Finance Bill

HC Deb 14 April 1983 vol 40 cc955-1028

Order for Second Reading read.

[Relevant document: Fifth report of the Treasury and Civil Service Committee, House of Commons Paper 286 of Session 1982–83.]

4.26 pm

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

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

Mr. Speaker

I have selected the amendment in the names of the Leader of the Opposition and his right hon. and hon. Friends.

Mr. Brittan

The Budget, which my right hon. and learned Friend the Chancellor of the Exchequer presented to the House a month ago, was designed to promote further progress towards sound recovery. The continuity and the firmness of our policies have made a major contribution to reducing inflation and interest rates. That, not the damaging and inflationary policies advocated by the Opposition, is the key to securing such a recovery. Last month's Budget maintained this strategy.

Lower inflation and interest rates promote recovery because they boost companies' cash flow and consumer spending. They have been made possible because we have controlled the money supply and Governmnt borrowing: at 2⅔ per cent. of GDP in 1983–84 and falling, Government borrowing is now among the lowest in the industrial world.

We have also at last brought our plans for public expenditure down to a realistic level. Our programmes for 1983–84 are actually lower than we planned for at the time of the 1982 Budget. They are projected to take a lower share of gross domestic product than in the year just ended. In fact, the outturn for 1982–83 may prove to be a little higher than we thought last month. The figures for the central Government borrowing requirement for 1982–83, published yesterday afternoon, were.¼ billion more than those in the financial statement published on Budget day. It is too early to be sure what this implies for the 1982–83 public sector borrowing requirement; but it seems likely that this too will be higher than previously anticipated.

But there is no question of any failure of the public expenditure control system. There has been only one very minor breach of cash limits, and we ended the year with a large part of the contingency reserve unspent. There does, however, seem to have been less shortfall than we expected at Budget time. In the latter part of the year we anticipated that spending would fall substantially short of the provision that had been made for it. We therefore took action to encourage spending to come closer to the amount provided for it. The effect of that action now looks as if it has been greater than we thought probable at the time of the Budget. To some extent, this may have been caused by expenditure occurring in 1982–83 which would otherwise have occurred in 1983–84. To that extent, pressure on spending in 1983–84 will be reduced.

The success which we have had in controlling expenditure has made possible the reductions in taxation which the Chancellor was able to propose in his Budget. There are tax cuts for individuals to improve incentives and reduce the tax burden; and tax cuts for business to help costs and competitiveness.

The United Kingdom's financial policies now represent the broad consensus of international opinion. We are glad to see that others in Europe, such as France, who once pursued different policies, are now moving in our direction. The French Government have moved decisively to bring down their balance of payments deficit, ease their external debt provision and contain their budget deficits. They should be congratulated upon grasping the nettle so firmly.

The latest figures have to be assessed against the international background. The fact is that the world has been facing the deepest recession since the war. Last year, output fell in the major industrial countries. More than 30 million people in these countries were unemployed. Unemployment has risen rapidly in the United States, Germany, Canada, the Netherlands and elsewhere. Here, too, unemployment has continued to rise, if at a slower rate. However, having entered recession rather earlier than many countries, we are now leading the world out of recession. United Kingdom output has been rising—[Interruption.] If hon. Gentlemen care to listen to the figures, they may find them rather more interesting than their own laughter.

United Kingdom output has been rising—by 1½ per cent. between the second quarter of 1981, the trough of the current economic cycle, and the third quarter of 1982. This compares with falls in output over the same period of about 1½ per cent. in the United States, 2½ per cent. in Italy and 7 per cent. in Canada. Industrial production in the United Kingdom has also risen by 0.5 per cent. over a similar period, contrasting with falls in production of about 5 per cent. in Germany, 6 per cent. in Italy and over 11 per cent. in the United States.

That has not been the result of the traditional reflation called for by the Opposition—pumping Government money into the system—and it would be wrong now to try to boost expansion in that way.

Mr. Jack Straw (Blackburn)

Does the right hon. and learned Gentleman deny that, over the four years of the stewardship of this Government by him, the Chancellor and the Prime Minister, no major industrialised country in the Western world has had a worse record in terms of output, unemployment or industrial manufacturing performance than this country, and that our decline has been 4 per cent. of national output compared with an average increase of 3 per cent. among all our competitors? If he wishes to mention France, does he deny that unemployment in this country has gone up 133 per cent. in the four years from May 1979 compared with only 35 per cent. there?

Mr. Brittan

I find it interesting that, having initially suggested that we were moving out of recession ahead of other countries, having produced figures to show that in respect of recent trends, and having been greeted with laughter from the Opposition Benches, I am now told that the argument turns not on what is happening at the moment but on what has been happening over the last four years. The hon. Gentleman referred to France, and the facts are, indeed, as I stated. The policies have been reversed and the ones that I commend have now been introduced.

Largely because of lower inflation and lower inflationary expectation, real domestic demand in this country is increasing strongly. In the fourth quarter of 1982 it was over 4½ per cent higher than in the second quarter of 1981. Further evidence of gradual United Kingdom recovery has become available since Budget day. The output measure of gross domestic product—the best indicator of short-term movements—increased by 1 per cent between 1981 and 1982 and by the end of last year was about 2 per cent above its trough level.

Manufacturing industry has, of course, proved particularly vulnerable to the effects of world recession, but, as my right hon. and learned Friend said in his Budget statement, manufacturing production has risen encouragingly since November. We now know that car production in the first quarter of 1983 was 7½ per cent. higher than in the last quarter of 1982.

Mr. Frank Hooley (Sheffield, Heeley)

rose—

Mr. Brittan

I will not give way at the moment.

Recovery has been particularly marked in the construction industry, where output rose by 1½ per cent. between the third and fourth quarters of 1982 and is now over 6 per cent. above its level at the end of 1981. Orders for new construction work in the three months to January were 15 per cent. above their level a year ago, while over the same period new private sector housing orders rose by 65 per cent. Total housing starts in the three months to February increased by about 33 per cent.on the preceding three and were 38 per cent. up on the same period a year ago. A recent outside forecast suggests that recovery in the industry will continue through next year into 1985.

This promising outlook is underlined by the CBI's trends inquiry for March, which suggested that the trends in manufacturing output should continue to increase over the next few months. Order books are now stronger than in any survey since 1979. The net balance of firms reporting excessive stocks have almost halved since November and the number of firms expecting an increase in manufacturing output has increased significantly for the second successive month.

All these indications provide further confirmation of the short-term outlook presented in the Government's economic forecast published on Budget day and echoed by most recent independent assessments. Output is now expected to increase by 2 per cent. in 1983, with slightly stronger growth envisaged in the first half of 1984. That is to be achieved without a return to the soaring inflation and interest rates which impeded progress and stifled enterprise and initiative in the 1970s.

