Commons Sitting of 11 March 1982

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
PRIVATE BUSINESS

  COUNTY OF AVON BILL [Lords]
  Read the Third time and passed, with amendments.
  ALEXANDRA PARK AND PALACE BILL (By Order)
  LONDON TRANSPORT (LIVERPOOL STREET) BILL (By Order)
  SEVERN-TRENT WATER AUTHORITY BILL (By Order)
  GREATER LONDON COUNCIL (GENERAL POWERS) (No. 2) BILL (By Order)
  TEES AND HARTLEPOOL PORT AUTHORITY BILL (By Order)
  BRITISH TRANSPORT DOCKS BILL (By Order)
  FELTHAM STATION AREA REDEVELOPMENT (LONGFORD RIVER) BILL (By Order)

  CUMBRIA BILL [Lords] (By Order)
  Orders for Second Reading read.
  To be read a Second time upon Thursday 18 March.

Oral Answers to Questions
  NATIONAL FINANCE

    European Community Budget
    Sir Anthony Meyerasked the Chancellor of the Exchequer what proportion of the European Community gross domestic product and of the combined expenditure by the Governments of member States was represented by the 1981 Community budget; and if he has any estimates compiled on a similar basis for 1982 if the present disputed 1982 budget stands.
    The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne): The Community budget for 1982 accounted for nearly 0·9 per cent. of the gross domestic product of member States and about 1·9 per cent. of their combined general Government expenditure. I estimate that the 1982 budget, as adopted, would account for about the same proportion of the GDP of member States as in 1981.
    Sir Anthony Meyer: Does that not put in perspective the relative importance of the budget, in comparison with
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    the vast volume of trade which is at risk—£50,000 million of Britain's annual trade with the EEC—if anything affected our membership?
    Mr. Bruce-Gardyne: I can only say that my hon. Friend is, as usual, entirely right in that respect.

    Public Sector Borrowing Requirement
    Sir David Priceasked the Chancellor of the Exchequer if he will distinguish in his treatment of the public sector borrowing requirement between borrowing for current expenditure and borrowing for capital investment.
    The Chief Secretary to the Treasury (Mr. Leon Brittan): Borrowing is not undertaken to finance specific services or projects, but details of current and capita) transactions are set out in the published public sector accounts, most recently in the Financial Statement and Budget Report.
    Sir David Price: Would it not assist my right hon. and learned Friend the Chancellor, in his very commendable efforts to bring down the cost of borrowed money, if he adopted a more selective approach to funding, according to the end use of the borrowing, as he has indeed done in the private sector?
    Mr. Brittan: I do not feel that that would assist my right hon. and learned Friend in achieving his objectives, because, at the end of the day, whatever the purpose of the borrowing, its short-term effect is the same.
    Mr. Horam: Is it not obvious that over the years, under all Governments, the level of capital spending has been ruinously affected by the desire to control total spending and the difficulty within that of controlling current. spending? Therefore, if one took out capital spending, and funded and showed it differently, one would have a PSBR in more understandable and business-like terms.
    Mr. Brittan: Anything that assisted one in reducing. current spending and retaining capital spending would) certainly be very beneficial. However, I disagree with the: constructive thought behind the hon. Gentleman's remarks, because I do not believe that merely by switching the accounting one would be changing anything in reality. The sort of obstacles that one faces are the real pressures in favour of current expenditure on items such as social security and defence, which are important, but all of which point in the opposite direction.
    Mr. Shore: Does the Chief Secretary agree that it makes sense to draw a distinction—as the CBI might put it—between the quality of the PSBR as it reflects capital expenditure and current expenditure? Pressing the Chief Secretary a little further, one of the things that has surely struck him and his colleagues—
    Mr. Speaker: Order. Even right hon. Members on the Opposition Front Bench must ask questions rather than engage in argument.
    Mr. Shore: I shall ask a precise question. Having considered our experience in this matter and our definition of what comprises the PSBR, would we not be more sensible—as have so many other countries, including our European competitors—to use the classification of central Government borrowing requirement and thus exclude from the borrowing requirement our enormous public sector of industry?
    Mr. Brittan: The right hon. Gentleman is making a great mistake if he believes that by excluding the borrowing of the nationalised industries from the public sector borrowing requirement the impact of that borrowing on national resources will be affected. It is ridiculous to expect that to happen. The right hon. Gentleman should be slightly reticent about capital expenditure, having been a member of a Government who, in a couple of years, reduced the proportion of capital expenditure to total expenditure from 19 to 14 per cent.
    Mr. Charles Morrison: Is my right hon. and learned Friend aware that in spite of his helpful replies many of us still remain puzzled as to why it is not possible to draw a distinction between capital and current expenditure when in every other walk of life, private, commercial or industrial, those concerned have to do so?
    Mr. Brittan: The distinction is drawn. I am happy to draw my hon. Friend's attention to the relevant tables in the FSBR and the public expenditure White Paper.
    Mr. Jay: As I know that the Chief Secretary studies his official figures carefully, is he aware that according to his figures total capital expenditure in the public sector greatly exceeds the PSBR?
    Mr. Brittan: Yes.

    Budget
    Mr. Archie Hamiltonasked the Chancellor of the Exchequer what representations he has received on his Budget Statement.
    Mr. Sainsburyasked the Chancellor of the Exchequer what representations he has received on his Budget proposals.
    Mr. Neubertasked the Chancellor of the Exchequer what representations he has received following his Budget Statement.
    The Chancellor of the Exchequer (Sir Geoffrey Howe): As is usual on these occasions, I receive comments and representations from a variety of sources.
    Mr. Hamilton: May I congratulate my right hon. and learned Friend on his successful Budget Statement? Is he aware that many leaders of industry are extremely relieved that the Government are keeping to a financial policy that will lead to lower interest rates and a lower rate of inflation?
    Sir Geoffrey Howe: I am grateful to my hon. Friend for his remarks. I have seen many industrial comments to exactly that effect.
    Mr. Sainsbury: Is my right hon. and learned Friend aware that his Budget Statement has been well received by the many retired people and those engaged in small businesses in my constituency and elsewhere? However, does he appreciate that there is great puzzlement that the Government do not draw a clearer distinction between their capital and their current expenditure? If they were to do so in their public presentation, it might be possible to do still more to encourage British industry to create more jobs and more wealth for Britain.
    Sir Geoffrey Howe: I am aware, as is my right hon. and learned Friend the Chief Secretary, of the keen interest in this subject that is displayed by my hon. Friend, among
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    many others. It is for that reason that we published in last September's economic progress report a clear analysis that made the distinctions that my hon. Friend suggests. The public expenditure White Paper has contained many improvements to make the distinctions very much clearer. It is important that that continues.
    Mr. Neubert: Is my right hon. and learned Friend aware that I share the neat assessment of the Daily Express that his Budget is politically skilful, socially adroit and economically sound? Does he agree that the firm prospect of single figure inflation within a matter of months more than anything else, for the first time for many years, puts the prize of renewed prosperity and increased employment within our grasp?
    Sir Geoffrey Howe: I am grateful to my hon. Friend for drawing to the attention of the House the wise observations of the Daily Express. I entirely endorse the importance of his point. There is every prospect that this Government will be the first for 30 years to have an average level of inflation lower than that of their predecessors.
    Mr. Ioan Evans: Does the Chancellor of the Exchequer realise that for the 3 million unemployed the Budget will be extremely disappointing? As every other Budget that he has introduced has led to an increase in unemployment, can he say whether his latest will reduce unemployment or, as is stated in the Red Book, will add a further 300,000 to the 3 million already unemployed?
    Sir Geoffrey Howe: A number of commentators have said that the Budget is likely to bring forward the time when unemployment will start to decline. There is no doubt that it is important to achieve that. The Budget is designed to promote that purpose, among several others.
    Mr. Eggar: Has my right hon. and learned Friend noticed the welcome that has been given to the abandonment of the medium-term financial strategy and the importance that is being given to monetary policy in general rather than the particular form of monetary policy that was represented in the medium-term financial strategy?
    Sir Geoffrey Howe: I have noticed that one or two appear to share my hon. Friend's view that there has been an abandonment of the medium-term financial strategy. I repeat what I said in my Budget Satement, that the strategy has served and will continue to serve a most important purpose. That is why it is important to retain it. I emphasise that the adjustment in the monetary target that I announced does not imply any relaxation of purpose. It represents a realistic restatement of our determination to maintain a responsible monetary policy.
    Mr. Cook: Will the right hon. and learned Gentleman give a straight answer to the question that was put in vain yesterday to the Chief Secretary and the Financial Secretary? Does the press notice issued by the Treasury about its Budget give an accurate picture of its tax impact? If it does, will he confirm that after his supposed "Budget for the people" a higher percentage of income will be taken in deductions for tax and national insurance contributions for every married taxpayer earning less than £20,000 and every single taxpayer earning less than £10,000? Does he seriously expect the nation to congratulate him on that achievement?
    Sir Geoffrey Howe: I am glad to have the opportunity of making the position clear to the House. Every one of the tables published in the Treasury press notice, as the House would expect, is an accurate statement of the effect of the Budget. The various changes made by my statement on 2 December and in my Budget Statement on Tuesday will have an effect on people's incomes at different times during the year. At the beginning of the financial year in April pay packets will be reduced as a result of the higher national insurance contributions.
    However, as soon as the Budget changes take effect after 26 April, as I said in my Budget Statement, the public will find that their income tax will be reduced. As my right hon. and learned Friend the Chief Secretary said, for most families the income tax reductions will be greater than the extra national insurance contributions. If the hon. Member for Edinburgh, Central (Mr. Cook) reads the sixth table he will find that on 26 April, as income tax changes come into effect some three weeks after the national insurance changes, the income tax reductions will be greater than the extra national insurance contributions. There will be a net gain for married men on earnings of up to £170 per week—[Interruption.] If the hon. Gentleman will be patient, he will have the answer to the question that he has put on many occasions.
    As the year moves on and people receive wage increases, they will pay more tax and higher national insurance contributions. The ninth table of the Treasury press notice shows what will happen where, for example, a person's earnings rise by 7½ per cent. As right hon. and hon. Members have said, on that assumption the table shows that the proportion of income going in tax and national insurance contributions will be somewhat higher in 1981–82. That will not be so for those on the very lowest or the very highest levels of earnings. Families with children will benefit at a later stage in the year from the increases in child benefit and one-parent family benefit. Those are the inevitable consequences of the increases that I made in the tax thresholds even above those required by the Rooker-Wise provisions. I am surprised that Labour Members are not grateful for that very important advance.
    Mr. Shore: I thank the Chancellor for that statement, in so far as it has helped to clarify the issue. Apart from the short-term adjustments between April, when national insurance contribution increases come into effect, and a few weeks later when the tax changes come into effect, with a contrary effect, and on the assumption that the increase in incomes will be about 7½ per cent. during the year to the autumn, for example, and for the rest of the year, and it is exactly as we have said it will be, does he agree that most people will pay a higher proportion of their income in taxation and in national insurance contributions combined than they did last year?
    Sir Geoffrey Howe: On the assumption of 7½ per cent. increases, as set out in the ninth table, at some stage during the year all save those on the very lowest and highest levels of earnings will reach that position. However, an essential component is the 1 per cent. increase in national insurance contributions, which is deliberately endorsed by the House as falling on the shoulders of those in employment to abate the burden of income tax on those out of employment and to abate the burden that would otherwise fall on British industry. It makes a direct contribution to the prospects of recuced unemployment in the year ahead and is entirely helped by my measures.
    Mr. Speaker: Order. We all understand that we must be much quicker on the other questions.
    Mr. Squire askedthe Chancellor of the Exchequer whether, based on the latest available figures for the current year, he considered that his Budget for 1981–82 was reflationary, deflationary or neutral in effect.
    Mr. Brittan: Talk of deflationary or deflationary effects is oversimplified. It ignores the links between fiscal and monetary policy and their effects, through interest rates and the exchange rate, on the economy. Last year's reduction in the PSBR eased the pressure on interest rates and maintained downward pressure on inflation. During the second half of last year output rose.
    Mr. Squire: Has my right hon. and learned Friend read the editorial in yesterday's Financial Times, which suggested that the real reasons for what it describes as the cautious relaxation of Tuesday's statement was that past fiscal restraints had proved too tight? Does my right hon. and learned Friend have any fears that the same may be said in a year's time by the same newspaper about Tuesday's statement?
    Mr. Brittan: I should not like to predict what the newspaper will say, in spite of some of its eminent contributors. If it says the same thing, it will not be right.
    Mr. Newens: Does the Minister recognise that vast numbers of people, including many business men, are deeply disappointed with the Budget in so far as it is, in effect, inflationary and will lead to a continuing rise in unemployment with no real relief being given to those, now more than 1 million, who have been unemployed for over a year? In those circumstances, how on earth can the right hon. and learned Gentleman consider that it is reasonable to argue that this is a Budget that meets the needs of the nation?
    Mr. Brittan: The question was about last year's Budget, but I am happy to answer the hon. Gentleman and point out to him that a Budget that reduces the direct costs to industry of employing people by reducing the national insurance surcharge, and that gives assistance to the construction industry, enterprise and new technology, cannot do other than improve employment prospects, not make them worse.
    Mr. Ward: Is my right hon. and learned Friend aware that the Chancellor's Budget will mean that in the county of Dorset £6 million will be available for industry as a direct result of that Budget? This will be used for investment and to create real long-term jobs. It is not bad for a small county such as Dorset to receive £6 million back in this way.
    Mr. Brittan: I cannot claim to have done the Dorset sums myself, but I am glad to hear the result of them. The same message can come from every county in the country, and I think that the Budget is much welcomed and well received.
    Mr. Straw: Does the Chief Secretary recall that although he yesterday described the suggestion that the Budget was in some sense deflationary as "a fantastic proposition", his hon. Friend the Financial Secretary only six hours later said:
    "In this connection one is again asked 'Is this Budget inflationary?' One cannot answer that question with a direct answer." — [Official Report, 19 March 1982; Vol. 19, c. 940.]

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    Will the Chief Secretary tell us who is right and who is speaking for the Government?
    Mr. Brittan: There is no inconsistency. I said that it was "a fantastic proposition" and that is what my hon. Friend was saying. I explained in answer to the question put by my hon. Friend the Member for Hornchurch (Mr. Squire) exactly why and in what sense the concept of whether something was reflationary, deflationary or neutral was limited. The reason for that is that it is looking at the fiscal side alone and not at the monetary implications of the Budget. It is the two, when put together, that reflect what Government policy as a whole is doing for the economy.

    Civil Service Pay
    Mr. Dubsasked the Chancellor of the Exchequer whether he will make the present arbitration arrangements for Civil Service pay binding on both parties.
    The Minister of State, Treasury (Mr. Barney Hayhoe): No. As agreed last July, this year's arbitration on Civil Service pay is on the basis that the Government reserve the right if necessary to ask the House to approve setting aside the award on the ground of overriding national policy. For the longer term, arrangements will be considered in the light of the Megaw inquiry into Civil Service pay, which is due to report this summer.
    Mr. Dubs: Will the Minister say whether this year's Civil Service pay settlement is to be subject to cash limits? Will he further tell the House on what basis he would reject an arbitration settlement?
    Mr. Hayhoe: We gave an undertaking last year that this year's negotiations and Civil Service pay settlement would be on the basis of there not being a predetermined cash limit, and that assurance holds. With regard to the judgment that the Government will make in the light of the arbitration award, we will wait to see what it is.

    Urban Renewal
    Mr. Greenwayasked the Chancellor of the Exchequer if he will take new iniatives to encourage banks to invest in urban renewal.
    Mr. Bruce-Gardyne: Lending decisions are a matter for the business judgment of the banks themselves. However, as my right hon. and learned Friend announced on Tuesday, my right hon. Friend the Secretary of State for the Environment intends to make special arrangements for giving high priority to joint projects between the public and private sectors in the urban aid and derelict land programmes. The Government also look forward to the findings of the financial institutions group studying urban problems that has been set up by my right hon. Friend the Secretary of State for the Environment.
    Mr. Greenway: Does my hon. Friend agree that financial institutions are bound to look for maximum return on their investment and that inner city areas offer risks in this direction? Will my hon. Friend therefore consider special incentives for them? Does my hon. Friend agree that the 90 per cent. rate increase in London is particularly unhelpful?
    Mr. Bruce-Gardyne: My hon. Friend is correct. It is very hard to see how we can expect to have substantial
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    commercial investment in areas covered by Labour-controlled local authorities, which have put up rating burdens on commercial premises by the sorts of percentages that have occurred in boroughs such as Hackney, where last year commercial rates went up 47 per cent. That is a major deterrent to incoming industry and investment.
    Mr. Eastham: Apart from the banks, would it not be a good idea if we tried to encourage insurance companies to shake out some of the many funds that they have at their disposal? May I remind the Minister that many of the partnership cities have had their assisted area status taken away? If the Government are not prepared to return that status to the partnership areas, will the hon. Gentleman at least give some major tax reliefs to encourage development in these areas?
    Mr. Bruce-Gardyne: It is precisely to enlist the help and support of institutions such as the insurance institutions that my right hon. and learned Friend has established the financial institutions group. It is working hard on joint projects between the private and the public sector on these questions. However, as I said in answer to the original question, the decision must ultimately rest with the commercial institutions concerned.
    We have to face the fact that if assistance is spread too widely it is of benefit to nobody. That is why my right hon. Friend the Secretary of State for Industry has concentrated aid where it will be most effective.

    Demand
    Mr. Eggarasked the Chancellor of the Exchequer whether he expects that his most recent Budget will increase the level of demand.
    Sir Geoffrey Howe: The Budget has been designed to sustain the increase in economic activity that is already taking place. The scale of this increase continues to depend to a large extent on the actions of companies and employees in improving productivity and moderating wage increases.
    Mr. Eggar: Will my right hon. and learned Friend confirm that it is only if output from United Kingdom firms can be increased that we as a country can hope to build on the considerable increase both in productivity and competitiveness that has been one of the great successes of my right hon. and learned Friend's economic policy?
    Sir Geoffrey Howe: I entirely agree with my hon. Friend. The prospect of increasing employment and national wealth will follow from an increase in output manufactured and sold by trade and industry of all kinds. It is for that reason that I emphasise the second part of my original answer.
    Mr. Stoddart: Is it not true that the Budget is, generally speaking, broadly deflationary, and if firms cannot see an opportunity of an extension of demand will this not be a discouragement to them to invest?
    Sir Geoffrey Howe: The misleading nature of the term deflationary is not assisted in achieving clarity if it is prefaced by the words "generally speaking" or "broadly," It is not sensibly possible to apply that kind of analysis on one view. The public sector borrowing requirement in the year ahead is intended to be lower in cash and real terms than in previous years. On another view, it is intended to

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    be larger than it would otherwise have been on the standard assumptions. Neither of those changes can sensibly be described as deflationary or reflationary. If inflation continues to come down as we maintain an improving control over the money supply and excessive public sector borrowing, and if firms and those offering their labour for employment reduce the price at which those things are sold or made available, the volume of real output and of real employment will increase. It is for that reason that the response to a controlled economic environment depends crucially on the performance of those trying to sell their goods and services in it.
    Mr. Henderson: Does my right hon. and learned Friend agree that the reduction of interest rates and the rate of inflation—probably a consequence, though not a part, of the Budget Statement—will lead to higher purchasing powers for individuals and, therefore, potentially an increase in demand?
    Sir Geoffrey Howe: It will have that effect. It will also have the effect of reducing the price of goods and services brought to the market and of increasing the volume that is bought and sold. In both ways it will thus increase real output.
    Mr. Robert Sheldon: I note that the Chancellor of the Exchequer cannot say whether his Budget is reflationary, deflationary or neutral. Will he look at the obvious consequence of his Budget, which is spelt out in the White Paper, that unemployment will increase by 300,000 this year and into the foreseeable future? On my definition, that is deflationary.
    Sir Geoffrey Howe: I am trying, and I shall continue to try, to persuade the right hon. Gentleman that it is quite unhelpful to talk about Budgets being reflationary or deflationary. This Budget is likely to have a beneficial effect on inflation and interest rates, and is therefore liable to improve the prospects for output and employment. I am sorry that the right hon. Gentleman has repeated in the House the misleading point that was made by the right hon. Member for Stepney and Poplar (Mr. Shore) in his broadcast last night, when he sought to quote from the White Paper on employment and suggested that the White Paper meant that the Government assumed that unemployment would rise from its present total to nearer 3¼ million, and then stick there for the foreseeable future. He omitted to add the crucial point contained in the White Paper:
    "If 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".
    Mr. Shore: In any economic forecast or set of economic assumptions there are always variables. Is it not a fact that what the right hon. and learned Gentleman has published is his best judgment of what will happen, and that is that unemployment will increase?
    Sir Geoffrey Howe: The right hon. Gentleman knows that the White Paper followed the precise pattern of those published by the Government of which he was a member. It sets out an assumption, necessary for the purposes of the Government Actuary's report, as at December when we dealt with the matter. As in his White Paper, it says that for the purposes of the calculation it has been taken as an assumption that the figures of unemployment will average the same figure for this year and for each of the subsequent
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    years of the survey. That is an assumption for the purpose of the Government Actuary's report. It is not a prediction. He was wrong to omit in his broadcast last night the qualifications contained therein.
    Mr. Speaker: Mr. Wainwright, Question No. 9.
    Mr. Stevens rose—
    Mr. Speaker: Order. I had an indication that the hon . Member for Fulham (Mr. Stevens) had withdrawn his question, No. 8. He cannot change his mind halfway through. Either he has withdrawn the question, or he has not. Perhaps the information that reached me was wrong.. If so, I shall make inquiries later. Had the hon. Gentleman withdrawn his question?
    Mr. Stevens: No.
    Mr. Speaker: I shall make inquiries about how I got the message.

    London Docklands
    Mr. Stevensasked the Chancellor of the Exchequer if he will take steps to establish a tax-free area in London Docklands.
    Mr. Brittan: I am not persuaded that there would be any advantage in setting up a tax-free area in London Docklands. The other initiatives that we are pursuing there will be more fruitful. The London Docklands Development Corporation is beginning to make its mark in the area. The enterprise zone at the Isle of Dogs is expected to come into operation next month. That will offer a number of tax concessions and is already attracting considerable interest.
    Mr. Stevens: In view of the unique nature of London Docklands, is my right hon. and learned Friend satisfied that the measures that have been taken to encourage industry into Docklands and into the enterprise zone will work quickly enough to take full advantage of this splendid opening?
    Mr. Brittan: I hope that they will, although they are very much in their infancy. Clearly, we shall want to watch closely whether they make the impact that we hope they will.

    Provisional Budget Statement
    Mr. Richard Wainwrightasked the Chancellor of the Exchequer if he will make it his practice to present a provisional Budget Statement in December with a series of fiscal options for Parliament to consider.
    Sir Geoffrey Howe: As the hon. Member knows, Budget procedures are being studied by the Treasury and Civil Service Select Committee. I await the report of the Committee with interest.
    Mr. Wainwright: Does the Chancellor of the Exchequer agree, especially in the light of his recent experience with table 9 of the Budget press realease, that considerations of tax, social security and energy are now so complex and closely interrelated that even he needs a wider dialogue before reaching firm conclusions to put to the House?
    Sir Geoffrey Howe: I suspect that if some people have found it difficult to follow the tables describing one

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    option, it might compound confusion even more if we were to offer more than one option at the same time. The present method has commended itself to the House over a number of years. It enables the House to concentrate on the plans that are laid before it by the Government. I look forward with interest to see whether the Select Committee will suggest an alternative approach.
    Mr. Dykes: In view of our tradition of the once-a-year principal Budget, will my right hon. and learned Friend say what has been the main modification in monetary policy in Tuesday's announcement?
    Sir Geoffrey Howe: I have already answered that question in the reply that I gave to my hon. Friend the Member for Enfield, North (Mr. Eggar).

    Economic Improvement
    Mr. Winnickasked the Chancellor of the Exchequer when he now expects to see a substantial improvement in the economy.
    Sir Geoffrey Howe: The published forecast shows the recovery being firmly established over the next year, as inflation comes down.
    Mr. Winnick: Is the Chancellor of the Exchequer aware that most people will understand that, after his latest Budget, the chances of a substantial improvement in the economy are as remote as they were under his previous Budgets, and that all the evidence shows that mass unemployment will continue under his Government?
    Sir Geoffrey Howe: If the hon. Gentleman persists in deceiving himself and in setting such a wide distance between his own perception and that of the rest of the country, it is his misfortune, not mine.
    Dr. Mawhinney: How close a relationship does my right hon. and learned Friend see between a substantial improvement in the economy and a substantial reduction in interest rates?
    Sir Geoffrey Howe: If the process proceeds as expected, the two should be closely related.
    Mr. Geoffrey Robinson: Is the Chancellor of the Exchequer aware that the figures published yesterday, showing a massive £4 billion investment in the overseas portfolio, reveal that his stewardship has been an utter disaster in a year—1981—when there was a net disinvestment in manufacturing industry? How can any recovery be based on that loss of investment and jobs at home, when money is flowing across the exchanges into portfolio investments abroad?
    Sir Geoffrey Howe: If the hon. Gentleman had taken part in the NEDC discussion on this subject the other day—the opportunity may yet present itself to him—he would have a better insight into the problem. The movement of money into portfolio and other investment overseas is entirely beneficial, for two reasons. First, it provides better opportunities and outposts for British trading opportunities. Secondly, it replaces the rundown of capital assets in North Sea oil with income-producing assets overseas. Moreover—this is something that I should have thought the Labour party would have mentioned—it makes the exchange rate lower than it would otherwise have been.

    Widows
    Mr. Durantasked the Chancellor of the Exchequer whether he has any plans to meet representatives of the National Association of Widows to discuss the tax position of widows.
    Mr. Bruce-Gardyne: We have not received a request for a meeting with the National Association of Widows this year, but if one is made one of my hon. Friends or I will be glad to see it.
    Mr. Durant: Is my hon. Friend aware that the National Association of Widows was disappointed that the Chancellor in his Budget Statement did not mention the uprating of widows' allowance? Working widows are still concerned that although this allowance has been uprated and followed by the personal allowances, taxes will still claw back some of the money. Is my hon. Friend aware that they are worried that they will not be any better off?
    Mr. Bruce-Gardyne: I hate to say it to my hon. Friend, but he is being a little ungenerous. The Budget provided full price protection of widows' pensions, and also a tax threshold increase for widows of 14 per cent., which is bigger than the pension increase. As a result, fewer widows will now pay tax than in 1981–82. Those who pay tax will have a lower tax burden, and widows over 65 can have over £9 a week in addition to pension, before they are liable for tax, as a result of the age allowance increase. Those are not insignificant benefits.
    Mr. Cook: Will the Economic Secretary confirm that, for the second year running, the basic pension for a widow aged under 65 will, in the next financial year, carry her over the tax threshold? Does he appreciate that that has occurred only since the Government came to office? When can we look forward to the time when the Government will remove such women from tax altogether?
    Mr. Bruce-Gardyne: I cannot confirm that, because it is not accurate. My understanding is that the widow's single allowance plus the £100 assessing tolerance—
    Mr. Cook: Ah, Yes.
    Mr. Bruce-Gardyne: I do not see why we should not take account of the £100 assessing tolerance, because it actually applies. It means that women with earnings-related additions to State pension will not have to pay tax on them unless the additions are more than £64 a week, which is well above the average additions to the State pension.

    Economic Policy
    Mr. Cryerasked the Chancellor of the Exchequer to what extent his Budget furthers the aims of his economic policy.
    Sir Geoffrey Howe: I refer the hon. Member to my Budget Statement.
    Mr. Cryer: Does the Chancellor of the Exchequer realise that there is a recession at the moment, that the Budget will not reduce the dole queues, that it is a cruel deception of the nation to suggest that it will, and that much more vigorous action is needed by the Government to reduce the dole queues, or does he take his advice from the April issue of "Honey" magazine, in which Mark Thatcher says that he decries
    "the notion that there is a recession"?
    Sir Geoffrey Howe: It is quite absurd to suggest that a significantly different economic policy would have a more rapid and effective impact on the dole queue. The hon. Member knows that a different prescription was tried by the Labour Party when in office. It led to a doubling of the dole queue and was not notably successful.
    Mr. Kilroy-Silk: Is the Chancellor of the Exchequer aware that his economic policies have doubled unemployment in my constituency, which now stands at 21·8 per cent? Which measures in the Budget are likely to reduce unemployment in my constituency and how many of my unemployed constituents will have a job as a result of the decisions that he announced on Tuesday?
    Sir Geoffrey Howe: The hon. Gentleman is wholly mistaken to suggest that the level of unemployment in his constituency or any other is a result of Government policy. The measures in the Budget directed to the continued conquest of inflation and to helping British trade and industry are much the most secure foundation for the reduction in unemployment, to which we all look forward.

    Confederation of British Industry
    Mr. Kenneth Lewisasked the Chancellor of the Exchequer what consultations he proposes to have with the Confederation of British Industry following his Budget Statement.
    Sir Geoffrey Howe: I have no plans at present to meet representatives of the confederation before the next meeting of the National Economic Development Council, which is to be held on 7 April.
    Mr. Lewis: I have no doubt that if my right hon. and learned Friend meets representatives of the CBI soon, they will give him a lunch because of what he has done about the national insurance surcharge. It has been brought down effectively for the moment. Will my right hon. and learned Friend keep an open mind for the autumn, because my right hon. and learned Friend the Chief Secretary to the Treasury said that the reduction in that tax would increase employment? If we need to increase employment more, that would be the best tax to reduce in the coming months.
    Sir Geoffrey Howe: My mind is always open to suggestions from my hon. Friend, but I do not wish to lead him to expect any change in the measures that I have announced about the national insurance surcharge. It takes some time to bring them into effect. I am bringing them into effect as early as possible and also taking steps to increase their effectiveness so that industry receives the benefit of the whole 1 per cent. throughout the year.

    Enterprise Zones
    Mr. Anthony Grantasked the Chancellor of the Exchequer if he will review the tax incentives available to enterprise zones.
    Mr. Brittan: The private sector's response to the enterprise zones has been encouraging, but it is still too early to judge which features have been most helpful and therefore it is too early to review the tax incentives.
    Mr. Grant: Is my right hon. and learned Friend aware that some local authorities in enterprise zones are charging high rents because of the Government's subsidy on rates?
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    Will he consider making it mandatory that such local authorities should dispose of the freeholds if they are requested to do so?
    Mr. Brittan: I am grateful to my hon. Friend for drawing my attention to that problem. I hope that he will give us further details, as we must obviously consider it.
    Mr. Eastham: Is it not a farce to introduce enterprise zones only three or four miles away from partnership areas—the very areas that need the sort of assistance that the Government have decided to give to the enterprise zones?
    Mr. Brittan: There is no inconsistency in doing that, because the enterprise zones have a particular role to play in stimulating specified portions of the older industrial areas. Their task is worth while and the fact that there may be other areas of benefit comparatively close by is not an obstacle or an objection.

    Public Ownership (Manufacturing Concerns)
    Mr. Dalyellasked the Chancellor of the Exchequer to what extent he takes into account the effect on manufacturing concerns in public ownership, such as British Leyland, in assessing measures designed to stimulate demand in the economy.
    Sir Geoffrey Howe: The finances of all concerns in public ownership are taken fully into account when we assess Government expenditure and borrowing.
    Mr. Dalyell: Does the Chancellor agree that, as to the proposed sale of the tractor line at Bathgate, the Treasury should be fully informed about the public expenditure consequences of what happens?
    Sir Geoffrey Howe: The sale is a matter for the board of British Leyland.

