Report, 8 December 1981; Vol. 14, c. 805.]That was possibly the most cautious definiton of recovery that could be advanced by a Minister until I heard 930 the Chief Secretary today. Today, if I understood him correctly—and I wrote down the words as they fell from his lips—the Chief Secretary further redefined recovery as "bringing the moment nearer when unemployment will stop rising."
Recovery is not a process of bringing the moment nearer when unemployment stops rising, nor is recovery when unemployment stops rising. Recovery is the point at which unemployment substantially reduces. Recovery is when the Government succeed, at the very minimum, in getting unemployment back to the level which they inherited. We must set in context all the statements about recovery by examining what has happened to unemployment. What exposes the patter about recovery as the irrelevant rhetoric that it is is the daunting and awesome increase in unemployment over the past year.
Over the past year—a year in which the Chancellor has talked incessantly about recovery—we have seen the numbers of unemployed swell by a figure that is equivalent to the total population of Edinburgh plus the total population of the city represented by my hon. Friend the Member for Blackburn (Mr. Straw). Against that background, any talk of recovery is an offensive complacency. Against that background the House can ask only one question of the Budget: will it raise or cut the level of unemployment?
The Chancellor handsomely padded out his Budget Statement with piddling little measures designed to give the appearance of tackling unemployment. My favourite among those is the change in the tax law that will permit school leavers to start up their own busineses. I would not deny that a few dozen teenagers in Britain may be assisted by that change in the law. We would not wish to stand in the way of that change in the law, but to urge that measure as a serious contribution to tackling a level of unemployment among school leavers which in many areas exceeds 50 per cent. is a sick joke. Morever, it is a sick joke at the expense of some of the most vulnerable and weak sections of our community.
The Chief Secretary criticised the Opposition for being less than enthusiastic about the measures that he had brought in to help the construction industry. I would tell the Chief Secretary, if he were able to be with us now, that the reason why we withhold our wholehearted enthusiastic support for what he has done for the construction industry is that when the modest tinkering that is proposed in the Budget is set against the background of what has happened to the construction industry in the past three years it becomes almost invisible to the naked eye.
Ironically—unfortunately for the Chief Secretary—on the day on which the Chancellor made his Budget Statement, the Department of the Environment unveiled figures for construction output last year. It is the kind of mistake that the right hon. Member for Stratford-on-Avon would have avoided when he was Paymaster General in charge of propaganda. In the past three years, construction output in Britain has declined in real terms by £2 billion.
For the Chief Secretary to invite us to be grateful because he is putting £170 million back after that massive cut is to take a neck of brass to urge the House to endorse what he has proposed. In particular among those cuts is the collapse in the council house building programme, which now runs at a rate lower than at any time in peace during the past 50 years.
I therefore return to the question that I posed. Will unemployment rise or will it fall? The answer is provided 931 in the public expenditure White Paper. Unemployment will rise. Page 50 tells us that this coming financial year unemployment, excluding school leavers, will be 2.9 million in Britain compared with 2.6 million last year.
I did not understand the Chief Secretary's response to the intervention of one of my hon. Friends. He said that those figures were working assumptions, not forecasts. We understand that. We appreciate that they are provided by the Government Actuary as working assumptions. Nevertheless, we are entitled to ask whether the Chief Secretary thinks that those working assumptions are reasonable, or whether he thinks that they are wrong. If they are wrong, why has he connived in the publication of a public expenditure White Paper that is based on those working assumptions? If they are not wrong—if they are a reasonable working assumption—the House is entitled to take the message from the White Paper that we shall witness a further increase in unemployment in the coming year of between 250,000 and 300,000.
In a powerful speech, my hon. Friend the Member for Ince (Mr. McGuire) posed a pertinent question to the Treasury Bench. I hope that the Minister will answer it when he replies to the debate. If they believe that we can tolerate a level of unemployment of 3 million, at what level do they believe that we can no longer tolerate unemployment? What rise in unemployment is necessary to oblige them to change their reluctance to act to reduce the level of unemployment over which they have presided?