It was against that background of gradual recovery in economic activity that the Chancellor had to make his Budget judgment. He decided, rightly, to ignore the siren voices urging him to boost recovery by pumping Government money into the system. He decided instead to foster recovery on a sound basis by maintaining our economic strategy. He shunned the short-term political gains of even bigger reductions in taxes precisely because the Government care about unemployment and are determined to foster the sound recovery that alone will bring the new jobs that we are all seeking.

The Opposition's amendment is therefore completely misconceived. It implies support for their recently published programme of uncontrolled inflation and massively increased spending. I recently gave my view that that would cost £30 billion to £40 billion. That estimate has not been denied, qualified or challenged. Those who propose such policies under the cloak of seeking to help the unemployed are peddling a cruel deception. The hope that they offer would all too soon be shattered as inflation soared and unemployment was forced to new peaks.

Mr. Hooley

I am sure that the Chief Secretary recognises that his euphoria now sounds exactly like his euphoria two years ago, when he said that recovery was all around us. Since then, industrial production has slumped, investment has slumped and we have had a massive rise in unemployment. The right hon. and learned Gentleman does not like to talk about the last four years, and I can understand that, but can he explain why, if this massive recovery is occurring, in the first two months of this year we were in deficit on the import-export of manufactured goods to the tune of £1.3 billion? How does that maintain a strong economy?

Mr. Brittan

I am sorry that the hon. Gentleman has, for him, misleading recollections of things that have been said in the past. The figures that I have just given in many cases relate to a period covered by the statement I am alleged to have made.

Mr. Hooley

The right hon. and learned Gentleman said there was a recovery.

Mr. Brittan

Indeed, there was a recovery that started. There is no mystery about the fact that a recovery commenced, but it did not proceed. A recovery is now proceeding.

It is very interesting that the hon. Gentleman, finding it impossible to challenge what is being said about what is happening now, has to say that it did not apply to some previous time or that something that I said earlier was not true. We are debating what is happening, and the Opposition are quite unable to challenge the accuracy of what is being said.

I shall answer the hon. Gentleman's only serious point. The figures that he gave are not correct and the basis of the question that he asked is ill founded. I also make it clear that the figures that I have given, although cumulatively significant, are not designed or intended to present a picture of rapid or spectacular recovery, nor has any member of the Government suggested that. They are designed to show a picture of broadly based and steady recovery which will provide stable conditions for the future. There has been no attempt on my part to suggest that there is to be a massive boom.

Before describing some of the measures in the Ball, I shall mention briefly the report of the Treasury and Civil Service Committee on the Budget, which was published yesterday. I am grateful to my right hon. Friend the Member for Taunton (Mr. du Cann) and his colleagues on the Committee for yet another speedy job which will greatly help the House's consideration of the Bill. Hon. Members will study the report and I think that they will find it helpful in that it centres the debate on a lot of common ground. I refer to the need to conduct economic policy so as to reduce inflation and interest rates with a view to improving growth and, hence, job opportunities, to the need to reverse the adverse taxation trend, and to the need for industry to constrain its costs.

Mr. Richard Wainwright (Colne Valley)

Since the right hon. and learned Gentleman mentioned in almost the same breath the report of the Treasury and Civil Service Committee, which was published yesterday, and his claim that his figures went unchallenged, will he give the House some substantial evidence for his assertion about the end of de-stocking? The report of the Committee specifically comments on the fact that the information that the Select Committee has had from the Treasury on stock movements in the past two years has, without exception, been ill-founded.

Mr. Brittan

Further time is needed to consider the report of the Select Committee and, in that context, I shall seek to provide the hon. Gentleman with the information that he seeks.

The Bill reflects the emphasis in the Budget on giving help to individuals after our concentration, both in the autumn and in last year's Budget, on the corporate sector. It reflects, first, the Chancellor of the Exchequer's proposal for a 14 per cent. increase in income tax allowances and thresholds, an increase of two and a half times the rate of inflation. As a result of this change, about 1,250,000 fewer people will pay income tax this year than if allowances had remained unaltered. However, the Opposition's amendment once again decries the high levels of taxation. As I made clear in my speech in the Budget debate, I readily accept—and so do all members of the Government—that the tax burden is higher than we would like. However, if we are to debate the matter in an adult way, we need to ask why that is so.

Three factors are responsible. First, we needed to bring down public sector borrowing at a time of continuing upward pressure on public expenditure. Secondly, the cost of national insurance contributions has risen in order to finance the growing cost of social security, not just for the unemployed but, for example, to maintain and increase the real value of the retirement pension. The likely increase of 3 per cent.in real terms between November 1978 and November 1983 alone costs nearly £500 million. I do not hear those who decry increases in the national insurance contributions component of the total burden calling for a reduction in the benefits that we, as a country, provide to those who need them.

Thirdly, where we have been able to cut taxes, we have given priority to reducing the burden of taxation on industry. At a time of recession, that is a reasonable priority. Faced with a national insurance surcharge that the Labour party introduced and then nearly doubled, it was reasonable for us to give priority to reducing that burden. One glance at the Labour party's record on this whole issue makes it clear that we need no lectures from it on the burden of taxation. Not only did the Labour party introduce and then nearly double the national insurance surcharge, but it raised the rate of income tax from 30p to 35p and allowed personal allowances to fall in real terms. For example, the single allowance fell by as much as 20 per cent.

In contrast, we have reduced the basic rate of income tax, and personal allowances are 6 per cent. higher in real terms in 1983–84 than when the Conservative party took office. For all taxpayers on three quarters of average earnings and above, income tax now accounts for a smaller share of gross income than when the Conservative party came to power. Despite the difficulties that we have faced, real increases in average gross earnings during this Government's period of office mean that take-home pay for taxpayers enjoying average increases at all earnings levels is now substantially higher than when we took office. The figures are 5½ per cent. for those on average earnings and 4 per cent. for those on half average earnings. That is the real test of living standards, and those are the facts.

Mr. Peter Shore (Stepney and Poplar)

I am sure that the Chief Secretary would not want deliberately to mislead the House, but he must be aware that when he said, a moment ago, that the income tax burden on those on 75 per cent. of average earnings had marginally fallen as a percentage of their income over the past four years, he failed to refer to the increase in their national insurance contributions. The right hon. and learned Gentleman must know, and confess openly to the House, that the combined effect of those two taxes is to put a heavier burden on them than existed when he took over in 1979.

Mr. Brittan

It comes ill from the right hon. Gentleman even to mention the suspicion of deception given that I spent a considerable amount of time a minute ago talking about the increases in national insurance contributions and explaining what they were paying for and the cost of them. I challenged those who criticise the Government's record as a whole as to whether they would rather not pay for those social security benefits. Given, in addition, the Labour Government's record not only in increasing the burden of taxation, but in now proposing spending that would lead to a crushing burden of taxation, the sheer hypocrisy of the Opposition's amendment becomes all too apparent.