  PRIME MINISTER

    Engagements
    Mr. Kenneth Lewisasked the Prime Minister if she will list her official engagements for Thursday 11 March.
    The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today, including one with the Speaker of the Peruvian Parliament.
    Mr. Lewis: Is my right hon. Friend aware that the best thing that she has done in recent days is to agree to a relaxation of the public pay guideline of 4 per cent. in favour of giving the nurses 6·4 per cent? That will be appreciated in Britain. Would it not be a good idea if other trade unions in the public sector, with the support of the Leader of the Opposition and the Labour Party, did not use that increase for the nurses to make bigger claims and thus gazump this claim, because that will make it more difficult in future to make exceptions in favour of professions such as the nurses, who are worthy of such an increase?
    The Prime Minister: There were good management grounds for offering nurses more than 4 per cent. and believe that the decision has been welcomed generally. It

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    is, of course, the taxpayers' money, not the Government's money, and my hon. Friend is right to say that it reduces our ability to pay increased wages elsewhere.
    Mr. Foot: Has the right hon. Lady had an opportunity today to study the revelations in The Guardian about the sale of BNOC assets? Although the Labour Party is strongly opposed in principle to the sale, does the right hon. Lady not agree that the error would be compounded if the sale were to take place at a time of falling oil prices? Does she believe that that may account for the suggestions made by Mr. Clive Jenkins about the financial manoeuvrings on the board?
    The Prime Minister: Those who will be interested in purchasing the assets are likely to take a longer-term view of their value rather than a short-term view, based on the immediate prospects for the price of oil.
    Mr. Foot: That was not the question that I put to the right hon. Lady. I wished to know whether she believed that it was a good idea that the sale should take place when oil prices are falling generally. If the right hon. Lady is so confident that the matter is being dealt with properly by the Secretary of State for Energy—who was not so skilful in dealing with Amersham International—and if she is so confident that there is nothing wrong, does she believe that it was wise for the Secretary of State to sack Mr. Clive Jenkins— [HON. MEMBERS: "Yes"]—and remove him from the board, where he could see whether everything was being done properly?
    The Prime Minister: The right hon. Gentleman cannot have heard what I said or realised its implications. Although a sale may take place when the price of oil is falling, those who are interested in purchasing the assets are much more likely to take a long-term view of their value and to judge the price by that long-term view. We believe in privatisation and this will be a good opportunity for people to acquire shares in BNOC. With regard to what the right hon. Gentleman said about Mr. Clive Jenkins, it is the case that Mr. Jenkins was appointed for a period of three years. That period will expire shortly.
    Mr. Montgomery: Will my right hon. Friend find some time today to study the speech made by the right hon. Member for Plymouth, Devonport (Dr. Owen), in which he advocated tougher controls on smoking and drinking? Bearing in mind that the Leader of the Liberal Party has given his tacit support to legalising cannabis, can it be assumed that the policies of the alliance party are to legalise pot and to ban smoking and alcohol, except claret?
    The Prime Minister: It seems to me that these points were made more with a view to obtaining publicity than propounding sound policy.
    Mr. Sandelson: In view of the chaotic conditions now reigning— [HON. MEMBERS: "Reading"]—will the Prime Minister now hold an inquiry into the financing of London Transport to ensure that there is a rational system of subsidies that will provide the proper level of fares and the efficient service that the people of London have a right to expect?
    The Prime Minister: I agree entirely that the people of London have a right to expect a good and efficient service from London Transport. I believe that this can be provided as in the past, with a reasonable rate of subsidy. We condemn totally the strike yesterday, which put to
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    great inconvenience many people in London who, nevertheless, struggled to work. We have no immediate plans for an inquiry into London Transport. We believe that it can be run properly if there is the will to do so, under the present legislation, and with prudent financing.
    Mr. Foxasked the Prime Minister if she will list her official engagements for Thursday 11 March.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Fox: Will my right hon. Friend take time today to consider the frightening figures of increased crime in certain London boroughs, published yesterday? Does she agree that this increase is a direct consequence of a concerted attempt by the Left to undermine the authority of the police? Is it not time to confirm that this criminal minority will be brought to justice and that no accusations of racial discrimination will prevent the police profile that is necessary in these areas to protect decent and law-abiding citizens?
    The Prime Minister: It is the duty of all our citizens to uphold the police—[HON. MEMBERS:"Oh."] It is the duty of all our citizens to uphold the police in the pursuit of their duty of upholding the law. I believe that the public interest requires that all those who are engaged in crime should be detected, arrested, prosecuted and convicted and that this applies whatever— [Interruption.] I think that the hon. Member for Grimsby (Mr. Mitchell), is making for me the very point that was made by one of my hon. Friends about the attitude of some Left-wingers towards the police. I believe that the public interest requires that all those engaged in crime are prosecuted and convicted, regardless of their race or colour. We have equal rights. We have equal responsibilities as well.
    Miss Maynard: Will the Prime Minister take time today to intervene in the dispute between Bernard Matthews, the poultry tycoon, and members of the National Union of Agriculture and Allied Workers in Suffolk and Norfolk, who are on official strike? Is she aware that the strike is the action of desperate men and women, many of whom receive family income supplement, rate rebates and rent rebates, and who have been trying to live on starvation wages? Is the right hon. Lady further aware that these workers fully fulfil her criteria of increased production, having doubled production in the past 12 months? Will she now follow her words with deeds and support these workers who are trying to recover some of the wealth that they have produced?
    The Prime Minister: The answer to the hon. Lady is "No". Industrial relations are a matter between management and all those engaged in the enterprise. I hope that they will sort out this matter successfully. I might point out that my right hon. Friend the Minister of Agriculture, Fisheries and Food took steps that helped considerably all those who produce turkeys in this country. I hope that this will be borne in mind.
    Mr. Tapsell: When the Leader of the Opposition came to see my right hon. Friend to discuss the proposed visit of President Reagan to this country, did he remind her of the occasion in 1955 when Mr. Kruschev visited this building and, at a private dinner with the then leadership of the Labour Party, felt himself to have been so insulted that Mr. Gaitskell found it necessary the following morning to go round to Claridge's hotel to make a formal

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    apology? Is one to assume that discourtesy to the leaders of other great nations is now both obligatory and universally applied so far as the Labour Party is concerned?
    The Prime Minister: I am grateful to my hon. Friend. I hope that we shall do honour to the President of a country who is a staunch and powerful ally in the defence of freedom and a great friend of Britain. To do otherwise would cause untold harm to our relations with that country, to the alliance and to the whole relationship between the United States and Europe. I remember the occasion when the Labour Party invited Mr. Kosygin to address both Houses of Parliament. We, on the Conservative Benches, loyally went along with it.
    Mr. Gordon Wilson: Harking back to the question on the British National Oil Corporation, the Prime Minister said in her reply that the shares and value of BNOC were a long-term asset that investors would realise and recognise. Will she agree, in those circumstances, that it would be more appropriate not to put those shares on to the market because of the long-term potential and to make sure that the full value is recouped when the market for oil shares rises again?
    The Prime Minister: No, Sir. We believe that public ownership is better expressed by shares being genuinely in the hands of individual men and women and not in the hands of the State. In particular, it gives a chance for all those who work for BNOC to acquire a stake and a share in their own company.
    Mr. Wardasked the Prime Minister if she will list her official engagements for 11 March.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Ward: Has my right hon. Friend had time to study the advice given to the National Union of Mineworkers by Mr. Joe Gormley at a dinner given in his honour last night, to the effect that the trade union movement should reject Left-wing extremists? Does she not think that it would be helpful if the Leader of the Opposition endorsed this advice?
    The Prime Minister: I believe that Mr. Gormley rightly condemns extremists in the trade unions. I believe that, in expressing that view, he is firmly supported by the vast majority of trade unionists as well as the vast majority of the people of this country. I also noted his remark that if one follows the leadership of the bully boys, it will be good riddance to a lot of jobs in British coal mining. He has the true interests of the workers of this country at heart.
    Mr. Allen McKay: Will the Prime Minister therefore do a favour to Joe Gormley and ask her right hon. Friend
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    the Secretary of State for the Environment when he intends releasing a decision on the Vale of Belvoir, as this is needed for replacement capacity in the Leicester coalfield? Or is there collusion between the Secretary of State for the Environment and the Secretary of State for Energy to sell off the Vale of Belvoir?
    The Prime Minister: My right hon. Friend the Secretary of State for the Environment, who was responsible for making a decision on this planning application, will, I hope, be in a position to make an announcement soon.
    Viscount Cranborne: Will my right hon. Friend find time today to study this week's reports in the Washington Post, particularly those referring to the right hon. Member for Crosby (Mrs. Williams)? Will my right hon. Friend find time to congratulate her on her perspicacity in recognising the resurgence in the fortunes of the Conservative Party?
    The Prime Minister: I am grateful to my hon. Friend. I believe that the view expressed in the Washington Post will be shared by many people in Britain.
    Mr. William Hamilton: I revert to the question of nurses' pay. Does the right hon. Lady regard it as defensible that her Government should agree to give the police a 13 per cent. increase this year while they give nurses a 6 per cent. increase? Is a nurse worth only half what a policeman is worth? Even with a 6 per cent. increase, a staff nurse will earn less in a year than the right hon. Lady has given as an increase this year to Princess Margaret.
    The Prime Minister: The Government were pledged to uphold the Edmund-Davies report on police pay. They have done so and will continue to do so. The Government should not take lessons from the hon. Gentleman on nurses' pay. After all, it was the Labour Government who kept down nurses' pay in their last years and then referred the whole matter to Clegg.
    Mr. William Hamilton: That is not true. The right hon. Lady is deceiving the House.
    The Prime Minister: It was this Government w ho honoured the Clegg recommendations and who reduced the weekly working hours of nurses, and it is this Government who now pay, through the taxpayer, 76 per cent. more on nursing pay bills than was paid on the day we came into power.
    Mr. William Hamilton: Not one nurse has got that.
    The Prime Minister: The hon. Gentleman never did like the facts, but those are the facts.

Business of the House
3.32 pm
Mr. Michael Foot: Will the Leader of the House state the business for next week?
The Lord President of the Council and Leader of the House of Commons (Mr. Francis Pym): Yes, Sir. The business for next week will be as follows:
MONDAY 15 MARCH—Conclusion of the debate on the Budget Statement.
Motion on the Prevention of Terrorism (Temporary Provisions) Act 1976 (Continuance) Order.
TUESDAY 16 MARCH—Proceedings on the Consolidated Fund (No. 2) Bill.
WEDNESDAY 17 MARCH—Supply (15th Allotted Day)
Until about Seven o'clock there will be a debate on cuts in higher education in Scotland, and afterwards a debate on National Health Service charges for overseas visitors. Both debates will arise on Opposition motions.
Motions on the Wool Textile Industry (Amendments) Orders.
THURSDAY 18 MARCH—Progress on remaining stages of the Social Security and Housing Benefits Bill.
FRIDAY 19 MARCH—Private Members' motions.
MONDAY 22 MARCH—Second Reading of the Mental Health (Amendment) Bill [Lords].
Mr. Foot: May I put three matters to the right hon. Gentleman? First, we understand that a statement will be made later this afternoon about Trident and the Government's proposals. I am sure that the right hon. Gentleman will agree that we must have a debate in the House on that subject. We would wish to have a special debate in Government time, and I hope that the right hon. Gentleman will concur that that is the proper course.
Secondly, the question of the British National Oil Corporation and the sale of assets, to which I referred earlier, is now being discussed in Committee. We were promised—I think for this week—that the Secretary of State for Energy would let us know about the articles of association for Britoil. We do not have them yet. In view of the importance of that matter, the best course would be for the statement to be made in the House. Therefore, particularly in view of the delay in making the statement, I ask that it should be made in the House at the beginning of next week.
Finally, may I ask the right hon. Gentleman to use the Special Standing Committee procedure for the Mental Health (Amendment) Bill? I believe that that would be acceptable to my right hon. and hon. Friends, and I hope that the right hon. Gentleman will consider that.
Mr. Pym: The statement on Trident has not yet been made; my right hon. Friend the Secretary of State for Defence will make it in a moment. Therefore, it would be right to consider the right hon. Gentleman's remarks afterwards. However, I have been considering the matter and it is fair to point out that when a major statement was last made on the Trident programme, in July 1980, the debate asked for was provided in Government time. I shall bear the right hon. Gentleman's point in mind, but it would be a mistake to go any further before the statement has been made.
The point about the publication of the articles of association for Britoil was made in Monday's debate and
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I am sure that my right hon. Friend the Secretary of State will fulfil his promise. I shall certainly discuss the right hon. Gentleman's representations with him. I suspect that the articles would be best presented to the Committee, but I shall consider the right hon. Gentleman's remarks.
I accept that the Mental Health (Amendment) Bill is a suitable Bill for the Special Standing Committee procedure. At the beginning of the Session, I told the House that I did not think that a suitable Bill would be introduced, and that is why I have not tabled a Sessional Order. However, the Bill meets the specification and therefore I am prepared to make the necessary arrangements for it to be considered under that procedure.
Several Hon. Members rose—
Mr. Speaker: Order. The House will be aware that a further statement is to be made. Many right hon. and hon. Members also wish to speak in the main debate. Therefore, I shall allow a quarter of an hour for business questions, which should be enough.
Mr. Cyril D. Townsend: As the last planned debate on the Middle East did not take place, as British forces are once again stationed there and as the House has not had an opportunity to debate Israel's recent legislative action over the Golan Heights, would not the Government show wisdom if they were to initiate an early debate on the Middle East?
Mr. Pym: That is true, if we could find the time. I agree about the importance of the subject, but I cannot foresee an opportunity in the near future. However, I hope that an opportunity will arise before too long.
Mr. Charles R. Morris: Is the right hon. Gentleman aware that about 10 days ago I sought a debate, under Standing Order No. 9, to discuss police operations during the 10-month industrial dispute outside the premises of Laurence Scott Electromotors Limited in my constituency? Does he remember that, in rejecting my application, Mr. Speaker suggested that there were other parliamentary channels available to me? Is the right hon. Gentleman aware that on six different occasions I have applied to raise an Adjournment debate and that each application has been rejected? Is he further aware that I applied to ask two private notice Questions, and that both applications were rejected? Does the right hon. Gentleman realise that on the last Consolidated Fund Bill debate I applied to initiate a debate on this issue, but drew No. 32 among the issues tabled for debate? Against that background of awful luck—
Mr. Speaker: Order. As business questions will last only a quarter of an hour, the right hon. Gentleman is unfair to ask such a long question.
Mr. Morris: I hope that you will forgive me, Mr. Speaker, if I have abused my opportunity, but the issue is important to my constituents. Against that background of awful ill luck, will the right hon. Gentleman make arrangements for a statement to be made next week by the Home Secretary?
Mr. Pym: I shall certainly pass on the right hon. Gentleman's representations. I am sorry that he has not achieved the debate that he desires. Off the top of my head, I do not know whether it will be in order to raise the subject during the debate on the Consolidated Fund.

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However, if it is, perhaps the right hon. Gentleman will draw a higher number than before. I am sorry that I cannot provide time for a debate.
Mr. Harry Greenway: Has my right hon. Friend observed early-day motion 316—on the important subject of school discipline—which stands in the name of 77 right hon. and hon. Members?
[That this House expresses grave concern at the implications of the European Court's ruling on corporal punishment; notes that the decison would appear to question the British view that the teacher is in loco parentis; and requests Her Majesty's Government to take such steps as are necessary to ensure; (a) that the teacher's existing position is maintained and (b) that methods of enforcing discipline should be decided within a school itself.]
Will my right hon. Friend arrange or allow an early debate on this extremely important matter?
Mr. Pym: I cannot find an opportunity in the near future in Government time, but I agree that there is widespread interest in the House on this subject.
Mr. Robert Kilroy-Silk: Will the Leader of the House find time for an early debate on law and order, so that we can analyse the way in which the Government's policies, particularly their economic policies, have contributed to, if not caused, the dramatic and unprecedented increase in serious crime since the Conservative Party came to office?
Mr. Pym: I entirely agree that that is an important subject which the House would very much like to debate. I will, of course, consult my right hon. Friend the Home Secretary, but I must repeat that I do not foresee an early opportunity to debate the subject although I agree that there is a great deal of interest in it on both sides of the House.
Mr. Michael McNair-Wilson: Did my right hon. Friend see the allegations reported in the London evening newspapers yesterday that an IRA defector claimed to have an Irish contact in the House of Commons who supplied him with confidential information about Members of Parliament and their movements? If that statement is true, what inquiries is my right hon. Friend setting up to ensure that security in the House is all that it should be?
Mr. Pym: The police are investigating the extremely serious allegations that were made in that article. I do not think that it would be right for me to comment any further at this stage.
Mr. David Winnick: Leaving aside the manner in which President Reagan's visit to the United Kingdom was announced and the resentment felt in Britain about this issue, will the Leader of the House agree to listen to the views of hon. Members regarding the proposed joint meeting with both Houses of Parliament in Westminster Hall? Does he agree that it is utterly inappropriate for such a gathering to take place in Westminster Hall and that if President Reagan is to address both Houses, as he may wish to do, he should do so from the Royal Gallery from which other distinguished visitors have addressed both Houses of Parliament?
Mr. Pym: I do not think that that really arises on next week's business, but the answer is "Yes". I am certainly
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listening, and will continue to listen, to the views of hon. Members. I can tell the hon. Gentleman that quite a large number of hon. Members do not agree with what he has just said.
Mr. John Stokes: In view of the recent appalling figures for violent street crime, much of which is unfortunately perpetrated by young people, including West Indians, is my right hon. Friend satisfied that there is sufficient moral teaching—instruction in the difference between right and wrong—in schools for young children so that they may have a proper start in life and do not later commit awful crimes?
Mr. Pym: I do not think that it is for me to comment on that except to say, as I said to the hon. Member for Ormskirk (Mr. Kilroy-Silk), that this is an important subject which hon. Members will wish to discuss at some stage.
Mr. loan Evans: In view of today's statement, will the Leader of the House find time for a debate on Trident, if not next week, then soon, and certainly before the Easter recess? Will he also find an early opportunity for a debate on the sale of the British National Oil Corporation? Does he agree that the two are linked? Does he agree that, as BNOC will be sold off for about £10 billion and Trident will cost about £10 billion, the two will be linked in people's minds?
Mr. Pym: On the first part of the hon. Gentleman's question, I have nothing to add to what I said to the Leader of the Opposition. On his second point, the relevant Bill is going through the House. I do not think that anything beyond that by way of extra procedure is required at the moment.
Mr. Michael Shersby: When does my right hon. Friend expect to arrange a debate on the Green Paper on the reform of the domestic rating system?
Mr. Pym: Not in the immediate future. Widespread consultations are taking place and in due course the House will, naturally, wish to express its opinions on the subject.
Mr. Bob Cryer: Will the Leader of the House introduce an Eastbourne Harbour (Repeal) Bill now that the Duke of Devonshire has reneged on all his cronies who crowded into the Chamber, at the request of the Prime Minister's private secretary, to vote for the Bill? Now that he has joined the "Scabs, Dregs and Parasites Party", would it not be reasonable to introduce a repeal Bill?
Mr. Pym: That is not in, my programme.
Mr. Nicholas Baker: Will my right hon. Friend consider finding time for a debate on the functions and existence of the GLC, bearing in mind the chaos into which it has thrown London Transport, its incredible claim to have some power over the police and its default in relation to London ratepayers?
Mr. Pym: I agree that many right hon. and hon. Members have strong views on that subject, but I am afraid that I cannot find time to enable my hon. Friend to express his views in the House.
Mr. Robert C. Brown: Has the Leader of the House seen early-day motion 238 on the Co-operative Wholesale Society and bloodsports?

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[That this House congratulates the Co-operative Wholesale Society on their decision to forbid the hunting of wild animals on land in the ownership of the Cooperative Wholesale Society.]
Is he aware that, if my postbag is representative, there is much public feeling against bloodsports? I realise that a major Bill for the wholesale abolition of bloodsports now would take too long, but will the Leader of the House consider a teeny little Bill and start with the abolition of foxhunting?
Mr. Pym: No, Sir.

Consolidated Fund (No. 2) Bill
Mr. Speaker: Before the debate on Tuesday 16 March on the Second Reading of the Consolidated Fund (No. 2) Bill, hon. Members may hand in to my office by noon on Monday 15 March their names and the topics which they wish to raise. The ballot will be carried out as on the last occasion. An hon. Member may hand in only his or her own name and one topic.
The Bill includes certain defence Supplementary Estimates for the current year as set out in House of Commons Paper 173. Certain civil Supplementary Estimates for the current year are set out in House of Commons Papers 174, 179 and 197. Excesses in civil Estimates for 1980–81 are set out in House of Commons Paper 172. It will be in order on Second Reading to raise topics falling within the ambit of the expenditure proposed in these papers. I shall put out the result of the ballot later on 15 March.

Trident Missile Programme
3.45 pm
The Secretary of State for Defence (Mr. John Nott): With your permission, Mr. Speaker, I should like to make a statement about the Government's decision to modernise the existing Polaris force by replacing it, in the mid-1990s, with a four-boat force based on the Trident II D5 missile system.
On 15 July 1980, my predecessor announced the Government's decision in favour of Trident as the replacement force for Polaris, but, as I told the Defence Committee of the House in March last year, final decisions were still needed on the type of submarine and the choice of missile.
We have now decided that our four Trident submarines, to be built at Vickers, Barrow, will have a larger hull section than previously planned and will incorporate an advanced propulsion system and the latest sonars. After detailed consideration here, and with the United States, we have now decided also to purchase the Trident II D5, instead of the Trident I C4 missile system, from the United States.
The number of warheads that the Trident II D5 missile will carry, and therefore Trident's striking power, remains wholly a matter of choice for the British Government. Our intention is that the move to D5 will not involve any significant change in the planned total number of warheads than we originally envisaged for our Trident I C4 force.
The reasons for our choice of Trident II are briefly as follows. Just as the Polaris system will, by the mid-1990s, have been in service for approaching 30 years and will have reached the end of its operational life, so the Trident system must remain a credible deterrent for a similar period and thus remain operational until 2020—that is, 40 years from now.
Our experience with Polaris and the decision—endorsed by the last Labour Government—to modernise the Polaris missile with Chevaline at great cost has shown us the financial and operational penalties of running and developing a United Kingdom unique system.
Followint President Reagan's decision to accelerate the Trident II D5 programme, if we were to choose the C4 missile, it would enter service with the Royal Navy only shortly before it left service with the United States. This would mean that the United Kingdom alone would be responsible for keeping open special Trident I C4 support facilities in the United States, and the United Kingdom alone would be forced to fund, as with Chevaline, any research and development needed to counter improved Soviet anti-ballistic missile defences. For these reasons, our judgment is that the through life costs for Trident I would almost certainly be higher than for Trident II.
Accordingly, we have entered into an agreement with the United States to purchase Trident H. An exchange of letters between the President of the United States and my right hon. Friend the Prime Minister is set out in Cmnd. 8517 published today, together with an exchange of letters between the United States Defence Secretary and myself on the terms of the arrangements.
The United States Government are selling Trident II to us on more advantageous terms than Trident I. The missile will be purchased by us at the same price as the United States Navy's own requirements in accordance with the Polaris sales agreement. The additional overheads and
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levies will be lower than would have been the case under our 1980 agreement to purchase Trident I C4. In particular, the so-called R and D levy will in fact be a fixed sum in real terms, and there will be a complete waiver of the facilities charge which was part of the C4 deal. I emphasise to the House that the terms protect us completely from development cost escalation. Finally, the United States will waive certain of the Buy American Act provisions and set up a liaison office in London to advise British industry on how they can compete—on equal terms with United States industry—for sub-contracts-for weapon systems components for the D5 programme as a whole, including the American programme.
When I appeared before the House of Commons Defence Committee, I made it clear that the range of options which we still had to study for the Trident system, over and above the total cost of £5,000 million then given, could be confined within an additional £1,000 million at 1980 prices and exchange rates—and so it will.
On this basis, the initial capital costs of the Trident II D5 missile system will be an extra £390 million above the Trident I C4 missile system which represents an addition of about 7 per cent. to the total cost. We have now decided also to fit the latest propulsion system, the British pressurised water reactor 2, already under development, and improved sonar systems, which together with the larger hull will add about a further £500 million to the cost, which will mean additional work for British industry but within the £1,000 million total increase. These changes will greatly improve the efficiency and the quietness of the submarines. As a result, we are planning to run our submarines for around seven years between refits so that the availability of the submarines for patrol can he greatly increased. This will allow us to maintain three boats in the operating cycle for a high proportion of the time. The Trident II D5 missile should also have an in-tube life within the submarine of at least seven years, a much longer period than for Polaris, thus greatly reducing maintenance which will be largely carried out on board the submarine.
At September 1980 prices, therefore, we will spend on Trident about £6,000 million. Updating the price basis to September 1981 prices, which reflects a much lower exchange rate than in September 1980, adds a total of about £1,500 million. So the total cost over the procurement period will, at 1981 prices, be £7,500 million against an estimated total defence budget over the same period of approaching £250,000 million. That is just over 3 per cent. of the total defence budget.
This means that we shall spend on Trident at current prices an average of somewhat under £500 million a year against total defence spending of £14,000 million a year.
I am making available now in the Vote Office a document explaining the Government's decision which also shows on page 8 how the cost of Trident compares with the anticipated capital expenditure on our conventional forces. This information has not been published before.
From this, it can be seen that Trident expenditure over the next 15 years is a far smaller amount than our planned expenditure on equipment for our major conventional capabilities such as anti-submarine warfare or offensive air operations. With the 3 per cent. growth in the defence budget until 1985–86, several billions of pounds extra in real terms will still be available to spend on our conventional defences in future years.

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For about 3 per cent. of the defence budget, we shall be modernising the British independent nuclear force that successive Governments have considered to be essential for our national security over the past 30 years. Nothing has happened to change that need—rather the reverse.
The Government remain convinced that no other choice by Trident will provide a credible nuclear deterrent into the year 2000 and beyond. No other use of our resources could possibly contribute as much to our security and the deterrent strength of NATO as a whole. To choose a system lacking in credibility to an aggressor, or, still more, to abandon unilaterally a capability that we have now maintained for three decades, would be a futile gesture that would serve to increase rather than to diminish the risk of war.
Mr. John Silkin: Labour will cancel the Trident project. We shall do so for three basic reasons.
First, this programme escalates the arms race, particularly in the light of the Geneva talks and the United Nations special session on disarmament. Incidentally, I hope that the Prime Minister will be going to that special session.
Secondly, the project breaks the spirit if not the letter of the non-proliferation treaty.
Thirdly, despite all that the Secretary of State says, the expense will have an effect upon our conventional forces which will destroy the security of these islands. Moreover, while I am on the subject, the Secretary of State may bamboozle his colleagues in the Cabinet, but he will not bamboozle the House. He says that the cost is 3 per cent. of defence expenditure, but he does not tell us that it is almost one-quarter of the expenditure on new equipment in the major maximum years.
I wish to ask the Secretary of State the following questions. First, what pressure is he maintaining on the United States Government for the United Kingdom to take part in the Geneva talks? If he says we are to have this new and devastating nuclear weapon system, we should be at the top table of which he talks so often.
Secondly, to what extent will the 50,000 jobs lost as a result of the devastation of our conventional forces by this be offset by the programme itself?
Thirdly, how can the Secretary of State be so sure about the cost? He made an interesting point in this respect. He talked about 1981 prices. There has been 12 per cent. inflation since then. Quite apart from that, however, how can he be so certain of the cost when, first, there is no experience whatever in building submarines of this kind, as they are far larger than any that we have previously had, and, secondly, we do not have experience even with the warheads? Finally, on what basis is the right hon. Gentleman taking the exchange rate in talking about 1985 and onwards?
Mr. Nott: There are many questions to answer. I shall do my best to answer them.
It will be no surprise to the House that the Labour Party now says that if it ever comes to power it will cancel Trident. We realise the pressures upon the right hon. Gentleman from his party. We must be realistic about his difficulties.
When Trident II is introduced it will represent only about 3 per cent. to 4 per cent. of the planned number of Soviet strategic missiles. That is approximately the same
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proportion of the Russian strategic missile force that Polaris represented when it was introduced. It is not true to say that this escalates the arms race. If there is an escalation of the arms race, it comes from the Soviet Union, which is introducing one new SS20 every week.
This is no more than a modernisation of our existing force, which we have retained for 30 years. It does not break the letter of the non-profileration treaty. That is an inaccurate statement. [HON. MEMBERS: "It breaks the spirit".] Nor does it break the spirit. The non-proliferation treaty never sought to refer to existing nuclear powers.
The right hon. Gentleman is in no position to lecture us about conventional forces. There are nearly 30,000 more Regulars and reservists in the Services than there were when we came to office. Every unit is up to strength. We now have one-third more tanks manned and operational in Germany, and the amount spent on defence equipment with British industry in the coming year will have doubled since the last general election. If there is a difference at all, it is only on nuclear policy. The Labour Government modernised Polaris secretly by developing Chevaline while we are doing so openly with Trident.
Is the Labour Party proposing now to increase defence expenditure by 3 per cent. a year? Is it proposing to switch what we would spend on the nuclear deterrent to conventional forces? If so, why did the Labour Party vote to decrease total defence spending to the NATO European average, which would mean spending £3·5 billion a year less than we are spending on defence today?
In regard to the escalation of cost, Vickers, Barrow—whose Member for Parliament is present today—has an excellent record. It has built 17 nuclear submarines with no real cost increases.
The technology is very much the same and we shall benefit from the experience of the United States in building the "Ohio". The Trident II D5 missile will have the same warhead as the Trident I missile. It has already been tested and development is far advanced. I see no reason for escalation in that cost.
The Americans have a very good record of developing missiles to cost. Anyhow, we are wholly protected by a fixed sum against any R and D escalation, as I have already said. The pressurised water reactor, too, has also been nearly developed. We have an enormous contingency allowance in any event in our figures.
I keep on telling the right hon. Gentleman that the Geneva talks are nothing to do with strategic arms. He may believe that they are, but the Soviet Union knows that they are nothing to do with strategic arms. They are to do with European theatre weapons.
On the possible loss of jobs, if the Labour party cancels this programme about £4,000 million worth of business will be lost to British industry. I do not think that any of us has ever believed Labour Party assurances when it has been in Opposition before. Its assurances have always proved wrong in the past, and I see no reason why they will not prove wrong again.
Mr. David Steel: Is the Secretary of State aware that the fact that this Government are continuing openly what the previous Government did secretly is not an argument about the merits of the independent nuclear deterrent? Will he accept that, as no other political party in the House accepts this programme, its likelihood of cancellation is very

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high? What discussion has he had with our allies on that, particularly since it is not required under our obligations to NATO?
Will the right hon. Gentleman confirm that if we leave aside the future commitment in the defence budget on pay, pensions, buildings and so on, the real percentage cost of this system is over 20 per cent. of the capital procurement programme? That is the real effect on the conventional defence system.
Finally, will the right hon. Gentleman be more explicit about the compensation that he believes he has obtained for the jobs lost in our dockyards and electronic industries through the cutbacks in our conventional forces?
Mr. Nott: Our conventional forces are greatly strengthened beyond what they were two and a half years ago. In a whole range of areas the capability of our conventional forces has been transformed since May 1979.
Our allies welcomed the Government's decision to introduce the Trident programme. My predecessor raised this matter in NATO at the time and the introduction of Trident as a modernisation of Polaris was welcomed by our NATO allies.
I invite the right hon. Gentleman and his hon. Friends to study some of the facts. There are obviously some facts which can be available only to a Government. I have looked at every possible option for the modernisation of Polaris with, I hope and I believe, a totally open mind. If he were trying to select an independent nuclear capability that would take us into the year 2000 and beyond, the right hon. Gentleman would find, as I have found, that there is only one option—the Trident system.
Trident will take up on average about 6 per cent. over the years of our total equipment budget. At the very peak of equipment spending it will take up about 11·5 per cent. of that spending. This country, which has been in this business through successive Labour and Conservative Governments for the security of these islands, can afford over the next 18 years, while we are building this, to spend 3 per cent. of the defence budget on this capability. It is essential for the maintenance of peace and the defence of these islands.
Several Hon. Members rose—
Mr. Speaker: I propose to allow 20 minutes for questions on this subject. We cannot debate it today.
Mr. Antony Buck: Is my right hon. Friend aware that those on both sides of the House who try to give even-handed consideration to these matters will welcome what he has just announced, as will people throughout the country? Will he confirm that the main considerations which have caused him to arrive at this conclusion are the same considerations which caused the Labour Party to come to the conclusion that it was right to go for Chevaline relative to Polaris? Will he also confirm that it will mean many jobs for British industry?
Mr. Mott: I can confirm that we are talking about large numbers of jobs for British industry and a huge programme which will stretch over the period of 18 years while this modernisation is being brought forward. I understand that the decision on Chevaline was taken by a rather small number of members of the Labour Government. We have debated the matter openly throughout our period in office, and we have arrived at a decision unanimously after a long debate within the Government.
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Chevaline seemed necessary to the Labour Government to keep Polaris credible as a deterrent to the Soviet Union over the next 10 years. There is no point in retaining a strategic independent deterrent if it is not credible in the eyes of the Soviets. That is the judgment we have to make. It was the judgment that the Labour Government made and the judgment which we have to make about a system which we anticipate will need to be operational 40 years from now.
Mr. Frank Allaun: Does the Secretary of State accept that the latest public opinion polls show a massive 63 per cent. against both versions of the Trident, with only 23 per cent. in favour of them? That is a ratio of nearly three to one. Does he further accept that it is only a year since a similar poll showed that there was opposition, but it was then only 55 per cent. to 33 per cent.? Does this not show that the British people have rejected the Secretary of State's argument on moral, financial and survival grounds?
Mr. Nott: Since I have only just made the statement, it is hard to believe that the British people could have rejected Trident. We can all swap the results of polls with each other, but the polls I take into account are the recent polls in The Observer and The Guardian which showed that 67 per cent. of the British people are in favour of Britain retaining her nuclear deterrent and that within that a majority of Labour Party supporters who were questioned were also in favour of this country retaining an independent deterrent. [Interruption.] We have to show the right hon. Member for Plymouth, Devonport (Dr. Owen) that, if the British people believe in an independent nuclear deterrent, this is the only credible system which will provide us with that capability. That I intend to do from now onwards.
Sir Hugh Fraser: While congratulating my right hon. Friend on the deal that he seems to have effected with the American Government, I should like to express areas of dissent on the Conservative Benches quite separate from those expressed by right hon. and hon. Members on the Opposition Benches. Were now involved in weaponry which is essentially i he weaponry of a super Power. That means that there must be an effect on our conventional defence budget and other parts of our general military budget, the essential balance of which must be a powerful conventional force which is effective and useful. I am sure that several of my hon. Friends find it difficult to accept that we should now embark on a system which, because of its financial and military considerations, is bound to affect this country's general defensive stance, which must essentially be based on common sense.
Mr. Nott: We found in our history that the crossbow was needed to modernise the longbow, and that the pitchfork was not sufficient match for the crossbow. The threat that faces this country comes from a super Power. If my right hon. Friend thinks that we can defend this country against a super Power, bearing in mind the weapons that that super Power possesses, with weapons that are inadequate, he is wrong. If we are to defend these islands against a threat from a super Power, I am afraid that it is necessary to have some weapons that can act as a deterrent against that super Power. That is what we are talking about.
Mr. Robert C. Brown: Is the Secretary of State aware that many thousands of British people of all political persuasions see as a No. 1 priority the defence of the United Kingdom within NATO? Many thousands of them will be dismayed at his statement, which will expose the sharp end of the United Kingdom's defence—the British Army of the Rhine and the Atlantic fleet—and put it in jeopardy.
Mr. Nott: The hon. Gentleman, who has some experience of these matters, must recognise that NATO's deterrent strategy is to a great extent built on nuclear deterrence. There is no point in the Labour Party's trying to pretend that that is not so. When the hon. Gentleman was, I believe, in the Ministry of Defence—anyway, it was three years ago, when the Labour Party was in Government—we could not even man our tanks in the British Army of the Rhine because all the units were so much under strength. We now have a third more tanks manned and operational in Germany than we did then. Throughout our conventional capability the Services are up to strength. We are introducing new weapons systems the whole time.
If we say "We shall not spend that 3 per cent. of the total defence budget on the nuclear capability", we shall be abandoning something that successive Governments, some of which the hon. Gentleman served in, have believed for the past 30 years in retaining. I am saying that for 3 per cent. of the defence budget we can afford to keep in that business. We must afford to keep in that business, because it is necessary for our defence.
Dr. David Owen: The Secretary of State should correct the misleading impression that he gave that the Chevaline decision was made by the last Labour Government. He must be aware that the decision was made by the Administration of the right hon. Member for Sidcup (Mr. Heath), and indeed was even planned and thought about when the previous Labour Government were in power.
On the central question, is the right hon. Gentleman aware that many people—Service men and others, who have had available to them the same information as he has, have come to a different conclusion, and regret the decision to spend in current prices over £8 billion on the Trident missile system? While being fully committed to Britain continuing as long as possible to make a contribution to NATO's nuclear deterrence, they nevertheless believe that it would have been wise for him to spend the money that he has already allocated—£300 million—on Polaris motors, to extend the life of Polaris as long as possible, and to consider in 1990 a decision whether to put cruise missiles on hunter-killer submarines. The right hon. Gentleman is under the most serious criticism for having cut the surface Navy and for having cut the hunter-killer submarine build-up rate. They will not now be able to be built in Barrow, because of the Trident decision.
Mr. Nott: I have not cut the hunter-killer submarine build-up rate. I inherited a programme to have 17 hunter-killer submarines in operation by the end of this decade, and that is what we shall have. If I said that Chevaline was decided on by the last Labour Government, I should have said it was endorsed by the last Labour Government, and carried on by the last Labour Government secretly.
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I am not sure who are the Service men who have the same information as I do and who are against Trident. I know that I am in trouble with some retired admirals, but who are the Service men who have the information that I have at my disposal and who are against the Trident decision? Those Service men who have the same information as I have—and there are very few of them—are unanimously in favour of the decision.
For someone who has served in the Ministry of Defence to suggest that our Polaris submarines can go on into the year 2000 and beyond completely ignores all the advice that anyone is putting forward. They would be too noisy and would be detected. They will then be more than 30 years old. It is an impossible policy. It would not take more than a few minutes to show the right hon. Gentleman why it is nonsense.
If the right hon. Gentleman wants to put cruise missiles on Polaris submarines, the answer is that not only would the submarines be discovered but by the year 2000 the missiles would not penetrate to their target. It would be the biggest waste of money that the SDP had ever contemplated. The right hon. Gentleman's suggestions do not add up. I ask the right hon. Gentleman to come and get some of the facts. If he is humble enough to consider them, perhaps we can convince him that he is wrong.
Mr. Cranley Onslow: In welcoming my right hon. Friend's very important and sensible statement, I should like to tell him that the Select Committee on Defence would much appreciate it if he agreed to give evidence to us at an early convenient date, so that all the facts can be gone through and all the relevant reason for his decision can be established, so far as that is possible in public. That would be for the benefit not merely of Opposition right hon. Members, who seem to have wilfully misinformed themselves, but of the public at large, so that they can understand the full reasons why my right hon. Friend has come to these vital decisions.
Mr. Nott: I shall be happy to come to the Committee at the earliest convenient opportunity. I thank my hon. Friend for the invitation.
Mr. Gordon Wilson: Does the Secretary of State realise that the decision that he has just taken will affect Scotland particularly, since these hellish weapons of destruction will be situated close to Scotland's centre of population? Public opinion in Scotland, including views within the Conservative Party, is utterly hostile to the Trident missile system. Does not the right hon. Gentleman realise that if he goes ahead with the project, if a subsequent Government do not cancel it, a Scottish Parliament or Assembly most certainly will?
Mr. Nott: I do not know that the House regards that as a big threat, but we take note of the hon. Gentleman's views. If the project did not go forward, about 4,000 jobs would be lost at Coulport. Has the hon. Gentleman obtained the views of the 4,000 Scottish people who work in that depot? I do not think that they would agree with him.
Mr. Alan Clark: I congratulate my right hon. Friend on having negotiated a most successful agreement, at a price much less than many of us had feared, for what is unquestionably the finest strategic deterrent system and one best suited to the needs of the United Kingdom. But what guarantees are there that

