REDUCTION OF NATIONAL INSURANCE SURCHARGE

HC Deb 05 May 1982 vol 23 cc174-234

The Chairman

The only group of amendments today is amendment No. 30, with which it will be convenient to take amendments Nos. 24 and 25.

4.36 pm

Mr. Peter Shore (Stepney and Poplar)

I beg to move amendment No. 30, in page 95, line 42, leave out '2½ per cent.', and insert '1½ per cent.'.

All our debates so far on the Finance Bill have been overshadowed by the events in the South Atlantic and today's debate takes place against a background that is exceptionally sombre, so I shall say nothing further about this today except to acknowledge the obvious fact that it takes an exceptional effort of concentration for all hon. Members to examine with the care they deserve the various provisions of the Finance Bill. Nevertheless, it is our duty to do so, for the conduct of economic affairs, of which the Finance Bill forms so important a part, though it lacks the tension and compelling drama of the events in the Falklands, is and will continue to be the major focus of concern for our people throughout the life of this Parliament.

So on this the last day of the debate in the Committee stage on the Floor of the House we have chosen the subject of the national insurance surcharge. There will be no surprise that we have thought it right to move this amendment, which, as the Committee will recognise, seeks a further and larger reduction in the national insurance surcharge than the 1 per cent. cut in this year's Budget which is now embodied in clause 128 of the Finance Bill.

In the first speech that I made as Shadow Chancellor in the House, in January 1981, I urged a cut in the national insurance surcharge and since then it has been persistently advocated by the Opposition Front Bench. In last year's Budget a reduction in the surcharge was part of a five-point programme which we pressed upon the Chancellor, and on Report on 14 July 1981 we moved a new clause which would have reduced the national insurance surcharge from 3½ per cent. to 2½ per cent.—precisely what the Government 12 months later are proposing.

A year ago the Chief Secretary turned us down and now, I understand, he is proposing what we then urged upon him. The fact is that in this matter, when it comes to assisting British industry, the Government's measures are both too little and too late. Whether or not we succeed in persuading the Government to accept our amendment, on this year's precedent at least we have the possibility that in next year's Budget, if the Chancellor and this Government are still here to present one, they will accept in 1983 what they find unacceptable in 1982.

In any event, it is right to debate the proposed cut in the national insurance surcharge for several reasons. First, it is the only substantial measure to affect industry in this year's Finance Bill. Secondly, it is the only measure that directly connects with one of the fundamental problems of the British economy, its loss of price competitiveness. Thirdly, the Government's proposal contains certain puzzles that we have a duty to explore.

Although this is the only substantial measure to affect industry in this year's Budget, there are a number of other measures ranging from aids to small firms, to capital allowances, to installation of teletext receivers and viewdata adaptors. In scale, these can only be properly described as trivial.

There are two measures that are a little more substantial, of which the measure announced to assist industry with energy costs is the first. To me and to most hon. Members on both sides of the Committee it is a continuing scandal that Britain, the only country in the Western world self-sufficient in energy, should price its energy sales to large energy users at higher rates than those paid by its Continental and American competitors.

Last year the Government made some concessions after the NEDC discussions and this year they have added a little more. However, when we recall the number of major industries whose fortunes depend crucially on the cost of their energy supplies—that includes large sections of the chemical industry, the paper industry, aluminium smelters and others—the sums announced are small.

For presentational purposes, the Chancellor in his Budget speech decided that it was better to present the cost of his package at £250 million, over a two-year period—last year as well as this. This avoided the embarrassment of revealing just how little was provided in the 1982 Budget. I was interested to read the comments of the Chemical Industries Association, and specifically of its deputy director, Dr. Peter Kaudle. He said that the paucity of the Chancellor's package on energy cost was shown when one considered that he needed to add last year's claimed saving of £170 million to that of this year to arrive at the figure of £250 million.

Thus there was a package of £80 million to assist heavy users of energy in this year's Budget. This is not a minor point. The Committee will remember the recent annual report on last year by ICI. That showed that it had certainly not recovered from the enormous setback when, for the first time in the history of that enterprise, it went into deficit in the previous year.

The only other package of any size designed to assist was related to the construction industry. Few industries need more assistance than the construction and building industries. Again, on this the Chancellor was misleading when he told the House during his Budget speech: our new public spending plans provide work for the construction industry in 1982–83 worth about £10¼ billion—an increase of 14 per cent."—[Official Report, 9 March 1982; Vol. 19, c. 750.] That was misleading because, as the Chancellor well knew, the year 1981–82 saw a disastrous fall of no less than 11 per cent. in that industry, as compared with 1980–81. Anyone who thinks that he can draw comfort from the difference between an 11 per cent. fall and a proposed 14 per cent. increase should be reminded that the 1982–83 figures are in cash terms and make no allowance for inflation. In other words, the Chancellor was announcing, in his rather curious way, a substantial fall on the depressed output of 1980–81.

That apart, the construction package was minor. As Mr. Owen Luder, the president of the Royal Institute of British Architects, said: The Chancellor has made a series of small gestures which at the very most would generate 10,000 jobs. That from an industry that now has some 400,000 unemployed.

Therefore, it is not through these and other minor aids to industry that any noticeable effects on output can be anticipated. The national insurance surcharge is the only measure that can be expected to have any noticeable impact. We shall see in a moment just how much impact that is likely to be.

The importance of the national insurance surcharge is that it relates directly to one of the most important problems of British industry, its loss of competitiveness. At this point, I can anticipate Conservative Members wanting to rise to their feet with the usual question why the Labour Government introduced the national insurance surcharge in 1976. The answer is that at the time of its original announcement, and, more relevantly, at the time of its introduction in April 1977 and its further increase in October 1978–2 per cent. to begin with and 3½ per cent. later—British industry was, in international terms, more competitive than it had been for at least a decade before.

4.45 pm

I checked the exchange rate of the pound against the basket of currencies on the appropriate date. Taking 1975 as 100, when the national insurance surcharge was introduced in April 1977, the index stood at 80.7. When it was increased from the original 2 per cent. to 3½ per cent. in October 1978, the pound stood, against the basket of currencies, at 80.2 per cent.

Mr. Richard Needham (Chippenham)

Will the right hon. Gentleman accept that the national insurance surcharge is a tax on jobs? Does he accept that when he and his Government introduced it unemployment was rising, not falling?

Mr. Shore

I do not deny that it is a tax on jobs. The point that I am making, which is a fair one, is that when we judge the impact of a tax it is sensible to look at the overall effect of competitiveness, because that is what it is all about. There are different ways of raising tax. If we are using a tax—which I agree is a tax on jobs, and increases costs—at a time when the exchange rate is, by all historical standards, highly competitive, we can hope to do it with far less damage to our trade position than we would in other circumstances. It may have other adverse effects.

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

Does the right hon. Gentleman agree that, first, the level of the pound is not the only test of competitiveness? Secondly, does he agree that apart from that, whatever the comparative merits of the situation now or then may be, and whatever the position in 1977 may have been, unemployment was rising then—although it fell later—and, other things being equal, the effect of the tax that the right hon. Gentleman's Government introduced was to be a tax on jobs? What was the point of it?

Mr. Shore

The increase in unemployment had broadly stabilised before the introduction of the tax. I remember this well. Unemployment rose rapidly in 1975 and the first part of 1976. I feared greatly that unemployment would rise further in 1977 but it did not. For whatever reasons the Committee may, in retrospect, wish to deduce, unemployment was on a falling trend at the time of the general election.

Mr. Chris Patten (Bath)

rose——

Mr. Shore

I do not think that we need a debate. I am trying to make what I hope is a common-sense point. It seems to be difficult to get a few simple points across.

Mr. Patten

rose——

Mr. Shore

I am trying to answer the point made by the Chief Secretary. I had begun to do so, and I was going on to make a further point, which is highly relevant. The right hon. and learned Gentleman correctly pointed out that there were other factors that influenced cost. Therefore, we have to look at their totality. I agree with that, but there are two additional points, which I hope will reinforce my central point.

Against the basket of currencies at the date when the national insurance surcharge was introduced, taking 1975 as 100, the pound was at about 80 both in the spring of 1976 and at the time that the further increase of national insurance took place in 1978. When I urged the Chancellor a year ago to cut the national insurance surcharge, the pound stood against the basket of currencies at 99.2—in other words, at a level 25 per cent. higher than it was when the surcharge was introduced, and, indeed, about 25 per cent. higher than it was when it was increased.

Today, although the pound has eased against the basket of currencies, it is well above the level—12 per cent. or so—that obtained in 1977 and 1978. The comparison of the pound against the basket of currencies is not the full measure of the loss of competitiveness in British industry during recent years. As we all know, the pound, particularly in the past three years, has reflected both the high interest rate resulting from the Government's monetarist policies and the fact that Britain has moved into surplus as an oil producer. The pound has gone higher than it might otherwise have done if it was simply reflecting international perceptions of our real competitiveness.

If one takes 1975 as 100, the relative unit labour costs and international competitiveness of the United Kingdom has moved from just on 90, when the surcharge was introduced in April 1977, to 96 when it was increased in October 1978, to no less than 140 when I urged the Chancellor to cut the national insurance surcharge last year. As the House well knows, our competitiveness on the same index today stands at approximately 130—a 30 per cent. loss. That is the appalling measure of the loss of competitiveness.

Mr. Dennis Skinner (Bolsover)

Another way of illustrating my right hon. Friend's point about the relationship between the basket of currencies then, the state of the pound now and competitiveness is what has happened as a result of the exchange rates across the whole range of currencies now. There have been bankruptcies and liquidations on a massive scale in the last two or three years of the Tory Government. About 8,600 bankruptcies and liquidations occurred last year. That is a direct result of our uncompetitiveness and bears out my right hon. Friend's point admirably.

Mr. Shore

My hon. Friend the Member for Bolsover (Mr. Skinner) is absolutely right. He anticipates my acknowledgement of that by only a single sentence. I was about to make one or two additional points to those that have been so properly made.

The loss of competitiveness is the main reason for the disaster that has struck British industry and the British economy during the past three years. The measure of that is the fact that no fewer than 20,000 firms have gone into liquidation since May 1979. Our manufacturing industry is still about 20 per cent. below the output levels reached in the summer of 1979. Our gross domestic product is about 6 per cent. below what it was when the Government took office, and that is now almost exactly three years ago.

Mr. Brittan

Before the right hon. Member for Stepney and Poplar (Mr. Shore) proceeds, will he answer my question? Even if the right hon. Gentleman is right in saying that the position was so much better in 1977, what was the point in introducing in 1977, and subsequently nearly doubling, a tax which would have the effect of increasing industrial costs and thereby reducing competitiveness?

Mr. Shore

Two things were happening at the same time. First, there was the usual problem of the need for an increase in revenues. The second problem was to do that in a way that did not affect the competitiveness of British industry. That competitiveness was increasing because the pound was floating and floating down. Many hon. Members complained about that at the time.

Mr. Brittan

rose——

Mr. Shore

No, I am sorry, I will not give way.

The right hon. and learned Gentleman should be a little more modest about himself and his contribution. The only point of my debating what happened in 1976 is to squeeze what juice there is from the past which would be helpful in understanding the present. I am trying to explain to the Committee why I think that it is important, given what has happened to the exchange rate and to competitiveness in British industry, that we should do something positive about one measure which can operate directly upon it.

The right hon. and learned Gentleman seeks constantly to put the arguments aside and invite me to look upon what happened five years ago in very different circumstances. I am prepared to do that only to the point that is relevant. In his smug arrogance he must not think that what he has to say is of great concern to me or that I am worried about his popping up and down at the Dispatch Box, because I am not.

I want to go on to say something more directly to the Chief Secretary. As I have just given the appalling summary facts of the situation in Britain, I expect him to tell us how splendidly we are doing. Of course, he will find some statistical evidence which will give him—but not the sceptical House and industry—some cause for hope and comfort.

I understand that the Chief Secretary reads Mr. Sam Brittan, although he tells us that he does not always agree with him. I thought that Mr. Sam Brittan said all that needs to be said about the Chief Secretary's continued raiding of statistics to support his somewhat unconvincing optimism. Yesterday, he summed up the situation as follows: The economy has fallen off Mount Everest and climbed up Box Hill. That is not had, is it? It saves us an awful lot of trouble going over the Chief Secretary's carefully selected indicators and tortured figures.

Far from torturing figures and selecting evidence, I thought that I would let the Committee know the latest state of play as the CBI sees it. The Press Association tape says: In stark contrast to the optimism from the Government about an economic recovery the CBI says in its survey published today: 'There is still no evidence of any noticeable recovery in activity being under way. Demand is stagnant and nine out of ten firms are short of orders. Looking ahead, only a very slight increase in orders and output in the next four months seems likely.' The national insurance surcharge reduction at least addresses directly the problem of competitiveness. A cut from 3.5 per cent. to 2.5 per cent. is far from impressive. Its effects are further weakened by excluding the whole public sector from the benefit of the reduction. What appears on the face of it to be a reduction of £1,000 million in national insurance surcharge payments in 1982–83 is in part illusory since public sector employers are forced to forgo other forms of Government assistance, equivalent to about £360 million this year. Therefore, we are talking of the sum of £640 million. That will have inevitably only a minor effect on trade competitiveness, on the cost of living, on job creation and even on assisting the appallingly low level of profitability from which the whole of British industry is suffering.

As the House will note, our amendment proposes to substitute in clause 128(1) the figure of 1.5 per cent. for the proposed 2.5 per cent. That would mean a reduction of two percentage points—more than half of the national insurance surcharge. We did not follow through the amendment as the Government have done with their proposed change in subsection (2) in order to give the full year's benefit of what we proposed as from 2 August. Obviously, if the Government were, by some strange chance, to accept our major amendment, we should have no difficulty in accepting an appropriate Treasury amendment to subsection (2).

5 pm

In proposing a 2 per cent. cut in national insurance surcharge, we would have no intention whatever of seeking a discriminatory clawback from the public sector. We are talking about a genuine reduction of about £2,000 million this year and of roughly £2,400 million in 1983–84.

I asked the Chancellor of the Exchequer for an estimate of the effect of his proposed cuts in the national insurance surcharge, but my request was turned down for the usual reasons. However, using the Treasury model, we can give a broadly accurate estimate of the effects not only of the Government's proposals but, more relevantly, of our own. They are worth while. We should gain 2½ per cent. in trade competitiveness, reduce the cost of living index by about 0.75 per cent., create 50,000 new jobs in two years, assist profit margins in public and private industry and, after the first year, place a burden on the PSBR not of £2,000 million but of just over £1,000 million.

To the extent that the Chief Secretary is disciplined by his own worries about the size of the PSBR, I think that his experience in the last two years must surely have taught him that it is unwise to invest too heavily in that particular indicator. In the first full year the Government foresaw a PSBR of about £8½billion and ended up with £13½ billion. Last year they estimated a PSBR of about £10½ billion—that was what the Chancellor told us in his Budget speech—and within four weeks it was already down to about £8½ billion.

Why figures have to be revised so dramatically in so short a time I do not know, but, taking the two years together, surely they give no confidence whatever for using the PSBR as one of the two major regulators or measures of the economy. We have to contrast them with the real world of numbers of people out of work, the amount of investment and the rate of inflation. I was about to mention the size of the balance of payments—exports and imports—but that is still rather concealed by the inability to get up-to-date statistics. When there are those real indicators, why on earth the Government should pay so much obeisance to indicators of proved lack of reliability I do not know.

If the cost of what we are proposing is an additional £1,000 million on the PSBR, I cannot see why the Chief Secretary should have any objection whatever, because it is well within his margins of error of the last two years.

I do not wish to over-estimate or over-stress the importance of the national insurance surcharge. What we have proposed is undoubtedly worth doing. We have the support of the CBI, which also calls for a 2 per cent. cut in the national insurance surcharge, as well as several other measures to assist our terribly depressed industry.

At this point I ask the Chief Secretary to clarify the Government's thinking on the point to which I alluded a short time ago. Why have the Government decided to claw back the benefit of the national insurance cut from the public sector? I can accept that central Government and local government costs do not enter directly into exports and into trade—they have an indirect effect of course—but it is at least plausible for the Government to argue that the trading sector of British industry should have a priority in a national insurance surcharge reduction.

What I cannot understand is why the nationalised industries—many of which are in a trading situation, and many of which are earning money in direct exports or import savings—should be denied this particular benefit. I am right, am I not, in saying that the nationalised industries are not to have the benefit of the cut in national insurance surcharge but are to have a corresponding adjustment of their external financing limits or whatever the regulatory mechanism may be?

What on earth is the justification for not assisting British Steel through a cut in the national insurance surcharge? What possible justification is there for not extending a national insurance surcharge cut to British Airways, which faces massive international competition on nearly all its operations? How on earth can the Government discriminate—if they have—against BNOC while the benefits of a national insurance surcharge reduction are available to its oil company competitors?

Unless the Government can give convincing reasons when the Chief Secretary replies, we must conclude that once again we have an example of ideological hostility to the publicly owned industries—the same hostility as is expressed in the privatisation schemes that the Government are still hell-bent on pursuing.

I turn to the economic problems to which the measure—the proposed reduction of national insurance surcharge—should relate. I have already said that we have suffered a major loss of competitiveness of no less than.50 per cent. We have, moreover, just over 3 million registered unemployed. The outlook for the economy is for only the most modest upturn, and even that is seriously in doubt. Against that background, the Government's proposals—their £640 million cut, given only to private sector firms—are almost irrelevant. National insurance surcharge plays its part in competitiveness but there are, as I have said and debated with the Chief Secretary, many other factors also involved.

Last year, the Government placed their main emphasis on reducing interest rates. The only good news in the Chancellor's 1981 Budget was the reduction of minimum lending rate from 14 per cent. to 12 per cent. That was abandoned a few months later. Today we still have MLR—or rather its equivalent—at 13 per cent., and we know that every 1 per cent. increase in interest rate is equivalent, in cost terms, to about £350 million to £400 million a year for British firms.

The Government still remain imprisoned by their own monetarist doctrines. Although sterling M3 has ceased to be the single guiding light, the doctrine of monetary target, supported by unstated exchange rate target, is still at the heart of their economic policy, and it is that which has prevented what is essential for the revival of our economy—a cut in interest rate and the achievement of a much more realistic and competitive exchange rate for the pound. Yet those are only the start of a policy for revival.

We need interest rate and exchange rate policies which will serve the interests of our industry, but we shall need much more than that if we are to escape from the disasters of the last three years. We shall need active intervention on the supply side of the British economy. We shall need the reintroduction of exchange controls. We shall need a far more active policy to encourage British exports and import replacement.

We recommend to the Committee our amendment on the national insurance surcharge, in the full knowledge that it is only a first and minor step in the large task of reconstruction of the British economy that has still to be undertaken.

Mr. Kenneth Lewis (Rutland and Stamford)

The right hon. Member for Stepney and Poplar (Mr. Shore) said that last year he had pressed the Government to reduce the national insurance surcharge. Conservative Members also did that and we like to believe that we had some influence with the Government. We were pleased when they reduced the surcharge by one point. It just goes to show the right hon. Gentleman that this is a Government of good works. Although they may come to those good works slowly, they get there gradually with a little prodding from time to time by Conservative Members and perhaps a little help from others among the Opposition.