The Bill also continues the precedent of previous years in improving tax reliefs to assist charities and charitable giving. Clause 34 allows companies that second staff to charities to offset the cost of their salaries against tax. Higher rate relief for gifts to charities was introduced by this Government in 1981 and clause 26 increases the ceiling for the relief to £5,000. Clause 64 abolishes the ceiling on exemption from capital transfer tax for gifts to charities. As a result, no outright gift to charities will now be liable to capital transfer tax.

I also draw attention to the extension provided by clause 17 of the widows' bereavement allowance to the year after bereavement. Many widows currently obtain little benefit from the allowance because of the date of their husbands' deaths. The extension will mean that more than twice as many widows will be able to benefit from the allowance and the change has been warmly welcomed by the National Association of Widows.

Even though the emphasis this year has been on individuals, business has been given significant help too, both directly and indirectly. Last autumn, the national insurance surcharge was reduced by 1 per cent., while the increase in the employers' national insurance contribution was held down to 0.25 per cent. A further cut in the national insurance surcharge was proposed in the Budget. As a result, it will, from August, be 1 per cent., compared with 3.5 per cent. only 12 months ago. Taken together, the measures last autumn and in the Budget will benefit business by about £1.25 billion in a full year.

Mr. Robin F. Cook (Edinburgh, Central)

May I take the Chief Secretary back to his earlier statement that the increases in national insurance contributions were necessary to finance higher levels of benefit? If those contributions had to be increased because of the burden on the national insurance fund, how were the Government able two years ago to reduce the Treasury's contribution to that fund? Surely that act of reducing the Treasury's contribution while increasing the contributions of the employee demonstrates that the Treasury has been using national insurance contributions as a covert form of income tax.

Mr. Brittan

On serious reflection, the hon. Gentleman would not believe that for one moment. He will recall that, in explaining the causes of the present overall tax position, I made quite clear the importance of the Government's anti-inflationary policy and the paramount necessity to reduce the level of public sector borrowing. I make no apology for that. Our success in so doing has laid the foundation for the present recovery and the present reduction in inflation.

The Bill also contains measures specifically targeted to help certain sectors of industry. A healthy construction industry is vital to the economy, not least by providing much needed employment. A number of measures in the Bill will both help potential home owners and assist the industry. Tax relief for mortgage interest is an important incentive to home owners and the new limit on relief in clause 18 will mean that it continues to cover the vast majority of mortgages. But buying a house can often be delayed because one is part of a long chain of purchasers. The growing practice of house builders to accept houses in part exchange is a way of breaking the chains, and clause 40, which allows them stock relief on those houses, should provide an added incentive to do this.

Each of my right hon. and learned Friend's Budgets has included measures to help small firms, demonstrating our belief in the important role that this sector has to play as the recovery gathers pace. This year we are able to make substantial improvements in a number of areas, some of which I should like to mention.

First, clause 15 reduces the rate of the so-called "small companies" corporation tax from 40 to 38 per cent. The limit up to which this new rate applies is being increased to £100,000—twice the level in 1979. Above this limit a company pays corporation tax on its income at an average rate which gradually increases to the full rate, 52 per cent. The point at which the full rate is reached will now be £500,000 rather than £225,000. This new limit is nearly six times the level it was when we took office. Because of this substantial increase, we have greatly reduced any disincentive to expansion which the marginal rate of tax on profits between the limits might have caused.

Secondly, clauses 28 and 29 make improvements in the profit sharing and share option schemes. In particular, the alternative earnings-related limit for profit sharing schemes will provide greater flexibility for companies to encourage talented and enterprising managers while still keeping the schemes open for the benefit of all employees.

Thirdly, clause 30 and schedule 5 extend both the life and the scope of the business start-up scheme. The new scheme builds on the experience we have gained through the business start-up scheme. Many of the changes made meet representations that we have had about the operation of the scheme. The new scheme is an important further step and it opens up new sources of equity finance to large numbers of unquoted companies.

Another extremely important part of the Budget was the proposals relating to North sea oil. The Budget contained a major package of changes designed to encourage further exploration, appraisal and development. Many hon. Members have over the past year expressed concern that the tax regime might be discouraging development. Our Budget measures followed a thorough analysis of existing and prospective profitability of North sea development. This analysis showed that rates of return on existing fields and prospective returns on future incremental projects continued to look attractive. But future free-standing oil fields were, on the basis of new information provided by companies, likely in general to be less profitable, because they would be smaller, geologically more complicated and proportionately more costly to develop.

This, coupled with uncertainty about oil prices, explains why the main thrust of the Budget changes was to relax and simplify the fiscal regime selectively and cost-effectively to benefit future free-standing oil fields. They will pay no royalties. They will pay no advance petroleum revenue tax—because this will have been phased out by the time they come on stream. Liability to pay petroleum revenue tax will be substantially mitigated by the doubling of the oil allowance.

The phasing out of advance petroleum revenue tax and immediate relief against petroleum revenue tax for post-Budget exploration and appraisal expenditure outside existing fields will also provide a more immediate boost to company cash flow, worth £800 million over the next four years. This should help to finance new activity in the North sea.

Since the Budget, our proposals have been very well received by the industry. Many companies are engaged in reviewing their portfolios of prospective developments. Shell and Esso, for instance, are reported as planning to spend up to £800 million a year on existing and new North sea developments over the rest of the decade. This year they will be carrying out further appraisal of their Tern and Eider fields, which could enable firm development decisions to be taken by early 1984. In addition, they are considering exploiting clusters of small oil fields in the central sector of the North sea. A number of other companies—including, according to press reports, BP, Texaco and Phillips—are understood to be reassessing projects. Those are just some of many examples of the positive way that the industry has responded. This bodes well for a continuation of the North sea success story.

Before concluding, I should say a word about the dogs that have so far not barked. There are a small number of proposals that we have made which do not appear in the Bill. These include new rules for the tax treatment of stock issued by companies at a deep discount and new rules to allow payment of interest gross on Eurobonds. Both of these were the subject of consultative documents earlier this year and we wanted to take the response fully into account in framing our proposals. In addition, we shall, as my right hon. and learned Friend the Chancellor announced in his Budget statement, introduce legislation to enable selected free port sites to be designated. As the Bill progresses, we shall bring forward new clauses to deal with these matters.

The Finance Bill contains both a significant reduction in personal taxation and a wide variety of measures to assist business and support the growth in output and employment. Many of the business measures are targeted to help particular sectors; others will apply across the board. They are a further instalment of policies designed to improve the environment in which enterprise and wealth-creation operates, creating the foundation for a sustained and non-inflationary recovery of growth and jobs. And they are set in the context of our continuing determination to reduce inflation by consistent firm monetary and fiscal policies. For all these reasons, I commend the Bill to the House.