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during the currency of the procurement of the system it will not be cancelled, either at the whim of the United States Congress or as a result of changes of President or changes of presidential mood or attitude over the next 20 years?
Mr. Nott: On the whole, our allies tend to keep to their agreements. I do not think that such a hypothetical situation has ever arisen, nor do I think that it is probable.
The answer to my hon. Friend's question is that most of the system will be built here, by British industry. It is only the missile and the missile control system that we are buying from the United States. The majority of the expenditure will be made here in the United Kingdom. There is nothing in this technology which we in this country are not inherently capable of producing. Indeed, the French Socialist Government—and in the French Socialist Government the Communists actually declare their colours—are spending 25 per cent. of their present defence budget on their nuclear deterrent. We can do this ourselves, as we have proved with Chevaline, but it would be enormously expensive to do so and it is cheaper to buy the technology from the United States.
Mr. Dick Douglas: Does the Secretary of State recall a speech he made in which he indicated that the cost of Chevaline had gone bananas? What chance is there that the cost involved here in relation to Trident will not go the same way? Additionally, whilst he is talking about jobs, has he noted that in the financial statement one of the worries of this country is import penetration? The cost of going for Trident in this way, and at this time, may be a diminution by British industry generally to compete across the board and thus, whilst strengthening our defence, may be weakening our total economic position.
Mr. Nott: I do not underestimate the technical difficulties which face the United Kingdom industry in competing successfully for the United States Trident programme. On Sub-Harpoon, Chinook, the advanced Harrier, Rapier, and a whole range, we have just recently done about £1,000 million worth of business in defence equipment with the United States.
If the Hawk, the Searchwater and other programmes go forward, we hope to do another £1,000 million worth of business with the United States. If this two-way street did not exist, if we were not buying and selling each other's defence equipment, those extra jobs would not be created for British industry.
I do not accept that this is a programme which is any more subject to escalation of costs than any other highly advanced technology, because most of the content of this programme is already well developed. To say that we have not tested our warheads is not true. We have. It is the same warhead as the Trident I. There is a misunderstanding on this. There is a great deal of business for British industry in this. I hope it succeeds in doing as well on this programme as it has done on the other American programmes.
Mr. Keith Speed: If the choice is between modernising Polaris or between C4 and D5, we are undoubtedly right to stay with D5. There is no alternative. Will the Minister answer two questions? First, we have not heard what will be the percentage of expenditure of the naval equipment programme at the apogee of the Trident expenditure. Secondly, I am concerned about the
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submarine building capacity, because we need a regular building programme for the SSN. Some of the SSNs are getting old and the first one is already to be scrapped. We must be ready to build the new 2400 SSKs.
Mr. Nott: We have a defence equipment programme, and what I am concerned about is defence capability. I look at our overall defences. We are finding money for the Trident programme as a separate item. Trident will be manned by the Royal Navy. It is easier to manage this programme under the Royal Navy and put it in its programme. But it is not right to say that if we had not had Trident the naval programme would have been different. That does not follow logically. It is financed by the defence programme. The SSN programme is going forward as planned when the hon. Member was in the Department. We shall build as many SSNs as we can at Vickers, Barrow, until the moment comes for Trident to take up. We have not yet placed the orders for the SSK programme, but as soon as we are in a position to do so we shall consider which yard shall take them.
Mr. Stanley Newens: Will the Minister tell us how he proposes to meet the costs of this weapon after 1985 when they escalate to the peak? Does he propose to meet them out of the normal defence budget, which will mean cutting down on conventional expenditure, or does he propose to have a special budget which will add even more to the gigantic escalation of defence expenditure which his Government are proposing? If so, how on earth will this country afford it?
Mr. Nott: We have to look ahead over 10 years to see when the peaks of different items of equipment will come. At no point, even in the peak year of spending on Trident, will it be as expensive as Tornado will be next year in my programme. The peak year will probably be in the last year or two of the 1980s. At the peak of our programme D5 will take up about 11½ per cent. We shall pay for it, as we are now paying this year and next year, for a much more expensive programme, namely, the Tornado aircraft. It will be financed in exactly the same way as our conventional programme is being financed now.
Sir Timothy Kitson: Will my right hon. Friend clarify one point in his statement? If the cycle between refits for the new Trident submarine is to be seven years, can he assure the House that there will be no need to order a fifth vessel?
Mr. Nott: Because of the extended length of the refits—seven years—four Trident submarines are equivalent to at least five Polaris submarines. We do not now need to contemplate five submarines. Four Trident D5s, with a much longer refit interval and the in-tube life of seven years, plus the missile, are equivalent to more than five Polaris submarines. We shall have three in the operational cycle for a large proportion of the time.
Mr. Bruce George: Does the Minister agree that it is not simply a replacement programme but that in terms of quality and quantity of warheads D5 represents almost a quantum leap forward? Will the Minister tell the House why we require a hard kill capability? Will he inform his hon. Friends what cherished projects are likely to be cancelled as a result of this £8,000 million expenditure?
Mr. Nott: I am not sure what the hon. Gentleman means by referring to the quality of the warhead. The D5 will have exactly the same warhead as the C4. The yield depends on what we decide the yield will be.
As for quantity, we do not intend to have more warheads than in the case of Trident I. We intend to have approximately the same number as Trident I. So, in terms of quantity, it is not, in our present planning, an escalation. The number of warheads on the missile need not necessarily be more than we now have on Polaris. That is a matter of choice for the British Government of the time.
As for the hard kill capability, it is certainly true that D5 is a more accurate missile than C4 and much more accurate than Polaris. It can knock out a specific discreet target in a way that Polaris could not. But that is not why we want it. We have chosen it because of commonality with the United States. We want to be on the same system as the United States for all the benefits that I gave in my statement.
Mr. Anthony Nelson: I congratulate my right hon. Friend on his decision and on striking what appears to be an exceptionally favourable financial deal. The capital cost of such a programme is undeniably high, but will my right hon. Friend explain about the year-on-year running costs? Is it not a fact that the current cost of the existing Polaris deterrent is about the equivalent of building about 13 miles of motorway a year? Does that not prove that over a period the running cost of the deterrent is a low price to pay for the ultimate guarantee of our national security and independence?
Mr. Nott: My hon. Friend is right. The running costs of our existing strategic deterrent and of Trident are low. To give my hon. Friend an idea, our strategic deterrent requires only about 4,000 to 5,000 people to keep it operational whereas 650,000 people are required for defence overall. Therefore, in terms of revenue, the cost is 1½ per cent. of the defence budget and only 4,000 people of the 650,000 are required, which is a small proportion.
Mr. Denzil Davies: Why does not the Secretary of State come clean with the House and admit that the figure of £7·5 billion is merely one of the heavily massaged Ministry of Defence figures that are put to the Cabinet so that the Secretary of State can try to get past the Treasury and his colleagues? The Secretary of State never answered the question on this matter. The figure will be higher because the submarines are different—witness the American problem with the Ohio submarine—from what we built before. The warhead is different even from the Chevaline warhead. The Secretary of State should have learnt some lessons from that. He has no idea what the exchange rate is likely to be when the payments will have to be made. Is it not clear that the decision has not been based on any rational analysis of Britain's defence and security interests? It is not based on a rational analysis of our economic capacity to bear those burdens. It is an emotional spasm that pays no attention to the test ban treaty or to the arms reduction talks that are taking place. It will merely bring much closer the danger of a nuclear holocaust.
Mr. Nott: If it is an emotional spasm it has been a disease of eight successive Governments. I think that the
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right hon. Gentleman has served in some of them. We shall keep on with the strategic deterrent adopted by his Government until the end of its operational life. The Trident will replace it.
The comprehensive test ban treaty is not relevant. We are in favour of it and we want it. We are trying to get it. I do not know why that should be relevant. We have a large contingency figure in the programme of about £1,000 million. The Ohio programme was the first of its kind. We will benefit from the Americans' experience resulting from the problems that they had. They were welding problems, which I believe we shall not have at Vickers, Barrow. I am afraid that the right hon. Gentleman does not know what the Chevaline warhead is. Few people know. I cannot say more than that. Like members of previous Labour Governments, the right hon. Gentleman would be better advised to think about the security of the the country before he thinks about the problems within his party.
Mr. Bob Cryer: On a point of order, Mr. Speaker. May I ask you to extend questions on the statement, which have taken about 25 minutes so far? There is a one-line Whip on tonight's debate. There have already been two days' debate on the Budget.
Mr. Speaker: Order. I am not open to such representations at this time.
Mr. Cryer: Why not?
Mr. Speaker: Because I have already given the House a decision on the matter. The statement began at a quarter to four. I am not continuing with it.
Mr. Barry Henderson: On a point of order, Mr. Speaker.
Mr. Speaker: Is it on the same matter, because I am not taking points of order on whether I should permit further questions?
Mr. Henderson: I should like to ask you, Mr. Speaker, to put on the record that anyone listening to the questions on the statement might have got the impression that all Scottish Members were called from the Opposition—
Mr. Speaker: Order. I. am sorry for the hon. Gentleman and for all hon. Members who did not catch my eye. However, the questions cannot continue.
Mr. Cryer: Mr. Speaker—
Mr. Speaker: Order. The hon. Gentleman always makes a noise when he is not called. If the rest of the House behaved like that, this place would be bedlam.

Trident Missile Programme
  STATUTORY INSTRUMENTS, &c
  Motion made, and Question put forthwith pursuant to Standing Order No. 73A (Standing Committee on Statutory Instruments, &c.)
  STATUTORY INSTRUMENTS, &c

    REPRESENTATION OF THE PEOPLE
    That the draft Representation of the People (Variation of Limits of Candidates' Election Expenses) Order 1982, which was laid before this House on 18th February, be approved.—[Mr. Thompson.]
    Question agreed to.

Orders of the Day
  WAYS AND MEANS
  Order read for resuming adjourned debate on Question [9 March]
  WAYS AND MEANS

    AMENDMENT OF THE LAW
    Motion made, and Question proposed,
    That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of—

    (a) any amendment with respect to value added tax so as to provide —

    (i) for zero-rating or exempting any supply;

    (ii) for refunding any amount of tax;

    (iii) for varying the rate of that tax otherwise than in relation to all supplies and importations; or

    (iv) for any relief other than relief applying to goods of whatever description or services of whatever description; or

    (b) any amendment relating to the surcharge imposed by the National Insurance Surcharge Act 1976 and applying to some only of the persons by or in respect of whom the surcharge is payable. — [Sir Geoffrey Howe.]

    Question again proposed.

  Budget Resolutions and Economic Situation
  [Relevant European Community documents: Document No. 10077181 and the annual report on the economic situation in the Community (1981) and the economic policy guidelines for 1982.]
  4.35 pm
  The Secretary of State for Social Services (Mr. Norman Fowler): It is right that we are devoting this day in the debate on the Budget Statement of my right hon. and learned Friend, the Chancellor of the Exchequer to social services. It is right on a number of grounds. First, there is the scale of spending itself. Over the next 12 months the Government will be devoting £32 billion to social security, £12 billion to the National Health Service, and £2·2 billion to personal social services. All told that makes up 40 per cent. of public spending—that is an enormous total, and it underlines the Government's determination to bring help to those people most in need. That is a vital objective of the Government, and one which we shall continue to pursue.
  The second reason why this debate is important is equally clear. However much we may wish to make improvements in all the different areas covered by social security and health, we must also recognise that we have to talk about the means to make those advances possible. Good intentions and rhetoric are not enough and that is why my right hon. and learned Friend's Budget is of such importance, because unless we can achieve industrial recovery we will not create the wealth that is necessary to put into effect our plans and aspirations. Equally, unless we can bring inflation under control and permanently down we will certainly not serve the interests of, for example, the elderly, who account for so much of the spending under both the health and the social security headings.
  Turning to social security first, this year's uprating will cost about £3 billion. Of that £3 billion, over half will go
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  to the 9 million retirement pensioners in this country. Our aim has been to protect the elderly during the worst recession that the world has experienced since the end of the Second World War. The fact is that by November this year the level of the pension will have increased by over two-thirds—68·5 per cent. —since we took office. That is a formidable achievement and the Budget Statement of my right hon. and learned Friend means that we have kept entirely to our pledge to compensate pensioners fully for price increases over the lifetime of this Parliament. That is what we said we would do and that is what we are doing.
  It is worth emphasising that pensioners generally will receive in November an 11 per cent. increase—made up of 9 per cent. uprating and the 2 per cent. shortfall. This is at a time when the vast majority in work are settling for increases well below that figure. We believe that it is entirely right to put emphasis on the elderly in this way, but the amount of the resources that we are devoting to this purpose should not be underestimated. It is also worth remembering that, in addition to this general uprating, the benefits of the earnings related scheme introduced with all-party support in 1975 are also beginning to come through.
  There are many features of the uprating statement that I should like to stress. In particular, I mention three, beginning with disabled people. Last year was the International Year of Disabled People. Many people feared that when that year came to an end the special effort that it had generated would also end. That of course, would have been a tragedy and happily there is no sign of that happening. I hope that the action that the Government have taken on mobility allowance will be taken as an earnest of our intent that the effort will not end and that the year itself was simply a springboard for future action. The decision to take mobility allowance out of tax will benefit over 40,000 disabled people.
  However, all told, 215,000 severely disabled people, adults and children, get mobility allowance. The level of claims has been rising, and there is every reason to believe that the publicity last year and continuing efforts to encourage take-up are bearing fruit. This year's increase from £16·50 to £18·30 means that the value of the allowance will have increased by 83 per cent. since the Government took office. For those liable for tax the exemption of the allowance from tax will mean a fun her real improvement of about £5. All of this will make it easier for disabled people to take advantage of the leasing, hire purchase, and now secondhand car arrangements which can be negotiated on favourable terms through Motability. Mobility allowance, in other words, is a lifeline enabling many people to be part of the community, and not apart from it. It is also a vital aid to enabling disabled people to have a job.
  In the same way, I hope that the improvements in the therapeutic earnings limit and the earnings disregard for invalid care allowance will be welcomed by the House. The aim of the therapeutic earnings limit is to give some help in the transition of someone recovering from illness getting back to work. Generally, of course, sickness and invalidity benefit is not paid when a person is working. This scheme allows work under medical supervision, and the 21 per cent. increase of the earnings limit to £20 is a valuable improvement.
  The invalid care allowance is a small but important scheme to help those who are looking after a severely disabled person. The earnings disregard has been £6 since

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  it was introduced in 1976. It is high time that that disregard was increased, and the increase to £12 will restore its original value.
  Above all, these measures underline the Government's continuing commitment to improving the position of disabled people. We will continue to take every opportunity to work towards that goal.
  The second group that I should like to mention are children. Child benefit is paid in respect of almost 13 million children. It is an important benefit in that it brings particular help to the poorest families and brings help to those families in work as well as out of work. I recognise the concern of many of my hon. Friends on this issue and the Government will want to see as much help going through child benefit as possible. The increase of 60p per qualifying child is substantial. It will mean that the cost of child benefit will rise by £400 million a year and that the total cost of child benefit, plus one-parent benefit, will now be £4 billion a year.
  These changes will mean that a one-parent family, not in receipt of any other social security benefits, will find the amount paid for the children rising from £13·80 a week to £15·35. That is a useful increase, but I recognise that the level of benefits is only one part of the question. One-parent families have social as well as financial needs. I am anxious to encourage developments in day care for the young children of such families. If we can achieve them, such developments will benefit both children and parents, and I want to examine the position in this respect.
  Thirdly, there is supplementary benefit. I believe that the step that we have taken on capital disregard is generally welcomed.
  Mr. Patrick Cormack: It is not quite enough.
  Mr. Fowler: The £2,000 cut-off point was too low, and my hon. Friend the Member for Staffordshire, South-West (Mr. Cormack) probably agrees about that.
  Mr. David Winnick rose—
  Mr. Fowler: If the hon. Member for Walsall, North (Mr. Winnick) listens, he may find it helpful for the intervention that he will make. The £2,000 cut-off point was too low and the 25 per cent. increase restores the value the limit had when it was first introduced. I know, obviously, that there is some concern about the limit and the point whether there should be a taper or some similar device. On this, the findings of the supplementary benefit policy inspectorate are important.
  Briefly, the inspectorate's report shows that, at the most, 9,000 claimants out of 3 million at the time of the change lost benefit as a result of the introduction of the new rule; about 1,000 of these qualified for benefit again within a few months in 1980. Of the people who had received redundancy payments, only a handful—1 per cent. of the cases sampled—might have been influenced in their spending by the capital rule.
  On assurance policies, perhaps 8 per cent. of the claimants whose cases were reviewed had a policy, but most of these were worth only a few hundred pounds at the outside.
  Mr. Cormack rose—
  Mr. Fowler: I shall make this point before giving way. Therefore, our initial conclusion is that it is better to raise the disregard than to reintroduce the complication of a taper. I recognise the concern on this aspect on both sides of the House and will clearly make this report available to the House in the near future. We shall, of course, listen to the points that arise from this.
  Mr. Cormack: As my right hon. Friend knows, I am grateful for the small but welcome step that he has made in this matter. Will he accept that it is totally inconsistent with the philosophy of the Conservative Party to oblige people to spend their hard-earned savings when, through no fault of their own, they find themselves in their villages out of work and with little prospect of getting employment? Will he, therefore, give this his immediate attention and, at the very least, give an early pledge that there will be indexation of this limit?
  Mr. Fowler: I cannot give a pledge on indexation. However, because my hon. Friend and I entirely agree on the general point he is putting, I will, of course, say that that is clearly something we will keep constantly under review.
  Mr. Winnick: Is the right hon. Gentleman aware that it is perhaps not a coincidence that the hon. Member for Staffordshire, South-West (Mr. Cormack) and I have been pressing on this issue because we now represent regions to which mass unemployment has returned? It is precisely because of that type of situation, which would not otherwise arise, that we find so much concern.
  If a man in his late to mid-fifties becomes redundant, the chances of his getting another job are remote. Why should he be penalised? I know that the figure given is very small, but it does not alter the injustice to that individual who finds that his redundancy money is included in the £2,000 or £2,500.
  Mr. Fowler: As the hon. Gentleman remarked, the inspectorate's report shows that the redundancy money point does not appear to be a major issue. I am happy to make this offer to the House: we will make the report available. The House may want to discuss that again.
  Mr. A. W. Stallard: Will the Secretary of State, before leaving disregards, say something about the £300 cut-off for single payments? That aspect has caused and is causing extreme hardship to people in real difficulties, particularly because of the severe winter, when they were unable to get assistance with their heating costs because of that cut-off.
  Very often, that £300 has been put by to help people to pay for their funerals. As nothing has been done about the death grant either, they face real difficulties. Will the Secretary of State comment on the £300 cut-off?
  Mr. Fowler: We review that point because I am again conscious of the problems being caused. It is clear from what I have said that we cannot move on that at the moment, but we will continue to keep it under review.
  I promised yesterday that I would put in the Library a note of the way in which we propose to uprate supplementary benefit in future. That I shall do. Meanwhile, hon. Members may find it helpful if I explain in more detail the background to the decision. Until the 1970s, there was no established formula for uprating supplementary benefit, or, before it, national assistance. A statutory formula was then introduced for uprating

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  national insurance benefits by reference to price increases. Although there was, and is, no similar statutory provision for supplementary benefit, the Government of the day followed suit. However, for supplementary benefit purposes, using general price increases as a measure is not satisfactory, because they include housing costs which are already allowed for separately in the calculation of supplementary benefit entitlements. The supplementary benefit scale rates cover all living expenses, other than housing costs.
  Our new approach will avoid these defects by uprating supplementary benefit by reference to the forecast increase in prices, after excluding increases in housing costs. Basically, the effect will be that if housing costs run ahead of the retail price index a claimant's scale rate may be lower but his actual average housing costs will be covered. If housing costs run behind the RPI his scale rate will be above the general figure and his housing costs will still be met. That seems a perfectly reasonable arrangement.
  Mr. Brynmor John: Is it the assumption that the pattern of expenditure of those who have the whole of their housing costs paid will follow the pattern of those who have no housing costs, or will it merely be a scaled down version of what they are already spending?
  Mr. Fowler: The general position is that the scale rates cover all normal living expenses except housing costs. As the hon. Gentleman knows, an amount is added to the scale rates to cover actual housing costs. In other words, housing costs are not involved. Supplementary benefit is different from other benefits in that respect.
  Mr. Chris Patten rose—
  Mr. Fowler: Contrary to a report in this morning's edition of The Guardian, the value of supplementary benefit payments in November 1982 will be significantly higher in real terms than in November 1978 or when the Government took office. If we take the single householder as an example, when we add together the scale rates and the average net housing costs, we estimate that the overall value will have gone up between 10 and 12½ per cent. more than the general RPI—
  Mr. Reg Race: What about council house rent increases?
  Mr. Fowler: —depending on whether the ordinary rate or the long-term rate is payable. The equivalent for a married couple will be between 7½ and 8½ per cent.
  Mr. John rose—
  Mr. Fowler: I give way to the hon. Gentleman if he must intervene.
  Mr. John: If dubious statistics are to be quoted, the right hon. Gentleman must expect to be challenged. Does he agree that he has been able to quote the percentages to which he has just referred only because of the tremendous escalation of council house rents?
  Mr. Fowler: The hon. Gentleman is correct when he says that we are uprating the scale rate of supplementary benefit and then adding the cost of housing. As housing costs have increased by an above average amount the increase that has gone to supplementary benefit has been above average. However, the fact is—[Interruption.]
  Mr. Speaker: Order. Interruptions from a sedentary position ruin a debate in the House. They are unparliamentary.
  Mr. J. W. Rooker: The right hon. Gentleman is misleading the House.
  Mr. Fowler: With no respect to the hon. Gentleman, I am not misleading the House. If the hon. Gentleman knows anything about the subject, which I deeply doubt, he will recognise what I have said. The value of supplementary benefit payments in November 1982 will be significantly higher than the value when the Government came to power.
  Mr. Chris Patten rose—
  Mr. Fowler: I believe that the £3 billion uprating that the Government have announced is a fair response to the undoubted needs in our society. No one doubts that more needs to be done—I am in no doubt about that. However, at a time of undoubted economic stringency throughout the Western world, the Government have acted to protect the position of those most in need of help.
  I hope that the public will not be deceived by any bogus prospectus. It is easy enough to make promises. but the cost of those promises can be immense. I was challenged yesterday afternoon on the alignment of pensions with half national average earnings, which I understand is Labour Party policy. If that were done immediately, it would cost £11·5 billion. It would be interesting to hear what Labour Members would say about that. It would lead to massive increases in national insurance contributions. Those who ponder on these issues might look back to the useful book produced by the former Chief Secretary to the Treasury, the right hon. Member for Heywood and Royton (Mr. Barnett). When the right hon. Gentleman addressed himself to the earnings limit and the with pensions—
  Mr. Rooker: Did you buy the book?
  Mr. Fowler: I did, actually. I bought it with my own money. I hope that the former Chief Secretary will be grateful for that. When considering the earnings limit he wrote:
  "We also built in a major problem for ourselves by agreeing that long-term benefits—
  the jargon for pensions—
  should grow by a minimum of the higher of the annual increase in earnings or prices."
  That seems to show something less than a total commitment to the idea. Much more interesting to those who have listened to social security debates was the issue of the Christmas bonus. The bonus was abolished by the previous Labour Government between 1975 and 1976.
  Mr. Jack Straw: No. The bonus was suspended.
  Mr. Fowler: I am glad that the hon. Gentleman says that it was "suspended". He was Mrs. Barbara Castle's special adviser when the bonus was abolished. Doubtless it was on his advice that the abolition took place.
  Mr. Straw: If the right hon. Gentleman reads further into the book of my right hon. Friend the Member for Heywood and Royton (Mr. Barnett), he will discover that the bonus was suspended for that year on my right hon. Friend's diktat and not on my advice.
  Mr. Fowler: That brings me to an interesting part of the book. It appears that the previous Labour Government

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  were not content with abolishing the bonus because it was suggested by some in the Labour Party that it should be restored. However, the right hon. Gentleman wrote:
  "The Christmas bonus was a very low priority for both David Ennals and Stan Orme, and it had to be almost forced upon them."
  Mr. Rooker: That is right—by Labour Back Benchers.
  Mr. Fowler: The hon. Gentlemen makes the point much more effectively than I can. The right hon. Member for Heywood and Royton added that he hoped very much that the Labour Party would think again before it made any easy promises. He observed:
  "we might be tempted to promise, or at least imply, that, if elected, we will: …reduce unemployment quickly; …increase public expenditure in many areas; … improve general living standards, especially for the low-paid …It is therefore vital that Michael Foot, the new leader of the Labour Party, should make no rash promises. For if he does he will create massive disappointment and anger, especially among those active supporters who so vociferously proclaimed his election as leader."
  There is good advice for the hon. Member for Pontypridd (Mr. John) in that passage.
  Let me briefly set out the position with regard to the National Health Service. The facts are that the Government are spending more not just in cash, but in real terms, than in any year of the previous Labour Government. More resources are going to the hospital and community health services, and more resources are going to the family practitioner services. That is the fact of the matter.
  The services provided by health authorities—that is the hospital and community health services—are planned to grow by 5·8 per cent. up to 1982–83 above the level we inherited for 1978–79. This includes the 4 per cent. growth that we had planned up to and including the present year. If we include capital provision and the family practitioner services the planned growth to 1982–83 is over 6 per cent. This is real growth, over and above inflation, and it will enable the NHS to provide for the increased number of very old people and to make use of advances in medical technology that result in more effective treatments of patients—in hip replacement, transplants, and better diagnostic tests, for example.
  This growth is in line with the previous Government's plans for the period, although we have reasonably enough required health authorities to provide about 0·6 per cent. of the growth by making better use of the resources that they have and we have also asked them to find in England an extra £22 million—equivalent to a further 0·3 per cent.—towards the extra money for the pay of nurses and certain other groups this year. We are, however, providing two-thirds of this extra money by increasing their allocations over the cash plan for health spending in 1982–83.
  On capital investment, the cost of capital works was lower than expected in 1981–82 and projects were carried out faster than usual. As a result health authorities were able to build considerably more than planned and this investment represents a good bargain for the health service. Since 1979, 13 hospital building schemes, each costing more than £2 million, have been completed, another 39 are under construction and a further 85 are at planning, design or tender stages. The estimated total value for all these schemes exceeds £1 billion. The
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  provision for capital spending from next year is designed to enable authorities to maintain about the same average level of capital investment each year as there has been since 1977–78.
  The provision in the White Paper for current spending by health authorities in the years beyond 1982–83, as it is now expressed, requires health authorities to find the growth needed for the development of services—and especially the extra services needed for the continuing increase in the number of the very old—by making further increases in the efficiency with which they use resources.
  Mr. Race: Can the Minister confirm that if the Government's estimates in the White Paper are carried through, in future financial years, it will mean in practice, if inflation sticks at about 10 or 11 per cent, about a 4 per cent. cut in the real value of services in the National Health Service?
  Mr. Fowler: That is not the case. I have already dealt with 1982–83 and I am just coming to 1983–84.
  The White Paper expressly says that the provision for health authorities' spending in these later years is subject to review during the next annual public expenditure survey in the light of the availability of resources and the scope for further increases in NHS efficiency. Clearly we are not able to and should not make provision for further growth in these later years without being sure that the resources could in the event be made available without inflicting damage on the economy generally, and without looking very carefully at the scope for further increases in efficiency. Equally, however, if the general signs for future economic activity are reassuring, when we come during the next survey to consider the health authority provision for the later years, we will take careful account of these factors when we make our decisions.
  I must emphasise the importance of maximising efficiency in the NHS. One of the major changes in the climate of opinion which we have seen in recent years is an increasing public concern over the efficiency of our public services. The measures that we have taken and are taking to improve NHS efficiency are a natural response to that. The measures include first and foremost the restructuring of the health service, and the arrangements for improved health authority accountability. The House has debated restructuring and understands the measures.
  I shall dwell on one further important step that we are taking. We are also introducing, for the first time since the beginning of the National Health Service, annual reviews in each region to strengthen the monitoring services and broaden this monitoring to include an assessment of overall performance and the efficiency of provision.
  Starting this year Ministers are leading departmental reviews of the long-term plans, objectives and effectiveness of each region with the chairmen of RHAs and the chief regional officers. Each regional review will aim to ensure that each region is using the resources allocated to it in accordance with the Government's policies, to agree with the chairmen on the progress and development that the regions will aim to achieve in the ensuing year, and to review progress against previously agreed plans and objectives. The reviews will aim to assess the performance of regions and their DHAs in using manpower and other resources effectively. Ministers will hold RHAs to account for the ways in which resources are used in their regions and RHAs will in turn hold their constituent DHAs to account.
  Mr. John Major: Will my right hon. Friend enlarge on the converse of that point? That is, is he also re-examining the resource allocation working party allocations to ensure that allocations are equitable in the first instance?
  Mr. Fowler: We are continuing with the RAWP system and I guarantee that we shall re-examine it to see that it is as fair as possible in the re-allocation of resources, which is its whole intention.
  In addition I am today announcing two new initiatives designed to help the NHS to ensure that it makes the best possible use of resources available to it. First, I have decided to appoint an inquiry team that will include two members from the private sector to consider measures that will ensure that health authorities identify underused and surplus land and property and, where appropriate, dispose of it to release funds for the development of services within the NHS. The NHS has a large estate of some 51,000 acres. Some 4,000 acres have been identified as surplus to requirements, and are in the pipeline for disposal, but we have to be certain first that all land that is surplus to requirements is identified. I particularly welcome the fact that the inquiry includes two members with great and relevant commercial expertise. Full details of the inquiry's terms of reference and membership are in an answer that I have today given to a question from my hon. Friend the Member for Bexleyheath (Mr. Townsend). [HON. MEMBERS: "Who are they?"' The leading member is Mr. Idris Pearce, and there is a further member, Mr. Paul Draper, also from the private sector. Both of them are leading members of their professions.
  We should not underestimate the contribution that can be made to the National Health Service from sources apart from tax. One of the examples is the income from the private practices. In 1979–80 this brought in £36 million. [HON. MEMBERS: "And the cost?"] In 1981–82 we expect to receive a very substantial £52 million to the National Health Service. It seems to me that that underlines the importance of the kind of measures that I have just announced.
  The theme of commercial expertise is present also in the second initiative that I have to announce. I intend to appoint six firms of accountants to audit the accounts of eight selected district health authorities. The appointments will be for a period of three to five years, starting with the accounts for the year ending in 1983. The external audits of health authority accounts are normally conducted by staff of the audit directorate of the Department of Health and Social Security. In August, we placed with the professional press submissions for tenders by interested independent firms of accountants. The move followed an approach by the Institute of Chartered Accountants in England and Wales, suggesting that commercial auditors could make a valuable contribution to the quality of financial audit and to value for money within the NHS.
  Let me stress, however, that all these developments are being worked up in collaboration with the NHS. I believe that there is a great readiness in the service to make the best possible use of existing resources, and that it is the role of Government to facilitate that. I will be discussing the scope of further increases in efficiency with the chairmen of regional health authorities collectively. I shall have the outcome of my discussions with them very much in mind when we review the provisions for 1983–84 and 1984–85 in the next survey.
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  For the family practitioner services, the White Paper's provisions effectively carry forward the normal provision for increases in demand. The provision is for further growth in the level of services after the present year of about 2 per cent. a year.
  Personal social services are, of course, provided by local authorities, which have been asked to make economies in their overall expenditure. The Government have given a broad indication in the White Paper of their view of priorities as between the different local authority services, and the figures for personal social services very much reflect the relative priorities adopted by local authorities themselves. All local authority services will be involved in the search for economies in 1982–83. For 1983–84 and 1984–85, the personal social services figures indicate broadly the same level of service as in 1982–83, whereas the Government are seeking further real reductions in local authority expenditure in those years.
  Mr. John: I sympathise with the Secretary of State in his difficulty concerning balance, but so far in his speech he has not once mentioned the problem of unemployment. Will he confirm that the recently announced Government scheme to allow unemployed people over the age of 60 to de-register and then get the long-term supplementary benefit rate, by reason of Budget resolution No. 30 to be moved on Monday evening, will bring them into taxation?
  Mr. Fowler: Before I give the hon. Gentleman a definite answer to his question, I should like to check the relative facts. I shall do that and then ask my hon. Friend the Under-Secretary to deal with the matter.
  Taken overall, the provision for social security benefits and for the health and personal social services outlined in the White Paper are evidence that the Government are both responsible in an economic sense and concerned that the people who need financial support and services should be properly looked after. Any Government must represent both the interest of the national community, which provides resources for those benefits and services, and the interests of the individuals receiving those benefits and using those services. I believe that that is what we have done. We are bringing practical help to the people who are most in need. I commend our proposals to the House
  5.13 pm
  Mr. Brynmor John: I agree with the Secretary of State about one thing, although I differ with him about the emphasis. The importance of this debate on social security is undeniable, because more than half the population receives one or other of the social security benefits, the largest categories being retirement pensioners and mothers receiving child benefits. However, a large and growing category—one would not have guessed it from the right hon. Gentleman's speech this afternoon—is the unemployed. The Government assume that they will increase by 300,000. So next year's debate will be followed with keen personal interest by about 1 million more people, who at that time will be directly involved.
  Beneath the welter of figures we must never forget that the sums that we are talking about are what people receive to give them a tolerable life. Our view should therefore be people-centred. Certainly, the Secretary of State's speech could not be accused of that.
  I welcome the hon. Member for Braintree (Mr. Newton), and say farewell to the hon. Member for