There is no doubt that the national insurance surcharge is a tax on labour and therefore a tax on employment. It is a bad tax, but the right hon. Gentleman and his hon. Friends cannot speak today other than with their tongues in their cheeks, because they introduced the tax and compounded the problem by increasing it. Conservative Members are well aware that when any Government bring in a new tax that tax can become bedded down. When that tax is increased, it becomes bedded down even more and it is then much more difficult for any Government to reduce or to remove it. Despite that, I wish that in the Budget the Government had removed the surcharge tax——

Mr. Needham

They should have done.

Mr. Lewis

My hon. Friend says that they should have done. I can say only that the Government did not then know that they had saved £2 billion on the PSBR. If they had known that, perhaps they would have removed the tax. Their arithmetic was not correct, although it is perhaps better for my right hon. and learned Friend the Chancellor's arithmetic on the PSBR to be right after he introduces his Budget than to be right before, because at least he will have the benefit of more money in hand than he originally believed he would have.

Mr. Needham

Can my hon. Friend tell the Committee what he means by "right"? My right hon. and learned Friend the Chancellor got his arithmetic wrong, although perhaps in the right way.

Mr. Lewis

I presume that my right hon. and learned Friend the Chancellor will be glad to have found £2 billion that he did not expect to have. Of course, perhaps Treasury officials knew about it before the Budget.

The tax is especially bad at this time. If it is not reduced during this Parliament, assuming and hoping that we can bring down unemployment, we could arrive at a position where a future Government would actually be adding to the tax in order to take inflation out of the system again, which is why it was originally introduced. We would then be adding to a tax that was already too high. Our objective must be to reduce the national insurance tax to a proper level and to have no surcharge, so that we are not faced with a surcharge that has built into it an increase which was meant to be temporary, which should have been temporary, and, therefore, which we hope will be required only for another two years, or even less.

Anyone who runs a business knows that when one calculates a salary one must add the charge for national insurance. As wages rise with inflation each year, the national insurance charge increases. Not only must employers consider whether they can take on extra labour, but in recent years this surcharge has created a situation in which many businesses, especially small businesses, have laid off workers. The increase in the national insurance charge, including the surcharge, for the entire work force has meant—some business men have calculated it deliberately—that a small business man can get rid of two or three workers and by saving the wages of those workers pay the national insurance charges for the rest of his employees.

5.15 pm

That practice is bad and still goes on in many parts of industry. Although, therefore, it was a considerable help for my right hon. and learned Friend to reduce the surcharge by his Budget, I hope that it will be possible in the next Budget for the Treasury to consider removing the surcharge. If my right hon. and learned Friend the Chief Secretary says that that will not be possible, he should examine how this national insurance tax—for that is what it is—is organised. At the moment, the employer must pay a flat amount on his entire wage bill. Would the Treasury consider arranging for the tax to be based, as income tax, on a lower level, a middle level and a higher level, or at least on two levels, so that there is perhaps a 6 per cent. and a 12 per cent. rate? The 6 per cent. rate would be charged on a salary of up to £50 a week, or half the national average pay, and the 12 per cent. rate on a salary beyond that.

That would mean that the employer would pay half the national insurance rate for lower-paid workers, which includes the young. It would encourage employers to employ young people. As we have heard from time to time in the House, some youngsters are paid too much and we do not employ enough of them because their wages have been pushed up by wages councils. They are being priced out of jobs. Young people are finding it difficult to obtain jobs. Employers are deterred from taking on new people in skilled jobs or in apprenticeships because they look at the salary that they must pay and then the national insurance rate, including the surcharge.

If the Treasury cannot remove the tax altogether, perhaps it will consider remodelling it. I should be somewhat dismayed if the surcharge were to continue into the next Parliament, because it might become permanent. Certainly if there is a change of Government, which I do not anticipate, the Labour Party will do exactly what it did on the last occasion, which was to increase the surcharge to the same level as when the previous Labour Government left office. We should not risk that possibility, and we should get rid of the tax during this Parliament. If we do not get rid of it, we should at least recast it so that it will help employers to take on labour.

Unemployment is increasing. It will not decrease, other than marginally, for the next 12 or 18 months. It is important that we provide a stimulant for new jobs. This is a payroll tax. It is a bad tax. I hope that my right hon. and learned Friend will see that it is destroyed before the end of this Parliament.

Mr. Richard Wainwright (Colne Valley)

I am happy to follow most of the trenchant speech of the hon. Member for Rutland and Stamford (Mr. Lewis) against the entire national insurance surcharge. In spite of its desiccated title, this tax is surely a highly suitable subject for debate on the Floor of the House. Any tax that raises about £3½ billion in a full year by taxing jobs should be thoroughly thrashed out when there are more than 3 million unemployed and some estimable forecasters are predicting 4 million unemployed in a few years' time.

I speak to amendments Nos. 24 and 25 in the names of my right hon. and hon. Friends in the Liberal-Social Democratic Party alliance. The amendments are associated with our amendment to schedule 17 that is to be discussed in Standing Committee. Together they provide not only for the abolition of the national insurance surcharge but for the repeal of the National Insurance Surcharge Act. That is an important part of our case. We are anxious to extract what in technical jargon is called the utmost announcement effect of our proposals.

Employers who are considering taking on apprentices and other workers will then know that the tax is to be ended and that the statute enabling it to be levied is to be repealed. Therefore, their decisions will not be made a nonsense by the Government in a year or two again putting up the surcharge, which is what so often happens in our Box and Cox, Punch and Judy system of Government. However, I must make it clear that in repealing the Act and abolishing the tax there will need to be some temporary clawback from the public sector's tax reduction.

There is widespread distaste for the tax in most parts of the House. The hon. Member for Rutland and Stamford is a witness to that. On 8 December last year, during our debate on the White Paper on public expenditure, the right hon. Member for Chelmsford (Mr. St. John-Stevas) said: The best thing would be to reduce—or, better still, abolish—the national insurance surcharge".—[Official Report, 8 December 1981; Vol. 14, c. 780.] Earlier, on 28 October 1981, during a debate on the Government's economic policies, the hon. Member for Staffordshire, South-West (Mr. Cormack) said: to phase out the national insurance surcharge would not amount to a craven volte face by the Government, any more than it would produce paradise and plenty tomorrow."—[Official Report, 28 October 1981; Vol. 10, c. 926.] It is not difficult to see why there is this widespread distaste for the tax. It is undoubtedly an ally of increasing unemployment. The right hon. Member for Stepney and Poplar (Mr. Shore) gave some expected effects of the reduction that he proposes as shown by the Treasury model. The CBI has estimated the number of jobs that are likely to be created in due course—although not immediately because there is bound to be a time lag—if its proposals for a further 2½ per cent. cut are adopted. It estimates that if NIS is abolished from next year the benefit will be an extra 200,000 jobs after approximately two years. Although we all know that unemployment is slow to respond to any fiscal change, and does so only in relatively small measure, 200,000 jobs are surely a boon not to be ignored.

It is important to bear in mind the cost to the Revenue. For that reason we accompany our proposal for abolition with a temporary clawback from public sector employers. The net cost to the Revenue of the Liberal-SDP proposal for abolition, with temporary retention of clawback, is similar to the cost of the Labour Party proposal for a reduction and at the same time dispensing with clawback. It is a nice question which of those two courses is the more helpful at present.

I accept that clawback is discriminatory. I should not want to see it going on for many years. However, we maintain that the psychological effect of announcing the repeal of the surcharge Act would be well worth the suffering and disadvantages of clawback for, say, two or three years, in order to keep the initial cost within bounds.

We estimate that if clawback of the benefit of abolition continues during the next 12 months from the nationalised industries and from central and local government, the cost of abolition in 1983–84 would be about £2,240 million and in a full year £2,676 million. That is certainly within the borrowing requirement calculations that we put forward when Budget judgment was being discussed. We believe that could well be carried, especially in the light of more recent revelations of a much smaller public sector borrowing requirement than the Chancellor of the Exchequer was using in his pre-Budget arguments.

We do not regard clawback as a desirable continuing feature. To claw back a tax relief from the nationalised sector that has been granted to the rest of industry is an act of hostility if it is protracted. For example, in the Government's proposals the external financing limits for nationalised industries will be reduced by about £92 million in respect of clawback. For that to continue for a substantial time would be a most undesirable precedent. Nationalised industries would be entitled to ask what would happen if corporation tax were reduced at some time in the future. Would we be told that nationalised industries must not expect any benefit from that? BNOC and other profit-making nationalised industries might feel that that benefit would be clawed back from them. We therefore regard clawback as a strictly temporary measure, simply to keep the cost within bounds.

We have had cited in the debate support from the CBI for a substantial reduction leading to abolition, but I should like to refer also to the attitude of the TUC. The right hon. Member for Stepney and Poplar did not introduce that aspect. The attitude of the TUC is, to Liberals, a matter for regret. In its economic review for 1982 it accepts that the national insurance surcharge is not a good tax and that it should be reduced or abolished, but it firmly prefers a reduction in the rate of VAT from 15 per cent. to 12.5 per cent. It is, therefore, only fair that the Committee should be aware of an alternative tax reduction proposal that comes from an important if not wholly representative source.

5.30 pm

I take issue with the TUC's judgment. Although a reduction in VAT at a similar cost to the Revenue would help to reduce the general level of prices, it would do very little immediately to increase the number of jobs. I would have hoped that the TUC would have felt a greater responsibility towards the unemployed, even though temporarily out of union membership, than going straight away for a reduction that would largely be to the benefit of the consumer.

Our proposal is that this surcharge tax should be abolished and that clawback should remain from the nationalised industries for one year, and perhaps for two years from central and local government. We believe that the surcharge Act should be repealed so that employers who may be considering the possibility of taking on additional people, especially young people, would know that the threat of being taxed for providing jobs would have wholly disappeared.

Mr. Needham

I agree with my hon. Friend the Member for Rutland and Stamford (Mr. Lewis). I do not think that the Opposition have many credentials for proposing the amendment, as they originally introduced the surcharge.

One wonders why it was called the national insurance surcharge. I believe I am right in saying that it does not go into the national insurance fund, but rather into the Consolidated Fund. Why on earth call it a national insurance surcharge if it in no way ends up to the benefit of the recipients of that fund? Perhaps at some stage the Opposition will give us an answer.

I take the point made by the right hon. Member for Stepney and Poplar (Mr. Shore) that unemployment may or may not have been rising in 1977. At any rate, it levelled off and the pound at that time was more competitive. But surely the right hon. Gentleman would agree that it does not alter the fact that as a tax on jobs it would not benefit employment. North Sea oil was not that far away on the horizon in 1977, and surely this was a tax that sooner or later would affect employment and competitiveness.

I feel I have some right to bring this matter to the attention of the Committee, as I am one of those who must pay national insurance surcharge in order to retain the levels of employment in the companies that I help to run.

I am absolutely certain that my right hon. and learned Friend had no intimation that the outturn of the PSBR would be £2 billion less, although the CBI felt that it might be considerably less than the £10½ billion estimate. But given that my right hon. and learned Friend had had foresight, would he have been prepared to reduce the national insurance surcharge even further than he did? He may well say that that was last year and that one must look at the PSBR for this year, but having got it wrong in the right way perhaps he could have taken a risk in that direction.

I must be honest with my right hon. and learned Friend. There are those of us in industry—I am afraid to say that the feeling is widespread—who have some doubts whether members of the Treasury Front Bench have a real understanding of the problems of industry.

I congratulate my hon. Friend the Member for Grantham (Mr. Hogg) on his promotion to behind the Front Bench. No doubt it will not be long before he hops another step forward, and deservedly so. However, my hon. Friend is on the way to becoming a learned gentleman rather than an industrial gentleman. One of the concerns among people who have spent their lives in industry is whether the Government have a feel for the needs of the manufacturing base, particularly compared with our major competitors such as Japan, Germany and France who seem to be able to work together towards an industrial strategy rather better than us.

Mr. Chris Patten

Will my hon. Friend say something about the industrial experience of members of the Opposition Front Bench?

Mr. Needham

I cannot say much about that, but they look like men who have spent many years on the factory floor. No doubt they will have an opportunity later to explain their industrial experience.

Mr. Robert Sheldon (Ashton-under-Lyne)

I suppose I ought to respond. Admittedly, it was a number of years ago, but not only was I an engineer but for a few years I was also a machine shop manager.

Mr. Needham

I am grateful to the right hon. Gentleman for answering my hon. Friend's point. That does not alter the fact that the right hon. Gentleman should have opposed the introduction of the national insurance surcharge in 1977.

I come back to what I was saying about industrialists, some of them now former industrialists, who backed the Government before the general election. I am afraid that some of them must feel like so many of those Italian noblemen who were invited to dine with the Borgias. They eagerly looked forward to the sumptuous party, but not many of them were around the next day to say how wonderful it had all been.

Mr. Douglas Hogg (Grantham)

That is not actually very funny.

Mr. Needham

I am grateful to my hon. Friend for his sedentary intervention. The lack of novelty in what I say does not alter the fact that the Treasury Front Bench should not confuse a summer vacation job in the meat department of Harrods between law exams, or a quick trip around a factory in their constituencies, with a basis for an understanding of industry.

What is happening to those who run our manufacturing base? They are beset by a lack of competitiveness, which has not only been the fault of managers paying their workers too much. Manufacturing industry is constantly reviled for overpaying its workers. I shall not go into what the Government have done with their pay policy, but we are reviled for overpaying our workers. If that is the case, why are British industrial wages among the lowest in the industrial world? Perhaps it is because the rise in the value of the pound has had something to do with competitiveness.

The value of the pound now compared with our inflation rate and those of our competitors, as my right hon. and learned Friend well knows, has massively undermined the competitive base of British industry. It has had two other consequences. Good companies as well as bad have gone to the wall. We should not forget that. Let me give my right hon. and learned Friend a personal example. One of the companies in which I am involved manufactured attractive trays for the German market. The hon. Member for Workington (Mr. Campbell-Savours) was involved in the same sort of industry——

Mr. Jack Straw (Blackburn)

Knick-knacks.

Mr. Needham

The hon. Member for Blackburn (Mr. Straw) may think it amusing, but that industry created jobs, obtained orders and got exports. They were beautiful knick-knacks that were well received in the German market. However, as a result of the change in the exchange rate, which was the equivalent of 20 per cent. increase, and the inflation rate in Britain, we lost the orders. We were no longer competitive. Six months ago, when the pound had depreciated to some extent, we received inquiries from the German customer once more. However, we were no longer in the tray business. Those whom we had employed were unemployed. It is impossible simply to turn on a tap that has been permanently turned off.

As my right hon. and learned Friend the Chief Secretary knows, the result has been an undermining of the economy's capacity for reflation. The companies no longer exist. For example, Lansing Bagnall started the recession with about 200 subcontractors. I believe that 27 of them have now gone out of business. Some of them were general engineering companies that could be replaced, but others were specialist companies that made particular parts for Lansing Bagnall. They cannot be replaced. Last year, Lansing Bagnall's output was 33 per cent. of that in 1979. At the beginning of this year there was a slight upturn. My right hon. and learned Friend may say that it was more than that, but in Lansing Bagnall's case it was slight. Its order book increased from 33 per cent. to 40 per cent. and it immediately started to run into production difficulties because of a lack of available capacity among its suppliers. British industry has slimmed down and returned to some sort of profitability on a lower base. However, any chance of a major increase in output will run up against immediate constraints.

The question of productivity is crucial to this debate. We are told that productivity in Britain, or lack of productivity, has been caused by overmanning. Of course there is some truth in that, but if our wage rates are half those of our competitors we can live with some overmanning. It is important to ask what effect overmanning has on productivity and how much demarcation disputes, shoddy work, strikes and poor management affect productivity. Lectures on overmanning, demarcation disputes, shoddy work, failure to deliver on time, strikes, and poor management are trotted out year after year and month after month by those who, by and large, have no experience of industry.

We are now told that a bracing new climate has led to an increase in productivity that has not been seen in Britain for 100 years. I am prepared to accept that there has been some change in the attitude of British industry, although I do not know how long it will last. I accept that dead wood has been removed. However, it should be remembered that the companies that remain are the leaner, fitter and more successfull companies whose increases in productivity are anyway probably higher than the national average. Productivity is affected not only by overmanning, demarcation and all the other hackneyed phrases, but by plant utilisation, the building up of stocks, proper marketing and greater confidence in the fact that regular orders will flow. Above all, higher profits are required.

The profit base is being restored but is still pitifully low and, compared with our competitors, is virtually non-existent. When a company starts to lose profitability, its first step is to cut areas that are crucial to its future. Training goes straight out of the window. As it is hot needed immediately, nothing is done about it. Investment is cut and the plant is run for longer. Research and development is cut because it cannot be afforded. Recruitment stops. A company will concentrate less on marketing and packaging and will try to cut corners. All those elements are more important to increasing productivity and the success of a company than the lectures that we are constantly given on wage rates, overmanning and so on.

5.45 pm

How can my right hon. and learned Friend the Chief Secretary help to reduce industry's costs? The CBI rightly said that we must reduce industrial costs and help demand within industry. That cannot be done too quickly because, as my right hon. and learned Friend might say, inflation would return, with all the other problems involved. The abolition of the national insurance surcharge is the most sensible and effective answer. In the outturn of the public sector borrowing requirement we saw that that could have been done. It is all very well for my right hon. and learned Friend and his colleagues constantly to cajole and sometimes bully industry. It is always being told, "Yoke a risk, be an entrepreneur, have a go, put your money where your mouth is—although you have borrowed up to the hilt". However, although my Government are meant to represent private industry, their response to taking a risk is, "Oh, if it is £500 million more on the PSBR, how will it affect the City, what will the gnomes of Zurich do, what will happen to the interest rate? Oh no, we cannot take a risk with £500 million out of £115 billion".

Those of us in private industry are told to get out into the market. We are told, "Do not pay your men any more, but get on with the job". The idea of this Government taking a risk can be likened more to Sir Charles Villiers' last year at British Steel than to most entrepreneurs in Britain. I hope that we shall hear less oratory, cajoling and lecturing and receive a little more assistance. It would be very nice if that could be done by abolishing the national insurance surcharge today.

Mr. David Winnick (Walsall, North)

I shall be interested to see whether the hon. Member for Chippenham (Mr. Needham) joins us in the Lobby at the end of the debate. He would be very welcome. There is always much to be said for combining one's words—which we approve of—with one's vote. However, we shall see.

Mr. Skinner

He will back Maggie.

Mr. Winnick

My hon. Friend is somewhat cynical, but I shall let that pass.

Mr. Skinner

I bet that I am right.

Mr. Winnick

Although the Falkland Islands conflict dominates politics at the moment, the issues under debate will be with us for a long time. Given the state of British industry, we must all be concerned about any assistance that can be given to revitalise industry. Before the war the then Governor of the Bank of England, Montagu Norman—whose name will be familiar to many hon. Members—gave evidence to an inquiry and, after admitting that unemployment was deliberate policy in certain economic circumstances, refused to accept that there was anything that the Bank could or should do to safeguard workers in industry from the effects of such policies. This Government often give the same impression. They say that their policies are necessary and that it is too bad for the casualties of such policies, the unemployed. They say that there is nothing that they can or should, do.

Despite great pressure from both sides of industry and from the Opposition, Ministers have until now refused to accept the need to reduce the national insurance surcharge. I see from the press that at a meeting earlier this year—described as well-attended—of the Tory finance committee, the director general of the CBI said that industry was expecting a cut in the national insurance surcharge in the Budget. I very much doubt whether the cut that has taken place is one which the CBI will consider sufficient.

In another statement the CBI said that it would prefer the abolition of the surcharge and that, failing that, it would like a reduction to 1½ per cent. It is asking for the reduction proposed in the amendment moved by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore).