4.58 pm

Mr. Peter Shore (Stepney and Poplar)

I beg to move, to leave out from "That" to the end of the Question and to add instead thereof: This House declines to give a Second Reading to a Bill which fails to meet the needs of Britain's severely depressed economy and industry; which does not even seek to reduce the three and a half million unemployed and which will result in a higher real level of taxation than when this Government came into office. The Finance Bill, and the Budget proposals that it seeks to legislate, will have only a marginal effect on the course of the British economy. Taken together with the public expenditure White Paper, the Chancellor's tax proposals will, at best, add about 0.5 per cent. to domestic demand. That is the Government's major policy decision for this year—the "shape and design" to use the words of the Chief Secretary to the Treasury. No one should be surprised because the Government neither want to, nor believe that they should, take any action to help to lift the economy from its present recession. The deep slump into which their policies have plunged us during the past four years is programmed to continue. For unemployment, the 3.4 million figure is not even to be sustained. It will rise yet again, on the Government's own assumption, by a further 300,000 this year. As for taxation, the changes are designed further to increase post-tax inequality of incomes and to maintain a burden of taxation on this nation substantially higher than when the Government came to office. I will return to those three main themes of our amendment a little later.

But of course the purpose and effect of the Budget and the Finance Bill are being deliberately concealed. The gap between reality and oratory is greater in the Government's description of our economic prospects this spring than it was even last year or the year before. The last sentence of the Chancellor's Budget statement set the tone when he gave it the astonishing description most of all, a Budget for Britain's continuing recovery."—[Official Report, 15 March 1983; Vol. 39, c. 157.] Since then, we have had the now familiar plundering of economic statistics, designed to give some credibility to what is now the Government's overriding political objective—to convince the nation that, after its four years of battering, things are on the mend. That is precisely the theme to which the Chief Secretary devoted the first half of his speech. He even went so far as to tell an amazed House—and the still more amazed public, if his words reach them—that the United Kingdom is leading the world out of recession. The flight from reality—the gulf between oratory and reality—has grown to a ludicrous extent.

Mr. Richard Wainwright

The right hon. Gentleman rightly mentioned the Chief Secretary's highly selective statistics. Does he agree that sometimes the Chief Secretary does not even use statistics, but regales the House on matters of stock and real interest rates with anecdotes and not numbers?

Mr. Shore

I have been involved in economic affairs and debates for some considerable time—at least a decade and a half—but I have never come across a Treasury team that plunders statistics so recklessly, and seeks not to convey the reality of our position, but to disguise it. Standards are lower now than they have ever been in my experience of the House.

There is no doubt about the larger purpose. Due to causes that have nothing to do with the Government's policy, there is a temporary conjuncture from which the Government hope to profit. According to the retail price index, the inflation rate has fallen to 5.3 per cent. That level, or even a lower one, may well obtain for the next two or three months. At the same time, there has been a minor increase in production and an increase in new orders. Last, but certainly not least, there has been a temporary stabilisation of oil prices, which has opened up a window of opportunity that the Government are preparing to seize. Encouraged by the press, egged on by the CBI, strenuously urged by Tory Back Benchers in marginal seats and, above all cheered on by the City, the Prime Minister and the Chancellor are now patently clearing the decks to seize a fleeting moment before they are found out.

Next month, as the Chancellor has already said, the RPI will be slightly above 4 per cent. But, as he has also said, it will rise again in the autumn to at least 6 per cent. In the view of most commentators, including the recently published Treasury Select Committee report, it will more probably be 7 per cent. by the end of the year. Further, the temporary fillip to orders and output is, to say the least, precarious and strongly dependent upon the strength of American economic recovery. Oil prices also depend on the uncertain whims and the economic and political stability of OPEC.

The irony is that these more hopeful glimpses are due to external events, and in the main to the suspension, if not the abandonment, of rigid money supply targets by the United States Federal Reserve bank, the consequent fall in nominal interest rates and the 13 per cent. depreciation of sterling which the Chancellor so strenuously resisted and condemned only three months ago.

Sir William Clark (Croydon, South)

Why does the right hon. Gentleman deride the CBI survey, the chambers of commerce and the small businesses? The survey shows that there is now far more confidence in British industry, in both large and small businesses. Why does the right hon. Gentleman jeer at that success story? The Opposition should try to build confidence in Britain, rather than always deride our achievements.

Mr. Shore

There is no purpose in replying now to the hon. Gentleman's point, because I have a great deal to say about prospects for industry. I shall say something considered about the CBI's latest survey, which is one of many. It carries out a survey each month, and I always study it with great interest.

Mr. Michael Latham (Melton)

As the right hon. Gentleman spoke about a window of opportunity and statistics, will he give the House the following statistics? What will be the cost of his programme, how much will it add to taxation and what will it do to interest rates?

Mr. Shore

This is a debate not on my programme, but on the Second Reading of the Finance Bill and on the Government's economic policy. The hon. Gentleman will be disappointed on this occasion, but I have no doubt that he will be fully satisfied on some future occasion.

It is against the background of deliberately contrived and exaggerated optimism that I mention last Wednesday's meeting of the National Economic Development Council. The principal item on its agenda was a series of documents forming what was probably the most comprehensive survey of the present condition and future prospects of British industry that that body has considered during the past four years. The report was based on a 12-month study, not simply by the NEDC office, but by the 40 sectoral committees covering almost the whole range of British industry and services.

I can do no better than to give the accurate summary of its findings that appeared in the Financial Times on Monday: There is no prospect of an increase in jobs in any of the major industrial or service sectors before the end of the decade … The report says that in many areas employment will continue to fall. And it warns that over the same period import penetration is likely to increase while the United Kingdom's export competitiveness will decline—unless Government and industrial policies undergo a fundamental change. No doubt there are little wax effigies of Mr. Geoffrey Chandler, the director general of the NEDC office, with pins stuck into them, in No. 10, the Treasury and Conservative central office. He has blown the gaff. The Chancellor's immediate and brazen response was to try to counter the report with the one or two favourable indicators that he, like the Chief Secretary, always has to hand on such occasions I shall now qute something that I find richly comic.The Guardian on Tuesday said: a team of five Ministers led by the Chancellor Sir Geoffrey Howe said they were unhappy with the report because it failed to pinpoint the improving economic prospects being created by such things as the lower pound. I am sure thatThe Guardian got it right because The Times report of the same day said: Sir Geoffrey, who chaired the meeting, complained that the report failed to take account of encouraging trends in the economy, notably changes in the sterling exchange rate. The House will understand why I describe the Chancellor's response at the NEDC as brazen. Nor are we surprised to learn that the Chancellor then sought, without success, to persuade the NEDC to suppress its report, but the truth will out. The report amounts to the most massive indictment yet by industry of the folly and failure of the past four years of this Government's economic policy, and the most authoritative warning yet, looking as far ahead as 1990, that no improvement can be expected.