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  Wallasey (Mrs. Chalker). The hon. Gentleman will find, as did the hon. Lady, that his task is a daunting one, because his Secretary of State is like Pinocchio, straining to make the facts suit his purpose but, as yet, without the same dire facial results. His lot will be to act as a sort of Jiminy Cricket, the voice of conscience, who, although he may occasionally stray from the truth and swallow many of his words, will nevertheless have some residual folk memory of what the Tory Party said in Opposition, and will have to give to those who want to be warned the information on which to be warned. Alas, like Pinocchio, he will find that the right hon. Gentleman does not always fall into that category. For example, when he spoke about the National Health Service—I understand why he skated so quickly over the benefits—he talked about the £52 million and the great contribution to the National Health Service. That is, at best, about one-half of 1 per cent. in gross terms, without taking the net consequences into effect, and without doing a true costing of the NHS or of the private practice within it.
  The first thing that the hon. Member for Braintree will learn is that his Department and the Treasury have a unique approach to statistics which, for claimants, may be described as a "no win" approach. The retail price index has been universally respected. It is certainly not perfect and has been modified, but it was never regarded as a political plaything. However, when this Government took office, the primary task was to make the facts appear to fit their theories. So they invented the tax and prices index. Unfortunately, instead of the expected lower rate of inflation under this tax-cutting Government, it rose more than the RPI, and now stands at more than 15 per cent. Disgrace: it has not been abolished; it is now largely ignored. Rather like some politicians, it is forgotten but not gone. So we come back to the RPI.
  However, on the new housing benefit, it was suddenly thought that supplementary benefit recipients might be getting too much money, although the Secretary of State euphemistically describes it as double counting. That might give the recipients the princely sum of 25p a week more than they would receive if housing benefits were excluded. To the Secretary of State, that would clearly be largess on an unparalleled scale and could not be allowed.
  So an announcement was made to a bemused Standing Committee of the new Rossi price index, which is to operate only for supplementary benefits, removing the housing costs. Despite the long time that the Secretary of State spent on the matter this afternoon, we have not progressed any further. We do not know exactly how the housing costs are to be removed, or whether the patterns of family expenditure will be adjusted or left in their crude way. Housing costs can be removed in more than one way, but the way in which they are removed gives differences of cuts in the benefit. I shall not suggest ways to the right hon. Gentleman, in case they provide him with too much of a temptation, but I ask him to explain the scheme in detail.
  Once the Government had decided to look at the retail price index for supplementary benefits purposes, one would suppose that they would do a thorough job and consider whether the retail price index was sufficiently sensitive to the needs of the purses of the lowest 25 per cent. of income earners. For those people, larger fuel bills play a much more important part than the average rise in
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  the RPI. For the bottom 25 per cent. of income earners, the rise in the inflation rate has been not 12 per cent. but 14·4 per cent., and even excluding housing costs it is 12·6 per cent.
  This is where the "no win" theory applies. The Government have not considered the higher proportion of increases that the poor might have to pay. In the absence of any Government attempt to make a genuine effort to meet the needs of the poor and the bottom 25 per cent. of earners, the Opposition, together with many people outside the House, will regard the Rossi price index as an exercises in benefit cutting rather than an exercise in realism.
  However, unreality is not the prerogative of the Government. Yesterday the hon. Member for Twickenham (Mr. Jessel) congratulated the Secretary of State on achieving real increases in retirement pensions. Some benefits have increased by more than the inflation rate. The increase in mobility allowance is welcomed, as is its exemption from tax. That will benefit the one in five recipients of the allowance who pay tax on it.
  There may be hidden penalties. I refer to Budget Resolution No. 30. Retirement pensioners who are being persuaded to deregister on the promise that they will get long-term supplementary benefit will find after Monday evening that that long-term benefit will be subject to tax. I hope that the Treasury Minister who replies to the debate will make that absolutely clear.
  Retirement pensions, in common with all the other major benefits, have had no real increase. Provided inflation is no higher than 9 per cent.—I warned the House yesterday of the consequences of past over-optimism—the benefits will not lose their current real value. Two per cent. has been added to compensate for the Chancellor's incorrect forecast in April 1981, and is to be paid in November 1982. The hon. Member for Twickenham should, therefore, appreciate that the real value of these benefits will not get any better but only with luck will they not get any worse.
  If, as my hon. Friend the Member for Bolsover (Mr. Skinner) said yesterday, a fraction of the ingenuity which created a preferential energy scheme for industry had been applied to that domestic fuel market we would not have had so many tales of hardship in the recent severe winter—especially from the elderly. Neither would we have had so many complaints about rocketing standing charges during the past three years. The standing charge for gas has increased by 300 per cent. and for electricity by 80 per cent.
  Similarly, the Chancellor rightly wished to ensure that firms benefited fully from the 1 per cent. cut in the national insurance surcharge, but found that it was three months before he could make the payment. He decided to compensate firms by setting the reduction at 1½ per cent. for the last nine months of the year. No such effort has gone into protecting the pensioners from the effect of high inflation. All that we are told is why the computer cannot produce the print-out for another six months.
  I ask the right hon. Gentleman to consider these two matters again. However, I suggest that he does not leave it to his Minister of State. If the Minister of State devises a scheme the result could be that the pensioner is paying the State rather than the State paying the pensioner.
  The right hon. Gentleman made great play of the pensioners' Christmas bonus which the Government have decided to retain but at the existing figure of £10.
  Sir William Clark rose—
  Mr. John: The hon. Gentleman is the driest of sedentary interrupters. However, I shall not give way for the moment. He must take his medicine first, and if he does not make too much of a face he can intervene later.
  The Government have a duty to maintain the Christmas bonus at its real value of £10.
  Sir William Clark: I accept the hon. Gentleman's logic, but, in those circumstances, why did the Labour Government cancel the Christmas bonus?
  Mr. John: It was cancelled at a time when there was an unparalleled rise in pensions of 21 per cent. It was done in order to make room for those pensions. If the hon. Gentleman does not know that, perhaps he was asleep or in Conservative Party headquarters during that year. He clearly does not like what I say. He plays to the gallery so much that he does not realise that the Government are doing little else. By November this year the £10 Christmas bonus will be worth only one quarter in real terms of what it was worth. It becomes an urgent question now of whether the Government uprate it or scrap it, but they cannot retain it as an empty gesture, although it may please the hon. Gentleman.
  Finally, on this aspect, I mention the death grant. Recent personal bereavement has underlined to me the costs of even modest funerals and the strain which paying for them can impose on families with limited resources. The death grant at its present rate contributes little to those in need. That is why I supported the private Member's Bill of my hon. Friend the Member for Dundee, West (Mr. Ross). I was amazed that the Government Whips, eager to please the Conservative Back Benchers, tried to block the Bill. We were told at the time that the Government had the matter well in hand. However, yesterday we had the "Maggie in Wonderland" spectacle of the Government going backwards on that. The Government set up a Committee which has studied the matter for a long time.
  A statement to the House was promised on many occasions, including just before Christmas, but the Government have now leapt back several steps and promised a consultation paper. In Heaven's name, why? What do they hope to find out that they do not already know, or is the truth that the Committee has come up with a proposal that is unacceptable to the Government and that the only way in which to avoid increasing the death grant is to devise a consultation process which will hold matters back a little more? I hope that, in the clear absence of their own ideas, the Government will give my hon. Friend's Bill a fair wind, because the feeling of let-down among the elderly will be great and grave financial hardships will continue.
  I wish to take up the point of my hon. Friend the Member for Holborn and St. Pancras, South (Mr. Dobson) about the capital disqualification for single payments, which at the moment is £300. In logic and in equity, if the Chancellor is increasing the capital disregard from £2,000 to £2,500 for supplementary benefit, he should also increase the single payments limit from £300 to £375. I hope that he will consider that as a matter of urgency. I welcome also the Chancellor's undertaking to consider redundancy payments and life assurance policies and their relevance to social security payments.
  There were two disturbing aspects of the announcement on Tuesday. The first was the truly pathetic spectacle of
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  the Tory wets. Never have wets been dried out with such a small expenditure of heat. The Chancellor of the Exchequer and the Secretary of State for Social Services may rightly feel that they need no longer take the wets seriously. Just the making good of the 2 per cent. shortfall has silenced the wets on pensions, child benefits and, with the honourable exception of the hon. Member for Bath (Mr. Patten), the cheating of the unemployed by the failure to restore the 5 per cent. clawback.
  The 2 per cent. shortfall being made good is welcome, but let us be under no illusion about why it has been made good. It was not done out of any moral conviction on the part of the Chancellor of the Exchequer or the Secretary of State. If that were so, they would never have done it in the first place. It was done because of the anger on both sides of the House, particularly on the Conservative Benches, when it was announced and the knowledge that we had a new clause on the Order Paper for next Thursday which would have led to the Government's defeat on that issue.
  Therefore, it is not moral conversion but business calculation which has led to the climb-down. I see Conservative Members patting themselves on the back. or as near to that part of their anatomy as they can get, and looking pleased. If they have forced that climb-down, why have they not learnt that they need not have sold themselves so cheaply?
  For example, where yesterday was the vaunted Tory child poverty lobby, who, with well-modulated compassion, have always been threatening anger on the next occasion the Chancellor of the Exchequer makes an announcement on the subject? Not one Conservative Member even mentioned child poverty, although they know it to be pivotal to poverty generally. Not one of them reminded the Secretary of State of the claim of his predecessor or of the Prime Minister to the Tory Party conference in 1977 that it was the "party of the family", and would give child benefit top priority. Most of them were absent on the maxim that the chance of promotion is the better part of valour.
  There was not one question about the failure to raise child benefit by the £1 which was necessary to restore the real value of child benefit to the 1979 level. The Chancellor's failure even to round it up to the full £6 was a miserable example of meanness. As it is, his 60p increase leaves child benefit 40p a week in real terms lower than it was in 1979. That is a 6·4 per cent. reduction in the value of child benefit during the term of the present Government. That is a matter that the right hon. Gentleman did not try to deny and of which Conservative Members should be thoroughly ashamed. The Opposition will also table a new clause about child benefit. We hope that if the souls of Conservative Members are at all "liquid" they will support us and back their words with actions for a change.
  Things are much worse for those who have to bring up children only on social security benefits. They have child support. I hope that the Secretary of State will listen to this because no one on the Conservative Benches seems to understand the problem. Child support is child benefit plus a child dependency allowance. That is what parents receive to look after children. Under the present Government, as child benefit has risen, dependency allowances have steadily fallen. The total has fallen short of the rate of inflation. In money terms, short-term benefits increased by 5p in total last year and will increase

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  by lop in total this year. It is obvious that the short-term and long-term dependency allowances have fallen by 60p a week. This is therefore the third year in a row that the dependency allowances have been reduced.
  To put it simply for Conservative Members, those who are unemployed and therefore receive short-term benefits have to bring up their children on child support which is worth 23·3 per cent. less than it was in November, 1979. Widows on long-term benefits have 11·7 per cent. less money to bring up their children than they had in 1979. How on earth can we pretend that we are giving those children equality of opportunity and an equal start in life? I called it yesterday an absolute disgrace. I repeat that some Tories can perhaps liquefy for long enough to criticise their Government for the sheer meanness of the measure.
  The unemployed have suffered in other ways. They have been penalised yet again. Their benefits are to be taxable in July. This is expected to raise £525 million in a full year. But the Government in 1980 could not wait for the happy day to get their hands on the money that the unemployed received, obviously, in the Government's view, undeservedly. By the Social Security (No. 2) Act 1980, the Government abated the increase in short-term benefits, such as unemployment benefit, by 5 per cent. in lieu of taxation. Hon. Members were told that this was only a temporary measure, a bridging operation, until the matter came into tax. When the then Secretary of State, who is now Secretary of State for Industry, spoke in the Standing Committee on the Bill on 30 March 1980, his words left no room for doubt. They are without even the traditional Government hedge against things going wrong. The right hon. Gentleman said:
  "The hon. Gentleman asked specifically about abated unemployment benefit. That will make no difference, because as the unemployment 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 March 1980; c. 526.]
  Under this proposal, however, one is not giving way to the other. There will be taxation and also the 5 per cent. abatement. The Secretary of State, in talking about housing benefit, made great play of double counting. According to the Secretary of State, one could not have double counting when talking of social security uprating. But the right hon. Gentleman ignores the double penalties that are imposed upon the unemployed by the 5 per cent. shortfall plus taxation
  Mr. Race: He does not care.
  Mr. John: He does not care to the extent that he will review the operation of it. Perhaps, in the course of a year or so, he may think again about the matter when the figures are to hand. What are these massive costs? We were told that action on pensions would cost billions of pounds. The cost of making good the 5 per cent. abatement this year would be the massive sum of £20 million. In a full year, the cost to the Treasury will be £60 million. This has to be set against an additional £525 million that will be received from the unemployed in taxation.
  I believe that £60 million a year—£20 million this year—is a small price to pay to rectify the fraud that has been perpetrated on the unemployed. One would have thought that even a Government who had debased public standards to the extent that this Government, in the guise
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  of the previous Secretary of State, have debased them would have thought it a small price to pay for having grossly misled the House. One would have also thought it a small price to pay to rescue what remains of the reputation of the right hon. Member for Wanstead and Woodford (Mr. Jenkin). All we have heard from the Secretary of State, no less prone to being rather vague, is an assurance that he will look at the matter. In the meantime, the unemployed will be taxed and their benefits will be abated. It is a mark of the insensitivity of the Government that they do not even look at it.
  The Government's hostility to the unemployed and the sick, particularly those with families, is proved beyond redemption. The real value of unemployment benefit since November 1979 has fallen for single people and for married people by 4 per cent. Last November, it represented a smaller percentage, in relation to earnings, than at any time since 1951. For married couples with two children, and including child benefit, it has fallen not by 4 per cent., as I have claimed for the others, but by 9·3 per cent. Invalidity benefit for single and married people has fallen by 4 per cent. For those with two children, it has fallen by 7 per cent. This is why I say that the Government's record is miserable and that the Budget is totally inadequate in that it clobbers those who should be protected.
  The Tories, at their 1977 conference, claimed to be the party of the family, but they have proved to be the Government who harm families, the unemployed, the pensioners and the sick. In short, they have weakened the fabric of society and destroyed the nation. People consider our debates with intense interest because they are either receiving social security benefits or expect to do so shortly.
  5.40 pm
  Sir Ian Gilmour: The hon. Member for Pontypridd (Mr. John) referred to "Jiminy Cricket" and the voice of conscience. He now occupies his present position because he was the voice of conscience over defence. I congratulate him on that.
  The hon. Gentleman did not make much ground against my right hon. Friend, who had a good story to tell and told it very well. However, I have a couple of reservations about my right hon. Friend's story. First, I am ready to be convinced about supplementary benefit and the ½ per cent., but I have not yet been convinced. I look forward to reading all the documentation. If it is just a method of taking money away from those on supplementary benefit, whatever the logic—and I appreciate there is logic—I would not support it. I am sure that my right hon. Friend has good reasons for it, and I look forward to hearing them.
  My second reservation is about restoring the abatement of unemployment pay now that it is coming into tax. I do not think that my right hon. Friend said too much about that this afternoon. I appreciate that he said he will review it. I hope that he will review it quickly, because the Conservative Party is committed to doing that. There was the reservation "if resources permit". Nevertheless, it is a party commitment and I know that my right hon. Friend will do everything that he can to see that that commitment is honoured as soon as possible.
  What my right hon. Friend the Secretary of State for Social Services said this afternoon is part of the Budget Statement and there is a great deal to welcome. My right

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  hon. and learned Friend the Chancellor has lent a sensitive ear to suggestions that have been put to him by many of my hon. Friends. That fact has been reflected in what my right hon. Friend said this afternoon.
  I congratulate both my right hon. and learned Friend and my right hon. Friend on what they have done for the needy and the disabled. I am especially glad that the 2 per cent. shortfall on unemployment benefit and so on has been restored. The hon. Member for Pontypridd made some disobliging remarks about that.
  Mr. John: True.
  Sir Ian Gilmour: I consider that an extremely useful and important step.
  I welcome my right hon. and learned Friend's help for small business men, his admirable enterprise package and the package on energy costs. I welcome the greater flexibility on monetary policy. Raising monetary targets from 5 to 9 per cent. to 8 to 12 per cent., bearing in mind that sterling M3 rose by 14½ per cent. last year, is a sensible acceptance of reality. The outlook for lower inflation later this year and next year is also highly encouraging.
  I think that my right hon. and learned Friend was right to concentrate his reliefs on lowering industrial costs and income tax. He was right not to reduce the rate of income tax, but to raise the tax thresholds in order to take many people out of tax. That was the right way to go. In other words, my right hon. and learned Friend's distribution of the money that he thought he had available was admirable. My only difference with him is over the amount. I do not think that he has done enough. Some think that he has not stimulated the economy at all and that his Budget is neutral, or even deflationary. Rightly or wrongly, I should prefer to think that my right hon. and learned Friend has given a stimulus to the economy, but that it is a small one at a time when a much larger stimulus was called for. After all, the British economy is in about as much danger of overheating as the Arctic circle. That view is supported by the Government's figures.
  Table 14 on page 25 of the Red Book shows what the Treasury thinks will happen to the gross domestic product. It shows that from the second half of 1981 to the first half of 1983 the economy is expected to grow from 105·5 to 108·2. To put it another way, gross domestic product at factor cost at 1975 prices is expected to grow from £49,700 million in the second half of 1981 to £51,000 million in the first half of 1983. That is a difference of £1,300 million.
  Those figures are far from spectacular and we must strongly hope that they are not too high and that they are, indeed, too low. However, some of the components of those figures are a bit shaky. A chunk comes from growth in other fixed investment. I hope that that is right. In addition, £450 million comes from a change in stocks and I also hope that that is right. However, £600 million—nearly half—comes from a change in the statistical adjustment. I tend to regard the statistical adjustment as being rather like the number that one thinks of in order to discover the figure that one first thought of. However, let us hope that there is a more solid basis than that this time.
  If we hope and assume that the Treasury figures are right, a growth of 2·7 per cent. is projected over 18 months. That is a growth of 1·8 per cent. per year. Given
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  that there has been a considerable drop in gross domestic product over the past three years, that is not a high rate of projected growth. It is certainly not inconsistent with a continuing increase in the already appallingly high rate of unemployment.
  The Blue Book gives a similar picture. I am aware of what my right hon. and learned Friend the Chief Secretary said yesterday about the Blue Book and that the figures are not certain. However, they are not inconsistent with the prescribed growth of gross domestic product in the Red Book. Page 50 of the Blue Book states:
  "It was also assumed that the number of unemployed persons …would average 2·6 million in 1981–82 and 2·9 million in 1982–83".
  Those are, of course, the figures for Great Britain so we must add another 100,000 plus for Northern Ireland to find the figure for the United Kingdom—which is thus an increase from 2·7 million to 3 million.
  Mr. Hugh Dykes: I am sorry to interrupt my right hon. Friend, but he referred to table 14 in the Red Book. I am sure that he made a slip of the tongue when he referred to a 2·7 per cent increase from the second half of 1981 at 105·5, to the first half of 1983, at 108·2. Of course, he must mean 2·7 percentage points, because the base is 105·5, not 100, so it is less than 2·7 per cent.
  Sir Ian Gilmour: My mathematics are not good enough to query that and I accept it. However, the figures that I gave are consistent with an average increase in unemployment of about 30,000 a month for the next six months, or, indeed, even longer. To get an average of 3 million during the year, the figure must go well over the 3 million mark and at present it is below that level, at 2,830,000. That seems to show that unemployment will continue to rise for some time.
  It is not unfair to say that in the past the Government have tended to underestimate the rise in unemployment. If the striking rise in productivity last year takes place this year—as we must all hope—it is likely to produce a greater rise in unemployment than assumed in the Blue Book. To see unemployment rising remorselessly for most or all of next year—mercifully at nothing like such a high rate as it has been, but still at an enormously high rate—does not seem right. That is why I say that my right hon. and learned Friend's stimulus to the economy is far too small. After all, he is not constrained by the balance of payments or by shortage of capacity, and he is certainly not constrained by a shortage of people.
  In his Budget Statement, my right hon. and learned Friend the Chancellor had some eloquent things to say about unemployment. We all know that he genuinely meant them, but if he will forgive my saying so, such eloquence sits a little uneasily with a policy that envisages a steady growth of unemployment to an even higher level. Unfortunately, the Government seem almost resigned to high unemployment.
  The Chancellor says that he is opposed to reflation. On Tuesday, he said:
  "'reflation' does not create jobs that last."—[Official Report, 9 March 1982; Vol. 19, c. 730.]
  I wonder whether he thinks that he has brought about some reflation this year. If he does, presumably he is in favour of what he has done. Or does he think that he has brought about more deflation? That was certainly not the

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  impression that he gave in his excellent speech on Tuesday, and it was denied by my right hon. and learned Friend the Chief Secretary.
  My right hon. and learned Friend the Chancellor seems to talk about reflation as a matter of principle when, in fact, it is a matter of degree.
  A volume of essays published by the IEA, called—rather patronisingly, perhaps—"Could do Better", recently attracted much publicity because one of the essayists envisaged an economic miracle, for which we all hope. But another essayist who contributed to that volume, Professor Thomas Wilson, revived Cornford's principle of unripe time to describe the present position. He asked when, if ever, the time would be ripe for recovery and expansion. I believe that the time is ripe now.
  On Tuesday, the Chancellor produced a very encouraging scheme for putting some of the unemployed to work. I warmly congratulate him on that. It is fair to say that the scheme is somewhat embryonic at present, but I hope that when it becomes less embryonic the Chancellor will remove the restrictions on it.
  Once again, there does not seem to me to be a difference of principle here between what my right hon. and learned Friend is proposing and the Layard proposals that I and many others have advocated for some time. I strongly hope that my right hon. and learned Friend will now go on to embrace the Layard proposals or some variant of them. Some such scheme is certainly necessary.
  There is much good in the Budget. What is not good is the weakness of the projected recovery and the accompanying increase in already very high unemployment. I regret that, while doing so much that is excellent, my right hon. and learned Friend has failed to give sufficient stimulus to the economy. I hope that he will remedy that before long. Meanwhile, I hope that he will work on his scheme for providing jobs so that it becomes capable of substantially reducing unemployment.
  Unemployment is by far the greatest problem facing the country today. It is up to my right hon. and learned Friend the Chancellor, by a variety of methods, to tackle it now.
  5.53 pm
  Mr. Jack Ashley: We have just heard a very interesting speech. The right hon. Member for Chesham and Amersham (Sir I. Gilmour) is always listened to with the greatest respect.
  The right hon. Gentleman's speech was so gracious that there is a danger that its message may not be understood by the Front Bench which he graced until a short while ago. The right hon. Gentleman's congratulations and welcome for the "excellent" speech of the Chancellor and the "fine" speech of the Chief Secretary should in no way disguise or reduce the power of the speech that we have heard. It was very powerful indeed, and I interpret it—the right hon. Gentleman will correct me if I am wrong—as a condemnation of the Government's policy.
  The right hon. Gentleman rightly contended that the need for reflation was a matter of degree and not a matter of principle. That is what the argument is all about. If, as he said, insufficient stimulus has been given to the economy when he believes that a very large stimulus is called for, that in itself is a condemnation of the Chancellor. So his fine and gracious words should not obfuscate the message. The message is that the Chancellor
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  has botched it and has failed to revive the economy and to reduce unemployment. That, in blunter language, is the powerful message given to the House of Commons by one of its most respected Members. I hope that the Prime Minister will not just brush that aside and that the Chancellor will not just blink owlishly at the right hon. Gentleman's comments, because they are supported not only by the Opposition but by many more Conservative Members than is generally believed. I hope that more Conservative Members will find the courage, if not quite the same eloquence, to speak as the right hon. Gentleman has spoken today.
  There was also a warning in the right hon. Gentleman's speech. He said that on certain aspects of supplementary benefit he was ready to be convinced but that he was not yet convinced and was not prepared to support the proposals in certain circumstances which he spelled out. I believe that other Conservative Members have the same reservations and may well wait to be convinced by their own spokesmen before they are prepared to support the Government in the Lobby. I do not say that it is just a matter of courage, because to bring down one's own Government on an issue requires a great deal of calculation. It is not easy to vote against one's own Government, but on some specific issues it must be done. I believe that it may well be done on certain aspects of the Budget.
  I take issue with the right hon. Gentleman on one issue. He said that he was glad about what had been done for the disabled and the needy. I believe that he was wrong and that that was a misjudgment. I shall explain why. If there is one term that I would use to describe the Budget, it is that it is a "gesture" Budget. By gesture or gimmick, it purports to pursue one line of action while in fact taking another. Therefore, I wish to concentrate today on the way in which the Chancellor has dealt with the disabled and the needy. It is not at all a matter for congratulation by the right hon. Gentleman or by any Conservative Member, still less by any Opposition Member.
  Great play has been made of the Chancellor's decision to increase the mobility allowance and to exempt it from income tax. I unreservedly welcome the increase in the allowance and the exemption from income tax, but there is a danger that this may be used by the Chancellor as a device to excuse his failure to help most disabled and needy people in the Budget. It may also be used to create an impression that the Government are being generous to disabled people in general. Indeed, people who should know better, such as the right hon. Gentleman and the leader writers of The Times, have already been fooled by this gimmick.
  In an editorial in The Times yesterday there was a reference to the Government's "concern for the disabled". This sentiment was echoed by the right hon. Gentleman this afternoon and by many quarters of the press. The Secretary of State said that the mobility allowance is a lifeline for the disabled. I accept that it is a lifeline for individual disabled people but my charge is that the concession on the mobility allowance is a fig leaf to cover the Government's naked disregard in the Budget for the vast majority of the disabled. I want to try to prove that charge.
  By the Secretary of State's own confession, mobility allowance is received by only 215,000 disabled, yet there are over 2 Million disabled in Britain today. What has the Chancellor done for the other 1,740,000 disabled who do

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  not receive the mobility allowance apart from a few small earnings limits and disregards mentioned by the Secretary of State? The answer is nothing. Instead of trumpeting about the Government's "concern for the disabled" The Times and other sections of the press should make their headlines read, "Chancellor's neglect of 90 per cent. of disabled people". That is what they should be talking about, because that is what has happened in the Budget. The Chancellor has neglected 90 per cent. of the disabled.
  Even on the mobility allowance itself there are grounds for complaint because the criteria for awarding the allowance are far too restrictive. They exclude many of the disabled who find mobility difficult and expensive. I am thinking of blind and mentally handicapped children. The Secretary of State and the Chancellor should get together and widen the eligibility of the concessions to cover these groups. I hope that the Secretary of State will heed that plea and try to do something about it.
  The right hon. Gentleman also mentioned the restoration of the 2 per cent. cut, which is sometimes called the abatement, in unemployment benefit. Of course, it applies also to invalidity benefit and to the invalidity pension. What the Chancellor did not point out was his refusal to restore the cut of 5 per cent. made in November 1980. That abatement caused a single invalidity pensioner to lose £65 and a married couple to lose £104 in 1981. Where was the Chancellor's concern for those disabled on Tuesday? It was not displayed and no action was taken to do anything about them.
  The Government trot out the excuse that this abatement was made because invalidity benefit would ultimately be subject to tax although the Chancellor knows full well that many invalidity pensioners are below the tax threshold and therefore will not have to pay tax. It is wrong to talk about those people being taxed. They are not going to get any tax back from the Chancellor when the scheme is introduced so they are being treated unfairly. The Chancellor ought to make special provision for them.
  The 5 per cent. abatement applies also to the unemployed. I want to offer Ministers on the Front Bench a warning about that. Those who are disabled cannot fight the 5 per cent. abatement. They rely upon their own arguments, which often are well put, and they matter far more than those of their spokesmen. They have to rely, too, upon the work of voluntary organisations and of their parliamentary spokesmen; I hasten to add that these are unpaid, and it should not be otherwise.
  My warning is that the unemployed are a different proposition. Ministers may think that it is cheap and easy to deprive the unemployed of the 5 per cent. abatement in unemployment benefit because they seem to be weak. I warn Ministers that it will not be cheap. The cost may be astronomical—I choose that word with great care. I believe that Ministers under-estimate the bitterness felt by many unemployed. When that bitterness is added to the frustration and the poverty of unemployment it may become an explosive mixture, leading to crime and riots. We have already had some indications of what can happen. I am not saying that the 5 per cent. abatement will be the cause of riots, but that it might become the spark.
  No one in society is more dangerous than a man with a grievance. If he feels victimised by society he will seek revenge on society. Vengeance begets vengeance just as violence begets violence. The price in financial and human terms, considering the degradation, anger and bitterness of the unemployed, may be appalling. I offer that warning to
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  Ministers with all good will. We are on the brink of something terrible. When the Government grind the faces of the unemployed and the disabled down with this abatement they are facing a dangerous situation. 1 hope they will heed that warning.
  Another gesture in the Budget was the increase in the earnings limit for recipients of the invalid care allowance. The Chancellor, however, was silent about the failure to extend this to thousands of married women or, indeed, to co-habitees. The refusal to extend the invalid care allowance to married women or co-habitees is based on an outmoded assumption about the role of women. In the olden days many men regarded women as inferior. In this modern age only morons and idiots hold the belief that women are inferior, but the Chancellor goes along with that indefensible discrimination against married women. He is wrong to do so, because all the evidence points to the importance of women in the work force. Over 50 per cent. of married women are in the work force, and two-thirds of those in the age group 35–64 are in the work force.
  The Chancellor should recognise the role of women and extend the allowance to all married women and co-habitees. I hope that he will think again, for reasons of justice and common sense, especially as the women are looking after severely disabled people, keeping them cut of hospitals and institutions, and saving the State great sums of money. If they did not look after the severely disabled, the cost to the Government and certainly the Secretary of State—not to the Chancellor—would be enormous. I hope that consideration will be given to the plea to extend the allowance to married women and co-habitees.
  I also want to draw attention to the Chancellor's failure to relieve charities of value added tax. He has made a serious mistake. In no circumstances can the imposition of the tax be justified. It is bizarre that local authorities do not pay VAT on precisely the same kind of services as those provided by the charities. How can that be justified, when people give money to charities for the valuable work that they do and not for the Chancellor to take the money away? The amount lost in VAT is serious and damaging. For the Reform Group of charities alone, the group which has been campaigning, the net loss is £923,000. All that the charities are asking for is equal treatment with the local authorities. That is a very reasonable request.
  If the Chancellor is not prepared to think again about relieving charities of VAT, he should bear in mind an early-day motion tabled by the officers and members of the all-party disablement group and signed by no fewer than 90 Conservative Members. If they are as courageous in voting on the Finance Bill as some have said they may well be, the Government will be in serious trouble. Indeed, the Government may well be humiliated. I cannot see how those 90 Conservative Members can sign the motion, which calls for charities to be relieved of VAT, and then not vote for an amendment which will certainly be tabled by the group. They have a heavy responsibility. It would be more graceful for the Government to offer to give way, rather than lose the vote, as I believe they will.
  This is a "gesture" Budget. When the gestures are swept away—the gestures to the disabled, the unemployed and the under-privileged—it will be seen that those people and their pleas for justice have been neglected. The gestures will be seen as flags of convenience which may well mislead the public. I do not believe that this is a Budget