It is nice for the Labour Opposition to be in agreement with the CBI on occasions. I am sure that that joint approach from the CBI and the Labour Benches will have some impact on industry; it certainly ought to. Understandably, hon. Members have referred, as a debating point, to the fact that a Labour Government introduced the surcharge and increased it. I was not in the House at the time, but, in fairness, I must say that had I been here I should have voted with the Labour Government. I shall not pretend otherwise, but I find it difficult to believe that my colleagues were full of enthusiasm at the time for the national insurance surcharge.

However, the situation was different then and I do not believe that, if unemployment had been anywhere near the present level and if industry had suffered in the way that it has undoubtedly suffered in the past three years, Labour Members would have followed Ministers into the Lobby to introduce such a surcharge. One has to accept that present circumstances are quite different.

The hon. Member for Chippenham was right when he spoke about the devastating effect of the exchange rate. The level of the exchange rate in the past two to three years has undoubtedly done far more damage to industry than the national insurance surcharge. The exchange rate has been responsible for many of the job losses that Britain has suffered recently.

Mr. Skinner

Not all of them.

Mr. Winnick

By no means, but the exchange rate has undoubtedly had a very negative effect and been responsible for a great deal of unemployment.

Manufacturing industry pays nearly two-fifths of the surcharge. In a reply given on the Floor of the House in February the Secretary of State for Industry said what we all knew—that there had been a drop of about 16 per cent. in manufacturing output since the Government took office. I well remember the Government's first Budget. The then Secretary of State for Industry—now the Secretary of State for Education and Science—spoke of "galvanising industry". I well remember the word "galvanising". We have not seen much galvanising of industry, but we have seen much undermining of British industry and a resulting loss of jobs for our constituents.

It is understandable that the effects of the exchange rate, the national insurance surcharge, and so on, have had the greatest impact on manufacturing industry. In a reply yesterday about unemployment, the Secretary of State for Employment said that since the Government took office there had been an increase in unemployment of just under 118 per cent. That is disturbing enough, but in the West Midlands—in many respects the heartland of the manufacturing and engineering industries—the increase in unemployment has far exceeded 118 per cent. In my own travel-to-work area unemployment has risen by nearly 240 per cent. since May 1979. We find the same picture in other travel-to-work areas in the West Midlands. Unemployment has increased substantially and by more than the national average since the Government came to office.

We have to consider what can be done to increase the number of jobs. The hon. Member for Colne Valley (Mr. Wainwright) said that the TUC put more emphasis on reducing VAT than on a reduction of the national insurance surcharge. The TUC may or may not be right, but in the absence of a reduction in VAT a cut in the surcharge will undoubtedly help to create more jobs.

The present level of unemployment must be substantially reduced. I asked the Prime Minister about unemployment in my area and all that she had to say in a written answer was that she was concerned about the creation of soundly based jobs, but that that depended on the ability of industry and commerce to meet more effectively the needs of consumers at home and abroad."—[Official Report, 4 May 1982; Vol. 23, c. 19.] Those are mere platitudes and cliches which do not come to grips with the devastation and tragedy that have occurred in so many parts of the West Midlands in the past two or three years. A reduction in the national insurance surcharge would help industry to compete more effectively with overseas companies and would also assist the construction industry, which has also suffered so much from Government policies.

Many of us are appalled that the Budget and the Finance Bill accept as inevitable the present level of unemployment and the fact that it will remain at that level for some time. Indeed, the Budget accepts that unemployment will increase substantially in the next year. We wanted a different sort of Budget and Finance Bill. We wanted measures to achieve what the Opposition and the TUC have been pressing for—a degree of reflation, a substantial reduction in unemployment and an incentive to employers to take on labour. No one can say that the Bill will do anything to reduce unemployment substantially.

Mr. Skinner

It is not supposed to.

Mr. Winnick

My hon. Friend is right, and he has highlighted the basic weakness of the Bill and all the previous Finance Bills introduced by the Government.

Mr. Skinner

The reason why I said that the Budget is not supposed to reduce the numbers on that pile of human misery known as the dole queue is that the Government set out from the beginning, in 1979, to shift the balance away from those who work for a living and towards the boss class. They have succeeded in that aim by putting 3 million to 4 million people out of work. The Budget is a continuation of that policy. The Government want employers to fill the coffers of the Tory Party at the next general election, as they did last time. Indeed, the Tories hope to get even more this time. That has been the aim of the policy in all their Budgets.

Mr. Winnick

No one can deny that the creation of unemployment has been deliberate Government policy. The hon. Member for Bath (Mr. Patten) is amused by that, but surely he will not suggest that when the policies were put forward in 1979 and 1980 Ministers believed that they would reduce unemployment. They are not that stupid. They understood that the policies would increase unemployment. They argued that that was the only way to defeat inflation and to make industry more competitive. We strongly disagree.

It is easy for hon. Members to talk in the House about unemployment, but, as we have said before—it needs repeating and emphasising—we should not underestimate the anger and frustration that unemployment has caused in many places throughout the country. However much we may be concerned about unemployment, it is easier for us than for those who are directly affected. The misery and frustration of the unemployed are bad enough, but there is also the psychological damage, because they do not know for how long they will be unemployed. There are people of our own age group who understandably say to themselves "Will I ever be able to find another job?"

The Budget and the Finance Bill are to be condemned because they do not offer any way or hope of releasing our fellow citizens from the misery of unemployment. We have talked about the 1,800 Falkland Islanders. I should be the last person to condone the aggression that took place. Their rights are important, and that dispute has to be resolved, but what about the elementary rights and the human dignity of those on the dole queues? We should not forget them, but, unfortunately, the Budget and the Finance Bill offer no guide.

6 pm

I do not suggest, any more than my right hon. Friend the Member for Stepney and Poplar would suggest, that reducing the surcharge further, along the lines suggested in the amendment, will resolve the problems of unemployment. There is a need for a more competitive exchange rate, for selective import controls and for planning agreements. I know that we shall not carry many Conservative Members with us, but those are the types of measures that would substantially change the position in British industry.

I noticed that a recent article in The Guardian, written by a member of the Social Democratic Party, was very pessimistic about Labour's plans. What is interesting about that article is that, even on the most pessimistic assessment, Labour's plans for jobs would substantially reduce unemployment. The article argued that there would be disadvantages such as inflation and the rest of it——

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

And an incomes policy.

Mr. Winnick

—although inflation has increased substantially under the present Government. The Government boast about the fall in inflation, but they have reduced it only to what it was when they came to office.

Mr. Skinner

Not quite.

Mr. Winnick

My hon. Friend says "Not quite" bat very nearly. That is nothing to boast about, and it has been achieved at the expense of so many of our fellow countrymen who are unable to find work and may not get work for a long time.

The Guardian article accepts, as most people will have to do, that Labour's plans for jobs, whether on an optimistic or pessimistic assessment, will do far more substantially to reduce unemployment than anything that we are likely to see from the Government. But we should take whatever assistance we possibly can. Although I mentioned the need for substantial measures, if reducing the surcharge further—the surcharge is undoubtedly a form of tax on jobs—will help to reduce unemployment and will provide more opportunities at least that is a move in the right direction. We shall support any measures that will reduce the present level of unemployment and allow people to earn their living, as the more prosperous do.

The Government will never be forgiven for bringing back mass unemployment—a form of curse which many believed would never return to our shores. The Finance Bill does nothing to undermine mass unemployment, but accepts that unemployment will increase more. For those reasons, the Bill is certain to be condemned.

Mr. Chris Patten

I welcome this opportunity to talk about the iniquitous national insurance surcharge. The debate has given us the opportunity to talk about some of the problems of British industry and to listen to the admirable bouncy speech about the entrepreneurial spirit delivered by my hon. Friend the Member for Chippenham (Mr. Needham).

Mr. Straw

It will be printed in Labour Weekly.

Mr. Patten

I am afraid that that is probably the only place where it will be reprinted, although it might be put in some of the Wiltshire papers which I am sure will want to carry copious extracts from it.

The debate also gives us the opportunity to touch upon one or two issues which go to the heart of some of the mole interesting and intellectual arguments about the Government's strategy. I think we can start on a note of agreement. We are all agreed that if we set on one side criteria such as ease of collection and certainty of collection, the national insurance surcharge is a rotten tax. I think that point is conceded by the right hon. Member for Stepney and Poplar (Mr. Shore) who was, of course, an adornment of the Government who introduced the surcharge.

I did not care much for that rather Jesuitical part of his speech in which the right hon. Gentleman tried to say that the national insurance surcharge was not a rotten tax when it was first introduced. At an earlier stage in his distiguished career, the right hon. Gentleman was director of the Labour Party research department. I am well acquainted with the type of speech that he made. I have had to write similar speeches myself in the past. It was the sort of speech where one tries to justify anything and everything one's party has ever done. It is debating stuff for women's advisory committees, although not the more intelligent women's advisory committees. I should like to excise that remark.—[Interruption.] My hon. Friend the Member for Grantham (Mr. Hogg) says quite rightly that I am not referring to the women's advisory committee in my constituency. The right hon. Gentleman's speech would have been better served if he had not made those remarks.

It is also pleasant to hear the surcharge denounced by those who in an earlier alliance were party to the increase in the surcharge in 1978. One might say that the national insurance surcharge was one of the fruits of that alliance, although perhaps not one of the more attractive fruits.

I have looked through the Hansard reports of the early debates on the surcharge. It is interesting to note how perceptive were the comments of my right hon. and hon. Friends. If one examines the speeches in those debates, one finds a roll of honour of the Treasury Front Bench today. Some of the leading lights of the present Administration made admirably perceptive and trenchant speeches denouncing the surcharge on all the usual grounds. I do not want to trouble the Committee by quoting those speeches extensively.

Mr. Campbell-Savours

Please do.

Mr. Patten

That would not serve anyone's interests, and certainly not my own.

It is worth recalling the arguments we made in Opposition about the surcharge. The one thing we did not do, bearing in mind the unhappy history of commitments on the selective employment tax, was to pledge ourselves to abolish it. Apart from that, we made it clear that we were not wildly keen on the surcharge.

The most robust and comprehensive denunciation of the surcharge was the representation on the Budget made by the CBI in January last year. The CBI said that the surcharge lowered British competitiveness, worsening our balance of payments by, in effect, levying a tax on exports but not on imports. It pointed out that the national insurance surcharge raised prices because it was a labour cost. It said that the surcharge was a tax on jobs and therefore increased unemployment because employers would not take on new workers so that they would not have to pay the tax. The CBI said that the surcharge squeezed profits and therefore reduced investment. The CBI did not point out, as it could have done, that, because of the surcharge's effect on industry's cash flow, it obliged companies to go out and borrow money and therefore, at least in a sense, had an effect on interest rates.

The CBI concluded: It would be difficult to devise a more damaging tax on business. It went on to say that it was interesting how often temporary expedients, which were, if I may borrow a phrase from another debate, introduced in lieu of public expenditure cuts, turned into permanent features of our tax system. That point was admirably made by my hon. Friend the Member for Rutland and Stamford (Mr. Lewis) in his characteristically wise speech.

We were all pleased that the CBI's pleadings and arguments this year at least made some dents in the Treasury's armour. I welcome the step, the excessively cautious step, that the Government took in cutting the national insurance surcharge in the Budget, but, in all fairness, one or two things should be said in the Government's favour. There was the extra ½ per cent. cut from August for one year on top of the 1 per cent. cut that also starts in August. That means that this year the national insurance surcharge will be cut by almost as large a figure as if we had made a cut of 1 per cent. over the whole 12 months.

The Government are entitled to point out the combined effect of national insurance contribution rates and the national insurance surcharge. For a couple of years they have shielded employers from increases in the national insurance contribution rates. The combined effect of the national insurance surcharge and the national insurance contribution has fallen in real terms. I suspect that it has also fallen in cash terms. Why, despite all that, were the Government not able to go further? They were not able to go further because of the PSBR, which was the restraint in the first place that obliged the former Chancellor of the Exchequer to introduce the surcharge.

As my hon. Friend the Member for Chippenham knows, I am not an unqualified supporter of the primacy of the PSBR in economic management. I believe that one or two other things, such as jobs, prices and output, are more important. I recognise that those who believe that the PSBR is the maypole of economic policy must have been delighted when they discovered a couple a weeks ago that last year the PSBR had been £2 billion less than they thought it would be a couple of months before. That must have come to them as the sort of shock that pools winners get—"East Surrey man wins £2 billion". We know the story.

We are also told that the good news—or bad news if one thinks that we should borrow more during a recession—will continue. Yesterday, Mr. Wilkinson, the economics correspondent of the Financial Times, reported: The Treasury is still trying to find out why borrowing last year undershot the target by £2 billion representing almost a quarter of the £8.6 billion borrowed. Although the full reasons for this remain obscure, officials are cautiously optimistic that a number of beneficial effects will carry through into this financial year. Perhaps the cautious optimism about 1982–83 will turn out to be justified. I would not put too much money on that, because presumably the people who are forecasting the figures for 1982–83 are the people who forecast last year's figures. Therefore, perhaps that would not be an ideal bet.

Nevertheless, the Treasury may be right. I appreciate that the PSBR is conceivably one of the things that gives it cause for whistling at the moment, as well as the forecast for inflation and the first stirrings of industrial recovery. The inflation forecasts do look extremely encouraging. Large parts of British industry are potentially more competitive than they were. That may start to show through as output picks up a little, although not enough to make much of a dent in unemployment.

If we want output to pick up more, if we want to make a bigger dent in the deplorable unemployment figures, and if we want to demonstrate that we are on a different path from the one that we have trodden for the past decade or more, we need to do two other things. Recently, the Financial Times said that those two things were without precedent in British economic history. The first thing that we have to do is to——

Mr. Skinner

Resign.

6.15 pm

Mr. Patten

I am grateful for the hon. Gentleman's urbane comment. Perhaps he would like to make a more serious intervention. Since I have been in the House, I have come to realise that the hon. Gentleman is an important part of the British constitution, like the ravens in the Tower of London. If he wants to intervene in my speech, I shall be happy to let him intervene intelligently.

Mr. Tim Eggar (Enfield, North)

That would be difficult.

Mr. Patten

I appreciate the difficulty.

If we are to get on to the more impressive path, the first thing that we need to do is to encourage a revival led by investment, although markets are depressed and there is little demand. The second thing that we need is a shift of real income from wages to profits without industrial turmoil.

As Professor Alan Budd said the other day, the first of those things is more difficult than we would like because the company sector is likely to be running a deficit of about £1 billion over the next year. Professor Budd said that that would lead to greater borrowing by companies. He was therefore cautious about the prospects for recovery. He said that the prospects for this year were delicately balanced, because recovery depends on stock building and further investment when consumer spending is as flat as it is and when companies are still borrowing heavily.

The second development relates to pay, to which I have referred. We do not believe that, as the threat of redundancy diminishes, people will try to make up for the real wage cuts that some of them, particularly in the private sector, have suffered since the end of 1980. There has been, it is said, a permanent change in attitudes. If so, I wonder why at the same time it is argued that we cannot give people more money to help industry for fear that it will feed straight through to pay. I wonder whether the fact that we have always placed such a low priority on our pay bargaining system, both in our analysis of Britain's problems and in our attempts to solve them, will help us, when we need to do so, to create a more responsible and sensible pay bargaining system that ensures that we can expand sufficiently to make a real cut in unemployment.

Mr. Needham

Did my hon. Friend see the article in The Times on Nye Bevan by the hon. Member for Bedwellty (Mr. Kinnock)? The hon. Gentleman said that Mr. Bevan had made clear that the only way to secure full employment was to make sure that there was a proper plan for wages. Is it not strange that, after that lesson has been given so many times, it has still not been understood in many parts of the House, not least by Opposition Members?

Mr. Patten

I do not believe that the late Mr. Bevan would have talked about national economic assessments. He had too much respect for the English language. He would have been inclined to call a spade a spade. It is profoundly difficult to encourage people to accept something if one is not even prepared to say what it is.

Mr. Winnick

Leaving aside the difficulties that sooner or later all Governments get into when trying to apply what many people consider to be wage restraint policies—they are wage restraints if we have respect for the English language—does the hon. Gentleman accept the argument, certainly from the Left, that there has been little distribution of wealth in Britain?

I am sure that he knows the figures. One per cent. of the population owns 25 per cent. of all private wealth, 5 per cent. own about 50 per cent. and 50 per cent. own about 5 per cent. I accept that the hon. Gentleman does not believe that that should be condemned in any way. Nevertheless, the fact remains that no incomes policy or wage restraint, so much favoured by the Social Democrats and the rest, would change the distribution of private wealth.

Mr. Patten

The hon. Gentleman is tempting me to spend a long time travelling along a different boulevard. Even if we redistributed wealth in the way that he favours, it would make little difference to the economic prospects for the country. I doubt whether Mr. Scargill would wake up in the morning as an enthusiastic supporter of wage restraint and wage policies if we pursued the course advocated by the hon. Gentleman. In the social contract, time and again we have witnessed the Government giving to the unions and not getting in return as much as they or we might like. That was the case with the social contract under the Labour Government.

The Chairman

I hesitate to interrupt but I do not think that this matter has a great deal of relevance to the amendment, interesting though it is.

Mr. Patten

I apologise, Mr. Weatherill. I was tempted by the question of the hon. Member for Walsall, North (Mr. Winnick) and the occasional barracking of his hon. Friend the Member for Bolsover (Mr. Skinner).

The national insurance surcharge is relevant to the strategic issue with which I am dealing: whether there will be a revival led by investment and pay. The Government should be attempting to put more money into industry's pockets so that it can rebuild stocks. It would then have more to invest and could create more jobs. That would help with the first strategic objective that the Financial Times said had no precedent in Britain.

It may be argued that pay restraint would be less likely if we put more money back into industry. I suggested earlier that it is a little illogical to take that view as we argue that there has been a sea change in attitudes that is both the consequence of and the justification for the depth of the recession that we have been through in the past few years. If it is believed that giving industry more money immediately feeds through to excessive pay settlements, I argue, as I did last year, that cuts in the national insurance surcharge should be used to encourage responsible pay bargaining.

Dr. Brian Mawhinney (Peterborough)

I have been listening to my hon. Friend with great care and with my customary admiration. Does he recall that in 1977 some of our colleagues promoted the idea that it would be possible to establish a forum of the various economic interests in the country——

Mr. Skinner

Another quango.

Dr. Mawhinney

—at which issues, such as national insurance surcharge and jobs, might be discussed? Does my hon. Friend believe that it would be a good idea to resurrect that idea, or at least to dust it off?

Mr. Patten

I do not want to strain your generosity by following that point too far, Mr. Weatherill. I agree with what my hon. Friend suggested. It is easier to run a comprehensive and coherent policy for the public sector if there is some method for discussing and agreeing a criterion that would underpin pay settlements in the private sector.

I return to the only risk of making large cuts in the national insurance surcharge. There is a risk of a small increase in the public sector borrowing requirement. That is not as great as the total cost of cutting the national insurance surcharge because of the effect on economic activity. Moreover, the effect would be temporary rather than permanent, because of the effect of economic activity. One tiny risk might be involved this year. If, as some hon. Members argued during the debate on the Budget Statement last year, the national insurance surcharge had been cut by 2 per cent., the Chancellor would almost certainly have hit his public sector borrowing requirement. That is the amount of the risk if the figures given by the Treasury model are correct. The increase would have been £1 billion rather than £2 billion. "East Surrey man wins." That is the scale of the risk that my right hon. and learned Friend would have run.