Let the House be under no illusion. One of the reasons why the unemployment figure has gone up is the deliberate action of the Government in operating a tight fiscal judgment over the last three years. Indeed, alone among the major countries that belong to the OECD, this Government have responded to recession by sharply tightening their fiscal judgment. In each of the last three years, they have operated a fiscal judgment three times more restrictive than the average for the other seven largest members of OECD.
This year, we witness a further turning of the screw with a provision that the PSBR will fall by a full 1 per cent. over the next year. As we go along that path, accelerate and put on steam towards the rocks, we hear the dulcet tones of the Prime Minister congratulating herself that she has paid no attention to what she described as the "siren voices" of those who warn us that she is heading straight for those rocks.
We are entitled to say something about those siren voices, which in the past have sounded from the Conservative Benches—those Conservative Members who have not been wholly enamoured of the strategy on which the Government have embarked. Last year, after the Budget, member after member of the Conservative Party summoned up his courage, took it in both hands and, cupping those hands to his mouth, whispered in various ears in the Lobby that he disagreed with the Budget. Some Conservative Members went further. They threatened to do terrible things. They said that they would not stand for it and that they should be consulted. They said that if they had been consulted, the Budget would have been different.
This year the Cabinet had that consultation. Those of the sirens that survived were able to be present at the consultation. After that process of consultation and after the markers that were put down last year, what has happened? The House is faced with a fiscal judgment that is tighter than the one about which Conservative Members complained last year. What will they do about that? On 932 the basis of the debate and on the basis of the press comments this morning, the answer is "Nothing". The evidence of tonight suggests that those who were only too anxious to condemn the Budget judgment last year will aquiesce in silence to the Budget judgment this year, worse though it is than last year.
It must be put on record that no term ever invented by a politician for his or her opponents has turned out to be more accurate than the term "wets" which the Prime Minister used to criticise her critics in the Conservative Party. The term aptly sums up their response to the way in which she has ignored criticism that has been made by Conservative Members.
I turn from one of the main aspects of the Budget debate, which is unemployment, to the other aspect that has concerned hon. Members who have taken part. That is the impact of the Budget on the nation's tax burden. That point was raised by a number of hon. Members, including the hon. Members for Macclesfield (Mr. Winterton) and Colne Valley (Mr. Wainwright) and some of my colleagues.
In the first three years of the Government the tax burden on the nation increased from 35 per cent. to 40 per cent. of the national income. I noticed that when the Chief Secretary addressed the House he invited us again to congratulate him on reducing the total burden from 40 per cent. to 39 per cent. this year. It is now only four percentage points higher than when the Government embarked on office. No doubt next year we will be treated to one of the delightful bar charts that the Chancellor of the Exchequer used to illustrate his party political broadcast yesterday. He will use those charts to show how successful he has been in reducing the burden of taxation from the high level to which he hoisted it in the first place, as he did with inflation last night.
The Chief Secretary got himself into a lot of trouble in. trying to estimate what had happened to personal taxation as a result of the Budget. [Hon. Members: "Where is he?"] I can understand that the Chief Secretary has possibly been mugged in the course of the last three hours and is concealed in a closet in the building across the road in case he feels tempted to intervene in the closing stages of the debate. However, we are encouraged to have the Financial Secretary with us because some of us noticed that he took considerable interest in that passage of the Chief Secretary's speech. He not only retired to consult those in the Chamber but retired without the Chamber to consult them in further detail.
While we understand that during a set speech from which the Chief Secretary could not depart he could not respond to the questions that were put to him, I warn the Financial Secretary that the House will not understand if he fails to respond in detail to those questions when he replies to the debate a full five hours later.
The Chief Secretary was invited to confirm or deny no more than a press notice that was issued by the Treasury yesterday. That press notice includes a table that states clearly and unequivocally that for every household with a couple on an income of less than £20,000 the effect of the increase in the national insurance contribution is to more than wipe out the benefit from the cut in income tax. Similarly, for every single household with an income of less than £10,000, the effect of the increase in the national insurance contribution is to more than wipe out the effect of the tax cut.