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  of which the Chancellor can be proud. I hope that he will take into consideration the constructive pleas which have been made.
  6.15 pm
  Mr. Bill Walker: I recognise the sincerity of the right hon. Member for Stoke-on-Trent, South (Mr. Ashley) and acknowledge the long battle that he has fought on behalf of the disabled. I cannot agree with everything that he said, and I am sure that he would not expect me to, but he was less than gracious when commending the positive steps that my right hon. and learned Friend the Chancellor took for the disabled in the Budget. When some efforts are made we should show our appreciation.
  I respect the right hon. Gentleman's views, and I have often supported him. I should like the criteria for the award of the disability allowance to be extended, and the right hon. Gentleman has my support in that, but I qualify that statement. Before we can look for many more of the advances that we would all wish for, the first and most important matter is to create the necessary wealth to provide for those in need.
  I fully support the broad strategy of the Budget, as I supported it in previous Budgets. [Interruption.] I also acted on my views about the previous Budgets. I have no qualms about that. If that causes amusement to Opposition Members, I am always prepared to stand up and be counted.
  However, there are two specific proposals in the Budget that cause me some concern, and I shall return to them later.
  I appreciate the way in which my right hon. and learned Friend has responded to the many representations that he has received and the way in which he has acted so positively in many instances. That shows clearly that he was caring and listening.
  I also congratulate my right hon. and learned Friend on the way in which he set out his proposals. In politics, presentation is often as important as policy. No longer can the Opposition claim that the present Government are not caring. I believe that they have been a caring Government ever since the day we were elected. [Interruption.] I have said so in many speeches. I still believe that they are a caring Government and that we were not presenting or packaging our policies in a way which showed just how much we were caring. I welcome the recognition that the presentation is as important as the policy.
  I turn to a specific aspect of the Budget—expenditure on defence. Earlier this afternoon the hon. Member for Dundee, East (Mr. Wilson) suggested that the Scottish Conservatives were opposed to spending money on updating the nuclear deterrent. I have met none—and I am the Scottish spokesman on defence for the party.
  There are many measures in the Budget to help the disabled, the elderly, single-parent families and the unemployed. I welcome the measure to remove 1·2 million from the income tax net—[Interruption.]
  Mr. Deputy Speaker (Mr. Bernard Weatherill): Order. It would be helpful if hon. Members would not interrupt from a sedentary position. I cannot hear.
  Mr. Race: Does the hon. Gentleman accept that the Chancellor is simply indexing the tax thresholds, so that
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  the 1·2 million people who would have gone into tax had the thresholds not been upgraded will not now do so? But that is very different from taking out of the tax net people who are already paying tax.
  Mr. Walker: I trust that the hon. Member for Wood Green (Mr. Race) will tell that to those who are not going to pay the tax; I am sure they will appreciate it. They will know the difference when the deductions are made from their pay packets. The business world—which I believe I know something about—will also recognise that the measures to help them are about the best they could hope for, or could wish for—and I underline "could wish for"—in the present world circumstances.
  This is a marginally expansionary Budget, as I see it, and should help create confidence among the wealth and job creators of Britain. It will not lead to excessive or rapid changes and consummately will not produce the overheating and stress that would have followed a Budget containing more reflation and more borrowing. The business world does not like rapid changes, whether they are inflationary, deflationary, or whatever. What it likes is gradual change, and that is exactly what this Budget represents.
  Mention has been made by a number of right hon. and hon. Gentlemen on the Opposition Benches of the absence of exchange controls and how that absence is affecting the British economy. In my constituency the largest single employer is the General Accident Assurance Corporation of Perth. The world-wide headquarters of this famous corporation is in Perth and at present a new and impressive headquarters—a multi-million pound headquarters—is being constructed. The reports of the corporation recently published show how the corporation's ability to invest a small proportion of its total investment fund overseas has provided a spread of risk. It has also improved the value of the investors' and policy holders' funds and has ensured the security of many thousands of jobs for employees in Perth and throughout the United Kingdom and in other parts of the world. I welcome the fact that it has this ability to invest abroad.
  I would also like to comment on behalf of one of the major civilian flying training schools in the United Kingdom, which is based at Scone in my constituency. I thank the Chancellor for the 30p per gallon reduction on duty of avgas fuel. This will be a positive help to the school in its efforts to remain competitive in the worldwide market of pilot training, which makes a substantial contribution to the nation's overseas earnings and provides work for many of my constituents. This step will also be appreciated by the business community, which uses light executive aircraft, and by the operators of feeder air services and charter air services throughout Scotland, especially the services to the islands and to the North Sea.
  I now turn to the two measures that cause me concern. In this connection I should also add that I have discussed this with my hon. Friend the Member for Aberdeenshire, East (Mr. McQuarrie) because the same two matters are causing him concern. The first of these is the 30p increase in the price of a bottle of whisky. I accept that this is a 6 per cent. increase and it could well have been a 12 per cent. increase. I also acknowledge and recognise the distinction made between claret and Scotland's famous medicinal drink. I appreciate that the industry has been given a special place by the Chancellor, and we acknowledge that. We fully realise, as does the industry,

  1011
  that this gesture means that the Chancellor appreciates the advantages to the nation of Scotch, which I do not have to over-stress in the House. This matter is certainly something that needs to be looked at very carefully because of the difficulties that are being faced at the moment by the distilleries.
  I would like to caution my right hon. and hon. Friends on the Front Bench about the danger that the whisky industry will face if any attempt is made in the future to harmonise duty and VAT on whisky throughout Europe. Excise duty and VAT in the United Kingdom is presently £5·23 per bottle, and represents about 80 per cent. of the price of a bottle of whisky. VAT and Excise duty in West Germany are £2·28; in the Netherlands, £1·37; in Belgium, £1·73; and in Italy, £1·45. I acknowledge, of course, that in the Irish Republic—they always do things slightly differently there—it is £6·74.
  What I see as being at risk is the long-term sales potential of Scotch, and the effect that the harmonisation could have, because it could only mean a massive increase in the price of Scotch in all the countries I have mentioned. We shall have little cause to complain as our Excise duty and VAT at £5·23 is so much higher than those levied by the other countries in Europe.
  I acknowledge that the Treasury Bench will argue that whisky at constant prices is cheaper today than it was 20 years ago. But that has to be seen against the overseas sales during the same period. In 1962 the overseas sales of Scotch amounted to £80 million. In 1982 it was £800 million, which is a tenfold increase. That is a massive increase in overseas sales. That is what has provided the industry with the opportunity to contribute so handsomely and so regularly to the economy of Scotland, and has created work for so many people, many of them in rural and remote parts of the country.
  There is in my view a danger that Budget decisions taken in isolation could put at risk this wonderful and unique product—a product that could continue to provide jobs and tax revenues as well as—so I am led to believe, because I do not drink whisky—providing the magical medicinal, therapeutic and other qualities claimed for it. Thus, the value of what we call the "cratur" should not be underestimated. As long as it is consumed in moderation, I am assured, it does have all these delightful values, and it can be consumed long after North Sea oil has been exhausted. It is a continuing source of benefit to many, both financially and in other ways.
  Of course, the bulk of Scotch is sold not in the United Kingdom but overseas. When we talk about all other consumable alcoholic drinks we tend to forget that Scotch is unique in this category. The bulk of Scotch—I do not mean just a small percentage of the bulk, but the vast majority, somewhere around 90 per cent.—is sold abroad. We are putting at risk these overseas sales if, in isolation, in every Budget we continue to put up VAT and Excise duty to a point where harmonisation could effectively have a damaging effect on overseas sales. That is the area that is causing me concern, but I acknowledge the special measures taken in this Budget, as does the industry.
  The other matter I am concerned about is the effect that the 9p increase on petrol prices may have in my constituency and other rural constituencies. Many of my constituents living in these rural areas do not have a choice. There is no public transport. Unlike town dwellers, the people in rural areas, those working in hotels or in isolated villages, or farm workers and estate workers
  1012
  who have to travel to work, have no choice. They are forced by circumstances to use private cars. The oil companies have discriminated already against those people. Their pricing practice and policies have led to price differentials of over 20p per gallon in some places and 10p per gallon in others. When that is added to the 20p increase in the previous Budget and the 9p increase in this Budget, that presents serious problems for people who are among the lowest-paid in the land. My constituents cannot understand that, because they do not live far from Grangemouth. It cannot be argued that they are a long way from the refineries. They are not.
  It is more difficult for the people living in East Aberdeenshire to accept the increases when they know that the oil is coming ashore there. Therefore, the argument about increased distribution costs for oil companies is highly suspect. I do not believe that it can be sustained. My constituents living in the isolated glens are not highly paid and the tax on petrol is regressive. Consequently, I am going back to my constituency this weekend to find out from the people affected just what the impact is, what is happening at the village pumps and what price is being charged now for petrol. If I find that petrol is marginally more expensive than it was before, I shall find it difficult and probably impossible to support that proposal in the Budget.
  I am also investigating the cost of derv and the impact that that increase will have on the rural parts of my constituency. My hon. Friend the Member for Aberdeenshire, East is also investigating the impact of that increase on his constituency. He will consider particularly the cost of that increase and its impact on the fish industry and on the distribution of fish because if the tax is found to be regressive, my hon. Friend and I will have to consider our position in respect of not only petrol, but derv.
  I wish to end on a note of optimism because I believe that the Budget will mark the beginning of Britain breaking out of the awful depression that we have experienced for so long. The Budget is designed to help the business community. That is where the wealth creators are. The wealth creators do not sit on the Benches of the House, nor in the other place. They are outside. They are the people who provide the jobs and who do the work. 1 sincerely believe that the Budget will be seen by them as a turning point and the beginning of the way out of the depression.
  6.32 pm
  Mr. John Horam: For someone who is "dry", the hon. Member for Perth and East Perthshire (Mr. Walker) has talked about man) liquid topics. I was amused by what he said about the whisky industry, but I was not sure whether he was right to attribute the favourable treatment accorded to that industry to the Chancellor of the Exchequer. That will be one of the first of the many services that the Social Democratic Party will render in Scotland because of its intervention in the Hillhead by-election.
  Mr. Bill Walker: If the hon. Gentleman is saying that his claret-drinking friend in Hillhead has been helped by the Budget, I doubt it. If he is saying that the Conservative and Labour candidates have been helped by the Budget, I believe that that is just possible.
  Mr. Horam: The whole country has been helped. However, the motives behind the Chancellor's measure were a little suspect.
  The Chancellor has claimed that his Budget is a Budget for industry, jobs and the people. I regret that it is none of those things. The Budget offers no hope to the unemployed. Industry has not received the stimulus that it considered essential for sustained recovery. The poor and the elderly have been accorded the minimum that was required to avoid a worsening of their already desperate plight. For the majority of people their living standards will fall during the next 12 months.
  It is true that the proposals were festooned with cheap baubles that may glitter in the eyes of some out-of-touch Tories, but I do not believe that they deceive many people. Collectively, the proposals add up to little. Many of them bear the hallmarks of haste and panic.
  I shall concentrate on the problem that the right hon. Member for Chesham and Amersham (Sir I. Gilmour) rightly identified as central to our concern. That is the problem of unemployment. It is amazing that the Chancellor could claim in his speech that this was a Budget about jobs, when, at the same time, the documents that accompany that speech show in the assumptions made for expenditure calculations that the number of unemployed will be 300,000 higher in the coming year than in the present year. That is a simple fact.
  When the Chief Secretary was confronted with that fact yesterday he sought refuge in obfuscation, technicality and obscurity—he did so too much. That is becoming a dangerous habit. Talking to the right hon. Member for Stepney and Poplar (Mr. Shore), said:
  "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."—[Official Report, 10 March 1982; Vol. 19, c. 882.]
  That is true. It is a convention that the assumptions for unemployment are carried through from year to year. However, the plain fact is that the assumption has changed to the degree of 300,000 between this and next year. That is the seasonally adjusted total, excluding school leavers, at present 250,000 below the headline total of the unemployed. The figure also does not include Northern Ireland.
  Therefore, a substantial increase in unemployment is expected over the coming 12 months. That cannot be dismissed as a technicality. It is a serious estimate that has been made for proper purposes. The Government must have a clear idea, for calculating expenditure on benefits and other matters, of the unemployment totals that we are expecting. Therefore, the figure is clearly the Government's best informed guess about the course of unemployment over the next 12 months.
  The Chief Secretary went on to say that the Budget measures made it clear that unemployment would begin to fall much earlier than it would have done otherwise. That must have been a record in the history of minimalist statements.
  When will the unemployment figures begin to record the fall that the Chief Secretary mentioned? I am sorry that he is not present today. I remind him that the London Business School, perhaps the most monetarist of all the forecasting organisations, has said in its latest forecast that
  1014
  the seasonally adjusted total of unemployment, excluding school leavers will be 2·9 million for 1982, 2·9 million for 1983 and 3 million for 1984. A forecasting organisation that is known for its monetarist views is thus saying that it believes that unemployment will continue in an upward trend for the next three years.
  When will the fall in unemployment come about? How much will it fall when it begins to fall? There again we come to another mystery. The Chancellor said in his Budget Statement:
  "It is clearly right to do all we can for those obliged to spend a long time without a proper job."—[Official Report, 9 March 1982; vol. 19, c. 731.]
  That in itself is an interesting statement. It makes it clear that for the first time the Government think that we should do something for those who cannot get work in the normal way. Using the Chancellor's phrase, we should resort to "unorthodox measures". The Social Democratic Party believes that the time for that is long overdue.
  The Chancellor added that the Government are considering a scheme for job creation on community projects which will be handled by the Manpower Services Commission. Had that commission been consulted before the Chancellor made his Budget Statement? It seemed clear, from the way that the statement was worded, that it had not been consulted, and, if that is so, it is equally clear that his statement was really a "back of an envelope" commitment. It was included in the statement although no work had been done by the Government on preparing the scheme to go forward.
  The Chancellor, it appears, a few days before the Budget decided to make a gesture—a nod—in the direction of a job creation scheme. However, no work was done on it and the Secretary of State for Employment was merely asked to consult the commission, which would come up with something in three or four months' time—some time in mid-summer—when the unemployment total would have risen further. The scheme is clearly designed to be a simple camouflage against reality.
  It is equally obvious that the scheme is remarkable for its sheer timidity. Total provision will be £150 million plus some expenses, and it is hoped that it can, for illustrative purposes, take 100,000 people out of the dole queues. That is no measure of the size of the problem.
  The programme that Roy Jenkins and the SDP put forward at Hillhead included £500 million to be spent on a similar scheme designed to take 250,000 off the dole queues. We are talking also about a housing improvement insulation scheme alongside that at a net cost of £500 million, taking 250,000 out of the dole queues, a scheme for those in work, a new scheme for the youth unemployed and a £30 subsidy for employers who take on young unemployed.
  The last is a good aspect because a chief criticism of the Government now is that, in going towards the sort of training measures outlined by the Secretary of State for Employment they are destroying the job market for young people. If my experience in Gateshead is anything to go by, young people do not want more and more training. They want more and more real jobs in which there is compulsory day release and some element of training which will help them to do jobs better. They want that and not continuous post-school training.
  Those combined measures, at a total cost exceeding the Government's claims, will, we hope, take about 600,000

  1015
  out of the dole queues over two years. That sort of effort is now required by these admittedly unorthodox and, in many ways, temporary measures.
  We cannot now do much by means of general reflation and so we have, as the Government have now conceded, to resort to these measures. If we resort to them, we must make them work on a scale that will have some impact on the problem.
  Mr. J. Straw: The hon. Gentleman has just spoken about a scheme that would take about 500,000 off the unemployment registers at a cost of £1 billion. Is he aware that the leader of the Liberal Party made a speech just a week ago in which he spoke of a package to create the same number of jobs at a cost of £6 billion? Which is right?
  Mr. Horam: The hon. Gentleman is talking about a difference between the gross cost of a scheme and the net cost. The Liberal leader's measures referred to gross PSBR cost and my measures refer to net cost. In addition, there is a difference on general reflation. I believe that the Liberal Party wishes to have the national insurance surcharge totally abolished. As we said in our statement, we wish to go only halfway down that path. I hope that that is some explanation of these matters.
  Mr. Straw rose—
  Mr. Horam: I do not want to allow the hon. Gentleman to intervene again because I have given a reasonable explanation of the very minor differences between the Liberal Party and the Social Democratic Party. A gulf of difference exists between what we are proposing in the scale of measures, what the Government are proposing, and the approach of the Labour Party, which wants everything plus the kitchen sink. It represents a gulf between common sense and cost-effectiveness. It is lunacy and inflation-prone on one side and means total inaction over employment on the other. [HON. MEMBERS: "Hear, hear."] It is interesting to hear that we have considerable support from Conservative Members on these matters as well.
  On taxation and the national insurance surcharge, Ministers are again apparently trying to put a gloss on things which just does not stand up when the real figures are presented by the officials. Never has a story received such immediate notoriety as table 9 on the income tax figures, contained in the press release issued by the Government yesterday.
  It shows that most typical families will be worse off in the next financial year than in this year as a result of the combination of tax and national insurance contributions brought about by the December statement and the Budget Statement.
  I see the Financial Secretary to the Treasury shaking his head in disagreement, but that aspect was confirmed by the Chancellor during Treasury questions today. It was a credit to the Labour Party today that they at least squeezed that admission out of the Chancellor and there was no way that he could deny it. Even that position rather flatters the Government because their concessions on income tax—a 14 per cent. uprating of the threshold—really means that 12 per cent. is for inflation. Therefore, if we take off the real effect we get only a 24p benefit for the ordinary worker on average
  1016
  earnings in real terms as a result of the Chancellor's measures. If we then add another £1·40 which has to be paid from 1 April, by way of increased national insurance contributions, people are worse off by £1·16 a week in real terms.
  Considering the overall position since the Government came to power, the work of the Institute of Fiscal Studies, which will appear in a Sunday newspaper this week, shows that the effect of the Budget measures, combined with all the previous Budget measures, has been to increase the marginal rate of all tax and contributions combined by about 2·7 per cent. since the Government came into office. Indeed, the average burden of taxation has increased, on the institute's calculations, by about 4·5 per cent. since that time, which shows the extent to which that part of the Conservative philosophy has clearly been reversed.
  It is a measure of the Government's failure that even that concept of tax equity and tax fairness has come to nothing. It will be a clear commitment of any Social Democratic-Liberal alliance Government that, as a first priority, we tackle the whole question of tax thresholds, because they are at the heart of this problem. It was the failure to index them last year, as well as the removal of the lower rate band the previous year, which led to this progressive worsening of the position for poorer families and even for those on average earnings.
  The Chancellor was clear before the Budget that the CBI had set out a set of measures which it regarded as essential for achieving a proper and substantial expansion of the economy. It said in its pre-Budget statement that it was possible, indeed desirable, to go to a PSBR between £12 billion and £15 billion in order to avoid any further fiscal tightening. It recommended a reflationary package between £2 billion and £3 billion. The Government have given it less than half of what industry regarded as essential for sustained recovery. Therefore, we shall not get sustained recovery. Indeed, the real tragedy of the Government's Budget is that it contains no policy for expansion. They cannot have a policy of expansion while they continue on their present ideological track, and they have shown no real desire to depart from that beneath the surface of this Budget.
  6.50 pm
  Mr. David Winnick: The first question to be asked about the Budget is "What will it do for unemployment?" In this instance the answer is clear. The Budget will do nothing to reduce the present level of joblessness. The Government accept that indeed unemployment will continue substantially to increase during the next year.
  In a recent parliamentary answer I was told by the Secretary of State for Industry that manufacturing output in the last quarter of 1981 was 16 per cent. below that for the second quarter of 1979. The Chancellor of the Exchequer must take direct responsibility for policies that have led to such a dramatic decline in industrial production. This dramatic decline in manufacturing output has led to the rise in unemployment generally, including areas such as the West Midlands where previously there was no great unemployment problem. As I said in a question that I put to the Prime Minister a few weeks ago. unemployment in the West Midlands was 5 per cent. when the Government took office. Registered unemployment

  1017
  there is now over 15 per cent. In the Walsall travel-to-work area, where unemployment was under 6 per cent. in May 1979, there is unemployment of over 17 per cent. That is the scale of the immense harm that has been done to British industry by the Government's policies.
  The Government's policies include high interest rates and an exchange rate which is uncompetitive, and makes exporting extremely difficult. The abolition of exchange controls has been another major reason for the return of unemployment since the 1930s. Investment should be taking place in our constituencies, but the money is going abroad. The removal of exchange controls was a direct incentive for the exporting of capital. That is why one of the first priorities of the next Labour Government must be to ensure that exchange controls are restored.
  Mr. Terence Higgins: Does the hon. Gentleman think that that would put the exchange rate up or down?
  Mr. Winnick: Certainly it has continued to increase since the Government have been in office and their policies have been pursued, including the abolition of exchange controls.
  The manner in which the unemployed have been treated must be a cause of great concern to us. It has been suggested in this debate that the Government are a caring Administration. That is so for the richest in the community, but those who have been the victims of the Government's policies do not consider the Government to be caring in any meaningful way.
  My right hon. and hon. Friends have referred to the 5 per cent. cut last year in unemployment benefit. We know that many of those who will be affected will not pay income tax. However, the Government do not intend to restore the 5 per cent. cut. It may seem a small sum to some, but it does not seem so to those who count every penny and who live on the most reduced income. They believe with every justification that they have been cheated.
  What possible justification could there have been for the abolition of earnings related benefit, a scheme that was introduced to cushion the effect of redundancy? The abolition of the benefit has made much more difficult the lives of those who have been made redundant. We have had no real justification from the Government.
  Many of those who have been made redundant have been unable to get another job within 12 months of being declared redundant, and their unemployment benefit has been exhausted. In the West Midlands and in many other areas the chances of getting another job are pretty remote. Those who had savings of more than £2,000 were denied supplementary benefit. Men who had worked all their lives and were made redundant in their late 50s were penalised because they had saved. They were penalised as well because they had received redundancy payments. We welcome the fact that the limit has been increased to £2,500, but it has not gone up enough. If there were not mass unemployment there would not be so much concern, but what chance have men in my constituency in the engineering trade, who have been made redundant at 56, 57 or 58, of getting another job during their working lives? It is understandable that they believe that the Government are acting against their interests.
  1018
  When we compare the way in which the unemployed and those on the lowest incomes are being treated by the Government—all the detailed means testing and many examples of humiliation and pin pricks that the poorest have to suffer—with the way in which the richest in the community have been treated over the past three years by the Government, we can well understand why the Prime Minister and her colleagues are considered to be the most class-based Government for 40 or 50 years. Indeed, the Government have announced in this Budget measures whereby capital transfer tax will be weakened even further. Surely it has been weakened sufficiently in previous Budgets. That is the way that the rich have been treated. They have enjoyed substantial tax reliefs in the previous Budgets. They have been treated very differently from the way in which the people that my hon. Friend and I represent have been treated.
  As my right hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) said, the Prime Minister and the Chancellor of the Exchequer should take note that among those who are deprived of jobs and who believe that they have no chance of being able to earn their living, especially young people, there is growing resentment and bitterness. That type of resentment and bitterness lingers. It lingered on from the 1930s to the 1940s and 1950s, when there was full employment. People did not forget the 1930s. A new generation is now feeling the bitterness and humiliation of being denied the opportunity of working. The Government will ignore at their peril the feeling that exists in some areas, and especially in certain parts of the inner city areas. Young people ask "What chance is there of getting a job?"
  I am not suggesting that all crime can be said to arise from unemployment, but the problems that understandably cause concern in the community must be worse at a time of mass unemployment. One of the clearest and sharpest points that the Conservative Party made on the hustings during the 1979 general election was that a Conservative Government would reduce taxation. Some of the electorate who would not normally have voted for the Conservative Party were taken in. It is a nice prospect that one's taxation will be reduced. The fact that income tax would be reduced but that indirect taxation would increase was perhaps not made altogether clear, or was not altogether appreciated.
  It emerged from yesterday's debate that arising from the Budget most people will pay more in taxes. It is alarming that those on small incomes have had their income tax burden increased while having to pay more in indirect taxation. I shall give the House some examples of the way in which those on limited incomes have had their tax increased as a result of the Government's policy as set out in their Budget. A married couple with two children on 50 per cent. of the average income paid 6·6 per cent. of their earnings in income tax in 1978–79 and 11·8 per cent. in 1981–82.
  If national insurance is included, this couple on half the average income, paid 12·5 per cent. in 1978–79 and 18·6 per cent. in the last financial year. Again, a couple with two children, earning 75 per cent. of the average income, with national insurance included, would pay 20·8 per cent. in 1978–79 and 24·5 per cent. in the last financial year. On the average income, together with tax and national insurance, the sum paid was 25·2 per cent. in 1978–79 and 27·6 per cent. in 1981–82.

  1019
  However, if one examines the figures for those who earn 500 times the average income—and not many of my constituents earn that—one finds that their combined income tax and national insurance bill has been reduced from 49·7 per cent. to 44·9 per cent. in the same period. I have never been one of those who campaign for an all-round reduction in income tax. A reduction in the standard rate of income tax such as occurred under the Conservative Administration in the first Budget will, in the main, help those with high incomes. It will not help those on low incomes. Moreover, the increased burden on indirect taxation is bound to hurt those with small incomes.
  Those on inadequate incomes, those who find the greatest difficulty in making ends meet, are the people who should receive first priority when it comes to giving some relief in income tax. Part of the reason why so many of our constituents on small incomes have had tax bills that they find great difficulty in meeting is that personal allowances were not increased in the last Budget. I find in my surgeries and the letters of complaint that I receive, that those on small incomes, in some cases with State benefits, still have a tax liability.
  It has been calculated that in order to compensate for no increase in personal allowances last year it would have been necessary to increase the allowance by £400 for a single person and £620 for a married couple. On top of the increased tax burden so many of our constituents, many on small incomes, have had to face exorbitant rent increases. By April this year, council rents will have gone up by 117 per cent. since the Government took office.
  There is also the problem of the fuel increases. Many of our constituents have had tremendous difficulties as a result of the increase in gas prices. Gas has been increased in price by 10 per cent. above the rate of inflation over a period of three years on the direct intervention of the Government. These are additional burdens that people have to meet, and in many cases they have the greatest difficulty in doing so.
  What was required first and foremost was a Budget to deal with the economic and industrial crisis this country is in. The Budget should have planned expansion and jobs to bring back to the areas so hard-hit and devastated—such as the West Midlands—the opportunity for the people to earn their living in a worthwhile way. What was required as well was proper, effective action, certainly lacking in the Budget, to give help to the construction industry. Houses are required. Council house building is at its lowest since the 1920s. At the same time, there are thousands of construction workers on the dole queues. They are the people who should be taken from the dole queues and allowed to do the jobs that they are trained to do and to build the houses that are so urgently needed. That is the sort of need that the Budget should be filling if it had been concerned with putting Britain back on its feet.
  The policy of deflation that has been forced on the country as a result of the Conservative victory in May 1979 has caused untold harm and immense damage to British industry and to the lives of so many people. The Chancellor is a barrister, and like the Chief Secretary will read any brief that he considers is part of his duty, rather as he does in court. However, he is assisted by two hon. Gentlemen, two diehard, one would almost say fanatical, monetarists. They are even perhaps to the Right of the Prime Minister. It is somewhat like putting Dracula in charge of a blood bank. Anyone who believes that there
  1020
  can be any real change in economic policies with the present team in the Treasury and with the type of person that we have as Prime Minister is not facing the facts of life.
  The first priority of this country in different circumstances, and circumstances in which there will be a Labour Government, is to pursue policies opposite to those pursued by this Administration in the past three years. I understand from the press, although I do not know whether it is right—I think that it must be taken somewhat seriously—that the wets have been dried out. Whereas last year some Tory Back Benchers were planning to rebel, not that it came to much, they are now satisfied. Events shall prove whether I am right or wrong—I was not probed wrong when I spoke in such critical terms on previous Budgets. I take the view that this Budget will be as decisively rejected in the country as were the previous ones.
  7.6 pm
  Mr. Terence Higgins: This is the right Budget at the right time, and I congratulate the Chancellor upon it. The Budget speech left a number of aspects of economic policy still unclear, but I hope that the Select Committee on the Treasury and Civil Service will go into the matter in greater detail. I shall refer in detail to some points later.
  I turn first to the attack made on the Chancellor yesterday by the right hon. Member for Stepney and Poplar (Mr. Shore) from the Opposition Front Bench. Some of his points were echoed in the speech of the hon. Member for Walsall, North (Mr. Winnick). What appals me about the attitude of the right hon. Member for Stepney and Poplar is the internal inconsistency in his case. We are told that taxation should be reduced by £9 billion and the PSBR should be raised by about £5½ billion. At the same time, we are told that he wants to see lower interest rates.
  However, as the Chancellor pointed out, the keystone for evaluating the PSBR is what it costs to finance it. In spite of what the right hon. Member for Stepney and Poplar said yesterday, he does not seem to understand that if there is a higher PSBR to be covered one will have to pay more in order to get the money in.
  There is an alternative view, which is simply not to finance it. In that case, one could have a big PSBR with not much higher interest rates, although the idea that there would not be higher interest rates if the PSBR were increased by the amount suggested by the right hon. Member seems to be absurd. In any case, it seems implicit in what he is saying that the money supply will be increased by an astronomic amount. That will clearly have a traumatic effect on the exchange rate.
  Mr. Austin Mitchell: If there is an increased PSBR, that will put up interest rates, so why should exchange rate control be removed, which lets all those billions flow overseas?
  Mr. Higgins: I am coming to the question of exchange controls in a minute, which relates to another inconsistency in the right hon. Gentleman's argument.
  If there is a massive increase in the money supply, as will inevitably be the case under the Labour Party's policies, the effect of that on the exchange rate will lead rapidly, perhaps even the next day or the same day as the Budget, to a rapid change. There will be a massive decline

  1021
  in the sterling exchange rate. Following that, there will be a massive increase in import prices. Then there will be a massive increase in inflation, and as an inevitable result there will be an increase in wage claims and a further deterioration, not an improvement, in our competitive position.
  On the other side of the equation, it is true that the lower exchange rate will make our exports more competitive. However, it takes a long time for exports to respond. For that reason, the policies proposed by the right hon. Member for Stepney and Poplar are inconsistent, incredible, and disastrous for employment.
  It is important to understand the nature of the increase in unemployment which has taken place during the past two years. It has been due to a massive reduction in overmanning. Vast sums have been paid out in redundancy pay. I do not believe that any reflation on the scale envisaged by the right hon. Gentleman would significantly affect the extent to which the present unemployed are reemployed. We should recognise that.
  Mr. Straw: The right hon. Gentleman raises a critical issue of economic analysis about the relationship between the PSBR and interest rates. There may be some relationship, but surely the experience of other countries and of interest rates in this country suggests that there is no rule which says that the PSBR and interest rates are inextricably linked. How does the right hon. Gentleman explain the fact that, according to OECD figures, Japan is running a PSBR of 10 per cent. of its gross domestic product—three times ours—with much lower interest rates? How does he explain the fact that, while the PSBR was coming down in the past two years, interest rates were going up?
  Mr. Higgins: The short answer to the last part of the hon. Gentleman's question is that interest rates went up because it was necessary to protect the exchange rate. In answer to the broader question that he raised, I refer him to the report of the Select Committee on monetary policy and all the evidence that we received on it. It is, I fear, too complicated an issue to deal with adequately in a short speech.
  The right hon. Member for Stepney and Poplar and his colleagues also say that we must bring back exchange controls, and complains about the outflow that has taken place since exchange controls were abolished. If that money had not flowed out, it is quite clear that the exchange rate would be much higher than it is. Yet they want a lower exchange rate. There is a clear inconsistency in policy there.
  Mr. D. N. Campbell-Savours: It would all be worked out with the interest rates.
  Mr. Higgins: That is not so. The whole policy, particularly on unemployment, does not stand up to close examination. Still less does the policy advocated by the Social Democratic Party. The right hon. Member for Crosby (Mrs. Williams) is reported as having said yesterday that there should be more intellectual underpinning of her party's policy. The hon. Member for Gateshead, West (Mr. Horam), in an interesting speech, gave us a variation. The right hon. Lady previously said that, for a net cost of £2·3 billion, her party would reduce
  1022
  unemployment by 1 million in less than two years. Goodness knows what intellectual underpinning would be needed to support that. I personally find the whole policy quite incredible. It is pure cloud-cuckoo-land, and the variation that we had from the hon. Member for Gateshead, West this afternoon was not much better.
  If I may put a little constituency meat in the sandwich, I want to say a word or two about specific measures. I am glad that my right hon. and learned Friend the Chancellor of the Exchequer had an open mind on the arguments that were put to him by various pressure groups, even to the extent of eliminating the duty on 2p gaming machines, which is a matter of particular importance to seaside resorts such as Worthing. Indeed, there may have been great celebrations on Worthing pier, even though the benefit may have been offset to some extent by the increased tax on other gaming machines.
  I welcome the increase in the mobility allowance and the fact that it is not now to be taxed. I also welcome the proposals to help charities. I shall make one comment that I know will not be popular, any more than what the Chancellor said about it was popular. The difficulties involved in relieving charities from value added tax are, as my right hon. and learned Friend said, insuperable. We looked at the matter in immense depth when I was responsible for taking the tax through the House. At that time we gave charities compensating concessions on the covenant side, and there have been further concessions since. I certainly welcome the fact that more has been done to help charities now. However, we should accept the basic argument about VAT. We should help charities in other ways.
  I want to take up one issue raised by the hon. Member for Walsall, North who spoke about the West Midlands. I was speaking in Birmingham at a conference at which Sir Terence Beckett also spoke last week. He said that his first priority was the implementation of the Rooker-Wise amendment. I found that rather surprising. In fact, the Chancellor has done that, and given 2 per cent. extra. He also made a reduction in the national insurance surcharge of 1 per cent., with a special arrangement between August and April. That is a good arrangement, because it is important that that cut in the national insurance surcharge should not go in wage claims. The fact that an additional ½ per cent. is to be given for a limited period will allow us to see how it works out in practice. I certainly hope that it will not go in successive wage claims, and I hope that next April the Chancellor will be able to continue the reduction, and perhaps even make further reductions in the national insurance surcharge.
  Industry has been helped with its energy costs, both with regard to electricity for large firms, and gas prices for a number of firms in the West Midlands.
  Clearly there has been a change in the Government's attitude to monetary policy. My attitude, I hope, has been consistent. Throughout the period of the 1970–74 Government, I believed that control of the money supply was an important aspect of economic policy, and I have maintained that view throughout. The dogmatic approach of this Government when they came to office was open to considerable suggestions, which again the Select Committee pointed out in a major report on this subject. I welcome the change in nuance in some respects which has emerged from the Chancellor's speech, but I also express anxiety lest we go to a further extreme, where monetary policy and control of the money supply are