Bearing in mind what can be accomplished by cutting the surcharge, that is the type of risk that the House should be prepared to run. It is the type of risk that the Chancellor should be prepared to run. I realise that he will not do so tonight, but I hope that he will keep an open mind about further cuts in the surcharge later in the year.

Mr. John Horam (Gateshead, West)

The interesting thing about the debate, as the hon. Member for Bath (Mr. Patten) said, is that all the speeches have been good. We have not yet heard from the Treasury Bench. That may reduce the average a little. It could increase it remarkably if some of the amendments put forward by the Labour Party or the alliance were accepted. That may not happen.

The hon. Member for Chippenham (Mr. Needham) made an especially good speech. He went to the heart of the matter when he said that the Government appear not to have understood the needs of industry. The hon. Gentleman has experience of industry. Perhaps slightly lightheartedly, he went on to say that that might be as a result of the lack of industrial experience on the Treasury Bench. Apart from the Financial Secretary and the Minister of State, the Treasury is devoid of such experience. One must go fairly low down the batting order to find any industrial experience. That is a poor show.

The same is true of the Labour Party. If the other Establishment party replaced the Conservative Party on the Treasury Bench tomorrow, with the distinguished exception of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the new Treasury Bench would be equally devoid of direct industrial experience.

There is a wealth of talent on the Back Benches of each party, but the hon. Member for Chippenham and the hon. Member for Workington (Mr. Campbell-Savours) never seem to get promoted. It is always the barristers or the boys from the back room of the research department who get the job. That is a great pity. It may be dawning on the hon. Member for Chippenham that if his party goes on as it has been, while the Labour Party is the party of the trade unions, the Conservative Party will be the party of the City of London and the Bank of England. That leaves a convenient niche for the alliance as the party that understands industry.

Mr. Needham

Does that mean that the SDP is to be the party of big business?

Mr. Horam

I do not know who would be occupying the Treasury Bench if the alliance were in Government today, but my own industrial experience is certainly considerable.

6.30 pm

Mr. Brittan

In view of the well-known business experience of the right hon. Member for Crosby (Mrs. Williams), the unrivalled business experience of the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) and the exemplary business experience of the right hon. Member for Plymouth, Devonport (Dr. Owen), is the speech to which we are listening to be interpreted as a personal plug for the advancement of the hon. Member for Gateshead, West (Mr. Horam)?

Mr. Horam

I should not be averse to that interpretation, as I certainly have more industrial experience than my colleagues. Nevertheless, I do not underrate the experience of my right hon. Friends. My right hon. Friend the Member for Glasgow, Hillhead (Mr. Jenkins), for example, has direct industrial experience, as have my right hon. Friend the Member for Plymouth, Devonport (Dr. Owen) and others of my colleagues.

Mr. Straw

Will the hon. Gentleman give way?

Mr. Horam

No, I am not taking a further point from a barrister.

Mr. Straw

The hon. Gentleman ought to do so. He is misleading the Committee.

Mr. Horam

I have no intention of doing so, and I did not mislead the Committee. The hon. Member for Blackburn (Mr. Straw) has no grounds for intervening in this debate. I understand that his experience, like that of the Chief Secretary, is of the legal kind.

Mr. Peter Bottomley (Woolwich, West)

Will the hon. Gentleman give way?

Mr. Horam

As an alliance Member, I must be fair to both sides. I did not give way to the hon. Member for Blackburn, so I should not give way to the hon. Member for Woolwich, West (Mr. Bottomley).

Mr. Bottomley

On a point of order, Mr. Godman Irvine. Would it be in order in a subsequent speech to read out the hon. Gentleman's experience in industry, which he has presumably already registered?

The First Deputy Chairman (Mr. Bryant Godman Irvine)

That is not a point of order.

Mr. Horam

To put the record straight, I should make it clear that I established my own company, which was extremely successful, with a 90 per cent. export record. That is more than can be said for any Conservative or Labour Member here today. As I seem to have stirred up a hornet's nest, perhaps I should leave the matter there.

It is important to place the national insurance surcharge in perspective. The Government now argue, on general economic grounds, that things are getting better, and no one is more adept or diligent at that game than the Chief Secretary. Indeed, he started somewhat prematurely 12 months ago to try to talk up the economy. Now he finally has something to talk about. I concede that some of the indicators are looking a little better than they did 12 months ago. The inflation situation looks slightly better, the output forecast is a little better, there have been improvements in productivity and the position of interest rates is rather better.

The Chief Secretary's great advantage has been the ability to make comparisons with the situation 12 months earlier. To recast his brother's analogy, which was also used today by the right hon. Member for Stepney and Poplar (Mr. Shore), the Government, having climbed down from the peak of Everest, have now marched up Box Hill. The Chief Secretary can therefore make comparisons with the vale of tears which lies between Everest and Box Hill in his extrapolations to try to prove that the economy is improving. Given that comparison, things certainly look rather better, because nine months or a year ago there was despair and devastation in the British economy, as there largely is today.

The upturn, in so far as it exists, is extremely slight and fragile. For example, the Government forecast in the Red Book that output will increase by about 1½ per cent. this year. That was put in rather tentative terms in the Budget Statement, but a month or so later the Government can be confident of an increase of 1½ per cent. Indeed, it might even be 1¾ per cent. In terms even of the average performance of the British economy or of the economies of other countries since the war, however, 1½ per cent. is minuscule. The Government are confident of achieving that growth this year and the forecast suggests 2½ per cent. growth next year, but that will be the peak of the mini-boom.

If we achieve only 1½ per cent. this year, 2½ per cent. next year and even perhaps 2½ per cent. the following year before turning down into the next recession, unemployment may stop growing and stabilise for a while during this relative boom period, but it will not be reduced and at the end of the boom it will continue to march upwards to well over 3 million in 1984–85. The reality is that the Government have not been able to achieve a revival of output which has any significant prospect of actually reducing the real level of unemployment in the economy. If that is so, the prospects are indeed grim not just for the immediate future but for three, four or five years to come. That is the really worrying prospect.

Moreover, as the hon. Member for Bath said, the fragile, tender plant of 1½ per cent. output growth this year is greatly threatened and highly dependent upon de-stocking. It will not receive much boost from Government expenditure, capital or current, in the course of the year. Consumer demand is likely to be fairly flat and the deepening recession in the United States and difficulties in the world market mean that we shall have to fight against a general world recession. All of this will make it difficult for the United Kingdom to achieve even that modest revival of output. Like the hon. Member for Bath, I should like to see an investment-led revival, but, frankly, I am not choosy. I should just like a revival, even if it is not investment-led or not ideal. That is what industry wants, but it is not getting it from the Government.

Even on inflation, which the Chief Secretary and his colleagues so much like to talk about, the record is not good. Certainly we are now returning to the kind of level that the Government inherited and the trend is now downwards as it was upwards then. I accept that that is the factual position and that it is some kind of achievement, although the Everest in between was rather high. While we have been making that progress, however, other countries have not stood still, and they are now beginning to show inflation rates which represent a substantial improvement on those for which we aim. We need to know the Government's real position on this. Perhaps the Chief Secretary will address his mind to this when he replies to the debate.

If the Government achieve an inflation rate of perhaps 8 or 9 per cent. in due course, which will be quite an achievement, given the institutional framework of this country, will they rest content with that? Or, as I sometimes suspect is the wish of the economic advisers, do the Government intend to screw us down even further to perhaps 4 or 5 per cent.? The pain and cost involved in that may be extraordinarily great. Perhaps the Chief Secretary will enlighten us about whether the Government intend to continue giving top priority to inflation at all stages of the game, with a view to achieving ever lower levels, or whether they are prepared to rest content with a substantial improvement and then give priority to other matters such as the level of demand of industry, industrial products, and so forth.

We should also know how the Government propose to deal with expansion if it is achieved. That is the real problem for the Government. They can achieve inflation rates of the kind that they have achieved with demand as flat as it now is and the economy as down as it has been for the past two or three years, but what happens when expansion comes? Do the Government have a policy to deal with the increase in wages which may flow from that, perhaps not in the current wage round but the next? The hon. Member for Bath made a number of relevant comments about pay bargaining.

The alliance is examining many different ideas on this issue. It is central to the debate, but the Government have not addressed themselves to it. In my frequent discussions with industrialists, it rings very true when I tell them that the Government have a policy for recession and for keeping down inflation in the present circumstances, but that they have no policy for expansion. The Government do not have a policy to deal with the inflationary consequences in pay and in other respects of having a substantial and sustained increase in output. So far they have kept the economy on the bottom, which they cannot do for ever.

Mr. Campbell-Savours

How does the hon. Gentleman respond to the comments of the Cambridge group last week about the Social Democrats' proposed reflation of the economy, suggesting that there would be no reduction in unemployment in that programme?

Mr. Horam

A reduction in unemployment would be extremely difficult in any reflationary programme. That is the problem with reflation. General reflationary measures are disappointing when it comes to reducing unemployment, as I think hon. Members on all sides will concede. Indeed, the Government argue that they are barely worth taking because unemployment is so high. The Government maintain that it is better to carry on as we are than to take such action. The general reflationary measures which, to some extent, the Labour Party has advocated, although it goes too far, and which we have advocated, together with the special employment measures which we, uniquely, have advocated, give us the chance to reduce unemployment by 1 million over a couple of years. That is a modest but achievable aim.

Dr. Mawhinney

The hon. Gentleman asked my right hon. and learned Friend whether it was the Government's intention to settle for an inflation rate of about 8 per cent., which he said would be quite an achievement, or to press for about 5 per cent. Which would he prefer, and why?

Mr. Horam

I have argued for almost a year now that at this stage in the economic cycle we should take a balanced view. We should not give top priority to a counter-inflation policy, although we should seek to continue to control inflation. We should give top priority to reviving industrial demand. That is the balanced approach that would best serve industry.

I shall end on the third leg of the Government's argument about the improvement in the economy. It involves productivity and the better utilisation of labour which has taken place during the recession. It is true that many less-efficient plants no longer operate, and that has been good for the economy. It is also true that there has been a lot of demanning, which again has been good for the economy. However, that alone does not provide a basis for expansion and growth. For that we must have a revival of demand on a substantial and sustained basis, and that is what we do not have from the Government.

It is also true that in this general increase in productivity, which I welcome, many good firms have gone to the wall. The policy is a crude one. Clearly, better firms survive, but that does not always happen. It depends on their market situation, their short-term cash flow, and matters of that kind. Many good firms have gone to the wall as well as many inefficient ones, and those that remain have found that it is a matter of sheer survival. Many industrialists have told me that to survive they have had to cut out investment and product research, which would have led to growth in five or 10 years' time. They had to do that to keep the business going, and that action will be reflected in future performance. It is against that background that we must view the Government's boast about improved productivity.

I agree with those who argue for a substantial cut in the national insurance surcharge, or its total abolition. I am happy to join members of the Liberal Party in tabling the amendments in this connection. I hope that the Government will give them serious consideration, although I suspect that we shall be disappointed again. Although the effects on unemployment of either abolishing or substantially reducing the national insurance surcharge have been exaggerated, frankly I do not believe that it would have a big effect on unemployment. Some time ago I read an article in the The Times by the hon. Member for Bath in which I thought that he placed rather too much reliance on its effect on unemployment, but it would be a good step in terms of keeping down industrial costs and generally helping profitability, thereby keeping down prices, and certainly it is something that the CBI wants.

The CBI said very clearly what sort of Budget it thought would be good for industry, long before the Chancellor of the Exchequer produced his measures. It advocated what the Labour Party advocates, and that is a cut of about 2 per cent. in the national insurance surcharge, together with other measures such as derating and not increasing duties on items such as whisky, with which I do not agree. It proposed a range of measures which went well beyond the Government's package.

6.45 pm

The Government would do well to listen more consistently and sensibly to what the CBI says. Since its new director general took over, it increasingly represents the real views of industry. In many ways the CBI is a disparate group, because it covers all kinds of industrial and commercial enterprises. Nevertheless, it represents the true views of industry.

Mr. Derek Foster (Bishop Auckland)

Does the hon. Gentleman share the CBI's preference for cutting back revenue expenditure on public expenditure in favour of increasing capital expenditure? Is the Social Democratic Party's policy well developed on that issue?

Mr. Horam

I should not favour a reduction in current expenditure, because we can ill afford it, but in any case it is rising, because of high unemployment. However, I believe that we can afford an increase in capital expenditure, as I have advocated both here and elsewhere.

The Government would do better to get away from their obsession with the intermediate targets, the PSBR, and the money supply figures. Instead, they should look at the real economic objectives of output, prices and unemployment. That is what they have not done. They argue that they have concentrated on intermediate targets, because they are easy to influence. However, the history of the past three years disproves that. From time to time they have taken measures, such as the doubling of VAT in their early months, which ran counter to sensible economic policy.

In the interests of industry, the Government must get away from giving priority to inflation at all times and in all circumstances. Industry wants a balanced approach which will minimise the shocks of the economic system and produce as level a growth of demand as we can achieve. That is what we should give industry, and in that context the reduction or abolition of the national insurance surcharge is an appropriate step.

Mr. Peter Bottomley

I listened with remarkable care to the moderate speech of the hon. Member for Gateshead, West (Mr. Horam). I do not want to spend much time on his industrial experience, except to say that in the reference books there is no mention of it. There is a bit about market research for a bunch of "smarties", or Rowntrees. The hon. Gentleman talked about a commodity company, which may have been the export business of which he spoke. If commodities amount to industrial experience, then many commodity traders probably have dirtier hands than I thought. If, on the other hand, he has more substantial industrial experience, I wonder why he does not publicise it when he describes himself.

Mr. Horam

The hon. Member for Chippenham (Mr. Needham) based his industrial experience on selling knick-knacks abroad. I certainly think that Rowntrees is a substantial industrial company. It may deal in confectionery, but that does not make it any less an industrial company. I was involved in marketing as well as in market research. Indeed, I had the pleasure of helping to introduce to the world the "After Eight" thin mint. That had a remarkable product success. If its success could be achieved by other companies, their profitability would be assured. The point is that, whatever part of the market a person is in, whether confectionery or cars, it is still a matter of selling products. In addition, starting a new company represents a background of industrial and commercial experience which very few Members on the Government side can match.

Mr. Bottomley

If I may deduce from that that the hon. Gentleman has been engaged in the industrial battle, I think that I should award him the medal of the chocolate soldier. My experience in industry is slightly greater than his, but I will not boast about it. Our job is to talk here as politicians, I hope with our feet on the ground. I do not think that anybody should feel disqualified because he is an hon. and learned Gentleman, a right hon. and learned Gentleman, a doctor or anything else.

I think that we should return to this matter on some future occasion and try to get a broader representation of Members with industrial experience, not just those who are directors of companies or even full-time convenors.

Turning to the national insurance surcharge, again following the point made by the hon. Member for Gateshead, West, I do not think that there is a clear choice between continuing to reduce inflation and seeing more effective demand in the economy. I am not one of those who supported the CBI's pre-Budget submissions saying that the important thing was to get as large a reduction as possible in the national insurance surcharge. I listened and spoke to a number of representatives of the CBI during the months before the Budget. I asked each of them, after they had made the point about the national insurance surcharge, what pay increase they had given their employees the year before and what had determined what that pay increase should be. It turned out that in nearly every case they had given a pay rise substantially in excess of the underlying increase in either profitability or output per employee.

I remain unconvinced that reducing the national insurance surcharge substantially will have no effect on the level of pay settlements. I believe that pay claims cannot be influenced directly, but that the level of pay settlements can. I would follow the line that was thrown out, I think, by my hon. Friend the Member for Bath (Mr. Patten), that perhaps it would be right to make further reductions in the national insurance surcharge in line with more realistic pay settlements. I believe that there is a trade-off, but I do not believe that reducing employer costs or the payroll job tax by 3½ per cent. or 3 per cent. immediately would have no effect on pay settlements.

It is obvious that, given half a chance, pay settlements will start rising instead of continuing to fall gradually. I believe that the Government ought to recognise that getting the level of pay settlements down requires acceptance by a large number of people involved in pay settlements. That is a matter not just of the unions and employers but of the underlying sense of fairness and acceptability of the majority of the working people. For that, as my hon. Friend the Member for Peterborough (Dr. Mawhinney) said, there should be some kind of open discussion of the underlying issues as they affect job tax, the national insurance surcharge, the chances of getting down inflation and prices and of increasing opportunities for employment and demand.

Mr. Needham

As I understand it, my hon. Friend said that a reduction in the national insurance surcharge would have an effect on pay settlements. Has he got anything other than anecdotal evidence for that? All the advice that is being given to me, certainly by the CBI, which has discussed this matter at great length within its committees, both regional and at the centre, is to the effect that there is no evidence whatever that a reduction in the national insurance surcharge would have any impact on pay settlements.

Mr. Bottomley

That is an important point. I think that the argument starts from a different point and ends up roughly in the same muddle. I shall say why I think it is a muddle.

Many pay settlements have been struck on the ground of what firms could afford. Much of the talk we have heard about the growing sense of reality has been tied to particular industries or companies within industries—for example, British Leyland. Employees have accepted pay offers substantially below the level of inflation, and certainly below the level of inflation at the beginning of the year for which the pay settlement is made, because they have been convinced that the people they are working for cannot afford to pay more. Indeed, many of the pay settlements, even at half the inflation rate, have been in businesses and industries which have been associated with a large number of redundancies. So the pay increase, even though it has been at 5 per cent. with inflation at 10 per cent., has been paid for by the loss of people's jobs. That is incontrovertible.

If we make it possible for firms to have more money we want to see it go into investment. We can only take it on trust when the CBI says that if there were a reduction in the national insurance surcharge the money would be used for capital investment, building up stocks, research and development or other good things. It asserts that it would not be used to increase the level of pay settlements.

That is the kind of assertion which we have seen disproved by the actions of employers both in the public sector and, mainly, in the private sector during a number of re-entries from pay restraint during the past 20 years. We have seen firms forced to settle pay claims at higher levels year after year until the Government called a halt, or, in this present recession, conditions have made it sensible for people to accept reality.

When the CBI says that it will not allow any extra reduction in the national insurance surcharge to go through to pay, my answer is that it is not within its control. It has not shown that it can stand out against pay claims which are pushed to the limit of what business can afford. There may be a number of industries, businesses, or industrialists, such as the hon. Member for Gateshead, West and my hon. Friend the Member for Chippenham (Mr. Needham), who say that this extra 1½ per cent. or 3½ per cent. will stay in the business, that it will be invested to create new jobs and we shall see the results in two or three years. I do not believe that most employers have the strength of mind or the industrial strength to stand out against many of the pay claims which are pushed to the limit.

It needs only a few employers to give way for the general level of the pay round—accepting that we are not having a formal policy that ties everyone to a particular limit—to become part of received wisdom in the months that follow.

Mr. Needham

Now that the national insurance surcharge is to be cut by 1 per cent., has my hon. Friend any evidence to suggest that the claims or the settlements have gone up by 1 per cent? Why does he believe that, when it comes to settling claims, the unions and the management would take this into account? It is much more likely that, as my hon. Friend says, they would take into account the general level of profits and trading activity and what is happening in the area as a whole. There is nothing but anecdotal supposition on his part to suggest that one leads to the other.

Mr. Bottomley

The burden of proof is the other way round, as my hon. Friend knows perfectly well. Let me sum it up in a complicated way. If a reduction in the national insurance surcharge means that there is more money within the business, there is more money available for pay, for other things, or even for profit. I think that can influence the level of pay settlements. My hon. Friend asks for causal proof that within the last month or two months there has been a link with settlements. I shall not offer it to him because it would be purely anecdotal.