The Financial Secretary to the Treasury (Mr. Nicholas Ridley)

Can the right hon. Gentleman tell the House of the reaction of the CBI and industry generally to the proposals of his party for the economy? Can he say whether the proposals have been welcomed by the CBI, if he does not like what we are proposing?

Mr. Shore

Having attended many NEDC meetings in my time, I do not recall, at the end of four years of Labour Government, any NEDC report so critical and so worrying. That is the test of experience. The NEDC knows that Britain was growing under the Labour Government in the fourth year, and that there were prospects for the country and industry, and it knows that the Government and the British economy are now in dire difficulties, and that the economy is running at a lower level of output than in any other recent period.

We have every right to be sceptical of the Government's new wave of optimism and every reason to take seriously the recent NEDC study. What is still more important, the people of Britain will not be deceived. As to the provisions of the Finance Bill that affect industry and the economy, with the exception of the changes that affect the oil industry—we intend to have a separate debate on the Floor of the House on that matter, which will warrant serious study—assistance to industry is confined to a reduction of 0.5 per cent. in the national insurance surcharge, beginning on 1 August, a reduction in the rate of corporation tax on small firms and a scatter of marginal measures to encourage business start-up schemes, a small engineering firms investment scheme and small measures affecting housing improvement.

The national insurance surcharge reducion amounts to £215 million in 1983–84 and £390 million in a full year. The other measures will cost about £165 million—in all about 0.14 per cent. of GDP. That is not exactly spectacular expenditure at any time, but measured against the depth of the industrial recession in Britain it is almost an irrelevance and an insult.

In his Budget speech, and again in Treasury questions on Thursday, the Chancellor seized avidly—the Chief Secretary observed it as well—on the latest issue of the index of industrial production. According to the Chancellor, that part of the index covering manufacturing industry showed a rise of 3.5 per cent. in the two months from November to January. However, he omitted to tell us that the new and higher level of January was exactly where the index stood when he presented his 1982 Budget last March. He also omitted to tell us that the output of manufacturing industries over the last quarter of 1982, standing at 87.2 per cent. of the 1975 average of 100, was the lowest level of manufacturing output in Britain since 1967. As for industrial production as a whole, excluding oil, industrial output in the last quarter of 1982 was at the lowest level since 1966.

Let me cite a few other records of which the Government can no doubt feel equally proud. Motor car production in 1982, at 880,000, was the lowest for car output in Britain since 1957. Output of commercial vehicles at 269,000 in 1982 was better than the 230,000 in 1981, but, that apart, was the lowest figure since 1949. Agricultural tractors, at 95,000 in 1982, had the lowest figure since 1947. Figures for machine tool output in 1982 were the lowest since figures for machine tool output were compiled in 1968.

I am aware of the recent pick-up in car output and steel production, and the Chief Secretary drew attention to it, but the seasonally adjusted figure for car output in January, February and March 1983—a figure that came out today—at 233,000 cars, is slightly below the 235,000 produced in January, February and March exactly a year ago. As for steel, the seasonally adjusted figure for the first two months of this year was some 280,000 tonnes, still below the 306,000 tonnes produced in January and February last year.

As for machine tools, the very latest evidence, as the House knows, is of a further collapse, with the recent appointment of a receiver to a company that took over the rump of Alfred Herbert only a year ago. As for shipbuilding, we had only a week ago the clear statement that 6,000 shipyard jobs have to go, with a further 3,000 at risk and on top of that the still more recent announcement of redundancies in Harland and Wolff.

As for "Buy British", the Government cannot even persuade Cunard, after the Falklands campaign, to reconvert the Cunard Countess in British shipyards.

If these unchallenged facts, together with the NEDC report, did not make us extremely wary of the Government's recent claim, we have had in the past two years similar claims from the Government about the alleged upturn, and the bottoming out of the recession. Let me remind the House of them. On 28 March 1981, the Chancellor told the Conservative central council: we are beginning to see the first signs of success". On 9 May the Prime Minister told us: Unless the stock markets have got it very wrong, we are in for a dramatic recovery in the profitability in British industry in the months ahead". Well, the stock markets did get it wrong. The index of industrial production, excluding oil, in 1981 dropped from just on 97 to just over 90, and the collapse in profits that year was probably the greatest ever experienced.

Then came 1982 and once again the crocuses appeared through the winter snow. The Chancellor told us: The recovery that we foresaw and worked for is now taking place. The Chief Secretary, in those famous words, echoing his master's voice, said: The evidence of the start of a recovery is all about us and not even the most blinkered pessimist could fail to see it. At the same time, Sir Raymond Pennock, the president of the CBI, had this to say: the Budget will help give industry confidence …and it is bound to lead to some increase in jobs". That was for 1982.

We all know what happened. By July, the CBI was tearing its collective hair and beating at the doors of the Treasury for help. It reported from its industrial trends surveys, which change over a short time, that 91 per cent. of its member firms were facing the most serious lack of new orders since it began to collect such statistics.

Last year, the Chancellor proclaimed his 1982 Budget a Budget for industry—and so a Budget for jobs. But it will be a Budget for people".—[Official Report, 9 March 1982; Vol. 19, c. 727.] By the end of that year, no fewer than 12,000 companies had gone into liquidation—the highest figure of which we have record.

In a revealing reply at Question Time on Tuesday, the Prime Minister said that she thought it would be better this time, 1983, than in 1982 and 1981, because, so she said: There are signs of a similar upturn in the United States, Britain and Germany."—[Official Report, 12 April 1983; Vol. 40, c. 668.] She might have added that the latest CBI end-of-March survey also reported that member firms expected an increase in the volume of output in the next four months and that orders had improved. We shall see. As the Association of Chambers of Commerce warned yesterday—it, too, has an important and valid voice—the spring upturn may prove short-lived. As it said: One Swallow doesn't make a Summer. On top of that, I, for one, have a deep unease at the fragility of the arrangements made by the IMF and the banks to deal with the appalling problem of indebtedness that now afflicts so many developing countries throughout the world.

However, one thing is plain. It is not the Government who have been responsible for such improvement as there is. The CBI report clearly states: stronger world trade and improved UK competitiveness, following sterling's recent fall, are likely to result in higher exports in 1983 and 1984". The Minister for Trade said only yesterday: the recent fall in sterling—though no panacea—should significantly improve our cost competitiveness at a time of rising world demand … the United Kingdom now appears better placed for export growth than for a long time". What is crucial is that the absurd policy of propping up the pound by differentially high interest rates should now be abandoned. I welcome the cut of 0.5 per cent. that the banks announced today.

Like others, I looked through the usually helpful fifth report of the Treasury and Civil Service Committee on the 1983 Budget. I agree with its basic conclusion that the improved competitive position in industry within the United Kingdom resulting from recent falls in the exchange rate will need to be maintained … sterling and costs are the key to the UK's economic success: it is essential that the recent decline in sterling's value by which some measure of lost competitiveness has been restored"— I shall repeat that— some measure of lost competitiveness has been restored is not then translated into domestic inflation as has previously occurred. It is precisely the lack of any cost-offsetting measures in the Finance Bill and the Budget that we shall seek to remedy in Committee.