933 I can go further. I have today consulted the Institute of Fiscal Studies, which has applied the Budget changes to its own models. The intriguing result is that one requires an income of £30,000 before one comes out well off as a result of the Budget. Anyone earning less than £30,000, which I am bound to say means the great bulk of my constituents, is worse off as a result of the Budget. It is instructive to note that once again the relative distribution of the burden protects those who are most wealthy.
The household on average pay is 1.33 per cent. worse off as a result of the Budget, whereas the household hovering around the £30,000 mark—highly paid but presumably, in the context of the Treasury's examination, not exorbitantly paid—is only 0.23 per cent. worse off. If we extrapolate the comparison back over the four full Budgets of the Chancellor, we find that the household on average pay is worse off as a result of those Budgets. The household on super pay is 18 per cent. better off as a result of the measures brought before the House by the Government to change the tax regime.
I do not accept that it was necessary for the nation to sacrifice as much as it is invited to sacrifice to pay the tax burden to the Treasury. Even if it was necessary, it is morally and socially repugnant that those who earn most should be most relieved from the additional sacrifice that the low paid are called upon to pay. Nowhere is that additional sacrifice more marked than in the case of the unemployed who are dependent on unemployment benefit.
The hon. Member for Anglesey (Mr. Best) referred to the 5 per cent. abatement brought in by the Government two years ago. The hon. Gentleman will reflect that the 5 per cent. abatement was explicitly justified on the grounds that it was in lieu of taxation. The implication left was that when taxation of unemployment benefit was introduced the 5 per cent. would be restored. From July this year unemployment benefit will be subject to taxation but the 5 per cent. cut remains. I put it to the Treasury Bench that even if, in the interests of the unemployed, Ministers are not prepared to restore the 5 per cent., they should nevertheless do so in the interests of their own reputation.
If they are in any doubt about the importance of this issue to their reputation, I should like to refer to the submission by the Bow Group before the Budget which stated that the 5 per cent. abatement should be restoredon the grounds of fairness towards those in most need and"—I pay tribute to the political candour of the Bow Group—political self-interest.… with the additional plea that the Conservative Party should not be seen to cheat.The unemployment benefit is taxed and the 5 per cent. is not restored. The Government have chosen to set aside the advice of the Bow Group and have chosen to cheat the unemployed of that 5 per cent. Only three months ago Mr. David Luxton, an officer of the Society of Civil and Public Servants which has been preparing for the taxation of unemployment benefits, stated:The procedures are so complicated and the time so short to learn the new system that it is inevitable that gigantic blunders will be made".The people who will suffer from these gigantic blunders are those living on the lowest incomes of any household in the country. They are the people facing hardship. I invite the House to contemplate what would be the reaction if it was suggested that those who pay capital transfer tax might be subjected to a gigantic series of 934 blunders in the application of the tax regime. What riots we could expects from those who qualify for capital transfer tax. What letters to The Times we would have to endure. What block bookings of the Dining Room and the Terrace would have to be made as we were lobbied on the need to remedy these gigantic blunders. Yet exactly that fate now lies in wait for the 3 million men and women of Great Britain who are currently unemployed and struggling to survive on unemployment benefit.
Last month, in a parliamentary question, the Secretary of State for Employment was invited to name those travel-to-work areas in which unemployment exceeded 12 per cent. He listed 150, one in 10 of which had an unemployment rate in excess of 20 per cent. —Corby 21 per cent., Ormskirk 22 per cent., Consett 25 per cent., and even the constituency of the Chief Secretary, Whitby 24 per cent.
Those figures referred only to England. If the figures for Scotland and Wales had been included, the total would have been even greater. For the whole of Glasgow, unemployment is now 20 per cent. The unenviable record for Scotland as a whole is held by Bathgate, in the constituency of my hon. Friend the Member for West Lothian, where unemployment now stands at a shaming and scandalous 37.4 per cent. for both men and women.