Mr. Frank Hooley (Sheffield, Heeley)

The real point, surely, is that the vast majority of employers do not consult or inform their work force about the economic realities of the business. If the hon. Gentleman does not believe me, he should note what his right hon. Friend the Secretary of State for Employment said the other day. He said that two-thirds of employers make no attempt to inform their work force of what is going on and the reality of the company's commercial position.

7 pm

Mr. Bottomley

I am sure that the hon. Member for Sheffield, Heeley (Mr. Hooley) is right about the majority of employers. I should turn it the other way round and say that the majority of employees work in businesses where they have organised management, whether in the public or private sector. Many more ought to be doing what the hon. Gentleman is arguing for.

I declare a family interest in what my father-in-law does in the Industrial Society in trying to get the idea of briefing groups, sharing information and proper, effective consultation into nationalised industries and large private industries. That shows the way ahead. It is a far more effective way than some of the plans we see from Europe or from the Labour Party. I cannot criticise the plans of the Conservative Party as I am not sure what our plans are on this important subject.

I think that the level of pay settlements makes it possible to reduce the national insurance surcharge further. The problem is how to reconcile competing claims for extra resources. There was an earlier intervention about wage restraint. I would argue that the most effective way of restraining the real earnings of those at work is to go on with the kind of messy pay settlement system that we have apparently grown to live with in the past 25 years. So much concentration on nominal pay increases—the number of extra devalued pound notes that we get in our pockets each year—has taken our eye off the main chance, which is the opportunity to be more effective, more efficient and more productive, and to have a high level of output. There is no point in having higher productivity without higher output, for there will just be higher wages for those at work and a lower standard of living for a growing number of people.

During the past five years or so, many people have increased their standard of living, if they have a job, but a vast number of people have had their real standard of living cut by 50 per cent. or more as they have lost the chance of employment. The Government ought to get from the TUC, after some reasonable period of notice, not a fixed list but an idea of those who are seen as the priority cases for special treatment during the forthcoming 18 months.

It is important that both the Government and the Labour movement, defined broadly, should get away from the idea of considering a special case a month without any notice. If we are concerned, for example, that the nurses deserve more than the rest of us, let us try to say that a year in advance of the nurses' pay claim coming up. We can then, up to a year and a half in advance, ask other groups in industry or in the service sector who are in normal trade union negotiations—not so much the small business people or the wage councils, but organised labour—to say who the special cases are. We do not have to set the limit for them under any kind of formal wage policy, but we should try to develop a consensus that, over the next 18 months, certain people need to be treated with more generosity, consideration or equity than the rest.

If we introduce such a policy, we can bring down the general level of inflationary pay settlements. That would meet the point made by my hon. Friend the Member for Chippenham and would demonstrate that a substantial reduction in the national insurance surcharge would not lead to a new spiral of inflationary pay settlements. Getting rid of inflationary wage settlements is what the Government have been trying to do for the past three years, with limited success in the first two and a half years. They are having slightly more success now, but there is no guarantee that it will be permanent. I use the word "permanent" to describe any period that runs past the next general election. It is easy to manipulate many other parts of the economy, but pay settlements are rather larger than that. My hon. Friend the Member for Bath referred to the level of demand in the economy. I wish that the House discussed more dynamic economics. Instead of trying to look at a static State economy, which may be necessary if the economy is not growing, we ought to see what effect different levels of inflation will have on the public sector borrowing requirement.

If my right hon. and learned Friend the Chancellor, when he gives his Budget judgment, would say what the impact on the PSBR would be if the general level of pay settlements, or of inflation, were 1 per cent. higher or 1 per cent. lower than the figure in his Budget judgment, many more of us would be able to look at the different levels of demand that would appear to be associated with different levels of inflation. These are strongly linked one way or another with the level of pay settlements during the year.

There are effectively only two ways of achieving more jobs. One is by taking people out of the work force by reducing the number of years that we work during our working lives, giving perhaps two years of training to each young person leaving school and bringing the age of retirement down, working fewer weeks per year and hours per week.

The second way is by getting greater effective demand. That is not altered much by £1,000 million on the PSBR, although it contributes to the potential level of effective demand. What is far more important, given Britain's trading position in the world, is our level of competitiveness. Although that can be affected by a 1 per cent. extra reduction in the national insurance surcharge, it is affected far more by the underlying realities of production.

Mr. Austin Mitchell (Grimsby)

And the exchange rate.

Mr. Bottomley

And the exchange rate, as the hon. Member for Grimsby (Mr. Mitchell) says. The hon. Gentleman once sent me a three-page letter after I had accepted a one-sentence interruption from him. I must get round to reading the other two pages.

What matters even more is what has started to happen to British Leyland during the past 18 months, with more cars produced per employee instead of the worsening ratio for the first five years of State intervention.

The Government are approximately right in the reduction that they are proposing in the national insurance surcharge this year. Nobody believes that the ½ per cent. extra reduction for the eight months of this year will be put back. That is a figment of anybody's political imagination. They should say under what conditions they would reduce the national insurance surcharge by an extra 1 or 2 per cent.

Only when the Government are willing to put these ideas forward months, if not a year, in advance will we have the kind of response from Parliament and, behind Parliament, the kind of discussions and considerations by people in industry, the service sector and the nationalised industries that will make it possible for us to match our ambition with our actions. Too many outside Parliament have ambitions and actions that are inconsistent and we end up with an economy with a lower growth, higher Government spending and a lower standard of living than we ought to be able to achieve.

I hope that the Government will at least read this debate and will consider how they can bring more people outside the House into considering the issues that we have been raising this evening.

Mr. Campbell-Savours

When the hon. Member for Woolwich, West (Mr. Bottomley) suggests that the level of pay settlements may be directly determined by the amount of money made available to employers, in this case by a reduction in the surcharge, he perhaps misunderstands to some extent what is happening on the shop floor in industry. As I see it, what is far more a determinant is the ability of industrial workers to identify short-time working and the threat that short-time working means to their employment. Although in many ways the two are linked, to many people on the shop floor they are not. If they are on short-time working they believe that their jobs are threatened and that they should take reduced settlements. It is not a view to which I subscribe, but I shall not go down that route today. It is not the right analysis to make.

If this debate, and other debates, are to be an indication to the House of the feelings of members of the Finance Bill Committee this year, the Government may be in trouble. I have not looked at the appointments to the Conservative Benches in the Finance Committee but it is obvious that throughout the four major debates all but one or two speakers have on occasion bitterly criticised the Government's economic strategy. It would be interesting to review the appointments to see whether those same people have been appointed to the Committee. I cannot believe that that is possible.

Mr. Straw

My hon. Friend the Member for Workington (Mr. Campbell-Savours) is being customarily over-generous to the Government. It is difficult to name one Conservative Back Bencher who has spoken in fulsome support of the Government in Committee on the Floor of the House. The Treasury Front Bench are now stranded without support. If they have support, it certainly is not visible in the House.

Mr. Campbell-Savours

When we examine those lists we may find that many hon. Members who have been appointed have not spoken in the debate but have been appointed because they are known to be loyal to Government strategy and in many cases not too willing to express dissent and to argue against its thrust.

The hon. Member for Chippenham (Mr. Needham) made an extraordinary speech. He was bitterly critical of the Government. When he addressed his remarks directly to the Chief Secretary I understood him to be saying that there are too many lawyers in the Treasury and not enough people who have dirtied their hands in the industrial workplace. He was appealing for a shake-up on the Front Bench and the introduction of hon. Members who understood the problems in industry.

Mr. Richard Wainwright

Does not the hon. Member think that the hon. Member for Chippenham (Mr. Needham) was also implying his displeasure in that pungent speech at the fact that no members of the Cabinet represent the real industrial areas of Britain, quite apart from their lack of personal qualifications?

Mr. Campbell-Savours

I believe that the Chief Secretary has an industrial constituency in the North-East. I am told that part of it is industrial. It is not for me to say how precisely he is advocating the views put to him by his industrial constituents.

Mr. Straw

Before the election, the Chief Secretary claimed to understand exactly his constituents' interests. He argued for increases in public spending and called for Whitby and Cleveland to be made a special development area. Since the election male unemployment in Whitby has risen from 9 per cent. to 34 per cent. and the hon. Gentleman has sent the Whitby trades council letters saying why Whitby cannot be a trade development area.

Mr. Campbell-Savours

I am sorry that the Chief Secretary is not here to defend himself. I am sure that the members of the Labour Party in that part of the country will note the comments of my hon. Friend the Member for Blackburn (Mr. Straw) with great interest. They may wish to write to him.

The contributions of the hon. Member for Bath (Mr. Patten) are always enlightening. They have substance but he always takes us down the incomes policy road and drops us when it comes to a real presentation of his demands. One day he might outline to us in detail what kind of incomes policy he wants. He has criticised the national economic assessment proposed by the Labour Party. He is clearly at variance with the position of his own party on free collective bargaining. He should entertain the House with a more precise expression of his beliefs.

7.15 pm

During the last debates, particularly those on the national insurance surcharge, it emerged—as it did last year when we discussed related matters—that the hon. Gentleman believes that because the measure was introduced by a Labour Government we have no right to criticise it. However, as my hon. Friend the Member for Walsall, North (Mr. Winnick) so accurately said, that has no basis in truth. Very different conditions existed in the late 1970s when Labour was in Government. There can be no better example than the fact that unemployment has gone up to 2½ times what it was in the latter days of the Labour Government. There has been an 18 per cent. reduction in manufacturing output and a 6 per cent. reduction in GDP; energy prices have soared as a proportion of total manufacturing costs. At the same time, investment in manufacturing industry has declined. By no stretch of the imagination can Conservative Members criticise our proposition in the new conditions of industrial recession created by the Government. When the Minister replies he should address himself to the truth and not to the myth of the argument that has been repeatedly used during the past few weeks.

That is not only my view, but a view which is adequately reflected in CBI News. On the front page of edition No. 3 for 12 February 1982 the CBI outlined the four priorities for immediate action which have been referred to by my hon. Friends this evening. In case hon. Members have forgotten what they were, it may be worth looking at those four priorities and contrasting them with the Budget.

Under the heading "Budget: CBI calls for business boost", CBI News said: The need for the disproportionate burden on business to be removed in order to encourage growth and create jobs is made in the CBI's Budget representations to Sir Geoffrey Howe. Calling for a 'winning Budget', the CBI gives four priorities for immediate action: Reduction in the national insurance surcharge by 2 percentage points". have a one percentage point reduction. A 15 per cent. cut in the rates paid by businesses by introducing 15 per cent. derating to put business on equal footing with domestic ratepayers". It did not get that; it got the prospect of escalating rates next year as local authorities fight hard to retain this year's level of services—a considerable reduction on the level of services provided in former years. It then called for A reduced interest costs burden and more competitive exchange rates". There has been a marginal reduction of interest rates-a 1 per cent. reduction which no one can guarantee will remain long-term.

Some CBI members are seeking a form of intervention on interest rates to help some industries on a wider and broader basis than currently exists under the European cheap money provisions that have been arranged with the European Community. There has also been a marginal change in the exchange rate—perhaps more than a marginal change—a reduction from $1.88 to the pound to $1.80 to the pound in the period from 12 February to today, 5 May.

The article went on to ask for New productive investment in the public sector, starting with worthwhile projects totalling £250 million in 1982/83 and building up to £1,000 million in 1983/84". Under one interpretation of the Budget package, it could be said that £90 million was provided, but that is nothing like the £250 million that was asked for in the article.

There was then a request for more competitive industrial energy costs, abolition of empty property rates and the introduction of mothballing relief for business premises, abolition of the four month delay in paying regional development grants, a cut in the harmful effects on enterprises and smaller businesses of the capital gains and capital transfer tax and no further rise in excise duties". Is it not strange that, of the five minor areas to which I have referred in the last section of the CBI's general demand, the only concessions received were in relation to our old friends the CGT and the CTT? They were referred to at length in the debate last week and I do not wish to labour them now.

Hon. Members will have received, as I have, the brief from the British Paper and Board Industry of 12 March. Referring to the concessions on energy prices in the Budget, it states, in regard to electricity: The load management proposals will generally only benefit those industries which have the ability to interrupt their processes and/or have self-generating capacity. The paper industry uses a continuous process and in general does not have surplus generating capacity. Therefore, the load management proposals will only be practical for a very small number of mills who purchase 6 megawatts of electricity or more. The proposals are of no value to the great majority of high energy-intensive mills which will remain at a disadvantage of up to 20 per cent. in electricity costs compared with their Continental competitors. On heavy fuel oil, the Chancellor has been apparently unable to reduce the heavy burden of £8 per tonne excise duty which is at least double that of our EEC competitors. This costs the industry about £6 million and we still feel it is an unjustified impost. This, together with the fact that prices on the Continent are generally lower anyway, places the industry at up to 20 per cent. disadvantage in oil prices with its Continental competitors. Therefore, in that very important area of additional aid to manufacturing industry, the Government sought not to give way. Indeed, we all know where the £6 million went. It went in the various concessions which were given at the wrong end of the CBI demand—the concession on CTT and CGT, which have absolutely no impact on industrial regeneration in Britain. The proposition that it can have an impact is a myth perpetrated by Conservative Members only to protect their own friends.

It might be interesting to consider why the CBI lobbied for the national insurance surcharge reduction. It says that 27.2 per cent. of all NIS receipts to the Treasury come from its members or the people that it seeks to represent. I should have thought that that sector more than any other in the British economy should be singled out for special aid by any Government in times of recession. Indeed, it would be the greatest beneficiary.

It is interesting to consider the views of Sir Raymond Pennock, the former conference president of the CBI. He had a very pertinent point to make in reference to the reduction. He said that, for the company that he represented, the benefit would be to the tune of £9 million, and that he could give a personal undertaking that the money would find its way back directly into manufacturing investment. So there is a prominent British industrialist promising the Government to invest in manufacturing and thereby help to reduce the current high levels of unemployment.

On 2 February, The Sun said that the surcharge was a tax on jobs at a time of record unemployment, when firms were being starved of investment by the recession and by penal interest rates on borrowing.

On 27 January, The Times said that the Tory Party could unite behind the growing consensus for a moderate package containing a substantial cut in the national insurance surcharge to assist industry. But that request was not to be conceded.

On 9 November, The Daily Telegraph said that the Prime Minister had correctly argued in debate that British industry's competitiveness was hampered by excessive national overheads imposed by Government. The national insurance employers' surcharge was one of those overheads which also reduce employment. Its abolition should be a high priority, it said.

The CBI may not have gone as far along the road to reflation as the Labour Party has been demanding in the House, but it has demanded more than £2 billion in reflation. The Budget may prove to be negative, in the sense that no additional resources are being channelled into the economy in real terms.

Credit should be paid to the CBI for the very successful exhibition that it staged at Centre Point in London three weeks ago. I know that it was attended by some Members of this House. Certainly the hon. Member for Rochdale (Mr. Smith) was there, and I am sure that he would agree with my conclusion that the "Can You Make It?" exhibition was a major way for industrialists to seek to attract new work for their enterprises.

If additional resources are to be made available at any time in the future for the support of industry, the Treasury would do well to consider the effort made by the CBI at that exhibition, and be willing to fund similar enterprises in other parts of the country—perhaps even in the Northern region, in which my own constituency and that of my hon. Friend the Member for Bishop Auckland (Mr. Foster) fall.

Many of us feel that one of the problems is that our industrialists are unable, for whatever reason, to identify the work and business orders which should come the way of British manufacturers. As a result, much of the work is funnelled abroad, often because overseas competitors are sophisticated enough to be able to take advantage of the arrangements for purchasing that exist within the United Kingdom.

7.30 pm

The Association of Independent Businesses, which represents many small businesses, had this to say about the Budget and the Government's actions in support of small business: The length and depth of this recession have severely stretched the resources of existing independent businesses, in many cases to breaking point as rising insolvency and bankruptcy statistics demonstrate, yet the Budget assumes only a minor economic upturn by early 1982 and postpones any revival. The Government appears to be relying on a slow-down in destocking and extensive personal dissaving to maintain even current low levels of demand. Neither effect will substantially ease the position of industry in the short term, nor will the planned decline in Government expenditure on goods and services. On the wider Budget issues, the Association fears that given the problem of lack of demand faced by many existing businesses the Budget may prove too deflationary and the implementation of the financial strategy too long for many independent businesses. It is interesting that those comments come from an organisation supported by many Conservative Members. It represents the strand of business thinking that exists on the Floor of the House, certainly among many Back Benchers. It is hard to understand how such an organisation, which would claim to reflect Conservative views in many areas, has been utterly dismissed by the Government. The problems and anxieties of small businesses are not being dealt with at the Dispatch Box. There is a duty on the Government to respond in a way that is beneficial to their interests. They employ people and the economic and industrial argument is about jobs. Our people are desperate for jobs and the Government must respond.

Mr. Andrew F. Bennett (Stockport, North)

I listened to most of the debate a few days ago on the double taxation of unemployment benefit, and I have listened to mast of today's debate. It is surprising that the Government have not found any Back Bencher to support either of those measures. It is an interesting illustration of the way in which the Government have lost the support of many of their Back Benchers. The attacks during the debate on unemployment benefit came from the Tory wets, which seems to be a common occurrence in the Chamber.

It is also interesting to note that, although around Christmas it was suggested that the wets would mount a formidable challenge to the Government's policy, a few minor appointments to either ministerial office or the Whips Office have caused the challenge to fizzle out almost completely. In last week's debate a mere handful of Conservative Members followed us into the Lobby and it appears that tonight none of them will do that.

Mr. Peter Bottomley

I am supporting the Government's proposals today.

Mr. Bennett

I am sure that the Government will be very pleased about that. It is rather a turn-up for the books.

Any tax on jobs at present time is obscene. Our crying need is for jobs, and anything that makes job creation a little more difficult should be removed. The hon. Member for Chippenham (Mr. Needham) suggested that there was a change of mood in the workplace and a new spirit abroad. The new spirit that he envisages is not the one that I experience when I talk to workers in my area. The spirit that is abroad in my area is a fear of redundancy. It means that on some occasion people are cowed into not taking industrial action or not pressing for extra wages. Faced with the fear of unemployment, more and more resentment is building up, and sooner or later it will bubble over. We shall have as many problems as we had before.

If we wish to have a new spirit in industry we must change the attitudes that have been instilled into people for almost 30 years. The idea in the days of full employment was that we had to reduce the number of workers in particular jobs, that machinery should be brought in and that ways should be found so that one person could do the work of two or three. That was thought to be much more efficient. Those ideas came not only from management, but repeatedly from workers who wished to agree with them because it gave them more and more income.

That made perfectly good sense as long as we had full employment and when the person who was made redundant could find an alternative job. However, now that the growth in the labour market has ceased, we must have completely different attitudes. The failure of the Labour Government up to 1979 was that they did not manage to create new jobs as fast as the demand, but the number of those in employment rose steadily until about May 1979. It is only since May 1979, when the Conservative Government came to office, that the number of employed has started to fall. Against that new background we must find ways in which two people can be employed where one person was employed before. It is important that should we remove attacks on jobs such as this measure.