The second charge in our amendment is that the Government are deliberately presiding over 3.4 million unemployed, and that they supinely expect a further increase of about 300,000 during this year. Last month, the seasonally adjusted unemployment figure rose by 25,000, in February it rose by 31,000, and in January by 32,000. All I can say is that the Government are well on course to achieve the estimated increase of 300,000 unemployed this year. When they do, they will virtually have trebled the number of unemployed in Britain, compared with the 1.3 million of May 1979.

There is one other aspect of jobs to which I want to draw attention. This Government still have the nerve and gall to criticise the last Labour Government for the rise in unemployment from the 630,000 at which it stood in March 1974 to the 1,300,000 in May 1979. However, they fail to state, and find it convenient to ignore, that the total number of people in employment under Labour between 1974 and 1979 did not fall at all. Indeed, it rose from 22,790,000 to 23,087,000, an increase of just on 300,000 people in work during the five-year period of Labour Government. Since 1979—the latest figures that I have are for the third quarter of 1982; the statistics have been slow to appear—that is, after only three and a half years of this Government, employment has fallen from 23,087,000 in May 1979 to 20,897,000, a fall of 2,190,000, and of course the fall has continued since.

Our third charge concerns the burden and distribution of taxation.

Sir William Clark

rose—

Mr. Shore

No, the hon. Gentleman has had one go. The proportion of our national income taken in taxation, on this year's estimates, will amount to no less than 39 per cent. That is the proportion. Of course, this is a modest improvement on the 39.6 per cent. taken last year and the 39.9 per cent. taken in 1981, but it is really astonishing that after four years of Conservative government the proportion of our national income taken in taxation is no less than 12 per cent. higher than it was when Labour was last in office. This year, the figure is 39 per cent., against 34 per cent. in 1978–79. Together with high interest rates and cuts in public expenditure, increased taxation has been a major instrument in deflating the British economy, thus increasing the vast total of our unemployed.

What makes it particularly disgraceful, however, is that on no other subject did the Conservative party, when in opposition, make such categorical promises, which it has subsequently betrayed.

Sir William Clark

The right hon. Gentleman has already made it perfectly clear that he does not intend to talk at length about his own party's policies. However, could he give the House a categorical assurance that when his party comes to power it will reduce taxation?

Mr. Shore

I have made the matter entirely plain. My view is that at present we are heavily overtaxed in relation to the needs of the economy, and that to get some growth, life and activity into our economy and to reduce unemployment we genuinely need to ease the burden of taxation. [Interruption.] I have produced two pre-Budget economic statements, which I do not think any previous shadow Chancellor has done, and on each occasion I have costed my statements. I do not think that I can do more to assist the House, or that anyone has previously given anything like the same amount of information.

Mr. Ridley

The right hon. Gentleman has just said that he would like to ease the burden of taxation. In his latest "No hope for Britain" document, he has written the following sentence: Once the economy gets much nearer to full employment, some taxes will have to be increased". May we know which of those two statements is true?

Mr. Shore

That is a ridiculous point. If one has any belief at all in the role of Government affecting demand in the economy, when the economy is flat and there is a patent lack of demand, it is simple common sense to urge tax reductions. If the economy is moving back towards full employment, or has reached full employment, and there is a danger of demand exceeding supply, it makes perfect sense to increase some taxes. It is a classical Keynesian point of view. Perhaps it is a little difficult for the Financial Secretary to the Treasury to follow, but I am sure that he has heard it somewhere before. [AN HON. MEMBER: "Where will it get us?"] Where will it get us? It did get us 25 years of full employment and sustained economic growth, and it did transform the living standards of the British people.

Sir William Clark

rose—

Mr. Shore

I shall not give way. I see no reason to give way to the hon. Gentleman three times.

I was talking of the Government's particular disgrace, because on no other subject than taxation had they made such categoric promises before they took office. Does the Chief Secretary recall the statement of his right hon. and learned Friend the Chancellor of the Exchequer in Oxford on 7 April 1979, when he said: Every Labour Government put taxes up … Every Conservative Government gets taxes down. The next Conservative Government will be equally true to our record"? How can any Conservative Member answer our charge in the light of the undisputed facts that I have put to the House? They cannot, and they know that they cannot. Wriggle though they may, and do what they will with the figures, the basic facts are there and are not susceptible to challenge.

Does the Chief Secretary—and for that matter the Prime Minister—recall the statement made, again by the Chancellor, on 21 April 1979, on VAT? Let me remind them. He said: We have absolutely no intention of doubling VAT. Let us be fair; 15 per cent. as opposed to 8 per cent. is not the doubling of VAT. It is only an increase of 87.5 per cent. So the Chancellor cannot be accused of cornmiting a 100 per cent. whopper; only an 87.5 distortion.

Sir William Clark

rose—

Mr. Shore

What about personal taxation? The statements made by the Prime Minister, the Chancellor and other Conservative leaders were more numerous and categoric than on any other area of taxation. According to the Prime Minister, speaking in Bolton on 1 May 1979, for the politicians the task is clear. It is to provide the incentive through lifting tax burdens. It is to make it pay to work. In the Chancellor's speech, delivered in Whitefield on 24 April 1979, he assured the nation: we shall lower taxes on income at all levels to encourage people to work harder, train for skills, and accept more responsibility at work. The emphasis on "all levels" should be noted.

Let no one imagine that the Chancellor was speaking simply about income tax. In yet another speech on 22 April 1979 he said: personal taxation at all income levels must be substantially reduced. He then referred specifically to the basic rate, including national insurance contributions. After the election, in his first 1979 Budget speech, the Chancellor said: It is the basic rate—plus, of course, the national insurance contributions—which represents the deterrent effect of tax on additional earnings".—[Official Report, 12 June 1979; Vol. 968, c. 260.] What has been the Government's performance in the crucial area of direct taxation? Thanks to the assiduous questioning of my hon. Friend the Member for Blackburn (Mr. Straw), and some additional help from the Library, we now have a clear picture of the burden of income tax and national insurance contributions upon taxpayers at virtually all income levels, including child benefit, because a few years ago child allowances provided tax relief. What do we find? A married couple with two children on average earnings paid 25.24 per cent. of their income in income tax and national insurance contributions in 1978–79 and will pay 27.7 per cent. in 1983–84. In constant 1982–83 prices, the average earner's weekly tax payment would have increased from £40.46 in 1978–79 to £48.41 a week in 1983–84—an increase of 19 per cent.