When I was a youth, my parents lived for a while in Galloway. Across the border in South Ayrshire there is a small town called Patna. By the roadside as one leaves the town there is a large boulder on which the figure "22" is inscribed in large characters. I must confess that I passed the boulder many times before it occurred to me to stop and find out what that figure represented. I found underneath an inscription dated 1933, put there by the men of Patna to record that the highest level of unemployment reached in Patna during the great slump was 22 per cent. The men of Patna were so moved by the humiliation and hardship represented by that figure that they immortalised it for all time on that stone.
I can think of no more accurate measure of the Government's failure to act as stewards of the nation's economy than that they have created so many cases in which unemployment now exceeds 22 per cent. that that figure is now approaching a commonplace and likely to be accepted as such.
Fifty years later, we look back upon what happened to that town in South Ayrshire as a tragedy because we know that it need not have happened. We know that with different Government policies and a different economic strategy that level of unemployment and that social outrage could have been avoided. I predict that 50 years hence, when historians and economists come to reflect upon the present period, they will regard with equal incomprehension the levels of unemployment that we are now invited to tolerate and their incomprehension will be the greater because they will know that the second major slump of the century coincided with exploitation of the rich and precious resource of North Sea oil which should have brought a period of unparalleled prosperity.
The calamity that has been visited upon the British nation need not have happened, and it need not continue. There are alternatives to the policies being pursued by the Government. If they do not yet understand that, it is high time that they quit office and made way for those who do.
§ The Financial Secretary to the Treasury (Mr. Nicholas Ridley)
Perhaps it would be for the convenience of the House if I dealt with the matter which the hon. Member for Edinburgh, Central (Mr. Cook) raised about halfway through his speech and which was the subject of some excitement when my right hon. and learned Friend the Chief Secretary was speaking—the figures that my right hon. and learned Friend gave for the increase in the cash available to the personal sector after the Budget and after the increase in national insurance contributions last year.
The figures that my right hon. and learned Friend the Chief Secretary to the Treasury gave were absolutely right. I will not go through them again because they will be published in Hansard. They did not mislead the House in any respect. They are the global total of extra cash resources which, without enormous accuracy but, give or take a margin, will be available to the private sector in the coming financial year. There is no conflict between those figures and the figures that were quoted from the press release.
The figures from table 9, and the other tables in the Inland Revenue press release, attempt to show the effect on various sample types of taxpayers based on a number of hypotheses as to what will happen in the future. May I go through the range of hypotheses? Their combinations are almost legion. First, what increase of earnings will the family have from last year to next year? Obviously, the higher the increase in their earnings the better off they will be, and vice versa. Secondly, what inflation will there be between last year and next year? Inflation obviously affects whether people are better off or not. Do they pay mortgage interest, much of it or little of it? Will the mortgage interest rate rise or fall in years to come? The greatest question of all is how many children they have. If they have a large number of children, clearly the tax burden will be lighter than if they do not, because of the effect of child benefit. There is also the period of time over which comparisons are made. I agree that there are some families where the tax burden in percentage terms might be greater. —[Interruption.]—Yes—will be greater. However, it also depends on all the factors that I have mentioned. It is easy to gloss over the fact that we are talking about the future and about hypotheses. As I say, both statements are equally sustainable alongside each other.
§ Mr. Cook
I am grateful to the hon. Gentleman for giving way. The courtesy of the Financial Secretary in these matters never fails to make a pleasing contrast to the Chief Secretary. I have difficulty in relating the qualifications that he is elucidating to the House to table 9, which is attached to the press notice issued by the Treasury yesterday. The hon. Gentleman referred to matters such as mortgage interest, tax relief and children. Child benefit has nothing to do with this table. Child benefit does not appear anywhere on it. The whole point about child benefit is that it brought to an end tax allowances for children. As for mortgage tax, there is presumably no reason—
§ Mr. Speaker
The hon. Member for Edinburgh, Central (Mr. Cook) has had his turn. I know that he win. make his point briefly in order to allow the Minister to answer.
§ Mr. Ridley
I will not give way any more. I gave the hon. Gentleman the courtesy of five minutes out of my speech and I do not intend to give him another—
§ Mr. Speaker
Order. I understood that the hon. Gentleman wanted one sentence only in order to finish.