  1023
  regarded as being of no importance. I hope that, not only have I been consistent, but that I shall maintain a consistent attitude in this respect.
  The changes that have been made are interesting. Clearly M3 has been dethroned from its previous premier position, and we are to take all the monetary measures into account. Apparently, they are to be comprehended within the same range. That is a somewhat strange idea. We know very well that the various monetary aggregates—M1, M3, PSL1, PSL2, and so on—all change at varying rates, and to widen the range to a point at which it is hoped that it will comprehend all those variations is a strange thing to do. However, we shall go into the matter in greater detail in the Select Committee.
  We are now told that the figures in the medium-term financial strategy for later years will be reconsidered in the light of circumstances at the time. The whole basis of the medium-term financial strategy was that it was set, there was to be a steady decline over a period, and, regardless of what happened, one stuck to it. So a little flexibility has been introduced into the approach, and, subject to the qualification that I made earlier, I welcome it.
  I continue to stress—and the Chancellor was right to stress—the importance of the public sector borrowing fund for reasons which I mentioned earlier when I attacked the Opposition proposals. While the relationship is far from clear, and there is what on previous occasions I have called a Bermuda triangle between the PSBR, interest rates, and the money supply, the fact that the PSBR has an important influence on interest rates is beyond dispute.
  That being so, I turn to the other difficult Bermuda triangle. The whole subject is bedevilled with such animals. I refer to the relationship between the monetary aggregates, the exchange rate and the rate of interest. In a fascinating part of his speech my right hon. and learned Friend the Chancellor referred to monetary aggregates and exchange rates affecting interest rates. If monetary aggregates and the exchange rates are both wrong, interest rates go up. If they are both right, interest rates go down. In column 735 of the Official Report, my right hon. and learned Friend the Chancellor said:
  "We could not resist the pressures of rates rising sharply all round the globe"—
  that is, interest rates—
  "we would not have been able to do so whatever the level of our own domestic borrowing. But, because of the firm line taken in my last Budget, our own interest rates, even after the increase in the autumn, did not soar to the levels reached in the financial markets of a number of our competitors."
  The Chancellor clearly recognises, as we all knew, that the interest rates rose because the exchange rate was in danger of collapsing, and that would have had disastrous consequences on inflation.
  That raises the difficult question of what happens when we need to keep interest rates high because of the exchange rate, but where they are higher than necessary to fund the PSBR. In that case, one is overfunded. This is important, because the money supply, for reasons just given, would contract much more than is desired. One then runs into extremely difficult problems of monetary and fiscal balance.
  Mr. Dykes: Would my right hon. Friend agree that my right hon. and learned Friend the Chancellor also made an interesting comment on interest rates being
  "determined in New York anyway"?
  He added:
  1024
  "Such reasoning is mistaken, and the conclusions drawn from it are dangerously wrong."—[Official Report, 9 Match 1982; Vol. 19, c. 735.]
  Does my hon. Friend agree that such conclusions are often correct, and that in the United States the maximum rates have been repeatedly established, hence dragging up our own rates as well?
  Mr. Higgins: I agree; that is the point I was about to make. It is clear that the 2 per cent. increase in interest rates last year was motivated primarily by a need to protect the exchange rate, and that reflected the fact that American interest rates were high.
  It is tremendously important that the Government should have close consultation with the United States on the issue. If the American deficit—the difference between taxation and expenditure—remains as large as it is and continues to grow, inevitably American interest rates will remain high. That is extremely dangerous to the world economy as a whole, or, to be more accurate, for the free world as a whole—but I shall not define that expression.
  The situation in America is not the same as it is in this country. By and large, the Governor of the Bank of England seeks to implement the policy set our by the Chancellor. Paul Volcker, chairman of the Board of Governors, Federal Reserve System, in the United States, is in a much more independent position. If the deficit remains high, I have no doubt that he will maintain interest rates at the level that he believes is necessary.
  There is a need for negotiation with the United States because relations between the United States and the United Kingdom are crucial, in the strict sense of the word, on this issue, rather than with the rest of Europe. It is absolutely essential to endeavour to reduce interest rates in America through negotiation. In that context, the exchanges which we had in the House earlier today on defence expenditure were interesting. It is profoundly important that here and in the United States—which, after all, bears a massive share of defence expenditure—we maintain an adequate defence system.
  However, we must do that over time, which means that we must have the real resources over time. It would be very short-sighted if the rate of increase of defence expenditure in the free world—I use that expression again—were so rapid in so short a time that it massively increased the deficit, especially in the United States of America, with the result that interest rates were far higher there and that there was a recession in the free world and that, as a result, over a reasonable period we had fewer resources to spend on defence and on all other objectives because we had pursued too short-sighted a policy.
  That takes us perhaps into wider areas than the Budget. We must debate those important issues carefully. However, both in the detail and on the Chancellor's general approach to his Budget speech, I believe that he is on the right lines, and I certainly welcome his approach.
  7.25 pm
  Dr. Jeremy Bray: Many points made by the right hon. Member for Worthing (Mr. Higgins) will be taken up in the Treasury and Civil Service Committee, but I wish to deal with some of them now. First, although it is clear that all that we and the EEC can do to bring pressure to bear upon American policy is important, it is not only upon defence that we should concentrate. We must also concentrate upon taxation. It is unrealistic to suppose that the President's commitments

  1025
  to future tax cuts can be carried through or even maintained in Congress. We should say quite clearly to the Americans that we cannot regard them as a unitary State. We must talk to Congress as well as to the President and the Administration.
  The right hon. Member for Worthing made a point about the shadow Budget of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). I have not seen the Treasury model runs to which my right Friend referred at his press conference, but I was totally baffled by the remarks of the right hon. Member for Worthing. My right hon. Friend's proposals are wholly consistent over the medium term and not just the short term. I rather regret the fact that my right hon. Friend did not publish sufficient tables to make that absolutely clear. It is certainly true that, from such work as I have done on the model and without knowing the work that he has done, his assumptions imply a substantial devaluation. Perhaps they impose strains on the economy but not entirely on the inflationary side. The matter is not simple and straightforward because of the strong anti-inflationary element in the reductions in VAT and the employers' national insurance contribution that he proposed.
  That combination of devaluation and large reductions in indirect taxation enormously increases company profits. It increases greatly the pressure that, for example, Ford workers can put on that company compared with that exerted by local authority manual workers in the public sector. This creates internal tensions within the labour force, which raises the question what we should do about incomes.
  We are quite clear about that in the Labour Party. We talk about it and the TUC-Labour Party liaison committee is working on it. Conservative Members do not appreciate the nature of such discussions. One could not expect the TUC to commit itself to a negotiating position with even a "dead cert" Labour Government. If Conservative Members have discussed that with individual trade unionists, they must realise the relationships within a trade union, let alone between the TUC and its constituent unions. If Conservative Members wish to press effectively they should ask not about exact numbers or a firm commitment, but about the sort of structure that is emerging in discussions about anti-inflationary policy. The crucial question to ask is how any scheme handles wage relativities because of the great tension that has opened up between export-oriented manufacturing industries and public sector jobs, as demonstrated in my right hon. Friend's package.
  This problem is relevant to the political impact of the Budget. We have heard a great deal about the redistributional impact of the income tax changes, but those tax changes come on top of much bigger impacts on redistribution arising from the Government's economic policy.
  Hon. Members have only to look at the new earnings survey, and the change in the distribution of earnings over the past year to see that it is a huge change. I give one example. The 10 per cent. lowest paid manual workers have had a 10 per cent. increase but the 10 per cent. highest paid non-manual workers have had a 15 per cent. increase.
  Hon. Members can also examine average earnings of male workers in particular industries. In the mining
  1026
  industry, in 1981, relative to the average index of 100, earnings dropped from 114·6 to 110. That is a fall of 4·6 per cent, in miners' wages relative to other earnings.
  The relativity of agricultural workers' pay fell from 70·5 to 67·2. The figure for mechanical engineering, the bulk of the engineering industry, fell from 91·3 to 86·5. This huge shift in income distribution that is boiling away in the country has destroyed the political position of the Government. It is not simply a matter of the marginal tax changes that the Government talk about. The Government are living in a fool's paradise if they think that the public relations tour de force by the Chancellor will make any difference to their position in the country. It cannot.
  Conservative Members have also touched upon the abandonment of the medium-term financial strategy. The right hon. Member for Worthing felt that it had been disposed of, and, yesterday, the hon. Member for Enfield, North (Mr. Eggar) summed it up in seven letters—RIP MTFS. But a closer examination is warranted. The Government have abandoned the form. There has been an upward revision of the target range from the 5 to 9 per cent. to which they were committed to the 8 to 12 per cent., on top of the rebasing on last year's excess of 14·5 per cent. compared with the target of 6 to 10 per cent. The Chancellor widened the definition to include the Mos as well as the wider definitions of money supply. The right hon. Member for Worthing will fully recognise the Chancellor's motivation. It was because last year, the Mos and the non-interest-bearing M1s increased only by 3½ and 4 per cent. whereas the PSL1s and 2s increased by 13½ and 12 per cent. He does not know whether the low rate of growth will continue on the noughts and ones or whether it will swing the other way and lead to rapid growth. The Chancellor is hedging his bets and having it both ways. Another important point is that the Chancellor now chooses to regard monetary policy as technical and boring. I am sure that that is right.
  But the effect of abandoning the MTFS should be got into proportion. Three per cent. additional growth on money supply means 1 to 2 per cent. lower interest rates. That, in turn, matches up with a 3 to 4 per cent. devaluation, which in turn reflects perhaps a half per cent. increase in GDP or £1¼ billion. Therefore, the abandonment of the medium-term financial strategy is worth perhaps an additional £1 billion to £1½ billion in demand. That will not pull anyone's chestnuts out of the fire. What is really significant about the abandonment of money supply is that the Chancellor is shown to be in a total vacuum in considering how to run an economy. The right hon. and learned Gentleman has destroyed the medium-term financial strategy. He lingers more or less in that area, but he does not know what to do.
  The only person who thinks that he knows what to do is the Governor of the Bank of England. He thinks that what he is doing is to keep the exchange rate around 90 to 92 on the trade weighted index. This enables the City to see more or less how interest rates will move. That method is, however, terribly vulnerable to any major disturbance in exchange rates of a kind that could be generated by changes in American policy or happenings anywhere else in the world. This policy void is the greatest danger for the Government.
  The fashion has grown up for hon. Members, not only my right hon. Friend the Member for Stepney and Poplar, but the right hon. Member for Chesham and Amersham (Sir I. Gilmour) and the hon. Members for Bath (Mr.

  1027
  Patten) and for Enfield, North to put forward packages of alternative proposals. It is a fine sport. It succeeds, I believe, in moving forward the economic debate. The only trouble is that the Cabinet has to catch up. The Cabinet made big progress this year when it actually discussed the general direction of the Budget before the Chancellor had finally made up his mind. I dare say, Mr. Deputy Speaker, that you would lose if you were to bet that the Cabinet was offered any alternative packages. It is, I believe, a racing certainty that it was not. The Cabinet was certainly not put in a position to design alternative packages for itself. Access to the Treasury model is more strictly guarded within Whitehall than it is outside Whitehall.
  Others who have to catch up are the House and the country. It is conceivable that the Chancellor will be forced, even before the end of this Parliament, into proposing serious alternative policies to his Cabinet colleagues. The House and the country need to be presented with those alternatives. This is the subject of the Armstrong report that hon. Members are considering within the Treasury and Civil Service Select Committee. I hope that we shall produce a clear and unanimous recommendation that a provisional Budget and White Papers should be published in time for them to be properly considered. This would avoid the public relations reaction criterion by which the Chancellor at present thinks that he can bring out his Budget. What scares me stiff is not so much the impact of there public relations on the Chancellor as the impact on my right hon. Friend the Member for Stepney and Poplar. If my right hon. Friend thinks that he will get away with that sort of presentation with Labour Members and the Labour movement, he is destined to have second thoughts. I do not suppose, however, that he would try to get away with it.
  There is also need for progress on the state of the art of putting together policy packages. All hon. Members, when they put together packages, talk about the package—the billions off this and the pennies on that. They do not talk about forecasts. They do not say what will happen when their package is built on top of the present state of the economy. They can therefore never be proved wrong. This is comforting for them and their advisers.
  The only serious test of these packages, however, is a much more penetrating comparison of models and different treatments within the same model. It is generally understood by hon. Members that the exchange rate equation and the wage equation in the Treasury model are totally imposed. If those equations are changed, the behaviour of the model changes entirely.
  The Metric model of the French Ministry of Finance is presented far more thoroughly and sensitively than any United Kingdom model. The Government are falling badly behind. Treasury Ministers may slumber through all the official briefings that they get on this sort of thing—just as they are doing now—but as a result of such sloppiness in presentation major errors in policy are made. Those who want evidence of that should talk to my right hon. Friend the Member for Leeds, East (Mr. Healey), the former Chancellor of the Exchequer, about the great change in the savings ratio and the impact that that had on the errors in the economic policy of the last Labour Government. If there are advances in the way in which policy is made, we shall not avoid great uncertainty, frustrations and disappointments, but we shall be in a far better position to see what is going on.
  1028
  There is one problem that I do not see my way through at all. I cannot understand the baffling increase in exports over the past year [Interruption.] One suggestion is that we are developing a dual economy; that one part of British industry is as efficient and competitive as we would wish, thrives in the present environment and has been responsible for a very big increase in exports, and that another sector is totally unable to compete and is vulnerable to exchange rate uncompetitiveness. How policy should be conducted in a diverse economy whose different parts are affected in radically different ways, is, of course, what politics are all about. However, there is no reason why politicians should have to work in the dark about the real impact on firms in our constituencies, which employ our constituents.
  Mr. Bill Walker rose—
  Dr. Bray: I shall not give way, as I shall shortly finish my speech.
  However, income distribution and the impact on particular industries and firms is the way forward in the proper making of a Budget, rather than the charade that we had yesterday.
  7.44 pm
  Mr. Chris Patten: I shall take up in a moment what the hon. Member for Motherwell and Wishaw (Dr. Bray) said about pay. However, I shall start with the self-evident point that no Budget was awaited with more eagerness than the one unveiled on Tuesday. That is pretty curious because all of us know that a single Budget cannot make much difference to the economy. I doubt whether the world will be much different after Tuesday than it would have been if nothing at all had taken place. Judging by the economic indicators and figures for the next couple of years, there is not likely to be very much change as a result of the Budget, with inflation forecasts looking more encouraging, output making a slight and fitful recovery and unemployment remaining grimly high. The Budget is therefore as much a political as an economic event. In that sense I should like to offer a judgment about it later.
  All of us know perfectly well that the Chancellor is operating within a number of difficult and severe constraints. The first is the international situation. In a mad world it is difficult to run a sane domestic economic policy. The good news on the international front is the fall in the oil price, which should mean some increase in output in most of the developed industrialised countries.
  The bad news—to which my right hon. Friend the Member for Worthing (Mr. Higgins) referred—is what Mr. David Stockman called the "magic asterisk". I refer to the enormous federal deficit in the United States of America, which is partly a result not only of defence spending, but of a good deal of supply side twaddle. A deficit of that size combined with a pretty tight monetary policy will mean high interest rates later in the year.
  It is possible that Congress will save our skins. If it does not, Europe will have to consider later in the year what it can do to save us all from the consequences of American economic policy. It is interesting that the once much derided argument about the ring fence seems to have a large number of rather surprising adherents these days.
  The second substantial constraint on my right hon. and learned Friend the Chancellor of the Exchequer is our pay bargaining system, to which my right hon. Friend the

  1029
  Member for Worthing referred. Even with 3 million unemployed and an alleged sea change in attitudes on the shop floor, several of us who argued in the run-up to the Budget for greater help to industry were told with teeth-sucking scepticism that that might feed through into pay. There is some force in that argument and there is much more force in it if one is talking about a £9 billion reflationary package.
  In his response to the Budget Statement, the Leader of the Opposition glided round the whole question of pay policy. As usual, his speech contained a deluge of words which covered a slight drizzle of thought. The right hon. Member for Stepney and Poplar (Mr. Shore) has a rather different technique when faced with the problem to which the hon. Member for Motherwell and Wishaw (Dr. Bray) referred. The right hon. Gentleman's technique is to call the problem something else. Given that he has certain ambitions in the Labour movement and that no one is allowed to use the words "pay policy", he calls it a national economic assessment. He should call it something friendlier or chummier, such as Robin or Nigel—[AN HON. MEMBER: "Or Chris"]—That would do very well. However, we have to put up with "national economic assessment". I shall make the obvious point that if an hon. Member cannot even call a policy what it is, there is not much chance of it being wildly successful.
  The third constraint within which the Chancellor of the Exchequer operates is more of his own making or saying. We are told—this is what the medium-term financial strategy means—that he is our Ulysses, lashed fast to the targets contained in the medium-term financial strategy. The priciple behind all that was enunciated a long time ago by Lewis Carroll, who wrote that anything one is told three times is true.
  This year, we have had the third instalment of the medium-term financial strategy. My right hon. and learned Friend the Chancellor of the Exchequer feels obliged to stick to the targets set for the public sector borrowing requirement for 1982–83 of about £9 billion. Indeed, he has added £500 million—which is welcome—making it £9·5 billion in all. I am sure that such flexibility has existed in the Treasury ever since my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) went there.
  I am doubtful about the extent to which my right hon. and learned Friend the Chancellor should be obliged to stick to that target. That is my main argument with my right hon. and learned Friend and the Budget. The markets would not have taken fright if my right hon. and learned Friend had gone for a public sector borrowing requirement of £1 billion or £1·5 billion more than he has gone for. If he had settled for that, he would have made a much greater impact on the problems that he addressed in his Budget Statement.
  After all, my right hon. and learned Friend the Chancellor is settling for a higher public sector borrowing target in 1983–84 than was set out last year in the medium-term financial strategy. Last year, we were told that the public sector borrowing requirement target for 1983–84 would be 2 per cent. of gross domestic product. It has climbed nimbly up to 2¾ per cent. of gross domestic product in the latest Red Book. It may be that 1983–84 is of some significance. I confidently expect that the PSBR for that year will turn out to be a little larger. But if there
  1030
  is no risk to interest rates or the exchange rate with a higher PSBR than was forecast in the medium-term financial strategy for 1983–84, why do we suppose that there would be a risk this year with a PSBR £1 billion or £1½ billion higher than was suggested in the Red Book last year? I find it extremely difficult to fathom the reasoning behind that.
  Just as we have gone for a slightly higher PSBR target for the year after next than was established in the medium-term financial strategy, as my hon. Friend the Member for Enfield, North (Mr. Eggar) and my right hon. Friend the Member for Worthing (Mr. Higgins) have said, we have changed the monetary targets slightly both for the coming year and for the year after that. I do not for one moment assume that that means that the Treasury believe that in the next couple of years the rate of inflation will rise. I believe that it has more to do with the fact that the Treasury expects a mild recovery in the next year or two and that it believes that there should be more money in the economy to sustain it—that is what in the Middle Ages used to be known as reflation. However, I welcome it. It suggests that we have perhaps travelled rather further intellectually during the past year or so than some of us had supposed. I confidently await the use of the word "demand" from the Front Bench by about this time next year. I believe that politics is creeping slowly and haltingly back into the picture. We should offer up a small prayer of gratitude for that—especially those of us who, unlike some of my more austere hon. Friends, are seeking reelection.
  Within the constraints that the Chancellor has established for himself, constraints that I have argued are £1 billion or £1½ billion too tight, it would be churlish, as my hon. Friend the Member for Leek (Mr. Knox) said yesterday, not to congratulate the Chancellor on doing more or less the right things with the limited amount of money that he has decided is available. I especially believe that concentrating on industry the limited extra help that the Chancellor believes exists to help cut its costs and to restore its competitiveness, is entirely the right priority. Ever since I was first elected, I have argued for a cut in the lamentable national insurance surcharge. I hope that before I depart, whenever that may be, the national insurance surcharge will have been abolished. Bearing in mind how small the cost of the Chancellor's cut has turned out to be, because of wholly justifiable decisions to claw back from the public sector, I would have liked him to do more. I hope that in due course, especially if there is no pay explosion of the type to which my right hon. Friend the Member for Worthing alluded, the Chancellor will move towards abolition of the surcharge.
  My right hon. and learned Friend's measures to help the construction industry, to help with energy costs and to help small businesses should produce modest but benign results.
  I am sure that it was absolutely right to concentrate the help that the Chancellor thought that he could give the individual on increasing Rooker-Wise by an extra couple of per cent. rather than by cutting the standard rate. I only wish that he had been able to increase Rooker-Wise by 5 per cent. rather than by 2 per cent. If he had done so, he would have coped with the whole raft of problems that has built up over the past year or so and taken many more people out of tax altogether. I am also extremely grateful to the Treasury for the decision to make good the 2 per

  1031
  cent. shortfall in unemployment benefit and supplementary benefit. In retrospect, it is perhaps surprising that we ever considered not doing so.
  If I may be forgiven for adding ashes to the champagne, I must say that I am still concerned about the decision to change the basis upon which supplementary benefit is operated. I might not feel so concerned if I thought that the Government would be as committed to the scheme if the figures were the other way round—if housing costs were not increasing quite so much as the retail price index. Perhaps I could have a categorical assurance about that it would make a difference.
  A more substantial point was raised by my hon. Friend the Member for Chippenham (Mr. Needham) yesterday concerning the cut in unemployment benefit about a year ago by 5 per cent. in lieu of tax. It is clear that when unemployment benefit is again taxable, we should restore that 5 per cent. cut. That was implicit in all the arguments in favour of—
  Mr. Straw: It was explicit.
  Mr. Patten: It was explicit only in the sense of the usual coda that resources must be there to allow it to happen. I think that it was in Standing Committee, but the hon. Gentleman has bowled so well this week that I do not wish to tangle with him. He would probably knock out my middle stump if I allowed him to intervene for one moment.
  There is no justification for failing to do as much as possible to help the large number of unemployed, most of whom are not in any way responsible for the sad position in which they now find themselves. Unemployment is the most serious and pressing social, economic and political question that we face. It may be that the Conservative Party has been right to make a value judgment, that it is in Britain's best interest to produce less more efficiently rather than to produce more less efficiently.
  It is equally important to our success that we extend as rapidly as we can the efficient productive part of the economy. Until we do, we shall suffer from an appallingly high level of unemployment. That is why the Chancellor was right to announce his £150 million package for the community work scheme for the long-term unemployed. That was a small and rather inadequate start. I look forward to the Chancellor and the Secretary of State for Employment returning to the House later in the year to announce a more substantial set of measures to help the long-term unemployed than was announced rather briefly at the beginning of the Budget Statement.
  My right hon. and learned Friend paid a gracious memorial tribute to Lord Butler at the beginning of his Budget Statement. He did not mention—possibly this would be asking too much—that Lord Butler would have regarded himself—he virtually said as much in "The Art of the Possible"—as a cautious, sensible Keynesian. Lord Butler once said that he who talks about creating pools of unemployment should be thrown in and asked to swim. More recently, writing about Burke and the concepts of legitmate expectations, he said that in advanced industrial democracies, and certainly in this country, people had a legitimate expectation of a job.
  Our generation of politicians will be, and should be, judged on how successfully we can tackle the problem of unemployment without unleashing inflation. I do not believe that the Budget will make unemployment worse.
  1032
  The increase to which others have referred would have taken place anyway. However, I do not believe that the Budget will make unemployment much better. The Budget could have alleviated the unemployment problem rather more if the Chancellor had gone a little further. I still believe that the Budget could be the basis for a more serious attack on unemployment if the Chancellor and the Secretary of State for Employment do more later in the year.
  To that extent, my judgment of the Budget, for what it is worth—I do not want it to sound too much like one of Lord Butler's notorious compliments—would be that it is not only the most recent of the Chancellor's Budgets, but also just about his best.
  8 pm
  Mr. William Hamilton: The hon. Member for Bath (Mr. Patten) brings a refreshing agnosticism to our debates. I am not sure whether he is in the process of drying out or whether he is still suffering from rising damp. He expressed views which have been fairly commonly expressed by Conservative Members about the Budget in general—it is all right as far as it goes, but it does not go far enough. That was the gist of what he said.
  For the Opposition, and for me, the acid test of the Budget was contained in the hon. Gentleman's latter remarks about how far it will make a significant and early impact on the scale of unemployment. The right hon, Member for Chesham and Amersham (Sir I. Gilmour) made precisely that point. He, too, expressed the view which I am bound to say is the consensus in the country and in the House—that, despite the Budget, unemployment will continue to rise in the foreseeable future. It may be slowed a little by the measures in the Budget, but little more than that can be said.
  The right hon. Gentleman said—I hope that I do not misquote him—that the Government seemed resigned to living with high rates of unemployment, and indeed that is true. I go further. I believe that the very high and rising rate of unemployment today, with the accompanying hunger, fear and poverty that it causes, is the scourge of discipline to be imposed upon the work force in the next few years. Indeed, Ministers are on record as saying that civil servants and others will receive no wage increase which even measures up to the rate of inflation because there are 10 people looking for every job that they now occupy.
  The Chancellor of the Exchequer claimed that this was a Budget for industry, for jobs, for people and for economic recovery. I suppose that the general view is that the £640 million to be given back to industry through the national insurance surcharge concession will be of some limited benefit, but it is as well to remember that that will be partly offset, especially in rural areas, by the increases in duty on petrol and derv. That is why Scottish Tory Members are so concerned about those proposals, and the same applies to other parts of the country where people rely on transport of all kinds more than they do in the cities.
  The public sector, however, will not benefit from that concession, although the nationalised industries are large providers of jobs both directly and indirectly. This is just one example of a perverse decision based upon political

  1033
  prejudice on the part of the Government. They do not like nationalised industries, so they intend to penalise them in this way to no good purpose.
  The building industry may be a little happier, but it is currently in the depths of despair. The White Paper on public expenditure to 1984–85 indicates a very substantial cut in housing investment—from £3,320 million in 1981–82 to £2,860 million in 1984–85—and the Scottish figures show a 20 per cent. reduction in housing provision in the same period.
  The help for small businesses, too, is welcome as far as it goes, but it must be seen in the context of what has happened to small businesses over the past three years. Among Scottish businesses, small and large, there were 331 bankruptcies in the past two years—that is more than three per week throughout 1980 and 1981.
  I suppose that every job created by a small firm is acceptable. There is the exciting proposition—I must say that, when the Chancellor read this out, I could not believe it—that school leavers are to be helped to set up their own companies. One can imagine the teenagers of Fife, Glasgow and Liverpool dancing in the streets at the prospect of setting up their own businesses—the dashing young entrepreneurs of Margaret and Geoffrey—but, even if thousands of school leavers set up their own businesses, it is highly unlikely that they will employ many additional workers for a considerable period.
  That just about sums up the total effect of the Budget proposals for jobs. There will be little, if any, reduction in the present monstrous scale of unemployment before the next general election. That must be a great worry to every Conservative Member with a majority of under 10,000.
  The social, political and economic cost of such a colossal and criminal waste of human assets is almost impossible to quantify. The research staff of the House of Commons Library have produced a paper on the cost of unemployment. Anyone who has had dealings with them knows how impeccable and comprehensive their research is. It is very objective, very fair and very full. They have produced the various estimates that have been given of the overall cost of unemployment in terms of tax loss, national insurance contributions not paid, indirect taxes, benefits of all kinds paid out, administrative costs and the rest. I shall quote some of the figures contained in that document.
  The Treasury estimate for 1981–82 was that, for every 100,000 on the dole, the cost was £835 million, the Manpower Services Commission estimate was £735 million—it depends how the calculation is made—and the Institute of Fiscal Studies estimate was £839 million. Taking the median, that means that the cost is about £800 million for every 100,000 on the dole.
  The Library document recalls that on 18 February this year The Times carried a report that an updated version of the Treasury's own economic progress report had been prepared but that it had been decided not to publish it. The reason is not far to seek. The February 1981 estimated cost for 100,000 on the dole was £340 million—or £3,400 per person signing on the dole. It is reported that the 1982 estimate is that in 1981–82 an extra 100,000 on the dole would cost £500 million, although we do not know because the Government have decided not to publish. That works out at £5,000 per person, or £96 every week. That is the financial cost of the dole.
  1034
  Of course, the cost in terms of human misery, deprivation and loss of personal dignity is incalculable. Such things cannot be measured. In that context the Budget showed little more than a remote recognition of the enormity of the criminal waste and the social obscenity of this problem. On the contrary, the unemployed are to be made to suffer further injustices and penalties. The point has been made on both sides that unemployment benefit was cut by 5 per cent. on the assumption that it would be taxed anyway. That 5 per cent. has never been restored. There has not been a promise yet, and I bet that we shall not get one, that it will be restored. So, in addition to people being put on the dole, they are being clobbered financially. As the Tory Bow Group said, if the Government do not restore the 5 per cent. they will be regarded as cheats. That is precisely what they are. They are cheating the unemployed, who are already suffering more than most.
  As for the tax position, I wish to refer to the mess into which the Chief Secretary to the Treasury got last night. He was in considerable difficulty. The right hon. and learned Member for Cleveland and Whitby (Mr. Brittan), who has great intellect and ability, is one of the rising stars of the Tory Party. I want to quote precisely what he said:
  "If one looks at the impact on the individual, the net effect"—
  he was talking about the overall effect of the Budget—
  "including national insurance contributions, is beneficial…"
  The implication was that the effect would be beneficial for every individual. There was immediate consternation on the Government Front Bench. The clanger became apparent. The Financial Secretary to the Treasury was acting as the runner to the box where the advisers are to get the facts and figures. He came back, but did not venture to the aid of his colleague who was in distress. When the Financial Secretary wound up the debate he said, referring to the brick dropped by the right hon. and learned Member for Cleveland and Whitby, that the figures
  "did not mislead the House in any respect."—[Official Report, 10 March 1982; Vol. 19, c. 883–935.]
  I see the Economic Secretary to the Treasury, who is to reply to the debate, nodding agreement. So he is agreeing that the right hon. and learned Member for Cleveland and Whitby said that all individuals will benefit from the tax proposals in the Budget.
  The Financial Secretary then went on at length to contradict the very figures which came from the Treasury, which were published on Tuesday evening and which were quoted by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). Those figures indisputably show that, in all cases, not until incomes reach £15,000 to £20,000 does the percentage of total income taken in tax and national insurance contributions become less than it was before the Budget.
  In exchanges this afternoon the Chancellor of the Exchequer re-emphasised what the Financial Secretary sought to prove last night—that the figures emanating from the Treasury are not worth the paper they are written on if they have to be so qualified. The implication was that we should not believe the Treasury figures. If those figures are so meaningless and so conditional on all kinds of imponderables in the future, why publish them at all? There must be a large element of truth in them, or they would not be published. I suspect that my hon. Friend the Member for Blackburn (Mr. Straw) will be dealing with

  1035
  this in some detail when he speaks. It behoves the Economic Secretary to the Treasury to reply more satisfactorily on this point tonight.
  If one examines the other tax changes, one finds that the wealthy are to keep more of their capital gains and more of their earned income. They will have greater opportunities to invest in inflation-proof bonds and stocks, whereas the poor will pay more and have their social services provision at both local and national level reduced, whether it he housing, education, health or whatever. My hon. Friend the Member for St. Pancras, North (Mr. Stallard) is interested in the death grant, which is worth a fraction of what it was when it was introduced. This hits hardest the poorest sections of the community.
  Differences in treatment are shown up sharply by the way in which the Government have treated Civil List annuitants and nurses. I raised this with the Prime Minister this afternoon. A staff nurse, a key figure in any hospital, experienced and mature, has a maximum basic pay of £5,426. She is being offered 6 per cent., which means a massive reduction in her standard of living, by this Government. Every other nurse in the country will be treated in the same manner and will suffer a swingeing reduction in standard of living. At the same time, the Civil List figures were produced. The payment to Princess Anne is to go up from £100,000 to £106,500 per annum and Princess Margaret's payment will go up from £98,000 to £104,500, so that they will both receive an increase of £6,500. In other words, these ladies will get a bigger increase this year than a staff nurse gets as a total annual salary. If I wanted to underline that further, I could go on for a long time, but the language I should be tempted to use would be out of order.
  To underline the point, in Scotland, and no doubt elsewhere, the nursing levels in geriatric and psychiatric hospitals are unsatisfactory. A Confederation of Health Service Employees official in Dundee has quoted the gross understaffing of hospitals except by unskilled staff. In the 237-bed Cowglen hospital in Glasgow, 78 per cent. of the staff are untrained; at the Birkwood psychiatric hospital in Lesmahagow in Lanarkshire, 75 per cent. of the nursing staff are untrained; in the Royal Dundee Liff hospital 39 per cent. of the nursing staff are untrained. Every night it is not uncommon throughout the country for one trained nurse to be in charge of several wards at the same time.
  That is the kind of deprivation that ordinary people are suffering. When the Chancellor doles out concessions to the very wealthy, the very privileged, that is what politics in the House and the country are about—how we distribute the country's wealth, in terms not only of wages and salaries but of social provision, in education, housing, health and so on. On those tests and the provision of jobs for our people, this Budget must stand condemned as irrelevant to the problems that we now face.
  8.20 pm
  Mr. Peter Hordern: My right hon. and learned Friend the Chancellor of the Exchequer has had a good reception for his Budget, and he thoroughly deserves it. That reception is heightened by the improbabilities of the proposals of the right hon. Member for Stepney and Poplar (Mr. Shore). I understand that the right hon. Gentleman is urging the Government to spend £9 billion more, apart from other measures, which include
  1036
  the reimposition of exchange controls and something that I heard described today as a national assessment of incomes. It has been called various things in the past.
  I do not know whether the right hon. Gentleman has ever spelt out the proposal thoroughly, nor do I think that he is in a position to do so. I cannot believe that he could possibly have the irresponsibility to urge the Government to spend another £9 billion without having some restraint upon incomes. It is time for the House and the country to hear what the right hon. Gentleman's incomes policy plans are and just how they will be carried out. As it is, we have what might be termed an understanding about an understanding which is to be reached with the trade unions—not a social contract, but just an understanding about an understanding.
  The right hon. Gentleman is not alone in wanting to have some sort of pay policy in exchange for rather more money being introduced into the economy. My right hon . Friend the Member for Chesham and Amersham (Sir I. Gilmour) referred today to the Layard proposals. I thought that my hon. Friend the Member for Bath (Mr. Patten) also referred in positive terms to pay policy. He did not disguise the term but said "pay policy". That is a valid view, but the pay and demand policies of successive Governments over the past 15 years can now be properly assessed.
  In a most interesting letter to The Times on Monday, my right hon. Friend referred to, amongst other things, the increase in costs when we last had a Conservative Government. He said that only one thing had gone wrong, and that was that the threshold agreement produced by the last Conservative Government had been upset by the increase in the price of oil, and this had meant that wages went up much faster afterwards. I had almost forgotten about the threshold agreement, but my right hon. Friend's letter reminded me of the time and the circumstances of what was then called pay policy. I refer to the subsidies given to the nationalised industries to try to keep costs down. In order to try to keep costs down, there were shifts of every sort, which were eventually upset by the threshold being breached.
  I am sorry that my right hon. Friend is not here. I do not think that his analysis of the way in which prices go up can be sustained, if he thinks that increases in costs are the only way in which inflation can happen.
  Mr. Chris Patten rose—
  Mr. Hordern: If I may finish dealing with this point., I shall be happy to give way to my hon. Friend. I am happy to ask him this question, since my right hon. Friend is no here. If higher costs are the reason for increased inflation, how was it that the property boom of 1972–73 took place? Was it really occasioned by a large increase in the costs, of construction companies?
  Mr. Patten: I do not believe for one moment that pay policy can be anything other than a complement to a responsible fiscal and monetary policy. The point that I wanted to put to my hon. Friend, whose arguments in these debates we all take particularly seriously, is as follows. Given the tendency of the pay bargaining system over the past few years consistently to extract a quart from a pint pot, is my hon. Friend saying that the only way in which we can deal with that is by having unemployment at the