A family with two children on 75 per cent. of average earnings has seen the proportion of the income that they pay in income tax and national insurance contributions combined rise from 20.8 per cent. to 24.2 per cent. this year. I do not know what the Chief Secretary was quoting from. Was he talking about a family with two children on 75 per cent. of average earnings? I do not want the Chief Secretary to be misled, so let me add this. A married man on 75 per cent. of average earnings with two children and paying income tax alone is paying a larger proportion of income tax, quite apart from the combined income tax and national insurance contributions. He paid 14.7 per cent. of his income in income tax in 1978–79 and he will pay 16 per cent. this year. The Chief Secretary had better get his facts sorted out. I know that he does not want to mislead the House. I have done my best. My figures are based on what we have extracted from the Chief Secretary and his colleagues in a series of questions over the past few months.

Those on 50 per cent. of average earnings will have seen a rise from 12.47 per cent. of their income going in income tax and national insurance contributions to 17.8 per cent. At 1982–83 prices the tax burden on the family will have risen by about 57 per cent. or by £6.05 a week. The cash burden increase on the family on 75 per cent. of average earnings will have risen by £7.04 a week.

As the House will readily understand, not only have personal taxes upon average earners increased, but they have increased still more radically upon those with smaller, below-average incomes. The figures show that.

To complete the picture, there are those on higher incomes. Even those with double average earnings, with an annual income of over £15,000 a year, find that they are paying more in personal taxation this year than they were in 1978–79. Those earning five times the average income, around £40,000 a year, reveal a different picture. For them the tax burden, which took 49.7 per cent. of their income in 1978–79, will this year take only 43.2 per cent.—a reduction of about £24 a week.

Mr. David Winnick (Walsall, North)

The hon. Member for Croydon, South (Sir W. Clark) knows about that.

Mr. Shore

That is very nearly the income of certain people not far away. Those at the top levels of income, with 10 times average earnings, have seen a dramatic fall in their tax burden, from 66 per cent. in 1978–79 to just over 51 per cent. in 1983–84—a reduction of £161.84 a week. Thus the direct tax system, particularly national insurance contributions, has been used as a powerful instrument for promoting inequality in Britain. No wonder the Government are sensitive and shifty about their record on taxation. No wonder we have to drag the information out of them.

The Finance Bill and the Budget that preceded it do not begin to measure up to the task of reviving the British economy. We shall seek to amend the Bill in Committee, both on the Floor of the House and upstairs. But tonight, in voting for our reasoned amendment, we shall be expressing our contempt, disgust and anger at the ruinous economic strategy that is embodied in the Bill.

5.39 pm

Mr. Oswald O'Brien (Darlington)

I rise to make my maiden speech with some pride and a great sense of privilege. I hope that the House will understand and forgive the fact that due to my short time in the House — four working days — I cannot follow the previous speakers in the technicalities of the discussion so far. Had I been able to spend every second of those four working days considering the technicalities of the Bill, or indeed had I been here for the past 10 years, I doubt whether I could have done a more effective demolition job on the Government's record in the past four years than that carried out by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore).

To represent in the House the people of the town in which I was born and brought up is an honour which I never really believed would come to me. Frankly, it was never a burning ambition of mine to become a Member of Parliament. Now that it has happened, however, I would not wish it to be for anywhere but my home town of Darlington.

My entry to the House at this time, however, is inevitably tinged with sadness and regret, as it results from the death of my much loved and respected colleague and predecessor, Ted Fletcher. Many hon. Members will not know, although some Labour Members know, that in 1962 I was beaten by Ted Fletcher for the Darlington nomination by the narrowest possible margin. Legend has it that it was a majority of one. It was probably more, but I will take the legend. Nevertheless, we worked amicably together over successive elections between 1964 and 1969.

Ted Fletcher's record speaks for itself. He served the people of Darlington for more than 18 years and was working on constituents' problems until shortly before his death. I recall him telephoning me just a few days before he died and insisting that even if he could not go to London and to the House he could at least write letters to Ministers and Government Departments. In the history of parliamentary representation in Darlington since 1868, only one Member served for a longer period.

As I know only too well from recent experience, Darlington is a notoriously marginal seat and has never been given to massive majorities, whichever side has been successful in elections. It is a great tribute to Ted Fletcher's integrity and devotion to duty that he held the seat for so long. I must be frank. I did not agree with him on every political issue, but throughout the years that I knew him he always had my respect. As only the fourth Labour Member ever to sit for Darlington, I shall do my utmost to maintain Ted Fletcher's high standard of service to his constituents who are now mine.

I some ways, my election to the House is reminiscent of that of my predecessor, in that it has taken place against a background of rising unemployment. When Ted Fletcher came to the House in 1964 Darlington was going through a difficult time—again after a period of Conservative Government. The famous North Road railway workshops and the privately owned Stephenson's locomotive engineers faced closure. Indeed, it was too late to undo the process set in motion by the previous Government and those businesses closed soon after the election.

Today, too, we are fighting for the survival of our railway workshops. Although the Shildon workshops are not in my constituency, several hundred people travel to work there from Darlington—many of them workers made redundant in the earlier round of closures in the mid-1960s. In addition, several companies which replaced the town's older industries at that time are now facing difficulties and have had to declare many redundancies in recent years, with more on the horizon.

The problems of Darlington bear out the truth of what has been said today by my right hon. Friend the Member for Stepney and Poplar. When my predecessor was elected the scale of unemployment was different, but there was another major difference. Although the economic climate was difficult, the general economic environment was more favourable. At least we had a Labour Government who believed in economic growth and full employment. There has been no such commitment in the past four years. Conservative Members have denied that charge today and on previous occasions, but their blindness to the importance of any aspect of economic policy but the reduction of inflation suggests to me that they do not really care about the miseries and misfortunes of unemployment, perhaps because they have never experienced it personally or in their family backgrounds.

If the price of low inflation is 3 million or 4 million out of work, the price is too great to pay. In any case, inflation and increased employment are not necessarily synonymous, although Conservatives constantly suggest that they are. With all our present spare capacity in the economy and our natural resources—much play is made of what has happened in France, but France does not have the same resources—it should be possible to give a considerable boost to the economy without returning to the high levels of inflation experienced in the recent past. Indeed, the most recent high levels of inflation were artificially induced by the Conservatives, as my right hon. Friend the Member for Stepney and Poplar made clear.

The Chief Secretary looks puzzled. He should study the Chancellor's first Budget. I shall not go into details about that Budget, save to say that it was supposed to lay the foundations for sustainable economic growth and full employment. Four years later, almost every economic indicator shows that the situation is worse, although we have been told today— for the umpteenth time —that recovery is now on the way. The Government's only claims to fame so far have been the reduction in inflation and the supposed increase in productivity. Each of those is the result, not of economic success, but of economic failure. Any fool Government can reduce inflation by savage deflation.