§ Mr. Ridley
I regret that I cannot confirm that because it depends on the increase in their income, on the rate of price changes, and on how many children they have. It depends on their mortgage. The hon. Gentleman is making me repeat a perfectly valid point which he seems not to have taken in fully. The hon. Gentleman seems to talk as if national insurance contributions were almost indistinguishable from income tax.
§ Mr. Ridley
Are they? National insurance contributions go towards paying for the benefit. It is well known that the House has asked the Government and the Government have pledged to maintain the real value of national insurance benefits, both long-term and short-term, and they have done so. Of course, it costs more to finance that, and at a time when living standards have in some cases been going down it is not surprising that the national insurance contribution is taking a greater proportion of some incomes.
I should like to deal with some of the shorter points that were raised. The hon. Member for West Lothian (Mr. Dalyell) will not expect me to go at length into the matter of the Livingston MOTEC, but I gather that it is a responsibility of the training board. As far as I know, the board is greatly concerned about rumours that the Livingston MOTEC might close. I do not have any final knowledge as to the truth of the matter, but I hardly think the hon. Gentleman will want me to go further into that point in a Budget debate.
With regard to the question of the capital disregard for supplementary benefit—raised by my hon. Friends the Members for Macclesfield (Mr. Winterton) and Anglesey (Mr. Best), and by the hon. Members for Ince (Mr. McGuire) and Colne Valley (Mr. Wainwright) —I think that the House is grateful and recognises that it is a very big step to increase the disregard from £2,000 to £2,500. We have done it in a genuine attempt to make a generous gesture. I feel that we cannot be expected to go further, having already made a 25 per cent. increase. However, what hon. Members have said about this important disregard has obviously been noted.
The hon. Member for Glasgow, Cathcart (Mr. Maxton) seemed to suggest that, much as my hon. and learned Friend loves the Scots, one of the points of his Budget was designed to affect a certain by-election. The hon. Gentleman thought that the whisky price was connected with that.
§ Mr. Ridley
Even after the Budget, the real price of whisky is only 55 per cent. of what it was 20 years ago. Many people do not realise that. It will not be that which secures the victory for the Conservative candidate at Hillhead as much as my right hon. and learned Friend's Budget in the round.
The hon. Member for Ince and my hon. Friend the Member for Abingdon (Mr. Benyon) both intriguingly invited us to go along routes of major reform of taxation. The hon. Member for Ince was interested in the age allowance. Although it is valuable to have the point raised, it illustrates that immediately we come up against the difficulty that in redistributing the age allowance among pensioners in general we should inevitably be taking some of it away from the aged.
That is the difficulty with all tax reform. There is always someone who will be a loser, and that person very quickly makes himself vocal. That, in a way, is the difficulty with the whole question of income tax and national insurance contribution, which my hon. Friend the Member for Abingdon raised. It is an extremely important matter and we are studying it carefully. I am grateful to him for what he said on that subject.
The hon. Member for Edinburgh, Central repeated a point made earlier about the unemployment assumptions for the Government Actuary. I refer to the sentences in the public expenditure White Paper which cover this:It has also been assumed provisionally that unemployment (Great Britain, excluding school leavers, etc.) would average 2.6 million in 1981–82, and 2.9 million a year thereafter. This is not a forecast or a prediction. If the developments on pay and the world economic recovery are favourable, there is a reasonable prospect that unemployment levels in the later years may turn out to be somewhat lower than has been assumed.That is exactly what the Labour Government did. They assumed that the dynamism of any figure continued into the next year. That was merely in order to have a basis for making estimates. If something is rising, it is likely to rise in future. It is no more of an assumption than that. The hon. Gentleman should not read any view of the Government into those figures.
We watched carefully the effect of the Budget on interest rates, both in general and for industry. The markets have received the Budget well. My hon. Friend the Member for Enfield, North (Mr. Eggar) spoke about the judgment that my right hon. and learned Friend the Chancellor had to make. That could be instantly confirmed or denied by the markets and they have been remarkedly steady today. That was also the case with the foreign exchange market.