  1037
  sort of levels that we are experiencing now, or is there another method for dealing with it, such as West Germany and other countries use?
  Mr. Hordern: I shall be happy to deal with that point, and I intend to do so during my speech. I regret to say that I think that the carrying out of successive pay policies has been responsible for the high level of unemployment of today and the growing level over many years. In the last year of the previous Government, earnings in manufacturing industries increased by about 18 per cent., and after the winter of discontent that Government's pay policy totally collapsed.
  The figures that I am about to give are the increases in public sector wages that Professor Clegg awarded as a result of the total breakdown of the Labour Government's pay policy. In 1980–81 National Health Service wage costs increased by 31 per cent.; teachers by 27 per cent.; universities by 20 per cent.; and the Civil Service by 23 per cent. There is no way in which the private sector can finance such increases, which were the logical outcome of a long period of wages policy and starry-eyed demand policies of injecting fresh funds into the economy, which successive Governments tried over a long period and which failed.
  I am happy to congratulate my right hon. and hon. Friends on having eschewed those policies. We are now seeing results, in that there are now much lower wage increases in the private sector, and wage costs per unit of output, which are the best test, have declined in three out of the past seven months, something that has not happened since the figures were first kept.
  I believe that present levels of unemployment would have been reached in any case, whatever amount of money had been put into the economy. It would have had only a marginal and temporary affect. Furthermore, unemployment ultimately, would have been made much worse, as has been proved by the figures.
  Mr. Straw: Of course, the figures that the hon. Gentleman gives about recent wage settlements are correct, but this is at a time of great fear of unemployment. That is what is holding down wages. Is the hon. Gentleman saying that he cannot foresee unemployment coming down? If he is not, what does he think will happen to wages when it comes down and the fear is removed?
  Mr. Hordern: I think that unemployment will start to come down, because there is much greater productivity, as the hon. Gentleman knows very well, and the level of exports has been very satisfactory and I think will remain satisfactory. There is much more realism in manufacturing industry. If—I admit that it is a big "if"—public sector costs and wages can be controlled and kept to roughly 4 per cent. within the next year or two, there is a real chance that we can achieve much fuller employment than there is now, with the economy moving forward much faster.
  I shall not take up time talking about the size of the public sector borrowing requirement, save only that I think that it is about right. However, I want to say one thing about the method of financing the borrowing which the Government have now chosen. This is a very important and significant matter. I refer to the index-linked gilt.
  An index-linked gilt to last for 29 years is to be issued. I ask the House to recall what has happened during the past
  1038
  29 years. In that period there has been a major advance in the National Health Service. We have more than doubled the number of people who work in it. There were just over 500,000 20 years ago, and there are now 1·2 million. Standards in our schools have improved considerably. In the past 20 years we have had the Robbins report on higher education. We hope and believe that all those who pass sufficient examinations will be able to go to universities. We have built eight new universities in that time. We now have index-linked pensions for civil servants, and the Scott report has suggested that there should be index-linked pensions for all. Now we have an index-linked bond, the interest charge on which will have to be paid by the taxpayer as well.
  These are large, open-ended commitments. I hope that the Treasury Bench has thought them through properly. There is a large potential commitment here which will not easily be met. I do not think we can continue to believe that we can improve our social conditions, improve our health services and our social services and pay for them by means of an index-linked gilt which is a long running open cheque which will have to be met by future Governments and future taxpayers and not by this one alone.
  I should have liked to see in the Budget a proposal to allow early retirement for those who have been out of work for over a year. I understand that had that been the case it would have cost £130 million. There is a distinct difference between allowing somebody to retire early and to be eligible for the retirement pension rather than going on the the long-term supplementary benefit which, of course, is a means-tested benefit. Anyone retiring early should have the dignity of being eligible for a retirement pension and to be able to work without losing that retirement pension. I remind my right hon. and hon. Friends that one of the few specific pledges in our election manifesto was to abolish the earnings rule, and it is time that that was carried through.
  Finally, I should like to see a further significant shift in employees' shareholding possibilities. I welcome the increase from £1,000 to £1,250, being the amount the companies can give to employees, but there is a major opportunity which our party and the Government should grasp before very long.
  There have been substantial increases in share ownership in the United States, and the wage bargains that have been reached in the Ford settlements in the United States, and in Europe as well, demonstrate that there is a much closer connection between the interests of employees and employers in other countries. We should do everything we can to foster this. We have made a notable advance in the last five years in allowing council tenants to purchase their houses at a substantial discount. The next step in what was called many years ago a property-owning democracy should be to allow employees as a right to buy shares in the company in which they work. They should have tax concessions along the lines of the Loi Monory, whereby they could offset any expenditure in buying shares in their company against their income before tax. That, added to the increase in the amount which companies may now give to buy shares in their company, could form part—and a very significant part—of the next step towards a property-owning democracy.
  We shall not secure a united people or realise the concept of one nation by pouring money into the economy

  1039
  or by preaching about it. We shall do so only if it is clear to people working today that they are not simply working for their firm but that their firm is working for them for the very good reason that it belongs to them, at least in part. It is bound to take time, but we cannot expect young people now growing up to bear the heavy burden we are placing upon them without allowing them to share the risks and reap the rewards of the enterprises in which they work.
  8.34 pm
  Mr. Austin Mitchell: What we have been dealing with today, yesterday and Tuesday is not so much the Budget as a "fudge-it" because, with the typical skill of a barrister defending a bad brief, the Chancellor of the Exchequer has fudged most of the major issues. Specifically, the vital need at this moment to expand the economy has been fudged. He has concentrated on what amounts to no more than conjuring tricks in giving this year what should have been given last year, in taking back in direct taxes what he has given out in national insurance contribution cuts. He has concentrated on furniture moving. It is important, given this situation of fudging the issues, to get the basic realities of the Budget absolutely clear. This Government have shown a real mastery of fudging the issues. We have a Prime Minister who has a considerable flair for putting what she does not understand in language everybody can follow. We have a Chancellor of the Exchequer who has a lawyer's tenacity for never raising his eyes above his brief, certainly not to look at the real world around him. If he looked at the real world and specifically at industry, that experience would be too painful. He therefore chooses to plod on unperturbed. Because of his furniture moving, the right hon. and learned Gentleman has concealed the real issues. I repeat what those issues are. First, the Budget increases taxation. Yesterday the Chief Secretary made a mistake. He should have admitted straight away that it was a mistake to say that individuals were better off.
  Table 9 in the documents related to the Budget demonstrates that both single people and married couples who earn up to £15,000 a year pay a higher percentage of their total income in tax and national insurance contributions after the Budget than before.
  Secondly, the Budget is deflationary. At best it is a standstill Budget, but essentially, because of the cuts of 2 per cent. in the cash limits, which make no real margin for inflation, the net effect will be deflationary. That is happening when a massive boost is necessary for the economy.
  Thirdly, the Budget does nothing about Britain's problem of unemployment. The planning assumptions on which the Budget is based are a rise of 300,000 in unemployment. There is nothing in the Budget to stop that becoming the reality that it will become over the next few months.
  We have heard a great deal of and from the Tory "wets". I am sure that if the wets did not exist, the press and the media would have to invent them. We have heard a great deal about the wets' packages for an expansion of £2 billion, £3 billion or nearest offer and £5 billion. They have talked of the need to open a parachute before hitting the ground. I must say to those in the Tory party who have been arguing along those lines that it is no use airing their agony in the Chamber, in the press and on television and
  1040
  then doing nothing about it, because everything now depends not so much on us but on them and on their decisions about the Budget.
  For three years the Opposition have been warning until we have gone red in the face about the economic consequences of the Government's policies. We have warned that deflation is not a cure for inflation. The Government are aiming for a massive deflation. That is a waste of resources. We have warned about the consequences of lost production. There has been a bigger fall in industrial production than in 1929 and 1931. We have warned about the rise of unemployment which is now between 4 and 5 million if one takes into account the people who want to work, but are not registered for work, the people on schemes and others who are not included in the figures.
  Some members of the Government hate their fellow countrymen. The Prime Minister must have a great dislike of her fellow countrymen if she vents such anger on them. However, it is not good economics to ruin the country's industry in order to punish the nation's working people for assumed sins.
  It becomes wearisome for the Opposition to repeat the same obvious point time after time and year after year, when no notice is taken. We have warned the Government for three years. The wets alone have the chance to change some of the disastrous proposals in the Budget.
  In another crisis in the 1940s, the Labour Party was asked to speak for England. Now the wets have a chance to speak for British industry and for the country, which has been ruined by the Government's economic policies. They have the chance to put their courage to the test and to change the Budget and its effects on British industry instead of moaning, making clever speeches in the House and airing their agony on television. If their courage fails them and if they equivocate, as the right hon. Member for Chesham and Amersham certainly did in the Chamber this afternoon, in the face of the Budget and this continuous disastrous deflation, they are failing their country and are showing themselves to be not only gutless and witless but certainly wetless as well.
  The policies being followed by the Government are essentially crude deflation dressed up in the trappings of monetarism. I am a little confused about what these trappings are; something called Mo has entered the Red Book as a monetary-based wide definition of money supply, a sort of cocktail definition. The Government's essential weapon has been, and still is, deflation through the exchange rate. Whereas other countries have had export-led growth, we are now having and have been having over the past few years, import-led contraction. We have seen industry squeezed through interest rates and the exchange rate; exports are effectively taxed by an overvalued exchange rate and imports into this market are subsidised by the same overvalued exchange rate. All that deflation has been engendered essentially as a substitute for incomes policy, to break the negotiating power of trade unions, to make people so frightened for their jobs that they dare not press for wage increases. That is the only logical and conceivable reason behind it.
  The policy is working; settlements are down. All hosannas to the great successes already secured, but let us consider at what cost it has been secured—the rise in unemployment, the laying waste of Britain's industrial future and the laying waste of jobs that will never return. We must by now have lost about one job in five in British

  1041
  industry over the past three years. That comes at the end of a loss approaching 3 million jobs in British industry over the past 15 years. That devastation of industry has occurred in no other advanced industrial country and bodes ill. It will be disastrous when the oil runs out. What are we then to survive on, and what augury will there be for the future?
  When such a policy starts, there is no use hoping for relief and that things will pick up naturally. The logic of this policy is that the Government cannot raise the lid; they dare not, because if this is their only weapon against inflation, as soon as the pressures are eased, inflation automatically picks up. The Government have essentially committed themselves to keeping the pound up with interest rates, which means that industry will be further squeezed.
  The Government are also committed to increasing the burden of taxation. Whether disguised as increases in rates, cuts in Government contributions, increases in nationalised industry charges or taxation, it is an increasing burden to pay for the massive burden of unemployment. The total cost of that must be about £13 billion at the moment and it is pressing on a diminishing productive base. What future is there for the country in that?
  The hon. Member for Gateshead, West (Mr. Horam) complained that industry had to pay the costs of wage increases in the National Health Service. How then can industry bear the costs of this massive unemployment at the same time? If it grumbles at those costs, what are the costs of nearly 4 million unemployed pressing down on industry?
  The waste is harmful and the symptoms of recovery unreal because the increase in productivity that is so much talked about comes essentially because firms with more than one plant are simply closing some of them and concentrating production on the most efficient. That produces an increase in productivity in the figures, but no real increase because other resources are simply laid waste. That is happening at a time when other countries are still investing and growing.
  Everything in British industry is now being jettisoned for sheer survival. Research, design, product development and all the other non-price factors in which we have been so weak in Britain are being cut because of the simple need to keep going and to keep a market share to survive. That process is finite; it can only go on for so long. A comparison is the great trees that seemed to survive the drought in 1976. Everybody said that the trees were not affected, but after two or three years the great trees came crashing down. That is what will happen to British industry if it is made to go on running in this sort of fashion with no profits, investment, research, design or development because everything has been cut back. One has only to consider the features in the Financial Times about how firms are surviving the depression to appreciate that that is exactly what is happening to British industry.
  Is this society, which is divided and embittered by the rise in unemployment, by the savage depression and by the lack of any hope injected by the Government—it is presided over by a litany of prime ministerial blame—the new Britain that we were offered from 1979 onwards? The Prime Minister has been forecasting recovery for months.
  1042
  Every month there is, according to the Prime Minister, an indication that things are on the upturn. There have been so many forecasts of recovery. I shall quote a few—
  Sir William Clark: The hon. Gentleman is much better when he is reading.
  Mr. Mitchell: The quotes are as follows:
  "Any lack of confidence in … the basic strength of business is foolish."
  Secondly,
  "Business and industry have turned the corner."
  Thirdly,
  "We have now passed the worst."
  Fourthly,
  "Courage and resource are already swinging us back on the road to recovery."
  Those were President Hoover's predictions from 1929 to 1930. He used the same language that the Prime Minister is using today. The same policies are being pursued now as in the 1920s. When the Chancellor wants to cut the wages of young people he says what was said to the miners in 1926 when, like today, there was an over-valued exchange rate. He is saying, in effect, "Take an hour on the day and a penny off the pay". That is what people are being asked to do now. The same economics are presiding over this Government as failed so disastrously in the 1920s. It is as if Keynes had never been and as if we had not learnt the lessons of the 1930s.
  It seems that the Conservative Government have not even learnt the lessons that were learnt by the National Government of 1931, who devalued the pound by 35 per cent., imposed a 10 per cent. tariff, brought unemployment down in seven years by over 1 million and increased production from 1929 to 1937 by 38 per cent. Those were the achievements of the National Government, who had the sense to learn from the adverse situation that they faced. The present Government are concentrating on making the situation worse.
  We can make a similar escape from the deflationary trap. We must insulate our economy so that we can rebuild British industry. We must insulate it by means of the exchange rate. Within an insulated economy we must expand. It is a fairly simple and straightforward process. The Prime Minister seems to believe that reflation is inflation, but reflation is expansion of the economy, and that is the only way in which we can provide a future for the economy.
  New industries will not be created in a declining economy. People do not invest in decline. They need a prospect of profit and a future that encourages investment and growth. If we are to transfer skills, people and resources to expanding industries, we need expansion. If we are to separate ourselves from industries that are not viable, we need growth and expansion. In that way resources will be lured by the market mechanism to the industries that are expanding. That is what must happen.
  I must confess that when the Government took office I did not believe what others said would happen. I did not believe that the Government could mean what they were saying and that they intended to do it. I thought at first, with a naive faith in the processes of education, that eventually they would learn economic sense. Many of us thought "They will learn. They cannot go on."
  After two years I thought that sheer electoral survival would force even the most obtuse and loud-mouthed to learn. I thought that they would get cold feet when faced with that necessity. The hon. Member for Bath talked

  1043
  about the desire of Conservative Members to retain their seats. I now realise that neither the learning process nor electoral survival applies. The Government are still persevering and they must, therefore, mean what they say. They must believe in their policies despite the Gadarene rush to destruction. The inconceivable is actually true.
  The Government's future has gone. By persevering they have finished themselves. We are left with the need to consider the future and unity of the United Kingdom, and the growth and development of industry on which that will depend. We must turn our attention to future jobs for our children and our survival when oil begins to run down and, eventually, to run out. All that depends on industry, and it is industry that has been ruined. It is industry that bears the burden of public spending. It is the source of finance for public spending and, as I have said, it is being ruined.
  Without industry how do we survive? If there is no reconstruction, what will happen to us when the oil runs out? The Government have embarked on the irresponsible selling off of the nation's resources in a form of gambler's progress. They are providing give-away bargains for their friends and speculators. National assets and resources are being wastefully disposed of to keep this incompetent Government going. What happens when all our assets and resources have been depleted?
  To see this, the once proud party of patriotism that was supposed to be proud of the country and that carried the Union Jack on its election tables, now running the country, ruining its industry and then blaming the people for what has happened, putting the burden of sacrifice on those people and reducing this country to the offshore social security scrounger of Europe, a kind, plangent periphery, begging money from Europe, is no longer to be able to make jokes about the Prime Minister or about Geoffrey fiddling while Terry Burns but to see unfolding before our eyes a national tragedy.
  8.50 pm
  Mr. Bob Dunn: My right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), in a thoroughly characteristic and interesting speech, said that if there was ever a time for the economy to be rejuvenated or reheated, it was now and that we had the capacity and the men. I would deny neither of those statements, but if we are talking about gearing the economy to the needs of the 1990s and on to the year 2000 it must be argued that the capacity that we have is not always of the right type in the right industries, and that the men and women that we have are not always trained to take up the jobs in industry.
  I welcome the new training initiative announced early this year by my right hon. Friend the Secretary of State for Employment. It will give people the chance to become equipped with the skills that the needs of the new industries will require them to have. For those who do not wish to take part in the new training initiative I welcome the announcement in the Budget of what I might term "the community task forces". It will enable those who are unemployed to help in their community by painting hospitals and clearing up towns and derelict sites, and to have the rhythm of regular work.
  However, my right hon. Friend the Member for Chesham and Amersham did not mention where the money for his proposals would come from. If one were to accept that the economy could be reheated, it must also be
  1044
  accepted that it might be heated in an uncontrolled fashion, with uncertain results. It might also have the effect of sucking in imports and might discourage investment of the right sort in the right industries, which would have a severe effect on interest rates and, ultimately, on inflation and the preservation of jobs.
  On Tuesday the Chancellor devoted part of his speech to the needs of the construction industry and the creation of jobs therein. In my constituency almost two thirds of houses are owner-occupied. As a result of the right-to-buy legislation some 600 council tenants have acquired their homes since spring 1980. I am sure that most local authorities will be delighted with the news that for the year 1982–83 local authorities will be permitted to spend up to £3 billion on housing, and that £1 billion of that total will be contributed from receipts from council house sales to sitting tenants. As this amounts to an increase of over 30 per cent. in the scale of capital expenditure for 1982–83, compared to the expenditure envisaged in 1981–82, it is a most welcome announcement.
  Many houses in South-East London and south Kent were built in a number of waves, or rather like a layer cake. It is easy to observe on the different phases of urban development, stretching from the 1880s through the early years of this century on to the massive inter-war developments of the 1920s and 1930s. Much work has been done on the smaller houses by enterprising, young and newly married Dartfordians to improve and modernise houses that are 70 years old and more. People who are now embarking, or about to embark, on modernisation will be pleased to know about, and will be satisfied with the increase in the value of grants for major repairs and the provision of basic amenities. The news that improvement grants will until the end of 1982 be increased from 75 to 90 per cent. of the eligible cost will be welcomed by my constituents.
  The third item of good news to my constituents is the Chancellor's decision to raise the thresholds of eligibility for stamp duty from £20,000 to £25,000, and other thresholds accordingly. I long for the day when a Conservative Chancellor will announce the abolition of stamp duty, but in contemplation of the options available to my right hon. and learned Friend in this Budget I remain reluctantly content to wait yet a while.
  This movement in thresholds will be welcome because it aids those who are about to become part of the property owning democracy. It will create work in the construction and allied industries, and it will encourage a movement towards home ownership. My right hon. and learned Friend the Chancellor said in his speech:
  "By the end of this Parliament nearly three out of every five families will own their own homes. This will represent a significant extension of the property-owning democracy. Taken together, these proposals will mean more work for the construction industry, and more jobs for those who work in it".—[Official Report, 9 March 1982; Vol. 19, c. 751.]
  On a wider note, I endorse entirely the action taken by my right hon. and learned Friend to reduce the national insurance surcharge. This surcharge is a tax on employment, as the Treasury Bench will acknowledge. The movement downwards by this Government contrasts largely and beneficially with the Labour Government's movements upwards. This action and the action taken to assist high industrial energy consumers is most welcome. Equally, the Budget is significant for the help that it gives to people, as well as for the help that it gives to industry. I welcome and endorse it completely.
  8.55 pm
  Mr. Stephen Dorrell: Many Members speaking in the House and commentators outside have called this Budget a political Budget. I accept that description, and I do not mean it in a derogatory sense. In my view, one of the functions of a politician is to try to reconcile conflicts in society. The art of politics is the art of being the lubricant by which society resolves its own conflicts. I welcome the Budget because I see it as a political Budget. The right hon. Member for Stoke-on-Trent, South (Mr. Ashley) called it a gesture Budget. Within the terms of reference that the Chancellor gave himself he could not satisfy many people, so it is a compliment to him that within those narrow terms of reference he managed to offend so few people. The Budget has been a political Budget in the best sense of the word, and it contains important measures that should be welcomed.
  First, I welcome the passage in the Budget that deals with social security benefits and charities, although there may be disappointment about the VAT position of charities. I welcome the concession on unemployment benefit and short-term supplementary benefit. I welcome, too, the increase in the mobility allowance, and the fact that it will no longer be subject to income tax. Both those developments represent a recognition by the Government of their important function in holding society together and within the limited means that were available to the Chancellor, being seen to be doing something to respond to deep feelings both inside this House and outside.
  Secondly, I welcome the direction in which the Chancellor chose to make his main tax concessions. I suspect that I and my hon. Friend the Economic Secretary to the Treasury may be two of comparatively few Members of the House who welcomed the increase in VAT when it was introduced in June 1979, and are still happy to do so now.
  Sir William Clark: What does my hon. Friend mean by "few"?
  Mr. Dorrell: Fewer people welcome the tax increase now than did so at that time. I believed that it was right at the time, and I still believe that it was right, and I welcome the Chancellor's decision not to reduce it in this year's Budget.
  I welcome, too, my right hon. and learned Friend's concessions on personal allowances, and not on the standard rate of income tax. I want to make a point of detail in this connection. It relates to the single person's age allowance as it applies to women. There is a curious anomaly in our tax system, whereby the single woman receives her pension at the age of 60, but gets her age allowance at the age of 65. That anomaly creates considerable problems, particularly for widows between the age of 60 and 65. I hope that my hon. Friend will have another look at that point, perhaps before the Finance Bill is presented to the House.
  I welcome the reduction in the National Insurance surcharge. I spoke on that subject many times before the Budget. One surprising aspect was the reaction on the Opposition Benches when it was announced that the full benefit would be clawed back from part of the public sector. On many occasions I have argued, as have Opposition Members, the case for a distinction to be drawn between capital and current expenditure. There is an important distinction to be drawn.
  1046
  I welcome the direction in which the main tax concessions are made, and that part of the Budget which is directed towards the construction industry. The emphasis put by the Chancellor on improvement grants can make an important contribution to the construction industry and to the improvement of our housing stock. Expenditure on that part of our economy will produce a disproportionate effect on employment. Therefore, the scheme to extend improvement grants for the remainder of this year is important. However, since there are only nine months in which the scheme will be available, perhaps the Minister will ensure that it is widely publicised so that the maximum advantage will be taken of it.
  Will the Minister also explain to the House the exact status of the £100 million price tag which my right hon. and learned Friend the Chancellor attached to the scheme? Will he tell the House—if not now, later—what will happen if demand for the 90 per cent. scheme exceeds supply? Some local authorities have been unable to meet the full demand for improvement grants in recent years. If my right hon. and learned Friend the Chancellor's offer dramatically stimulates demand for improvement grants, how will the Government react?
  Finally, and here I disagree with my hon. Friend the Member for Horsham and Crawley (Mr. Hordern), I welcome the extension of the index-linked bonds as a means of financing the public sector borrowing requirement. Apparently, there is also a difference between my hon. Friend the Member for Croydon, South (Sir W. Clark) and myself. Here I agree with Sam Brittan. I find his arguments compelling. The index-linked bonds separate genuine interest payments from what are, in effect, early repayments of capital. This makes the planning of public spending simpler and clearer. Interest on index-linked bonds is genuine interest, and not a cash flow cost of early repayment due to high interest rates.
  The establishment of index-linked bonds is the most important step that the Government have taken towards the permanent establishment of sound money as a basis for running the economy. They are a guarantee to savers that the Government will repay the value that they borrow. As a believer in sound money, and in encouraging savings, I see that as an important contribution to the reestablishment of sound money. Index-linked bonds will contribute to a more sensible funding of the PSBR in future.
  Those aspects of the Budget will make an important contribution to the future development of economic policy in this country.
  I now deal with what is, in effect, the basic Budget judgment which lies at the base of my right hon. and learned Friend's Budget statement. He has stimulated the economy, at least in old-fashioned terms, by an amount which we may disagree about exactly but which is between £1 billion and £1½ billion in the current year and £2½ billion to £3 billion in a full year. I welcome that, but like my hon. Friend the Member for Bath (Mr. Patten) and my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), I would have wished him to go further.
  That judgment about the extent to which my right hon. and learned Friend could afford to stimulate the economy was based in essence on a financier's view of the PSBR. I still believe that he was looking down the wrong end of the telescope. We all agree that the PSBR is important, but I do not believe that it should be a primary determinant of the extent to which the economy should be stimulated. It

  1047
  should be a limiting factor but not a decisive one. I should prefer to see my right hon. and learned Friend the Chancellor examining much more closely than he did in his speech on Tuesday the effect of what he is doing on demand. As my hon. Friend the Member for Bath said, it would be nice to hear a Chancellor of the Exchequer once again talking directly about the effects of his actions on demand. If one examines the economy today, one finds that a deficiency of demand has caused unemployment to rise and the level of economic activity to be lower than it needs to be.
  Obviously, the key demonstration of that is the high level of unemployment from which we are now suffering. Together with most Conservative Members, I believe that nothing can be done directly to reduce dramatically the rate of unemployment before 1983–84. I put it to my hon. Friend the Economic Secretary to the Treasury that we must not think only in those terms, but, as we cannot do much about unemployment before then, we must think about how we can bring down the rate of unemployment after the next general election.
  Mr. John: After?
  Mr. Dorrell: Yes, after. Any Government that look only to the next election—as I am sure the hon. Gentleman would be the first to argue—are looking after their own political skins and not the national interest. Our job is to begin to lay the foundations for growth in the second half of the 1980s and I make no apology for asking my hon. Friend to consider that this evening. It is not unrealistic for us to expect unemployment to begin to level off and fall unless we are prepared to see a growth of a least 3 per cent. per annum. My doubt as a result of the Chancellor's statement is that I do not see a compelling urgency in that statement to expand demand sufficiently to ensure that output will rise after an election in the mid-1980s and to ensure that unemployment will begin to fall.
  I wish to make two positive suggestions to my hon. Friend about how he could begin to plan for that. First, I refer him to the provision that he has made in the public expenditure plans under the heading "contingency reserve". I believe that that now stands at £2·25 billion for 1982–83. I hope that the Government are beginning to think how that substantial sum of money can be used within their public expenditure plans to stimulate the economy and to derive the maximum benefit for both output and employment.
  Secondly, I hope that the Government will reconsider their statement on the monetary policy and will consider the stance that they should take in the immediate future on the exchange rate. It is true that the exchange rate has fallen substantially from the heights that it achieved last year and it is also true that it is subject to regular intervention now by the Bank of England. Both those developments are welcome. I refer my hon. Friend to an article in the Lloyd's Bank review of January 1982 in which it was stated that a devaluation of 10 per cent. could be expected by 1984 to produce an extra 285,000 jobs in British industry. Those 285,000 jobs are desperately needed and if we are willing now to use all the weapons not simply of money supply but of all other aspects of monetary policy, we can begin to take maximum advantage of the weapons that are at our disposal.
  This was a political Budget and I regard that as a merit and not demerit. I hope that it paves the way for recovery,
  1048
  but I hope also that the Government will make the conscious plans that are necessary to promote that recovery.
  9.10 pm
  Mr. Jack Straw: Never has there been such a conversion on the road to the Whips' Office as the one we have just witnessed by the hon. Member for Loughborough (Mr. Dorrell). He moved so far to the Right in 10 minutes that the hon. Member for Gateshead, West (Mr. Horam) has told me that should he be one of those who applies to join the SDP he will be refused. That is a testament to the way in which he has moved so far—
  Mr. Horam: For the moment, the SDP is satisfied to have the Duke of Devonshire.
  Mr. Straw: The hon. Member for Horsham and Crawley (Mr. Hordern) said that the Budget had been given a good reception. My right hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) and my hon. Friends the Members for Walsall, North (Mr. Winnick), Grimsby (Mr. Mitchell), Fife, Central (Mr. Hamilton) arid Motherwell and Wishaw (Dr. Bray) have demonstrated that, although the Budget had a good reception to begin with, that reception is now turning rather sour as the British public are discovering the truth about the Budget and not the veneer.
  I wish to refer to two speeches. The right hon. Member for Worthing (Mr. Higgins) made an interesting contribution—I say that non-pejoratively—about the relationship between public sector borrowing and interest rates. He suggested that the £9 billion expansionary package that my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) proposed would lead to runaway inflation and, as a consequence, to a massive rise in interest rates. The right hon. Gentleman conceded that the relationship between interest rates and the public sector borrowing requirement is complicated. He described it as a Bermuda triangle, and that is surely the case.
  The measure of expansion proposed by the Labour Party in historic terms and by comparison with the expansion of other countries, is modest—to use the adjective of The Guardian, which is not now the loyal and timeless friend of the Labour Party that it once was. The public sector borrowing requirement envisaged by our proposals, about £16 billion in cash terms, represents 6 per cent. of GDP which is exactly the same as the PSBR of the present Government between 1980 and 1981.
  If the right hon. Gentleman believes that there is some type of mechanical and automatic relationship between an increase in the public sector borrowing requirement and an increase in interest rates—that was what he was suggesting in the first part of his speech, although he said something different in the second part—and that £6 billion of extra demand from the public sector would raise interest rates and crowd out investment in the private sector, what about the £6 billion of demand flowing overseas for funds? If public sector borrowing can crowd out private investment, surely borrowing from abroad can crowd out private investment in Britain. This is a point made not only by Opposition Members but by others far more sympathetic to the right hon. Gentleman's view.
  The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne): The hon. Gentleman has remarked than his party's PSBR in cash terms would be £16 billion. I take

  1049
  it that this amount is related to the figure given by the right hon. Member for Stepney and Poplar (Mr. Shore) the other day when he talked about a £9 billion addition to spending programmes represented by £5·5 billion on the PSBR. Can the hon. Gentleman explain how the £9 billion on the expenditure programmes can be translated so rapidly through additional income from inflation that the PSBR cost in the first year is reduced to £5·5 billion?
  Mr. Straw: We explained this in a 32-page detailed document. As my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) has pointed out, the figure of £5·5 billion for the public sector borrowing requirement emerged from the Treasury's own econometric model as a result of a £9 billion expansion. It is normal for Ministers to write to Opposition Members. If the Minister wishes me to write to him to explain how we arrived at the figure, I shall be delighted to do so, provided that he gives me a few days after the Budget debate.
  The hon. Member for Gateshead, West (Mr. Horam) said that the Social Democratic Party, or the section of it that he represents, I assume, is proposing to create £1 billion—
  Mr. Horam: We have no factions.
  Mr. Straw: The hon. Gentleman is obviously not reading the Washington Post with the same assiduity as the rest of us. He proposed that half a million jobs should be created at a cost of £1 billion. That is a cost of £2,000 a job. It is so cheap for a job creation programme that even this Government would have embarked on such a programme if they thought that they could create 500,000 jobs for £1 billion, even over two years, unless it is a make-work road gang programme that involves no real job creation at the end of the day. This really is the politics of make-believe, the waving of a magic wand and the offering of something for nothing.
  Mr. Horam: It is rather less cost-effective, as a matter of fact, than the measures proposed by the Government, which talk of 100,000 jobs at a cost of £150 million.
  Mr. Straw: That may answer my point. In that case, it is simply a make-work, temporary employment scheme. We are not talking about the creation of jobs in the economy that can be sustained. Everyone agrees with that. We are talking about road gangs, make-work and people painting old ladies' houses. That may be useful and beneficial, but it will not improve the production and output of the real economy.
  The hon. Gentleman has also failed to answer the question of the consistency between what the Social Democratic Party says and what the Liberal Party says. The Social Democratic Party says it can provide 500,000 for £1 billion and the Liberal Party says it can provide 500,000 jobs for £6 billion. There is £5 billion between them. The hon. Gentleman says that the difference is that the Liberal figure is a gross cost and the SDP's is a net cost.
  I return to the question put to me by the hon. Member for Knutsford (Mr. Bruce-Gardyne). We have never suggested and would not dream of suggesting that if one expands the economy by £6 billion the increase in the public sector borrowing requirement will be only £1 billion. That flies in the face of everything we know about
  1050
  the relationship between expansion and increases of public borrowing. We have said that, if the economy is expanded by a total stimulus of £9 billion, the Treasury's own econometric model available to us in the Library suggests a public sector borrowing requirement of £5·5 billion. The Social Democratic Party and the Liberal Party must say which is right. Are they saying half a million jobs for £1 billion or are they saying half a million jobs for £6 billion? While the alliance is saying both, they will be believed about neither.
  Mr. Horam: The hon. Gentleman throws so many erroneous statements around that he is confusing himself. The simple truth is that' there is the Labour Party approach that was detailed by the right hon. Member for Stepney and Poplar (Mr. Shore), there is the Government approach and there is the alliance approach. Those are three reasonably distinct approaches which everyone can understand. To talk about figures in the way that he has is totally misleading.
  Mr. Straw: I pass the Liberal Party's document to the hon. Gentleman for him to read during the rest of my speech.
  The catalogue of disaster which has befallen this nation is too well known by all of us for me to go into it at great length, but it bears repeating briefly. It provides the yardstick by which the House and the nation must measure the Government's performance against their promise. There are 3 million unemployed on the register and a further 1 million out of productive work who are not registered, either because they are out of benefit, or their hope of work has been exhausted, or because they are engaged on the many make-work schemes of the Government.
  Mr. Higgins rose—
  Mr. Straw: I shall not give way.
  There are tens of thousands of school leavers facing the prospect of not finding secure employment in the foreseeable future. One in five of our factories have been shut down by a Thatcher blitz which has had a far more devastating effect on the British economy than even the Luftwaffe of the Third Reich. The decline in industrial production and the disruption to the British economy has been fact greater during the last three years than it was at any stage during the war.
  There are towns and cities, regions and countries such as Scotland and Wales, laid waste by the Government's scorched earth approach. In areas such as mine in North-East Lancashire, good people, with an unparalleled record of high productivity, good industrial relations and the lowest wage rates in the country, have seen their lives fall apart as factory after factory has been shut down and Government aid has been taken away. Their families face a life on the dole, with benefits cut and cut again by the Government. They are losing £13 per week as a result of the abolition of the earnings-related supplement and the 5 per cent. cut when the taxation of benefits was introduced. Everybody in work has seen his tax burden rise with his income squeezed by the rise in income tax and in indirect taxes. That is a matter which caused the parliamentary disintegration of the Chief Secretary yesterday and more consternation and confusion among Treasury Ministers and officials than we have witnessed for a long time. That is a question to which I shall come in due course.

