§ [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 988 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 989 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. 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. 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. 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 (St. Pancras, North)
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 991 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 (Pontypridd)
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. 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. 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. 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. 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. 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. 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. 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. Fowler
That brings me to an interesting part of the book. It appears that the previous Labour Government 993 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. 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 994 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. 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 (Huntingdonshire)
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.
996 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
§ Mr. Brynmor John (Pontypridd)
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 997 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 998 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.
§ 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 1000 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 1001 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. 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 1002 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.
§ Sir Ian Gilmour (Chesham and Amersham)
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 1003 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.
§ 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 1004 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 (Harrow, East)
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 1005 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.
§ Mr. Jack Ashley (Stoke-on-Trent, South)
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 1006 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 1007 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 1008 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 1009 of which the Chancellor can be proud. I hope that he will take into consideration the constructive pleas which have been made.
§ Mr. Bill Walker (Perth and East Perthshire)
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 1010 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.
§ Mr. John Horam (Gateshead, West)
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. 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.
§ Mr. David Winnick (Walsall, North)
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 (Worthing)
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 (Worthing)
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 (Grimsby)
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. 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 beingdetermined in New York anyway"?He added: 1024Such 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.
§ Dr. Jeremy Bray (Motherwell and Wishaw)
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. Chris Patten (Bath)
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. 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 (Fife, Central)
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 figuresdid 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.
§ Mr. Peter Hordern (Horsham and Crawley)
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. 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.
§ Mr. Austin Mitchell (Grimsby)
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—
§ 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.
§ Mr. Bob Dunn (Dartford)
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.
§ Mr. Stephen Dorrell (Loughborough)
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.
§ 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. 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.
§ Mr. Jack Straw (Blackburn)
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. 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. 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. 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. 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
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. 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
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 thatwe 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.
§ 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. 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. 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. 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. 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.