I regret that on many occasions during the period of full employment people gave up their jobs because of mechanisation, which supposedly introduced greater efficiency, but which did not work. I served on a local authority that had the idea of getting rid of the old road sweepers with their brushes. There was great enthusiasm for bringing in a new mechanical sweeper which would do the work of six people with one man driving it. In practice, it saved six sets of wages and just about paid for the new machine. However, when we examined the job two or three years later, we found that the machine provided a less efficient service. The mechanical sweeper failed to clean the pavement and had to steer its way round parked cars, so that a much less efficient job was done.

In many instances mechanism was brought in on the basis that it gave individuals higher wages and was more efficient. We must now examine that process carefully to see whether we can bring about greater efficiency by employing more people rather than by using machines which may not do as efficient a job as the individual. To do that, we must get rid of measures such as this job tax.

I support the amendment and the argument that we should be much more competitive. It will do a little to reduce inflation and might create about 50,000 jobs, but I should have preferred a more selective measure. I accept that the measure is selective, but it is selective in the worst possible way. The Government are reducing the surcharge for private firms, but leaving it on the public sector. That is a doctrinaire approach and is not based on logic.

I hope that the Minister will explain why the North-West Electricity Board, which has people successfully designing a domestic electricity system for Saudi Arabia, will not get the benefit of the reduction in the surcharge. A private company attempting to win the same sort of export order, where the work is done in Britain for a foreign buyer, would get the benefit. That is illogical.

The success of many of our nationalised industries and public enterprises in winning orders from abroad to provide valuable services in the countries buying the product, and thereby providing jobs in this country, is not referred to often enough. It is amazing that the Government can take the view that such operations will not benefit from the removal of the surcharge.

Local authorities carrying out their own repairs and maintenance on houses or building new council houses will not benefit from the removal of the surcharge, but if they employ private contractors to do the work there will be a benefit in the price. That is crazy. The Government should remove this selectivity between the private and public sectors.

Different criteria for selectivity should be applied. The amendment should contain more selectivity. I know that there are difficulties in framing amendments; but I should have liked to see the abolition of the surcharge where employees are involved in training within industry. This should apply both to those doing the training and to those receiving it. We should do all that we can to encourage industrial training. To do that as one of the steps would have been logical. I suggest complete abolition in that area, while retaining the surcharge for other areas, if possible at a slightly higher level.

I should like more to be done to induce companies to take on the long-term unemployed. Those of my constituents who are unemployed tell me that time after time when they go after jobs the companies exercise a preference for the individual who was most recently in work. The person who has been out of work for 12 months finds that he is at a disadvantage compared with the person who has been out of work for only a short time. We should give 100 per cent. exemption to those firms taking on new employees who have been out of work for more than 12 or even 18 months. The measure should be used in that way.

I deal next with regional policy. The Government's regional policy on Greater Manchester, and particularly my part of it, has been disastrous. In tabling the amendment consideration should have been given to abolishing the surcharge in those parts of the country where unemployment is high and to redressing the effects of the Government's decision to remove intermediate status for areas such as Stockport. That is an amazing decision which the Government appear determined to push forward. They are removing an incentive to industry to come to Stockport. I am sure that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) appreciates that there is a similar problem in Tameside. Reduction of the advantages for industry in those areas has been a major blow to reducing unemployment.

Mr. Campbell-Savours

My hon. Friend makes an interesting point. It is worth noting that the Conservative Party manifesto stated: We do not propose sudden, sharp changes in the measures now in force. That referred to regional strategy. The Opposition can honestly suggest that the Government have done the opposite to what they said they would do in 1979.

7.45 pm

Mr. Bennett

If the electors of Stockport had been told by the Conservative Party that the area would lose intermediate status, the Government would have received even less support. If people in Knutsford, where many of those involved in running industry in Stockport live, had been told that Stockport would lose its intermediate area status, there would have been much more criticism than there was during the election campaign. Many of those people are extremely bitter about the decision. The amendment should have been more selective and proposed the reintroduction of some of the advantages.

The people of Stockport are bitter. They have done a great deal to make the town attractive to industry. They take advantage of the fact that Manchester has a first-class international airport close to Stockport, that it has first-class road and rail communications and that to the south and east of Stockport there is extremely attractive countryside. There has also been a long tradition of skilled labour in the area. Despite all those advantages, when Stockport tries to attract industry the loss of intermediate status means that industry is attracted to other areas, in some cases where there is lower unemployment than in Stockport.

The Government should have made this a selective measure. I believe that eventually there should be abolition, but in the interim the measure should be used to encourage companies that go in for training, to encourage firms that offer a fair deal to the long-term unemployed and to encourage firms to move to areas of high unemployment rather than continue to develop in the more prosperous areas.

I support my hon. Friends, but I hope that the phasing out of this jobs tax can be done more selectively.

Mr. Geraint Howells (Cardigan)

I support the amendment tabled by my hon. Friends and hon. Members in the Social Democratic Party. The alliance is working as a team to do its utmost to abolish the national insurance surcharge.

I have listened with interest to hon. Members on both sides of the Committee and I honestly believe that the majority are worried about the plight of industry, unemployment, small businesses and the self-employed. Most have spoken about the effect that the national insurance surcharge will have on the nationalised industries.

I refer to the private sector. I have the privilege to represent a constituency with a high proportion of self-employed—probably the highest in Britain. Many are small business men, who form the backbone of the rural economy. I am proud of our record. More than 30 per cent. of the people in my constituency are self-employed.

Less than 10 per cent. of my constituents work in manufacturing industry. The remainder work in the service industries. In some parts of Cardigan and Ceredigion unemployment is as high as 25 per cent. It was 25 per cent. under the previous Administration. I am not proud of the record of the present Government because very little has been done to alleviate the problem that has existed in the Teify valley in my constituency for the last 10 or 15 years.

We in the Liberal Party have said for many years that the small business sector has an important part to play in the United Kingdom economy. It can contribute towards encouraging enterprise. We have also advocated positive discrimination in favour of small firms and would like to see that sector prosper for the benefit of the community as a whole. So highly do we rate that sector that we have pressed for a Minister representing small businesses to have a seat in the Cabinet so that he or she could defend that sector's interests at the highest level.

During our agreement with the Labour Government in 1978, we pressed the then Prime Minister, the right hon. Member for Cardiff, South-East (Mr. Callaghan), to have a Minister in the Cabinet to look after the interests of the self-employed. Fortunately, our leader persuaded the then Prime Minister to appoint a member of the Cabinet to look after those interests. Today, it is well recognised that the Liberal Party did more for the self-employed and small businesses in six months than the two major parties have done during the last 50 years.

We also feel that with their special skills and enterprising ideas those sectors could contribute towards making industry as a whole more competitive. We have many small businesses in Britain. The self-employed can also play a major role. We also believe that one of the most important functions of the small business sector is to employ labour. However, we find that in recent years small firms have lost ground as a source of employment. Indeed, their share of total employment has halved since 1935.

That is not true of other countries. For example, I understand that, based on population, West Germany has 40 per cent. more small firms than we have. That is a wonderful achievement for the West German Government. We have lost an important opportunity somewhere, and with the collapse of heavy industry surely it is now time to make good our neglect by aiming to develop the small business sector rather than stifling it.

That sector has for many years been troubled by many problems, ranging from high interest rates to complex and time-consuming paper work. One factor in particular has inhibited the small employer from taking on additional staff—the iniquitous tax on jobs, the national insurance surcharge. I have already said that I have a high percentage of self-employed and small businesses in my constituency. Another fact about which I am not so happy is that in Ceredigion we also have pockets of unemployment, in some districts ranging between 20 per cent. and 25 per cent. of the adult population registered as able to work. Many of those who make up these sorry figures are young people, some of them highly skilled and well-educated, who, despite their best efforts, have failed to find jobs either in Ceredigion or elsewhere in Wales or the United Kingdom.

I want to see a revived small business sector full of enterprise and vigour that is prepared to employ some of those young people. But until we relieve it of some of the financial burden unnecessarily placed on it by Government, we shall get nowhere.

I have talked to many small business men who tell me that they have the will and the work. They see plenty of labour around them, but they simply cannot afford to take it on. Abolishing the national insurance surcharge would be one vital step towards easing their burden, and one that the Government should not hesitate to take.

There are many options open to the Government that could help the self-employed and small business men. Mention has already been made of risk capital. It is time that we gave risk capital to some of our youngsters. I am talking not about firms that employ 100 or 200 people, but about the small man who employs two, three or five people in a rural area. Help should be given to those small businesses that would give of their best if only they were given the right encouragement and incentives by the Government of the day.

I again declare my interest, which is a tradition in the House. As a farmer, I know that many thousands of us take on labour. In my view, many more people could be employed on the land if the Government of the day gave the right incentives and encouragement to agriculture.

Liberals and members of the alliance believe in small businesses and their importance as employers. We would like £250 million put towards providing advice and venture capital for both smaller businesses and co-operatives. I have emphasised time and time again the importance of the small business sector to the economy in Wales; the wellbeing of that sector is essential for our survival.

A recent study has shown, however, that throughout the country generally small businesses are shedding labour, mainly as a result of Government policies that have made life difficult in a number of ways, ranging from the national insurance surcharge to the new sick benefit regulations. Our aim is to help the small business men and the self-employed, to get rid of unnecessary bureaucracy and to give them sufficient confidence to take on more labour.

These are just a few of the suggestions that Liberals are proposing to deal with the present crisis, but in the long term, if we want a stable economy with bright employment prospects, there must be a permanent prices and incomes policy—not one cobbled together in haste as a panic measure, but one that will ensure a fair deal for everyone. Only then can we look forward to a period of industrial peace and prosperity.

We have the labour, we need it, but we cannot afford it. It is therefore time for the Government once again to see what help they can give to our small business men and the self-employed. They need the Government's help, and it is time that the Government did something for them.

8 pm

Mr. Hooley

Much of our debate on the national insurance surcharge has turned on industry's problems. That is only right, because industrial problems are at the core of the economy's difficulties. It is also right to discuss, in effect, a payroll tax at a time of massive and sustained unemployment.

The excitement over the Falklands crisis has obscured the fact that this month unemployment has again exceeded 3 million. That is only the official figure. It is generally reckoned that the true figure is 3.5 million or 4 million. In any discussion of such a payroll tax we must consider its impact on industry and on industry's problems. In that respect, the Government's record is bizarre. There has been a fall in industrial output of nearly one-fifth in the three years in which the Conservative Party has been in office, and there has been a catastrophic fall in industrial investment year on year. I do not know whether there is any serious evidence that industrial investment will pick up in 1982.

Bankruptcies are running at a record rate. A short time ago it was reported in The Guardian that the figures were at an all time high. In 1980 our gross national product fell by 2 per cent. In 1981 it fell by a further 2 per cent. and it is now said that there may be a modest increase of 1.5 per cent. In other words, there have been four strides back and possibly one or one and a half faltering steps forward.

One serious indictment of the Government is that although major industrial firms find themselves in trouble every day, reporting lower profits or collapsing altogether—as is the case in Sheffield—and although that has been happening for two or three years, the banks are recording record profits. Indeed, so high were their profits that even the Government had to introduce a special windfall tax. The state of affairs was so grotesque that the Conservative Benches would not tolerate it. Ultimately, the mass unemployment that has been directly generated by the Government's policies must be the most serious indictment.

To the extent that the national insurance surcharge is a tax on jobs—as the CBI has argued—a lightening of that burden will be welcomed if it has a serious effect on mass unemployment. The reduction proposed by the Government does not go far enough. Indeed, I am not sure whether our amendment goes far enough. Nevertheless, it is clear that with more than 3 million out of work and looking for jobs which, for the most part, do not exist, there is no case for retaining a severe payroll tax on industry, which represents a burden of £1 billion or £1.5 billion.

In Sheffield alone, unemployment has trebled since the Conservative Party took office. In May 1979 unemployment stood at about 4 per cent., or about 12,000 people. The figure was far too high even then, but it has now increased to 12.6 per cent. and nearly 37,000 are unemployed in Sheffield. To the extent that the national insurance surcharge contributes to that and makes it more difficult for industry to take on workers, there is a powerful case for reducing it, or abolishing it altogether.

The industrial collapse and the calamity that have hit British industry in the past three years must be attributed directly to Government policy. We have seen a sustained, deliberate regime of high interest rates—which are still high despite the slight reductions in the past few months—that discourages the investment and borrowing necessary for a modern industry. The outflow of capital has been deliberately encouraged by the removal of exchange controls, and in the past few years since their removal billions of pounds have flowed out of the country and created jobs overseas. The money should have been invested in the United Kingdom, thus creating new jobs for our workers.

It is a common complaint that industry will not invest, develop or expand unless it can see markets for its products. That argument is not unreasonable, but where will those markets come from while the Government continue to pursue a savage and classic deflationary policy, although dressed up in the fancy nomenclature of supply economics, monetarism and so on? For the past three years the Government have been pursuing the deflationary policies of which the country, alas, became all too aware in the inter-wars period and which applied in the post-war period with precisely the same effects as now, of falling output and investment and a massive rise in unemployment.

It is interesting to note that the same policies, applied by President Reagan and his Administration, are producing the same effect and will have a catastrophic result in the coming months and years on the world economy. Indeed, the Common Market countries are profoundly worried by the American Administration's behaviour. That is not surprising, because the course of America's economy has become the mirror image of that being followed by this Government in deflating our economy, in destroying industrial output and British industry, and in making it more difficult for firms to survive.

In addition to modifying or doing something about the national insurance surcharge, one might have expected the Government to take other steps to relieve British industry's problems, but, far from doing that, they have imposed extra burdens. The crackpot sick pay scheme is completely unnecessary and will create administrative difficulties for industry. It will place extra burdens on administration, will require extra pay calculations to be made, and will lead to further difficulties for personnel departments. The small businesses about which the Government pretend to be concerned will be worst hit.

It could be argued that organisations such as the Central Electricity Generating Board, the British Gas Corporation, ICI and Ford have computerised arrangements to deal with sick pay for those who are off work for a few weeks. Small businesses, however, will not have the capacity to handle the problem efficiently without extra paper work, extra difficulties and possibly arguments if there are problems about entitlement to sick pay and the length of time that someone is off work. All that, for what purpose? The Government have not given any rational reason for removing the payment of sick pay from the accepted State administered system, which has worked for decades, and placing an extra administrative, complex burden on industrialists. There is no benefit to the worker or to industry.

The same story can be told about training. To achieve the same amount of training as in the past 10 or 15 years—under legislation introduced by Conservative Governments—greater efforts will have to be made by private industry to replace the mechanism and administrative effort of the industrial training boards. They are largely being destroyed. Industry will either have to carry extra burdens and administrative work and replace the effort made by the training boards, or training will slump disastrously. The latter is the more likely. Given the arrangements for sick pay and training, extra burdens, complications and difficulties are being created for industry. In the light of the CBI representations on the national insurance surcharge and related matters, I should have thought that the Government would want to make industry's path easier.

The remedies for our industrial ills lie in two directions. First, there must be encouragement for a sustained high level of investment in capital, plant, research and marketing. It is often assumed that investment involves simply putting in new machinery, but the most important investment is sometimes that in research into new products and their marketing.

One of the curiosities of the Prime Minister's speeches about competitiveness is that she does not seem to recognise that in modern industry competitiveness is not a question of cutting wages and forcing down living standards. The most competitive countries in the world, including West Germany, the United States, Sweden and to some extent Japan, have not forced down wage levels, and their competitiveness has depended on sustained high levels of industrial investment. In this country the prospects for such investment have been damaged and almost destroyed by the Government's policies on interest rates, energy costs and so on.

It may be argued that, whatever we do on taxation and charges such as the national insurance surcharge, industry cannot be compelled to expand or invest if it decides that that is not worth while. In that case, the alternative strategy is sustained and massive investment in the public sector—in public corporations, local government, housing and over a wide range of necessary and productive operations that will not only create jobs, but increase our national wealth and general standard of living.

There are enormous possibilities in public investment. It is not public spending in the crude sense—not the spending of taxpayers' money for the sake of it—because public corporations, local government and so on are major customers of private industry. Local government purchases about £6 billion worth of goods and services a year from the private sector. If local government activities are expanding, that will be of direct benefit to the private sector, because the demand for its goods and services will also increase.

A curiosity that I have not seen resolved by economists is that, although we talk of expenditure on housing as if it is public expenditure, most of the activity takes place in the private sector, because much house building, even municipal housing, is carried out by private contractors. Therefore, an expansion of the housing programme will be of direct assistance to the private construction industry. The House-Builders Federation has made that clear in numerous documents that it has sent to me and, no doubt, to other hon. Members.

In terms of competitiveness, which the Government continually say needs to be increased, and stimulating overall economic activity, there is a powerful case for public investment, which will not only assist the public sector, but will be of direct and immediate benefit to the private sector.

The national insurance surcharge is a tax on jobs and should be abolished, but I am not sure that even that will solve our industrial problems. That will require a fundamental and drastic change in the overall economic strategy.

8.15 pm

Mr. Brittan

Clause 128, which various sections of the Opposition have sought to amend, gives effect to one of the central proposals of the Budget. As my right hon. and learned Friend the Chancellor of the Exchequer made clear in his Budget Statement, our prime purpose this year is to help private commerce and industry to help itself, by cutting its costs.

Our proposal on the national insurance surcharge is in the mainstream of that policy. It has been widely welcomed as the one measure which industry wanted most. It should directly reduce the costs of employing labour in the productive private sector by about £640 million in the current year. It is the largest single measure announced in the Budget to reduce industry's costs.

The clause is designed to reduce the rate of the surcharge from 3½ per cent. to 2½ per cent., with effect from 2 August 1982, and it provides for an extra reduction of half a percentage point in respect of liable earnings paid on or between 2 August and 5 April 1983. In all, it will provide employers during 1982–83 with broadly the equivalent benefit as they would have gained if a I per cent. reduction had been in force throughout the current year.

The reduction in the surcharge is the largest single measure in the Budget to assist industry, but the right hon. Member for Stepney and Poplar (Mr. Shore), who is not in the Chamber, did less than justice to the Budget by seeking to denigrate and minimise the impact, effect and importance of some of the other measures put forward by my right hon. and learned Friend the Chancellor of the Exchequer.

I will list only some of the more important measures announced in the Budget. Small firms and enterprise are being encouraged for the third successive year, the construction industry can expect to benefit in the current year from tax and expenditure measures totalling about £240 million and industry's fuel bill will be reduced by more than £160 million as a result of the measures announced by my right hon. and learned Friend on gas and electricity prices.

I believe that, overall, the Budget achieves the right balance between across-the-board assistance, in the form of the reduction in the national insurance surcharge, directed towards reducing the cost of employing labour, and specific measures to assist industry. The balance is correct, but we are concerned not only with balance, but with the total extent, and the extent of the reduction of the national insurance surcharge is the subject of clause 128.

Of course it is possible for right hon. and hon. Gentlemen to mention figures of assistance to industry, whether in the form of a reduction in the national insurance surcharge or any other form, which would be more substantial and include larger figures than those put forward by my right hon. and learned Friend in his Budget Statement. Naturally it sounds more attractive and a greater assistance if bigger figures are mentioned. But the Government's strategy does not seek to lead us out of our present difficulties by way of reflating to the maximum possible extent.

In a recent debate the right hon. Member for Stepney and Poplar, who apparently cannot be with us, was candid enough or was prised open enough to admit that there was no limit to the amount of borrowing and that, therefore, it was open to him to suggest a figure, whether £8 billion or more, of extra money which could be borrowed to finance extra public spending, extra cuts in taxation or anything else one would care to mention. One felt inclined to ask, if borrowing was not a constraint and did not matter, why stick at whatever figure the right hon. Gentleman last alighted on in his competitive bid to reflate the economy in a painless way?