  1051
  Try as they may to twist the truth of what is happening to the nation, even this Government know that in the end they cannot mask the reality for long. When they try, as they did yesterday, to mislead and to obfuscate, it only brings the reality to even greater attention.
  Mr. Higgins rose—
  Mr. Straw: I have already given way to the right hon. Gentleman once.
  Because the Government cannot twist the truth for long they are now seeking—
  Mr. Higgins: I did not want to interrupt the hon. Gentleman's hatchet job on the SDP, but he totally misrepresented what I said, as the record will show. Can he explain how this enormous increase in demand of £9 billion tax cuts, £5·5 billion increase in the PSBR, and so on, will not result in an inflationary spiral in which prices and wages clearly chase each other upwards? What will he do about pay in the circumstances that he wants to generate?
  Mr. Straw: I shall send the right hon. Gentleman a copy of the 32-page document which goes into the matter in detail. I allowed the hon. Member for Loughborough (Mr. Dorrell) 10 minutes to speak, so I should be grateful if Conservative Members would allow me time to complete my remarks without constant sniping from the hon. Member for Croydon, South (Sir W. Clark).
  The Government know that they cannot twist the truth for long about today's reality. What they are now seeking to do is to twist the truth about their own promises, and to suggest that what they said all along was that it would be as rough as it has been and that they always knew that the tax burden would increase, that unemployment would double and that the monetarist medicine would take not one Parliament but two to work through and might kill the patient in the meantime. After all, that was the Chancellor of the Exchequer's central claim when he began his Budget Statement—a claim given even more prominence when he went on television to explain his Budget to the nation. He said:
  "Putting Britain back on course was going to be a long haul. It would take more than one parliament. We'd been saying that long before we were elected and most people, I think, realised that we were right because they knew that the economy had been going downhill for a very long time."
  That point was repeated in an extraordinary performance by the hon. Member for Loughborough. Indeed, no myth has been more sedulously fostered by this now desperate Government and none bears so little relation to the truth.
  Of course, the Chancellor of the Exchequer may have some small print somewhere and some alibi, but the message in the Tory manifesto did not contain a word about two Parliaments. The Prime Minister's messages to the nation contained not a word about two Parliaments, nor did the Chief Secretary's message to his constituents in Cleveland and Whitby. Indeed, on 3 August 1978, in what the Chancellor of the Exchequer thought was the run-up to an October election, he said:
  "'Of course, we should want to alter the whole climate as soon as possible, not least because the benefits will be some time a-coming. That is why we are talking about three to four years.' "
  That brings us to the present year of grace, 1982. The right hon. and learned Gentleman continued:
  "Fighting inflation is top priority, with the eventual aim of reducing British inflation to between 2 or 3 per cent. in about three years' time."
  1052
  According to The Times on 3 August 1978, the right hon. and learned Gentleman promised that inflation would fall to 2 per cent. or 3 per cent. not this year, but last year. Finally, the right hon. and learned Gentleman said:
  "'Of course, we should not want to proceed in such a way as to produce what some people would call a dramatic short-term recession.'"
  The only difference between that promise and what happened is that the Government produced not a dramatic short-term recession, but a dramatic long-term recession.
  I turn to what was said on the doorstep. I am indebted to the Whitby Labour Party for letting me have a copy of the Chief Secretary's election address. No doubt he would wish to bury it in the nearest refuse dump, but the Whitby Labour Party sees it as the most fitting memorial to the catalogue of broken promises that litter it. There is no suggestion that unemployment will double or that there will be even a short-term recession or that taxes will increase. First, the Chief Secretary proposed a substantial increase in public expenditure in his area, because he wanted Whitby to be designated as a special development area. That was at a time when unemployment in Whitby stood at 11 per cent.
  The following July—after the Chief Secretary had been elected to Parliament—the Government not only refused to confirm development area status, but downgraded the district to an intermediate area. Now that unemployment has risen from 11 per cent. to 23·6 per cent.—one of the highest levels in the country—the Chief Secretary, as the man who has to guard public expenditure, is writing to the Whitby trades council and Labour Party telling them that the area cannot even be upgraded to a development area. That is the measure of that promise.
  When I turn over the election address I see that the Chief Secretary went even further than the pledge in the Conservative manifesto. The manifesto spoke about cutting income tax at all levels, but the Chief Secretary expanded that promise and said that taxes on income were to be cut at all levels. That includes not only income tax , but national insurance.
  Mr. Major rose—
  Mr. Straw: I shall not give way as I have only five minutes left in which to speak.
  Mr. Major rose—
  Mr. Straw: I am sorry, but I shall not give way.
  Mr. Major rose—
  Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. The hon. Member for Huntingdonshire (Mr. Major) knows that the hon. Member for Blackburn (Mr. Straw) is not giving way.
  Mr. Straw: We then come to the peroration of that election address:
  "Let's get Britain moving again and hold our heads high once more."
  Sir William Clark rose—
  Mr. Straw: No, I shall not give way. The hon Gentleman knows very well why. It is not because I am. worried about his question. It is because I have already given away 10 minutes to a Conservative Member.
  The message that was given by the Chancellor and by the Chief Secretary was the same message that was given

  1053
  by the Prime Minister. She did not say that it would take a Parliament or two for the medicine to work through. She said:
  "Another Labour accusation is that the Tories plan to increase unemployment."
  She said that that was wrong and that
  "we say Labour isn't working. They are the Party of unemployment. We are the Party of opportunity."
  The promise was of less and not more tax, and less and not more unemployment—of prosperity and a new beginning, not of slump and despair.
  Every major pledge made by the Conservatives has been abjectly broken. Unemployment has doubled, and it will rise still further as a result of the Budget and the December measures. Indeed, the right hon. Member for Chesham and Amersham (Sir I. Gilmour) said that unemployment would rise remorselessly for the rest of next year.
  No pledge was more categorically stated in the Conservative manifesto than the pledge to cut direct taxation, and none has been more dramatically broken by the Government. As my hon. Friend the Member for Walsall, North pointed out, the burden of direct taxation at every level of income except for the very rich has risen in every one of the Government's Budgets except the first and now stands very much higher than it did in the last year of the Labour Government.
  The poorest families, those on half average incomes, are paying 18 per cent. of their income in direct tax, compared with only 12 per cent. in 1978–79. The person on average income, if he were now paying the same proportion as he was under Labour, would have a £6 per week smaller tax bill than he has today even after the Budget. The very rich, however, have done extremely well. Cabinet Ministers have found that their take-home pay has increased by £35 per week as a result of changes in taxation for the rich. [Interruption.] These figures were given by the Treasury on 3 December last year and on 17 February this year. Taxation on the very rich—the person earning 10 times the average income—has fallen by £202 per week.
  If there are two conspicuous elements in the last four Budgets, they are, first, that the dole queue has become longer after each Budget, and, secondly, that the rich have done better than ever before. In the last three Budgets, £2,300 million was given away by the Conservatives to the very rich, and a further £555 million has been given away in this Budget. What is so shameful about the Government is the contrast between the way in which they have treated the rich and the way in which they have treated the poor. And what is so shameful about the so-called wets is the way in which, while parading their consciences and suggesting that the Government ought to help the weakest and neediest in society, they have at every stage trooped through the Lobby to support the Government and to vote for policies which do the exact reverse.
  The immorality of the Government is that even within their own programmes and strategy they had a choice. For example, instead of indexing capital gains tax, which makes capital gains tax a joke, they could have restored the 5 per cent. cut in benefits as a result of taxation. They could have made that choice. They could have made a choice not to raise the threshold for capital transfer tax and instead have done something about the taxation of the poor
  1054
  in work. Every time, when faced with such a choice, the Government have chosen to favour the rich and not the poor and the wets have chosen to back them.
  Last December, when the first part of the Budget was announced, we derided the expenditure proposals of the Chief Secretary and the Chancellor. They said that they were not deflationary. Yesterday the Chief Secretary described the suggestion that the Budget was deflationary as fantastic, the Chancellor said today that it all depended, and the Financial Secretary said that he could not answer the question. I will answer it.
  What we know for sure is that this is another Budget for unemployment, another Budget against the poor, another Budget for the rich, and another Budget that will be damaging and destructive to the British economy. We also know that there is an alternative that my right hon. Friend the Member for Stepney and Poplar spelt out yesterday. It gives in detail a prescription for getting the country back to work.
  We do not pretend that it will be easy. It will be more difficult to create 2 million jobs than it has been to destroy them. But the policy will work. It is the only policy that will give this nation and its unemployed work in place of idleness and hope in place of despair.
  9.37 pm
  The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne): I was not sure that the hon. Member for Blackburn (Mr. Straw) was going to get round to discusing the Budget. He spent a long time on various election addresses and a certain amount of time on the Social Democratic Party. I thought that he was a little unkind to the hon. Member for Gateshead, West (Mr. Horam).
  He seemed to forget that this has been a great day for the Social Democrats. They have attracted a great convert. As we know, the cellars of Chatsworth are open to the claret-drinking set. I suppose it is a fair exchange. I believe that the noble duke once elected Mr. Roy Jenkins, the candidate in Hillhead, to a celebrated and exclusive club over which his grace has a certain proprietorial interest. Now Roy Jenkins is doing the same by him, so I suppose that is fair enough. In those circumstances if the hon. Member for Gateshead, West indulged in some improbable arithmetic, even by the standards of the Opposition Front Bench, it would be unfair to cavil tonight.
  The third day of the Budget debate is traditionally dominated in the early stages by discussion of the social security uprating announced by the Secretary of State the day before. Today has been no exception. Hon. Members on both sides of the House have ranged wider, as it is appropriate that they should.
  In general it is fair to say that hon. Members on this side of the House have given my right hon. and learned Friend's Budget a warm welcome. [Interruption.] I have not heard otherwise. My right hon. Friend the Member for Worthing (Mr. Higgins), whose contribution unfortunately I did not hear, but of which I have had a full report, was characteristically generous and constructive. His was a most valuable and effective contribution. The speech of my hon. Friend the Member for Bath (Mr. Patten), towards the end was perhaps—dare I say it—a little Butleresque, and none the worse for that.
  The response from the Opposition Benches has been one rather of divine discontent at having little to be discontented about. It was all rather well summed up by

  1055
  the attitude of the right hon. Member for Stoke-on-Trent, South (Mr. Ashley) who came near to denouncing my right hon. and learned Friend for committing the crime of responding so positively to a campaign that for years has been directed in vain at Governments of both parties by the disabled and those who speak for them, by exempting the mobility allowance from tax.
  It appeared that the right hon. Gentleman had had his fox shot. The right hon. Gentleman and I have been associated for many years with one small national charity for the disabled. I share to the full the respect in which he is held in the House for his work for the disabled. However, there is no group in our society more vulnerable to the ravages of inflation than the disabled. If we listened to one tenth of the advice given in this debate from the Opposition Benches, the disabled would be far more damaged by inflation shooting through the roof than by lack of any of the additional aids for which the right hon. Gentleman and others have asked.
  Several right hon. and hon. Members, including the hon. Member for Pontypridd (Mr. John) and my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), who explained why he could not be present tonight, tended to repeat the canard that the Government are planning for higher unemployment. They are planning no such thing. All that they are doing, as their predecessors did for many years, is to look to the Government Actuary to produce a working assumption. The hon. Gentleman should know that very well. It is not a forecast. It certainly is not an intention. It is what it says—a working assumption.
  When the hon. Gentleman points, as he did today, to the fact that the unemployment level assumed over the planning period in the White Paper is unchanged, he seems to have forgotten that the last White Paper produced by his own Government gave a precisely similar unchanged assumption—and for the same reasons—over the planning period of their White Paper.
  Mr. Straw: If it is just a planning assumption, how is it that the Government Actuary and the Government changed their estimate of unemployment for 1981–82 from 1·8 million—the figure that first appeared in the 1980–81 White Paper—to 2·6 million, which appeared in the December statement just before Christmas? If it is just an assumption, why is the assumption for this year increased by 800,000? Secondly, will unemployment go up or down for the rest of this calendar year?
  Mr. Bruce-Gardyne: If I had known that the hon. Gentleman intended to make another speech, I would not have given way. The answer is very simple, and the hon. Gentleman should know it, without wasting the time of the House. A working assumption is something that comes to be revised, of course, as one goes forward and the evidence changes. That is the nature of a working assumption, whether under the hon. Gentleman's Government or the present Government. There is no change in that. The hon. Member for Pontypridd suggested that a 60-year-old unemployed man who decided to take his name off the register, and thereby claim entitlement at the higher long-term supolementary benefit rate, would, by Budget resolution 30, be clawed back into the tax net. I assure the hon. Gentleman that that is not so; resolution 30 does not have that effect.
  Before I answer some of the points raised in the debate, I want to deal with one or two matters of detail about which
  1056
  I think that it would be for the convenience of the House to add briefly to what my right hon. and learned Friend told the House on Tuesday. I begin with a word about duty deferment. Hon. Members who follow these matters will know that the wine and spirits industry has argued for several years that it should enjoy the right already enjoyed by the brewers and cider-makers to defer payment of Excise duties for up to six weeks after the date at which the duty formally becomes liable.
  It has been argued in support of these representations that our present rules are in conflict with our Community obligations. I am satisfied that this is not the case, since in general we treat home-produced products and imports alike in this respect. The only doubtful areas to date have concerned imports of beer, cider, made-wine and matches. It is for that reason that we have decided to extend duty deferments to imports of these goods from the European Community where the quantities are small and the cost of duty deferment is minimal.
  We have looked carefully and sympathetically at the case for extending duty deferment to wines and spirits. We are aware of the difficult trading conditions facing the domestic spirits industry, and it is for this reason that my right hon. Friend decided not to revalorise the duty on spirits to take full account of inflation in this year's Budget. But we have reluctantly concluded that we could not also provide the duty deferment sought by the trade, which would involve a once-and-for-all loss to the Exchequer of some £200 million and a continuing interest cost of the order of £25–30 million at current rates of interest.
  I now want to talk about bingo duty in the light of the review .[Interruption.] The hon. Member for Fife, Central (Mr. Hamilton) may laugh but these are matters upon which the House has to be informed, and interested parties outside the House need this information. My right hon. and learned Friend the Chief Secretary announced last July a review of the duties. The present exemptions relating to bingo played as an activity at a club or at an entertainment are to be replaced by a new exemption based on the level of prizes. If these exceed £300 in any one day or £1 ,000 in any one week, the club or other promoter will become liable for duty on all bingo promoted over the next three months. Liability will cease when the limits have not been exceeded for 13 consecutive weeks. We believe that this will be fairer to all concerned, and it reflects the balance of representations received during the course of our review.
  There is one further matter to which I must allude, which is Budget resolution 21, providing for some changes in the operation of the Excise duties regulator. Hon. Members with long memories will recall that I have never been a dedicated enthusiast of fine tuning, but since we have the regulator it seems sensible that it should be available for use in a convenient form. [Interruption.] That does not come under the regulator. At present, the regulator relating to tobacco products can be applied discriminately between one tobacco product and another. Not so the regulators relating to alcoholic drinks or hydrocarbon oils. As things stand, each of these can be made to go up in a group or down in a group, but the Chancellor is not empowered to increase the duty by the regulator on, say, beer while leaving the duty on spirits alone, or vice versa. Nor can he raise the duty on derv whilst leaving the duty on petrol alone. This seems illogical. Resolution 21 is designed to give the Chancellor

  1057
  that degree of greater flexibility. I should perhaps add to satisfy any idle curiosity that the fact that we are proposing this change does not indicate any firm intention to make use of it.
  I now want for a moment or two to refer to some of the contributions that have been made in the debate. First of all, might I pick up some of the comments that have come from right hon. and hon. Gentlemen on the Labour Benches on the subject of unemployment, which is bound to be a theme of this debate. I make no complaints about that at all. It really will not do for Labour Members to talk as if mouthing slogans about commitment to full employment will resolve-the problems of the dole queues in this country. They have existed for years and from one cycle to the next the level of unemployment has risen under Governments of different persuasions, from one generation to the next over the whole of the last 20 years.
  Mr. Winnick rose—
  Mr. Bruce-Gardyne: No, I am not going to give way to the hon. Gentleman. I do not have the time.
  To my mind, it is abusive of the unemployed to try to pretend that there is a solution to be found in commitment without any genuine policy intentions lying behind it.
  The truth is that all our experience under successive Governments shows that from one business cycle to the next, the more we have attempted to reflate the economy to full employment, the less successful we have been in achieving that. The Brookings Institution, when it surveyed the United Kingdom economy in the 1970s during the period of office of the previous Labour Government, reckoned that out of every £100 of additional public expenditure, £92 went out in extra imports and prices and just £8 went into additional employment that otherwise would not have occurred.
  Today the trade-off would be worse. That is why it is so vital that we should continue to tackle some of the structural barriers to employment that we have erected. That is why my right hon. and learned Friend said in his Budget speech that the ground between the levels of wages that were too often artificially fixed and the levels at which additional employment could be created is ground that must be explored and developed. That is where the potential of constructive schemes such as the community work project will be so valuable in the months ahead.
  I shall comment briefly on one or two of the other points that have been made in the debate. My hon. Friend the Member for Perth and East Perthshire (Mr. Walker) talked of petrol in rural areas. We accept that in rural areas the prices have not fallen at the petrol pump to the extent that they have elsewhere, so the impact of4the increases in petrol duty is more acute. It is for that reason that my right hon. and learned Friend moderated the increase in petrol duty to an extent that otherwise would not have been justifiable.
  Mr. Tim Eggar: Will my hon. Friend give way?
  Mr. Bruce-Gardyne: I am sorry, but I shall not give way. I have given way several times and I still have some more reading to do before I finish my speech.
  The hon. Member for Motherwell and Wishaw (Dr. Bray) said that the Labour Party was united on an incomes
  1058
  policy. As such a policy is now called a national assessment, it is not difficult to be united on that. However, unfortunately the hon. Member for Blackburn, judging by his reply to the intervention made by my right hon. Friend the Member for Worthing, did not know what the national assessment was or what the subject of agreement in his party might be.
  Many of my hon. Friends commented on the valuable contribution that the Budget makes to the health of the construction industry. That is right. I am glad that that has been welcomed so widely.
  My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) made an effective contribution, as always. He raised doubts about our wisdom in derestricting indexed gilts. My hon. Friend the Member for Loughborough (Mr. Dorrell) took the opposite view. That matter has been the subject of great debate, as my hon. Friends know.
  Understandably my hon. Friend the Member for Horsham and Crawley was concerned about the implications of the spread of index-linked obligations into the future, given the potential irresponsible behaviour of Governments, even, occasionally, Governments of both political parties. I entirely take his point. However, we must ask ourselves what signal we give to savers and others about inflationary expectations if we are issuing long-dated gilts at 16 per cent. or more right on into the twenty-first century. That is now the alternative—
  Mr. Hordern rose—
  Mr. Bruce-Gardyne: I will not give way because before concluding I want to refer to another subject mentioned by several of my hon. Friends and other hon. Gentlemen—the future of the Government's monetary policy.
  An attempt was made to write the epitaph of the medium-term financial strategy, so let me try tonight to set the record straight. Personally, I have never gone along with the line that if the Government are attacked from two opposing flanks, as they are on this point, that proves that they must have got it right. On the other hand, as one who has, throughout the past decade, supported the view that monetary continence is a necessary although not a sufficient precondition for the successful conquest of inflation, I have always recognised the need to take account of the behaviour of all the relevant monetary indicators.
  I remind the House that my right hon. and learned Friend the Chancellor said last year that the Government had to watch not only the performance of sterling M3, but also the performance of other wide aggregates, particularly PSL2, the narrow aggregate M1 and the exchange rate. Surely that is only common sense.
  Those who know about these things will be aware of something called "Goodhart's law". That has nothing to do with my hon. Friend the Member for Beckenham (Sir P. Goodhart), but he and my right hon. Friend the Chief Secretary have relatives, according to whom, the choice of a monetary indicator leads to its distortion. Whatever the validity of that proposition, it is undeniable that the rapid advance of the clearing banks into the housing finance markets over the past 12 months has obscured the message coming from sterling M3. This comes on top of the distortions of the Civil Service dispute and the adjustment to the monetary system following the abolition

  1059
  of exchange control and the corset. As the Red Book makes plain, the exchange rate is both a transmission mechanism by which monetary policy impinges on domestic prices, and an indicator of the stringency or laxity of financial conditions.
  Mr. Winnick: Do you understand that?
  Mr. Bruce-Gardyne: I did when I wrote it. Experience suggests that there has been a growing propensity for savings to be held in money balances: this is the main reason why a relatively fast rate of growth in sterling M3 has been consistent with a slackening in the pace of inflation.
  To ignore this evidence, as some commentators would have us do, by sticking with a sterling M3 target for the year ahead—which was chosen indicatively before this evidence became available—would run the risk of applying an excessive tourniquet to the economy. That is why my right hon. and learned Friend has set a target of 8 to 12 per cent. for both broad and narrow monetary aggregates.
  My right hon. and learned Friend has reaffirmed the Government's overriding commitment to the goal of stable prices. As inflation falls, and interest rates with it, there may be a tendency for the growth of the narrow aggregate M1 to accelerate somewhat. That is because M1 is largely made up of non-interest bearing deposits, so it will normally grow slowly when interest rates are high. However, as interest rates fall, there may be a shift back into non-interest bearing deposits, increasing the rate of growth of M1. That would not be a cause for concern if it had no effect on the level of spending, but we shall have to pay close attention to M1 in case an excessive level of spending does result. Therefore, we shall watch the performance of all the aggregates and other evidence, including the exchange rate, to ensure that we continue our progress along the chosen path of steadily decelerating inflation.
  Many hon. Members have sought to argue the case yet again of combining a cut in interest rates and an increase in borrowing. It was argued that our interest rates are essentially determined by what is happening on the other side of the Atlantic. Of course, that is true and nobody has sought to deny it. We cannot stand aside from the impact of international exchange rate pressures. It is also indisputably true, and all our experience shows, that the less we depend on borrowed money and the lower the domestic pressure on interest rates, the less excessive will be the level of interest rates upon which external forces impinge.
  We could not have escaped the movement in interest rates last autumn. If my right hon. and learned Friend had followed the irresponsible advice given by others at the time of the last Budget, the impact on external interest rate pressures would have begun to pull on much higher levels of underlying interest rates.
  The Budget has been described by my right hon. and learned Friend as a Budget for business and a Budget for the people.
  It being Ten o'clock, the debate stood adjourned.
  Debate to be resumed on Monday next.

  Mr. and Mrs. Wall (Holiday Insurance)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Goodlad.]
  10 pm
  Mr. John Heddle: I am very grateful to you, Mr. Deputy Speaker, for affording me the opportunity to raise an issue which directly affects .5 million or more people who are currently contemplating where to take their holidays this summer. Some will explore some part of England's green and pleasant land while others will seek adventure farther afield. The vast majority will book a package holiday with a recognised tour operator, who will probably be a member of the Association of British Travel Agents. In so doing, the majority of package holiday makers this summer will run the dire risk of being inadequately covered for insurance purposes should some personal accident befall them due to circumstances entirely beyond their control during their holiday.
  In illustration of my contention, I propose to describe briefly to my hon. Friend the Under-Secretary of State for trade, whom I am pleased to see in his place—I take the opportunity of apologising to him for detaining him and delaying his departure to points north of the border—the case of Mr. Robert and Mrs. Sheila Wall of 12 , Barcliffe Avenue, Tamworth.
  In 1976 Mr. and Mrs. Wall booked a holiday with a firm of tour operators that is well known to the House—Silver Wing Holidays, which is a subsidiary of British Airways—and that holiday took them to the Martina hotel in Tenerife. As was the custom in those days—indeed it is still the custom—Mr. and Mrs. Wall were given the option by the tour company of effecting a personal accident insurance policy to cover
  "the loss of one or both limbs, total or irrecoverable loss of all sight in one or both eyes or permanent disablement"
  to the extent of £1,400. The standard form of cover that is more commonly effected today is not £1,400 but £5,000. I stress that this personal accident cover is not obligatory. The holiday-maker has the opportunity of telling the tour operator that he or she has no wish to effect such cover. It is not obligatory; it is discretionary.
  In the case of Mr. and Mrs. Wall there was no clause in the booking form, or the booking conditions, excluding the tour operator from liability for personal injury caused to them, nor was there a clause in the booking form indicating that the tour operators did not own or control the hotel, the Martina hotel in Tenerife.
  Mr. and Mrs. Wall had the misfortune to stay at the hotel at a time when it caught fire. Although the hotel, no doubt, complied with the national and local regulations on hygiene, fire and general safety, and whose condition no doubt satisfied the representatives of the tour operators, Silver Wing Holidays, which I have no doubt made regular and periodic inspections, the secondary fire escape, an external fire escape with a wrought iron gate at the bottom, was padlocked as a security measure during the night. I imagine that that was so not only on the night in question but on most nights.
  Mr. and Mrs. Wall became trapped in the hotel on the night of the fire. Their only means of escape was by knotting sheets together, throwing the sheets out of the window and trusting their luck that the sheets would hold

  1061
  until they reached terra firma. Inevitably the sheets broke, and Mr. and Mrs. Wall fell to the ground from a great height. Mrs. Wall sustained injuries so severe, extensive and critical that she is now permanently disabled and destined to spend the rest of her life in a wheelchair—a dismal prospect at the age of only 43.
  Mr. and Mrs. Wall returned home, claimed on their personal accident insurance cover and received the sum for which they had insured of £1,400. They also decided to sue the British Airways subsidiary, Silver Wings Holidays, for damages which they had sustained. I should add here that there is no evidence whatsoever of negligence on the part of the tour operator in selecting the hotel for inclusion in its brochure. I should further add that in raising this case tonight, I am implying no criticism of British Airways or of their tour subsidiaries, Enterprise Holidays, Sovereign Holidays or Silver Wing Holidays. The executives of these companies have all along been extremely sympathetic to Mr. and Mrs. Wall's plight. Indeed, both they, their solicitors and I, in dealing with this case for some months now, have received nothing but the closest co-operation from the company concerned.
  Mr. and Mrs. Wall pleaded their case here in the Queen's Bench Division in Birmingham before Mr. Justice Hodgson in November. They pleaded their case on the basis that there was a contract between the tour operator and the customers to provide hotel accommodation, and that there was an implied term in the contract that the accommodation was reasonably safe for the purposes the customers of the tour operator were invited to be there. It was further pleaded that, as a result of the wrought iron gate being locked on the night in question, there was a breach of implied care, and that, as a result of that breach, Mr. and Mrs. Wall were injured.
  However, their case was further complicated because of the nature of the contract between the customer and the tour operator and, of course because the hotel was in Tenerife, which is outside the jurisdiction of English courts. The Walls' case was even further complicated because of the intricacies and uncertainties of international legislation.
  For those and other reasons which he set out in his judgment in some detail, Mr. Justice Hodgson summed the case up thus:
  "with considerable regret but with no hesitation I acquit the Defendants (Silver Wing Holidays) of negligence."
  With hindsight, Mr. and Mrs. Wall would have been in a better position today if their personal accident cover had been set at a more realistic level. However, they probably thought, just as 5 million holidaymakers sitting at home browsing through seductive brochures today are thinking, and just as I thought when I booked my first package holiday some 20 years ago—"It can never happen to me".
  In describing the tragic case of my constituents, I seek to highlight the fact that, in view of the problems of international litigation and the difficulty, in any event, even if one is successful in litigation, of enforcing court judgments in other countries, the package holidaymaking public are at great risk from the wilful or innocent negligence of others in general and hotel operators in particular, if they do not include in their holiday baggage a realistic personal accident cover.
  I therefore suggest to my hon. Friend, at least in the case of holidays taken with a subsidiary company of the
  1062
  nationalised airline, and if it is possible with those companies reputable enough to the members of the Association of British Travel Agents, that personal accident cover should be mandatory, and that it should be set at a more realistic level than the discretionary personal accident cover incorporated in holiday booking forms, as I described, of £5,000. I suggest that a realistic personal accident cover should be £15,000 per person per fortnight, three weeks, or month.
  I understand from the British Insurance Association, which supports my proposition in principle, that the premium on £15,000 per person would be about £1 per thousand, which is a £15 once and for all payment, compared with the standard rate of discretionary cover of £5,000 where the premium is £8·50. If the British Insurance Association and the insurance industry generally—which leads the world—were to effect a global insurance package for 5 million package holidaymakers, the premium would be considerably reduced on a quantity discount basis.
  That is the first proposition that I wish to put to my hon. Friend—that the great British public should be better protected against personal accidents sustained while on holiday abroad due to the negligence, either wilful or innocent, of others to the level of £15,000 and not £5,000. Secondly, the package holidaymaking public may be given greater protection and a more satisfactory solution may perhaps be found in arbitration. I commend to my hon. Friend the suggestion that has been brought to my attention by the Chartered Institute of Arbitrators that arbitration contracts should be entered into by tour operators and the overseas hotel operators to enable tripartite arbitrations to take place when appropriate. That would also give much greater protection to the holidaymaker.
  We know that we cannot leave the House tonight in a motor car that does not have a current insurance policy. My hon. Friend the Member for Northwich (Mr. Goodlad) would also agree that if our houses are mortgaged with a building society a condition of the mortgage is that we must effect comprehensive insurance cover. On the same basis, is it not reasonable to suggest that if one is putting one's life into the hands of others—some Continental hotels are known to have lower safety standards than hotels in Britain—one should be adequately protected, especially if the consequences of the wilful or innocent negligence of others lead to such dire and far-reaching circumstances as occurred to Mr. Robert and Mrs. Sheila Wall of Tamworth?
  Had either or both of the solutions that I am putting forward tonight been adopted when Mr. and Mrs. Wall booked their holiday of a lifetime in Tenerife they would not be in such tragic and dire straits today.
  10.12 pm
  The Under-Secretary of State for Trade (Mr. Iain Sproat): My hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle) has described the very distressing experiences of Mr. and Mrs. Wall, whose holiday had such tragic consequences. I should like to place on record my own sympathy for the unhappy position in which they now find themselves. At the same time, I must commend my hon. Friend on his decision to raise this matter in order to focus attention on the wider issue of holiday insurance.
  I should first like to describe briefly the structure of the package holiday industry and the present arrangements for

  1063
  providing holiday insurance. The principal trade association for the travel industry is the Association of British Travel Agents, or ABTA, as it is frequently known. Its members are either tour operators who put together and provide holidays, usually in a packaged form, or retail travel agents whose job it is to sell the tour operators' products. Some ABTA members will operate in both classes. All members are required to observe codes of conduct as a condition of their membership. Compliance is monitored by ABTA, and from time to time by the Director General of Fair Trading, who has given his support to those codes.
  Under the current code for retail agents, they are required to draw the attention of their clients to the insurance facilities and cover available for the holiday and to indicate any exclusions and limitations so that their clients may seek additional cover if deemed desirable or necessary.
  Tour operators under their code are not permitted to print insurance details on the booking forms in their brochures unless the same details are provided separately to each client on or before confirmation of the booking. This ensures that the client will be able to retain a copy of the details of insurance available to him. Operators generally make clear in their brochures the importance of insurance and some go so far as to ask the client for the name of the insurer being used if the one provided by the operator is not being accepted.
  There is keen competition among insurers for travel insurance business and policies are constantly reviewed to meet the requirements of the travelling public. British Airways, for example, has negotiated special holiday insurance schemes for its clients taking its Sovereign and Enterprise holidays with Home and Overseas Insurance Co. Ltd. For its Speedbird Flydrive holidays, a scheme has been arranged with Norwich Union. Both insurers are United Kingdom authorised.
  It is clearly a matter for holiday organisers, such as British Airways, which insurance policies they choose to offer their clients. Personal accident cover now offered by British Airways' insurance is for £5,000 for permanent total disablement. The cover in the Extrasure policy offered by ABTA is the same, although medical expenses can be covered up to £50,000, or more in certain circumstances. If a holidaymaker wishes to obtain higher cover for personal accident he may seek advice from brokers, agents or insurers direct, but he will have to pay a higher premium for more cover.
  Apart from the efforts of tour operators and retail agents to bring insurance cover to the attention of their customers, the Office of Fair Trading has produced a leaflet about package holidays, including insurance cover. The leaflet is available through local consumer advisers, many public libraries and from the Office of Fair Trading itself. In the section on insurance, the leaflet underlines the importance of taking out insurance at the time of booking a holiday. It goes on to suggest that the insurance provided in the holiday brochures should be compared with the schemes which the travel agent can arrange independently.
  Alternatively, it goes on, the holidaymaker may make his or her own arrangements with his or her own insurance company. I need hardly add that this advice from the Office of Fair Trading applies whether or not a holiday is booked through or with an ABTA member. The Foreign
  1064
  and Commonwealth Office, through its Passport Office, issues an essential information leaflet of advice for United Kingdom passport holders who travel abroad. This has a section on insurance which stresses the need for taking out insurance against illness and injury and for making sure that the cover is adequate.
  My hon. Friend has suggested that we should seek to persuade ABTA to make the provision of insurance compulsory with all package holidays and I should like to say something about the Government's attitude towards compulsory insurance particularly.
  The legal obligation to take out private insurance has always been imposed sparingly, usually to ensure that those who suffer injury or bereavement as a result of an accident caused by someone else are not deprived of the compensation due to them through that person's inability to pay.
  Compulsory third party motor insurance, which my hon. Friend rightly mentioned, is an example with which we are all familiar. A system, however, of first party insurance against risks voluntarily undergone—I am sure that my hon. Friend will accept that it is unlikely that people will travel abroad on holiday except of their own free choice—would, I believe, be something of a departure. I also suspect that effective enforcement would prove troublesome to the traveller and would be unlikely to be generally popular.
  If the Government are not prepared to impose an insurance requirement on package holidays, it seems to me that it would not be defensible for them to seek to persuade ABTA—or any other body—to do so. I am satisfied that there already exist satisfactory arrangements to ensure that potential holidaymakers are made aware of the importance of taking out insurance cover and that there is cover widely available at reasonable cost.
  As to the second suggestion made by my hon. Friend about arbitration, he will know that ABTA already supports the arbitration scheme for the travel industry rt. n by the Chartered Institute of Arbitrators. I understand that the institute's latest suggestion represents only its initial thoughts on the subject. To succeed, such a proposal would also require the agreement of overseas hotel operators. I am sure that ABTA will take very careful note of my hon. Friend's remarks, but again I do not see this as being an area for Government intervention.
  The case described by my hon. Friend is a very sad one. I have no doubt, too, that some other holidaymakers suffer mishaps of varying severity. It will be of little comfort to Mr. and Mrs. Wall and to other sufferers, but the fact remains that the vast majority of holidaymakers on package holidays abroad return home without the need to call upon their insurances.
  Even though I do not accept that there is a need for Government action on the lines requested by my hon. Friend, I believe that he has performed a useful service by focusing attention on the issues raised by his constituents' unfortunate experiences. If, as a result of this short debate, holidaymakers are persuaded to take a closer look at the need for, and the cover of, holiday insurance, he will have rendered a very valuable service.
  Question put and agreed to.
  Adjourned accordingly at twenty-one minutes past Ten o' clock.