I know that these are early days and that it takes time fully to appreciate all these things, but, in terms of confirming the judgment, interest rates tended, if anything to edge down, but they are waiting for a move from another quarter. In effect, we have two interest rates for industry—investment incentives for plant and equipment and the much higher effective interest rate in most other cases, both for tax-paying and tax-exhausted companies.
Investment incentives are available directly to a company that pays tax. In practice, finance leasing has also made them available to the tax-exhausted company. In 1981, leasing accounted for £2,100 million worth of business, which is a very high proportion of investment.
938 The problem of high interest rates for business remains. My hon. Friend the Member for Surrey, North-West (Mr. Grylls) did a splendid job in drawing the attention of the House and the country to that issue and to the search for solutions to the problems of interest rate burdens on companies.
My right hon. and learned Friend the Chancellor thought long and hard about my hon. Friend's proposals. However, as he said yesterday, we have not been persuaded that they offer the best way forward to our common objective. We had some doubt about certain aspects of the proposals and were particularly worried about their selective nature and their effect on the efficient allocation of resources. The proposals are selective in their emphasis on bank lending, as opposed to other sources of finance. There is room for debate about whether British industry is under-borrowed from the banks, but I am not convinced that bank lending is a superior form of finance. Higher bank lending is no substitute for proper long-term funding.
The scheme also favours tax-exhausted companies. It would not merely put them on the same basis as other companies, but would, in many cases, give them a positive fiscal advantage over companies earning profits and paying tax. I am not happy about creating such distortions, particularly when consultations are just starting on the corporation tax Green Paper, which raises big issues concerning investment incentives.
There would also be selectivity in favour of certain businesses, such as manufacturing, and against others, such as some in the service sector. There is also the question of costs. The proposal is that tax-exhausted borrowers should pay interest net of corporation tax and that the Exchequer should eventually make up the difference by an annual cash payment to the banks. The cost to the Exchequer could be substantial, restricting the scope for the other forms of help to industry that my right hon. and learned Friend eventually chose instead.
The fundamental problem is the low level of profitability of British industry, combined with high bank interest rates in the past. Our economic strategy is aimed at putting right those fundamental problems and creating the conditions in which businesses, whether tax paying or tax exhausted, will be encouraged to invest.
For those reasons we are attacking the problem in other ways. We see the way forward as lying along two roads. The first is the use of more equity capital. Greater use of equity finance and less borrowing from banks would reduce short-term interest rates. The measures that my right hon. and learned Friend introduced yesterday are directed to encouraging the provision of equity capital, notably by the future indexation of capital gains tax.
I wonder whether the significance of the future indexation of capital gains tax has been fully realised. Although we were unable to apply the relaxation to past gains, for the future no one who merely maintains the value of his investment will pay tax except in relation to his first year of holding the asset. Removing this distortion will undoubtedly make equities more attractive and equally index linked stock. Index linked gilts would not have been liable to capital gains tax anyway, but now any discrimination between them and index linked company debentures has been virtually removed. As the Financial Times says today,These measures are likely to be remembered long after the details of the 1982 Budget are forgotten".
§ Mr. Ridley
I believe not. I was just coming to that point. It is the second way forward that long-term loans should be made easier for businesses, whether at indexed or fixed rates. I recognise that many business men consider that the cost of borrowing at present is too expensive and many are concerned about the immediate cash flow costs of paying the present nominal rates of interest. We are helping, in the way that we fund our deficit. By increasing the inflow into national savings and by issuing the index linked gilts, the Government have reduced their reliance on the long-term fixed interest market.
For example, during the past year we have issued only £750 million of stock maturing in the next century, compared with over £3 billion in the year before. In that way we clear room for companies at this end of the market and long-term interest rates will also, I hope, be brought down.