The truth is that there are constraints, there is a price to pay and there is such a thing as a proper balance. The borrowing on which the Government embark, which derives from the combined effects of what they spend and the revenue they receive, must be funded and the effect of that funding is crucial for interest rates. If it is not adequately funded, the impact on inflation is likely to be substantial.

We do not accept that there are no such limitations. It is a matter of judgment exactly how far one goes, but a general balanced packet of measures on a scale which would not impose excessive strains on interest rates was the right one.

The right hon. Member for Stepney and Poplar made much of the circumstances in which the national insurance surcharge was introduced by the Labour Government. I agree with my hon. Friends who said that it does not lie in the mouth of any member of the previous Government to complain about the national insurance surcharge and to call for its reduction. It will not do for the right hon. Gentleman and Labour Members to say that it was all right to introduce the national insurance surcharge at 2 per cent. and increase it to 3½ per cent. because at that time Britain's competitiveness was better and the exchange rate was different from what it had been.

The right hon. Gentleman failed to answer—and he was not prepared to give way when I tried to put it to him a third time—a simple point which must follow from that line of argument. No one has sought to defend the tax. No one has sought to suggest that it is anything other than an increase in costs for industry. No one has sought to suggest that it does anything but make employment levels lower than they otherwise would be. In effect, the right hon. Gentleman said that none of that mattered because the level of the pound was different from what it is today. I would have preferred to say in the presence of the right hon. Gentleman that that is an absurd allegation.

Mr. Robert Sheldon

I apologise for the absence of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). He went to a meeting and was not aware that the debate was likely to come to such an early end.

Mr. Brittan

I hear what the right hon. Gentleman says on that point. The argument of the right hon. Member for Stepney and Poplar is absurd. If he says that the tax is a bad tax, that it increases costs and does harm to employment, he cannot suggest that it was appropriate to introduce it in April 1977 and to increase it in October 1978.

If we examine the relevant years, we see that from the first quarter of 1974 to the second quarter of 1977 unemployment increased from 621,000 to 1,450,000. It had more than doubled. Whether it was likely to go down slightly as it did, that was the legacy and the record that the then Chancellor of the Exchequer faced in April 1977. Unemployment had doubled. That was regarded by the Labour Government as a serious matter. At that moment to proceed to put a tax on employment in the form of the national insurance surcharge was completely indefensible. If it did not stop unemployment going down slightly, on the argument that the right hon. Member for Stepney and Poplar has put to the Committee today, it must have prevented if from going down more.

Therefore, according to any view of the situation, the fact that the right hon. Gentleman thinks that the relevance of the different levels of the pound is so important does not justify putting a massive tax on the employment of labour as the Labour Government did in 1977; still less does it justify what happened in October 1978 when the Labour Government increased the tax.

The figures between the second quarter of 1977 and the fourth quarter of 1978 show that cost competitiveness, which is what matters, declined by about 14 per cent. Therefore, faced with the decline in cost competitiveness, what did the Labour Government do with a tax that their current spokesmen regard as representing an increase in costs and as undesirable? They virtually doubled the level of the national insurance surcharge. [Interruption.] I know that it is painful for Opposition Members to have those facts thrust down their throats.

Mr. Austin Mitchell

It is history.

Mr. Brittan

It is history but it is history that denies the Opposition any jot or tittle of right to complain about the inadequacy of the reduction in the surcharge introduced by my right hon. and learned Friend.

I shall refer to some of the specific points that the right hon. Member for Stepney and Poplar raised with regard to the tax and its reduction before I come to the question whether it would be feasible—or desirable—to make the changes that are suggested in the amendment. The right hon. Gentleman alighted upon the clawback. I am not ashamed or embarrassed in any way by the clawback because I believe that it was absolutely justified. It involved a saving to the Exchequer of over £300 million, which made it possible to give assistance to industry that otherwise would not have been possible. To concentrate this assistance on the private productive sector of industry was absolutely right.

The right hon. Gentleman said that the Government consistently discriminated against nationalised industries or were hostile to them. The position of the nationalised industries is simple. They will have their national insurance surcharge reduction in the same way as anyone else. The effect is that their costs will be reduced and their borrowing needs as a result will be lower than they would have been otherwise. Their external financing limits will be reduced to reflect that.

What those who seek to say that there has been discrimination against the nationalised industries fail to recognise is that the control of nationalised industries is control of borrowing. If there is a reduction in the need to borrow, it is right that there should be a reduction in the amount that those industries are permitted to borrow.

I cannot say that the record of the nationalised industries in the handling of pay, for example, is such that——

Mr. Peter Bottomley

indicated assent——

Mr. Brittan

I see my hon. Friend nodding. I cannot say that the industries' record makes one feel that one should make a special exemption—which is what it would be—in the face of the consequences in the public sector of a reduction in the national insurance surcharge.

Mr. Richard Wainwright

Will the Chief Secretary assist the Committee further—first, by giving any estimated figure for the nationalised industries that will benefit from the reduction that will be clawed back and, secondly, by saying for how many years he expects the process of clawback to go on?

8.30 pm

Mr. Brittan

On the hon. Gentleman's second point, with regard to the measures announced in respect of the coming year, as with all fiscal measures, what we do in future years remains to be seen. With regard to the approximate extent of the nationalised industries' benefit, the figure that comes to mind off the cuff is £100 million to £120 million—about one third of total public sector clawback.

Mr. Shore

I apologise to the right hon. and learned Gentleman for not being present at the beginning of his speech. May I press him on his reasoning about not making the reduction available to the public sector? He has given some explanation of his reasoning about nationalised industries, in so far as they are borrowers from the public purse. I am not sure how far that argument stands up with regard to those nationalised industries that are not borrowers but contributors, such as British Gas and British Telecom.

Can the right hon. and learned Gentleman enlighten us on how he relates that doctrine to companies in the public sector? Some of them, such as British Leyland, are borrowers, as we all know. Have they also had benefit withdrawn? Is the case the same with BNOC and others?

Mr. Brittan

The answer is simple. Those firms that are treated as being within the public sector borrowing requirement are receiving the treatment and those that are not within it are not. The right hon. Gentleman will know that some companies, such as British Leyland, are not treated as being in the public sector borrowing requirement for national accounting purposes because the external financing limits do not apply to them. Government assistance is given in a different form.

I turn now to the suggestion that there should be a larger or a total reduction. It is a question of the general financial framework within which one must operate. The proposed abolition of the national insurance surcharge would cost a further £1½ billion in the current year or £3 billion next year. Even the more modest reduction of a further 1 per cent. that is advocated by the Opposition would cost an additional £1 billion in 1982–83, rising to nearly £2 billion next year. I know that the Opposition are not fond of running tallies, but it must be pointed out that these proposals come on top of Opposition amendments to clauses that have already been debated. Before this, Labour spokesmen have urged the Government to adopt amendments that would cost some £3¼ billion in a full year.

I concede that the Liberal and Social Democratic Parties have not scored such a high tally in the proposals that they have advanced. Nevertheless, Opposition Members who are proposing so substantial an increase can only do so within the context of a suggestion that the limitation of borrowing does not matter. That has been suggested frequently by the right hon. Member for Stepney and Poplar, but I and my right hon. and hon. Friends regard it as wholly unacceptable.

Reference has been made to the change in the estimate of the public sector borrowing requirement for 1931–82 that occurred between the publication of the Red Book on Budget day and 22 April. Those revised but still approximate figures were published and showed a PSBR lower by some £2 billion.

A number of propositions deriving from that have been advanced. The first is that if one gets it wrong by £2 billion and if one got it wrong by several billion in the other direction the previous year, the whole thing is not worth bothering about and we should ignore the public sector borrowing requirement. The second is a slight variant on that. It is not that we need not bother about the PSBR, but that in some sense we can carry forward and spend an extra £2 billion the following year.

I suggest that neither proposition stands much scrutiny. First, it has always been known by anyone who tries to be even mildly versed in these matters that with a residual such as the public sector borrowing requirement between two extremely large amounts the accuracy of any estimate is bound to be limited. The right hon. Member for Stepney and Poplar smiles and nods, for all the world as though that were a revelation. If it is a revelation to the right hon. Gentleman, I can only say that it is for want of reading the Government's own publication, the Financial Statement and Budget Report, which not only refers to the fact that there can be discrepancies but actually quantifies their average size. That being so, simply to say that the whole thing does not matter is not a rational response.

The alternative proposition, that the PSBR matters but that there is £2 billion to spare, is also not a correct analysis. One must first examine the estimate of £9½ billion for the PSBR for 1982–83. I accept that there are those who believe that on any view that is too low a figure. The argument for a change in the estimate, however, at least takes it for granted that £9½ billion might be the right figure but suggests that a change should still be made because of the reduction in the 1981–82 figure. That does not follow unless one believes that the present estimate will be proved fallacious. Although, as has been made clear, the exact components of the £2 billion reduction in the PSBR reported on 22 April as the latest estimate have not yet been analysed, the information that we have provides no evidence or reason to believe at this stage that the £9½ billion estimate will prove to be too high.

Mr. Campbell-Savours

That is even worse.

Mr. Brittan

Whether that proves to be the case will depend upon the factors that led to the reduction in the borrowing requirement in 1981–82.

I give one illustration. Clearly there is a difference if we are talking about genuinely higher tax receipts rather than merely about the timing of expenditure payments as between late March and early April. Therefore, to say at this stage that there will be less borrowing than is anticipated in the £9½ billion estimate is not justified. Certainly it is not a basis for changing the central decision in the Budget relating to relief for industry—the national insurance surcharge reduction.

Mr. Robin F. Cook (Edinburgh, Central)

I am sure that every member of the Committee will agree that it would have been much more valuable had we discovered the undershoot during the year 1981–82, when it would have been possible to take advantage of the underspending that happened then. Is the Chief Secretary really saying that there are no savings from that underspending, not even in respect of presumably reduced interest payments which will occur in respect of that financial year and which are now available for this year?

Mr. Brittan

No. I am saying that in 1981–82 there was indeed a reduction which was not apparent, compared with the original estimate of the public sector borrowing requirement. That came to light only in recent weeks. That is true, but it does not mean that one has something that one could take advantage of by spending more or taxing less for 1982–83, because we are concerned with the amount of money that we will have to borrow in 1982–83. That is what has to be funded, and if it is not funded it will lead to the increase in the money supply and inflationary pressures resulting from that.

It is for those reasons that I say to my right hon. and hon. Friends that I see no reason to alter the basic judgment of the Chancellor of the Exchequer that, within the context of a Budget designed to assist industry, not by massive reflation but by a responsible degree of assistance, consistent with the total level of assistance, the balance that has been set is the right one. I therefore advise the Committee not to accept the amendment.

Mr. Robert Sheldon

We have had a good debate. It is interesting to note that all who have spoken have agreed with the amendment, and it will be interesting to see how many will actually vote for the amendment to which everyone seems to be speaking. My hon. Friends the Members for Walsall, North (Mr. Winnick), for Workington (Mr. Campbell-Savours), for Stockport, North (Mr. Bennett), and the hon. Members for Rutland and Stamford (Mr. Lewis), for Chippenham (Mr. Needham), for Bath (Mr. Patten), for Gateshead, West (Mr. Horam), for Colne Valley (Mr. Wainwright) and for Cardigan (Mr. Howells) all agreed with the amendment, and no one spoke against it.

The refuge that the Chief Secretary took in opposing the amendment was twofold: first, that as the Labour Government introduced the change we could not speak against it, even in circumstances which five years later are manifestly different from those which attended its introduction; and, secondly, that as we had proposed a number of other amendments to the Finance Bill which would cost money, it would be impossible to carry out this policy because it would involve spending all this money. The right hon. and learned Gentleman has used that argument frequently. I must take him up on it, because it is becoming a bit of a bore, and he is failing to convince even his so-called supporters on the Benches behind him.

The Opposition do not have the choice of a Finance Bill. It is not for us to devise one. We have to take the one that the Government provide for us. We do not even have a choice of altering it to suit our priorities—taxing a little more here and taxing a little less there. The reason is that we, as an Opposition, cannot propose increases in taxation. However, by various amendments we can show our priorities and try to obtain, not our legislation, but a form of legislation which is a little closer to that which we wish to achieve.

The point was put best by Iain Macleod, speaking as an Opposition spokesman. I recall it well, because he set out the matter clearly and fairly in the Finance Bill Committee on 13 May 1969, when he said: The question of cost is always an inevitable problem for Oppositions. An Opposition of any party, in putting their point of view before the House in any year, would put forward commitments which they recognise in total are more than they could meet if they were in power. It is only fair to make that point, and it is not made for the first time. But it is right to press individual points one by one. 8.45 pm

He went on to say: I am not committed to the Chancellor's approach in the Budget any more than I am committed to his arithmetic, but if I were faced by a position in which I wanted to make the sort of reduction which I am now commending to the Committee, I would have preferred … a switch"— that is, to obtain the money in other directions. I think that is an honourable answer to the question of cost, which is always a difficult one for an Opposition."—[Official Report, 13 May 1969; Vol. 783, c. 1285.] To save time, if the right hon. and learned Gentleman makes the same point, may I take this rebuttal as read?

The hon. Member for Rutland and Stamford said, and everybody who spoke subsequently agreed, that the national insurance surcharge is a tax on jobs and has many disadvantages which offset any advantages that a Chancellor of the Exchequer may find in it. It has two features that have made it attractive to Chancellors of the Exchequer, both Labour and Conservative. The first is that it is an easy tax to impose and a cheap tax to collect. The legislation is simple, quick and certain. The amounts of revenue raised can be calculated easily and with accuracy and a few lines in the Finance Bill produce revenue immediately.

The other advantage is that it has little short-term effect on the retail price index. It takes time to work its way through the price of any article that it affects—time that can extend up to 18 months.

We know the disadvantages of the surcharge. They include the fact that it is imposed upon exports but not upon imports. There is no system, nor can one easily be devised, for rebating the tax on exports, and the tax does not affect imports, which have no employment costs in them. It is in that respect the very reverse of value added tax, which is charged on imports and there is relief on exports.

The surcharge is also harsh in its effects on the manufacturer. In the payment of value added tax, several months are allowed for settlement for each quarterly return after the goods are sold. The surcharge, on the other hand, has to be paid immediately, frequently well before the product is made, let alone sold. Whereas value added tax commonly helps cash flow—the trader normally accounting for value added tax after receiving payment from his customer—the national insurance surcharge is usually made before payment is received, and for many manufacturers long before it is received.

Mr. Richard Wainwright

The right hon. Gentleman is right in saying that, with comparative legislative ease, enormous sums are raised by the surcharge. He spoke of its all being done by a few lines in the Finance Act. Does he agree that there had to be a National Insurance Surcharge Act in 1976 to set the whole thing in motion?

Mr. Sheldon

I am talking about increases subsequently and even the reduction that we are seeing in the Finance Bill tonight. The question that we ought to ask ourselves is why successive Governments accepted this particular tax. The situation in 1966 and 1967 was as described by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). Industry at that time was very competitive and it had a number of advantages, not the least of which was the introduction of stock relief and the fact that so few companies were paying corporation tax. Therefore, the burdens upon industry were far different from burdens that industry is facing today.

Also, at that time it was becoming widely understood that our European employer competitors had substantial payments to make for the social services enjoyed by their employees. In the United Kingdom, on the other hand, most of the social services were being paid for through general taxation and it was felt that this modest move would raise the necessary revenue. Revenue is largely what it is about, and the surcharge was introduced long before North Sea oil added £6 billion to the revenue enjoyed by the right hon. and learned Gentleman the Chancellor of the Exchequer. The burden on industry then was far less then than it has now become. In particular, the terrible agonies of British industry which now need to be relieved were not felt at that time. The agonies can be reduced by the means proposed in the amendment.

Mr. Brittan

If that is so, will the right hon. Gentleman explain why in 1978 his Government almost doubled the rate of the national insurance surcharge, when between its introduction and the near doubling cost competitiveness had declined by about 14 per cent.?

Mr. Sheldon

The right hon. and learned Gentleman seems unable to grasp the fact that industry was not screaming out in the way that it screamed out to the Chancellor of the Exchequer in Birmingham only a few days ago. I shall deal with the way in which the Government are being looked at by their former close friends in industry.

The particular problem is that of the nationalised industries. The advantages that are being given, or the disadvantages that are being removed, apply to the private sector. The private sector will be able to take on more employees if it improves its finances, but the public sector, if the proposal were not reversed by means about which the Chief Secretary has told us, could be in a similar situation. It would be able to take on more employees and improve its finances in the same way as the private sector. The only possible conclusion is that this is one more instance of the venom that the Government have for the nationalised industries.

The Chancellor said in his Budget Statement that this was a Budget for industry and jobs. I wish that he had thought about jobs and industry three years ago. We might then not have had the Budgets of 1979, 1980, and 1981, which were anti-industry and jobs. They were the Budgets that brought about the 3 million unemployed, and a decrease in industrial and manufacturing productivity of 16 per cent. Three years ago the Chancellor was thinking not about a Budget for industry and jobs, but about money supply and the way in which its control would cure all our ills.

Mr. Campbell-Savours

My right hon. Friend should be addressing the right hon. and learned Member for Cleveland and Whitby (Mr. Brittan). It is interesting to note that in his constituency unemployment has gone up in those precious three years from 10.4 to 23.6 per cent. It is interesting that the Chief Secretary should conduct his case from the Dispatch Box in the way that he has done today.

Mr. Sheldon

I must bow to the knowledge of my hon. Friend on industrial matters and employment in the constituency of Cleveland and Whitby. Those who have seen unemployment rise in this way have a great deal of responsibility for the actions that they took to help bring it about.

Three years ago the Chancellor thought that control of the money supply would lead to the control of inflation. Therefore, we had the money supply expanding at the rate of 56 per cent. and manufacturing industry contracting at the rate of 16 per cent. I must ask what the soothsayers of money supply say about that. Professor Patrick Minford was one of the two economists who only a few weeks ago was praised by the Prime Minister at Question Time. He has come up with his solution to our economic problems. After mentioning the money supply and dealing with it as the solution to our problems, he is turning his attention to the Monopolies and Mergers Commission and asking that it should examine trade union practices. That is the latest outpouring from one of the right hon. Lady's economists.

Another of those econornists who believed in money supply, Professor Milton Friedman, was not praised by the Prime Minister. I assumed that it was an oversight. It took me some time before I found out why her favours had been withheld. I thought that it was accidental, but I discoverd that he had said on 16 February that the performance of the British economy under Mrs. Thatcher's rule had been terrible. That is no surprise to anyone here. He then went on to say that Ministers were to blame for much of the increase in unemployment that had taken place. All those people who supported the policies on which the Government came to office are deserting the Prime Minister one by one. The right hon. Lady has not even a hard core left, unless it is Dr. Walters in her office.

We cannot fail to respect the distinguished speech ma de by the hon. Member for Chippenham. The hon. Gentleman pointed out that the Front Bench should do less cajoling, less lecturing, and listen more to what is going on in the real world. We find that the wets, Labour Members, even the monetarists, are all united in condemning the economic management of Britain.

In his Budget speech the Chancellor of the Exchequer said that it would be a Budget for industry—a Budget for jobs. The House rightly welcomed the way in which, after three years of Tory misrule, he had started to turn his attention from nonsense to fact, from fetish to reality. The reality is grim enough. On 25 February Sam Brittan said: Now look at manufacturing. Here the word 'slump' or even 'depression' seems more appropriate than 'recession''' With levels of manufacturing output down 16 per cent., I do not think that he overstated the case.

The continuous miserable optimism that we hear from Treasury Ministers, which has been sustained since January last year, is treated with derision in the regions of Britain. The Chancellor's expectation for the future is met with contempt. He encountered that first-hand when he spoke to the Birmingham chamber of commerce in the presence of the president of that organisation. On 27 April 1982 the Financial Times reported: Mr. John Black, President of the Chamber, said Government policies were the main reason for the failure of many well managed companies. The loss of capacity could lead to a surge of imports once demand improved. It appears here in the Midlands that people in the South-East, and that includes Members of Parliament"— he must have been referring to Conservative Members of Parliament— really have little idea of what is happening in Birmingham and how extremely serious the situation is. Recession was severe. Unemployment had doubled in the West Midlands in the past 12 years. The Chamber's membership of more than 4,000 companies was largely small companies of which 70 per cent. employed fewer than 50, just the ones this Government is supposed to help. They had put the Government in office but were asking what it was doing for them. The answer is "Nothing at all". The article continues: There was pleasure at Government efforts to reduce inflation, but nevertheless, however much we recognise the need to achieve that objective, the determined inflexibility with which this has been pursued at a time when world demand has been seriously curtailed, has had a disastrous effect on companies in the Midlands. Many old established, well-run and properly managed companies have gone for ever. I make no apology for saying that it was not necessarily because their products or marketing strategy were bad, but rather they failed to a major extent as a result of Government policies. The Government might create a leaner, fitter industry but Mr. Black wondered where the big companies would turn for the small but essential subcomponent products once the economy picked up. He told the Chancellor it was right to refer to the large number of companies coming into being, but this was no more than a reflection of what happened in previous recessions. Such companies could not meet requirements of larger ones in an economic boom. That is about as strong an indictment as one can get from someone who speaks on behalf of small companies. He is not alone in this. Hamish MacDonald, the retiring president of the Manchester chamber of commerce, whom I know well, has said much the same thing. I have been able to quote him in the past.

Today we have heard that the CBI see the Government's optimism in precisely the same light. According to the tape, it said: In stark contrast to optimism from the Government about an economic recovery, the CBI says in its survey published today that there is still no evidence of any noticeable recovery in activity being under way. Demand is stagnant. Nine out of 10 firms are short of orders. 9 pm

It is a wretched business when the Chancellor of the Exchequer and others carry on making speeches of the kind referred to by the hon. Member for Chippenham, lecturing everybody in the House and outside, when everybody outside the House and most people within it know what is happening in the various regions of the country and that the position is not in accordance with what the Government are saying. The Government have been talking about the upturn since January of last year, when the then Financial Secretary said that the corner had been turned. We have been waiting for it ever since.

As we know, good small firms are closing down—firms which deserve to continue. The Chancellor of the Exchequer ought to find no solace in the fact that small firms in the Midlands, frequently employing about 50 people, are closing down and being replaced by someone encouraged by the Chancellor of the Exchequer and having a flyer with his redundancy money.

A number of firms are setting up to sell machinery overseas. According to the Financial Times of 9 March 1982: The flood of second-hand machine tools resulting from the recession in Britain has provided a rich source of exports for Hulberts, a family-owned West Midlands company, which specialises in reconditioning machinery before selling it abroad. That is what is happening. There is a growth of new organisations setting up to demolish and strip factories of machinery for which no use can be found here but which finds a ready sale overseas. These are not old or inefficient companies selling their old machinery for junk. They are companies which ought to be thriving, but which are selling their expensive modern equipment to firms in other countries which are more able to make use of it than can be made of it here under the present Administration.

What makes the national insurance surcharge reduction so necessary is the mood of unease which is marching across British industry and is reflected in the comments of those whom I have quoted.

One of the keys to recovery is investment. In this respect the Chancellor of the Exchequer is right. Investment in manufacturing industry ought to be higher. I am not sure what investment is recorded by the figures produced nowadays. Pub decorations have been defined by the courts as "plant and machinery". That is nonsense, and it needs to be put right at some stage.

It is not only with the poor level of investment about which we should be concerned. In a stagnant or declining economy, plant is frequently purchased to improve efficiency without increasing output. The extra goods cannot be sold, so the investment provides not further expansionary opportunities but an increase in unemployment. That leads to the basic dilemma in industrial life under a Conservative Government.

How can we get companies to buy more machinery, which needs more people to work it, if the first and major preoccupation of companies is to preserve their very existence? How do we get full employment without an expansionist economy, without expansion-minded firms? What happens instead is that hand in hand with mismanagement go collapsed expectations.

It may be that the engine of confidence provided the major industrial expansions in the post-war years. In terms of industrial decline, the damage done to those expectations is greater than any we have ever known. The feeling that persisted until recently was that we were a vigorous country with expanding industry, sure of itself, able to plan and to create the wider opportunities ahead. The recreation of that confidence will be one of the greatest tasks facing any Government. To recreate the mood of expansion in a people who have retreated into caution and doubt is a major task of Government and one that this Government have failed even to recognise.

We shall be voting for our amendment tonight because we believe that it is one of the most important ways of helping to reduce unemployment. We regard it as a priority that overrides all others in our national life. For us "priority" is what the word means—a policy for reducing unemployment which comes before all others.

It is now clear that the Labour Party is the only party represented in the House which seriously believes in the commitment to return to full employment. It was a Liberal, William Beveridge, who, in his report "Social Insurance and Allied Services", published in November 1942, made his assumption the maintenance of employment, but it was Arthur Greenwood who, as Labour Minister without Portfolio, set up the Committee under Beveridge, and it was Sir William Jowitt, the Labour Paymaster-General—one of my many distinguished predecessors as Member of Parliament for Ashton-under-Lyne—to whom the report was submitted.

In that monumental report, which established the structure of the Welfare State, Beveridge's central assumption was the maintenance of high employment. He said that the Welfare State proposals would be impractical if they had to apply to men unemployed by the million or even by the hundred thousand. His second assumption was that the only satisfactory test of unemployment is an offer of work. That test breaks down in mass unemployment. A further assumption of the Welfare State was that there should be an announced determination to use the powers of the State to reduce unemployment, and he pointed out that the worst form of waste—even worse than overmanning in the Civil Service or elsewhere—was unemployment.

Finally, Beveridge pointed out that it should be possible to end unemployment lasting for more than 26 weeks. That was in 1942. That led to the full employment White Paper of 1944, which has been repudiated by the Conservative Party and modified by other parties. It is a great shame to them and a dishonour and disservice to the nation that such an important commitment should have been withdrawn at such a critical stage in our national life.

We have had many distinguished speakers in the debate, but I must select the hon. Member for Chippenham, who called for less oratory, less cajoling and less lecturing from the Front Bench. He asked Ministers whether they knew what was happening in industry today. The hon. Member for Bath said that we should look to jobs, prices, output and to real things that we can measure, not to something that forms part of the Government's theology. The hon. Member for Rutland and Stamford had his doubts as to what the Front Bench knew about industry and what is happening today.

The position today is that many people, even Tory industrialists, now realise that nothing—literally nothing—good can come from the Government's policies to counterbalance the horrifying damage to industry recklessly carried out by the Government. No one, however malicious, could have done more harm to our industrial structure, and the damage that is being done to British industry is without parallel. In those circumstances, the amendment, further to reduce the national insurance surcharge, is a necessary requirement for which we shall be voting tonight.

Question put, That the amendment be made:—

The Committee divided: Ayes 82, Noes 140.

Division No. 137]	[9.10 pm
AYES
Alton, David	Archer, Rt Hon Peter
Anderson, Donald	Atkinson, N.(H'gey,)

Beith, A. J.	Kerr, Russell
Bennett, Andrew(St'kp'tn)	Leighton, Ronald
Booth, Rt Hon Albert	Lewis, Ron (Carlisle)
Brocklebank-Fowler,C.	Lyons, Edward (Bradf'dW)
Brown, Ronald W. (H'ckn'yS)	McDonald, DrOonagh
Callaghan, Jim (Midd't'n&P)	McKay, Allen (Penistone)
Campbell-Savours,Dale	Maclennan,Robert
Cartwright,John	Magee, Bryan
Clark, Dr David (S Shields)	Marks,Kenneth
Cocks, Rt Hon M. (B'stolS)	Millan, RtHonBruce
Concannon, Rt Hon J. D.	Mitchell, Austin(Grimsby)
Cook, Robin F.	Mitchell, R. C. (Soton Itchen)
Craigen, J. M. (G'gow, M'hill)	Morris, Rt Hon C. (O'shaw)
Cryer.Bob	Oakes, RtHon Gordon
Cunliffe,Lawrence	Penhaligon,David
Dalyell, Tam	Race, Reg
Davis, Terry (B'ham, Stechf'd)	Roper,John
Dean, Joseph (Leeds West)	Sheldon, RtHon R.
Dormand,Jack	Shore, Rt Hon Peter
Dubs,Alfred	Skinner,Dennis
Dunn, James A.	Snape, Peter
Eadie,Alex	Soley,Clive
Eastham, Ken	Spriggs, Leslie
Ellis, Tom (Wrexham)	Stoddart,David
Evans, loan (Aberdare)	Straw,Jack
Fitch,Alan	Wainwright,E.(DearneV,)
Fitt,Gerard	Wainwright, R. (ColneV)
Foster, Derek	Walker, Rt Hon H.(D'caster)
George, Bruce	Watkins, David
Grant, John (Islington C)	Wellbeloved,James
Hamilton, W. W. (C'tralFife)	Welsh,Michael
Harrison, RtHonWalter	Whitlock,William
HomeRobertson,John	Williams, Rt Hon Mrs (Crosby)
Homewood,William	Wilson, Gordon (DundeeE)
Horam,John	Winnick, David
Howells,Geraint	Wrigglesworth,Ian
Hoyle, Douglas	Young, David (BoltonE)
Hughes, Robert (Aberdeen N)
Hughes, Roy (Newport)	Tellers for the Ayes:
Jenkins, Rt Hon Roy (Hillhead)	Mr. George Morton and Mr. Frank Haynes.
John,Brynmor

NOES
Aitken,jonathan	Dean, Paul (NorthSomerset)
Alexander,Richard	Dover,Denshore
Ancram,Michael	Dunlop,john
Arnold,Tom	Dunn, Robert(Dartford)
Aspinwall,Jack	Fairgrieve,SirRussell
Atkinson, David(B'm'th,E)	Faith, MrsSheila
Baker, Nicholas (N Dorset)	Fenner, Mrs Peggy
Banks,Robert	Fletcher-Cooke,SirCharles
Beaumont-Dark,Anthony	Goodhew,SirVictor
Bendall,Vivian	Goodlad,Alastair
Benyon,Thomas(A'don)	Gow, Ian
Berry, Hon Anthony	Griffiths, E.(B'ySt.Edm'ds)
Best,Keith	Griffiths,Peter Portsm'thN)
Bevan,DavidGilroy	Gummer,JohnSelwyn
Biggs-Davison,SirJohn	Hamilton, HonA.
Blackburn,John	Hamilton, Michael(Salisbury)
Boscawen,HonRobert	Haselhurst,Alan
Bottomley, Peter (W'wich W)	Hawkins,Paul
Boyson,DrRhodes	Hawksley,Warren
Braine,SirBernard	Heddle,John
Bright,Graham	Hicks, Robert
Brinton,Tim	Higgins, RtHon Terence L.
Brittan, Rt. Hon. Leon	Hill,James
Brooke, Hon Peter	Hogg,Hon Douglas(Gr'th'm)
Brown, Michael(Brigg&Sc'n)	Holland,Philip(Carlton)
Bruce-Gardyne,John	Hordern, Peter
Budgen,Nick	Howell, Ralph (NNorfolk)
Butcher,John	Hunt, David (Wirral)
Cadbury,Jocelyn	Jopling, RtHon Michael
Carlisle,John(LutonWest)	Kaberry,SirDonald
Carlisle, RtHon M.(R'c'n)	Kitson.SirTimothy
Chapman,Sydney	Knight, MrsJill
Clarke,Kenneth(Rushcliffe)	Knox, David
Cockeram,Eric	Lawrence, Ivan
Cope,John	Lawson, Rt Hon Nigel
Cranborne,Viscount	Lester, Jim (Beeston)
Crouch,David	Lewis, Kenneth (Rutland)

Lloyd, Peter (Fareham)	Roberts, Wyn (Conway)
Lyell, Nicholas	Sainsbury,HonTimothy
McCusker,H.	Shaw, Giles (Pudsey)
MacGregor,John	Shaw, Michael(Scarborough)
MacKay, John (Argyll)	Shelton,William(Streatham)
Major,John	Sims, Roger
Marland,Paul	Speed,Keith
Marlow,Antony	Speller,Tony
Mather,Carol	Spicer, Jim (WestDorset)
Maude, RtHon Sir Angus	Stainton, Keith
Mawhinney,DrBrian	Stanbrook,lvor
Maxwell-Hyslop,Robin	Stanley,John
May hew, Patrick	StradlingThomas,J.
Mellor,David	Thatcher, Rt Hon Mrs M.
Meyer,SirAnthony	Thomas, Rt Hon Peter
Miller,Hal(B'grove)	Thompson,Donald
Mills,Iain (Meriden)	Thorne,Neil(IlfordSouth)
Miscampbell,Norman	Townsend, CyrilD, (B 'heath)
Moate,Roger	van Straubenzee, Sir W.
Morris,M. (N'hamptonS)	Viggers,Peter
Mudd,David	Waddington,David
Murphy,Christopher	Wakeham,John
Needham,Richard	Waller,Gary
Nelson,Anthony	Walters,Dennis
Neubert,Michael	Watson,John
Newton,Tony	Wells,Bowen
Page, Richard (SW Herts)	Wheeler,John
Patten,John (Oxford)	Wickenden,Keith
Percival,Sirlan	Wilkinson,John
Pollock,Alexander	Winterton,Nicholas
Prentice, RtHon Reg	Wolfson,Mark
Price, SirDavid (Eastleigh)
Renton,Tim	Tellers for the Noes:
Rhodes James, Robert	Mr. Ian Lang and Mr. Tristan Garel-Jones.
Roberts,M. (CardiffNW)

Question accordingly negatived.

Amendment proposed: No 24,page 96, line 3, leave out ';but with respect to earnings'

Question put, That the amendment be made;—

The Committee divided: Ayes 22, Noes 137.

Division No. 138]	[9.20 pm
AYES
Alton,David	Mitchell, R. C. (Sotonltchen)
Brocklebank-Fowler,C.	Penhaligon, David
Brown, Ronald W. (H'ckn'yS)	Roper,John
Cartwright,John	Skinner,Dennis
Ellis,Tom (Wrexham)	Wainwright,R.(ColneV)
Fitch,Alan	Wellbeloved,James
Grant, John (IslingtonC)	Williams, RtHon Mrs (Crosby)
Horam,John	Wilson, Gordon (DundeeE)
Howells,Geraint	Wrigglesworth,Ian
Jenkins, Rt Hon Roy (Hillhead)
Lyons, Edward (Bradf'dW)	Tellers for the Ayes:
Maclennan,Robert	Mr. A. J. Beith and Mr. James A. Dunn.
Magee, Bryan

NOES
Aitken,Jonathan	Bendall,Vivian
Alexander,Richard	Benyon,Thomas (A'don)
Ancram, Michael	Berry, Hon Anthony
Arnold,Tom	Best, Keith
Aspinwall,Jack	Bevan, David Gilroy
Atkinson, David (B'm'th,E)	Biggs-Davison,SirJohn
Baker, Nicholas (NDorset)	Blackburn,John
Beaumont-Dark,Anthony	Bottomley, Peter (W'wich W)

Boyson,Dr Rhodes	Mather,Carol
Bright,Graham	Maude, Rt Hon Sir Angus
Brinton,Tim	Mawhinney,DrBrian
Brittan,Rt. Hon. Leon	Maxwell-Hyslop,Robin
Brooke, Hon Peter	Mayhew,Patrick
Brown, Michael(Brigg&Sc'n,)	Mellor,David
Bruce-Gardyne,John	Meyer,SirAnthony
Budgen,Nick	Miller,Hal(B'grove)
Butcher,John	Mills, lain (Meriden)
Cadbury,Jocelyn	Miscampbell,Norman
Carlisle, John (Luton West)	Moate, Roger
Carlisle, RtHonM. (R'c'n)	Morris, M. (N'hamptonS)
Chapman,Sydney	Mudd, David
Clarke, Kenneth(Rushcliffe)	Murphy,Christopher
Cockeram,Eric	Needham,Richard
Cope,John	Nelson,Anthony
Cranborne,Viscount	Neubert,Michael
Crouch,David	Newton,Tony
Dean, Paul (NorthSomerset)	Page, Richard (SWHerts)
Dover,Denshore	Patten, John (Oxford)
Dunlop,John	Percival,Sirlan
Dunn,Roberte(Dartford)	Pollock,Alexander
Fairgrieve,SirRussell	Prentice, Rt Hon Reg
Faith, MrsSheila	Price, SirDavid (Eastleigh)
Fenner, Mrs Peggy	Renton,Tim
Fletcher-Cooke,SirCharles	Rhodes James, Robert
Garel-Jones,Tristan	Roberts, M. (Cardiff NW)
Goodhew.SirVictor	Roberts, Wyn (Conway)
Goodlad,Alastair	Sainsbury,HonTimothy
Gow, Ian	Shaw, Giles (Pudsey)
Griffiths, E.(B'ySt.Edm'ds)	Shaw, Michael (Scarborough)
Griffiths, Peter Portsm'thN)	Shelton.William(Streatham)
Hamilton, Hon A.	Sims, Roger
Hamilton,Michael(Salisbury)	Speed, Keith
Hampson,Dr Keith	Speller,Tony
Haselhurst,Alan	Spicer, Jim (WestDorset)
Hawkins,Paul	Stainton,Keith
Hawksley,Warren	Stanbrook,lvor
Heddle,John	Stanley,John
Higgins, RtHon Terence L	StradlingThomas,J.
Hill,James	Thatcher, RtHon Mrs M,
Hogg.HonDouglas(Gr'th'm)	Thomas, Rt Hon Peter
Holland,Philip(Carlton)	Thompson,Donald
Hordern, Peter	Thome, Neil(IlfordSouth)
Howell, Ralph (NNorflk)	Townsend, CyrilD(B'heath)
Hunt, David (Wirral)	van Straubenzee, SirW.
Jopling, RtHon Michael	Waddington, David
Kaberry,SirDonald	Wakeham,John
Kitson,SirTimothy	Waller, Gary
Knight,MrsJill	Walters, Dennis
Knox, David	Watson,John
Lang, Ian	Wells,Bowen
Lawrence, Ivan	Wheeler,John
Lawson, RtHonNigel	Wickenden,Keith
Lester, Jim (Beeston)	Wiggin,Jerry
Lewis, Kenneth (Rutland)	Wilkinson,John
Lloyd, Peter (Fareham)	Winterton,Nicholas
Lyell,Nicholas	Wolfson,Mark
MacGregor,John
MacKay, John (Argyll)	Tellers for the Noes:
Major,John	Robert Boscawen and Selwyn Gummer.
Marland,Paul
Marlow,Antony

Question accordingly negatived.

Clause 128 ordered to stand part of the Bill.

Bill (Clause 18, 22, 29, 65, 71, 117 and 128; and Schedule 10), reported, with amendments; to lie upon the Table.