We are moving in the right direction. The long-term interest rate has fallen since last September. I hope to see many more companies coming forward with debentures. A way of avoiding heavy immediate costs would be for them to issue immediately indexed stock. The Government have demonstrated that there is a market for such debt. I appreciate that it could result in a higher cash flow cost in later years. A company would need to be satisfied that indexation matched its prospects. Lenders would also need to consider the risks. I would not suggest that indexation is an easy or simple answer, but it merits more consideration. No doubt the City will be thinking about the possibilities—there are many—after the important changes that my right hon. and learned Friend's Budget has made.
Finally, I turn to the question that many right hon. and hon. Members have asked—the hon. Member for Mitcham and Morden (Mr. Douglas-Mann) more than most—which is how reflationary is this Budget? The pre-Budget advice that we received in the Treasury was conducted almost solely in terms of rival bids for the amount of reflation that hon. Members believe to be desirable. They varied from a modest £2 billion or £3 billion from some of my hon. Friends to the absurd £9 billion from the right hon. Member for Stepney and Poplar (Mr. Shore). The bids from SDP members were somewhere in the middle.
I have an interesting quote from a speech made in 1973There has been a lot of talk about the formation of a new centre party. Some have been kind enough to suggest that I might lead it. I find this idea profoundly unattractive".Later it says:I therefore have no desire to seek new combinations. I remember an old piece of doggeral about someone 'Playing on his fuddled fiddle, Somewhere in the muddled middle'. I have no fuddled fiddle and I do not propose to get one.That was the SDP candidate for Hillhead. Now, with a reflationary bid of about £4 billion, he is in the "muddled middle" himself.
940 I am not entirely sure what the term "reflation" means. The first time that I heard it was in 1963, when the late Reginald Maudling reflated. In those days we were on a fixed exchange rate and the consequences of reflation surfaced in the form of the famous £800 million deficit on the trade balance. At that time the Labour Party went for that £800 million trade deficit with a truly militant tendency. It said that that reflation was reckless. The Labour Party tried to snatch from us the mantle of being a party of financial responsibility, but it gave up any pretence of doing that a long time ago.
Since then there have been three further reflations. The City University Annual Review for 1981 catalogued the results of those three further reflations of 1966–67, 1973–74 and 1978–79. Within a year or two of each of those reflations, inflation had, naturally, risen considerably. No one would have expected otherwise. Even more interesting, unemployment rose on average by about 50 per cent. after each reflation. In 1966–67 unemployment rose from 1.4 to 2.4 per cent. In 1973–74 it rose from 3.6 to 4.6 per cent. In 1978–79, when the right hon. Member for Stepney and Poplar had something to do with our affairs, unemployment rose from 5.5 to 8.7 per cent
In each case the money supply eventually had to be brought back under control. In the 1973–74 reflation, the International Monetary Fund had to do it. In the right hon. Gentleman's reflation we had to do it. That is what caused people to complain of "stop-go"—something which perhaps hon. Gentlemen recently elected to the House will not remember. I believe that it was not "stop-go", but "go-stop", "reflation-deflation". It is not in the economic vocabulary now, and I am sure that no one wants to bring it back. In each of those reflations the money supply was deliberately expanded and then, a year or two later, it had to be contracted. In other words, they were not reflations but inflations.
In this connection one is again asked "Is this Budget reflationary?" One cannot answer that question with a direct answer. It is a well-judged Budget which continues our progress in reducing the size of the public sector borrowing requirement and enables us to reduce taxation. We estimate that there was a PSBR of about £10½ billion in 1981–82. We now expect it to come down to £9½ billion in 1982–83, and that includes the £1.3 billion PSBR effect in 1982–83 of my right hon. and learned Friend's Budget proposals.
In some ways that understates the effect of our tax reductions, which, net of NIS clawback, are worth over £2 billion, on an indexed basis, in a full year. As my right hon. and learned Friend said yesterday, they are worth over £3 billion if indexation is not assumed. So where the question of reflation comes in is difficult to see.
Those are the figures. To say that the Budget is neutral, deflationary or inflationary seems to me to miss the real point, which is that the judgment on the Budget is by how much interest rates will be increased if taxes are cut and the borrowing requirement is increased. Just as many jobs can be lost by interest rates going up—
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.