That is what the Government's policies have amounted to. The increase in productivity is solely the result of the increase in unemployment. There has been no fundamental or lasting improvement in productivity or the economy. The supposed upturn that we have again heard about today is not based on any evidence. The most recent figures that the Government have given us can only be seen against the low point which the economy has reached as a result of four years of their policies.

The Government argue that all of our troubles are due to the world recession. We heard that argument again today, and the Prime Minister and the Secretary of State for Employment said similar things earlier this week. I cannot understand the logic of the Government's argument. How can they deny responsibility, as they do, for the depression and high unemployment while claiming credit for what they regard as two favourable consequences? That seems to be a contradiction. The truth is that worldwide circumstances are only partly responsible for Britain's plight.

The Government's policies have been much more deflationary than those of any other industrial country. The Chief Secretary to the Treasury today extolled that as a virtue of Government policy. While Britain has shed about 10 per cent. of its jobs since 1979, EC countries have, on average, shed about 3 per cent. of theirs. Moreover, our record has been consistently worse than that of other OECD countries. In 1979 Britain's level of unemployment was about the same as the average for the EC. It is now one third higher and 50 per cent. higher than the average for OECD countries. Therefore, even on the most generous assessment of Government responsibility, between 45 and 50 per cent. of the increase in unemployment is probably due directly to Government policy.

Even without the world recession unemployment would have risen by more than 1 million during the Government's lifetime, and that is being generous. The plain fact is that the Government have cut expenditure and increased taxes more than the Government of any other major industrial country. That has been demonstrated in great detail today. The consequences of such a policy are plain for all to see, except, of course, to some types of conviction politicians who are blind to everyone's convictions but their own.

My constituency has suffered, as have all others. In the Darlington travel-to-work area, 8,500 redundancies have been notified since May 1979. In Darlington alone unemployment has increased from 2,531 to 6,323, while notified vacancies — yesterday we were proudly told about the nationwide increase in the number notified—decreased from 551 to 156 between May 1979 and March 1983. Nearly 500 unemployed school leavers are chasing the 16 vacancies that have been notified to careers officers. Perhaps the answer is that which the Secretary of State for Defence gave today and we shall have to turn to some form of military service. I do not believe that that suggestion will be welcome.

In my travel-to-work area the level of unemployment is now 15.2 per cent. Unemployment is not merely a case of economics; it is a moral outrage. The people of Darlington showed in the recent by-election that they are not prepared to tolerate it any longer. They do not believe in the Government's policies or that things will get better, even though that has been repeated time and again this week. We have been told constantly this week that good times are just around the corner. The 1983 Budget will not make the slightest difference.

My right hon. Friend the Member for Stepney and Poplar has shown that the Government expect unemployment to increase by 300,000. It is because of such considerations that we won the by-election. That is why I am here and a Conservative or, come to that. a Social Democratic Member is not—there is little difference between them.

The greatest pleasure, apart from the personal one of winning an election, that I derive from our victory is that I believe it heralds the turning point in the fortunes of the Labour party. Whatever Conservative Members may say about an early election, that victory presages the return of a Labour Government. We need a Labour Government who are dedicated to reducing unemployment and a massive new investment programme for the whole country. Moreover, for areas such as mine in the north we should be committed to the establishment of a development agency that has the entrepreneurial skills and experience to promote the area and attract industry to it. We need a Government who are dedicated to that and to reversing the present Government's policies so that we can restore a sense of decency and dignity to the conduct of Britain's economic affairs.

5.56 pm

Sir Hugh Fraser (Stafford and Stone)

It is my great pleasure to congratulate the hon. Member for Darlington (Mr. O'Brien) on his speech. He made it with great and proper respect for his predecessor and with considerable charm. I hope that after a mere four days of work in this place he will go from strength to strength, but only, of course, for a limited parliamentary time. I congratulate him most profoundly on behalf of us all on the way in which he advanced his arguments. They came from the heart.

If the usual convention about being non-controversial was at times abandoned, I nevertheless congratulate the hon. Gentleman warmly on the way in which he made his speech. I am sure that he will excuse me if I deal with one slightly controversial point. During a most remarkable by-election, the hon. Gentleman emerged as a good horse from behind. Nevertheless, the swing in favour of Labour was 1 per cent. If that is the great revival of the Labour party, I do not see it coming, admirable hon. Member that the hon. Gentleman will be.

Mr. George Foulkes (South Ayrshire)

Read The Daily Telegraph, page eight, right-hand column.

Sir Hugh Fraser

The right hon. Member for Stepney and Poplar (Mr. Shore) produced a vast amount of statistics, but refused to answer the main point that many people are asking at every by-election. What will the Labour party do? He failed to answer that question because it is on the basis of his answer that his criticisms should rest. I agree with him in two respects. First, I regard unemployment as a major scourge in this and any other country. Secondly, I agree entirely with what Paul Volcker said the other day—sustained recovery must depend on a much lower rate of interest. That is where the Labour party is bound to fail. Lower rates of interest are essential, but the programme advanced by the Labour party must involve a high rate of interest.

I do not want to advance great proposals for vast injections into the economy as do the Labour party and the Social Democratic party, but there are some things which are possible and, perhaps, necessary which the Government should do. They should remove some small but specific taxes that inhibit growth. The present burden of taxes, rates and insurance on the country is £120,000 million a year. If the Government can make adjustments that will help growth they should do so.

It would not cost the Government much to remove the vehicle excise duty on larger transport vehicles and to reform the development land tax, which are dealt with in clauses 89, 90 and 91 of the Finance Bill. No Government have been able to make up their mind about the correct maximum weight of larger vehicles, but at last this Government have decided, rightly, to make the weight limit 38 tonnes. However, the imposition of the duty on those vehicles causes not only reduction in sales, but has almost caused many companies, including one in my constituency, to go bankrupt. From March 1982 until March this year, the duty on heavier vehicles has increased by no less than 69 per cent. It is a heavy burden and I hope that it will be considered in Committee with a view to being tapered over the years.

The development land tax, which was introduced in 1976 by the Labour Government, was a relict of their Community Land Act 1975, which proved a failure. The tax has inhibited two matters that are essential to recovery out of all proportion to the sums received from it. The first is that, in a rapidly changing economic world, it inhibits the swift redeployment of assets to meet new needs and immobilises financial resources. If a company wishes to turn a sword into a ploughshare, or bicycle into a computer, and must alter its premises to do so, it must pay about 60 per cent. in tax. As a result, boards of directors do not wish to change course and it is no wonder that parts of the economy stagnate. The tax inhibits employment in the construction and ancillary industries, and the deployment of private capital in new developments. At least 300,000 people are out of work in the construction industry, and the development land tax remains a considerable obstacle to further employment.

On 16 March, my right hon. Friend the Financial Secretary to the Treasury rejected my views on this matter. I have corresponded with my right hon. and learned Friend the Chancellor of the Exchequer and with my hon. Friend the Minister of State, Treasury, and the Chancellor claims that he has ameliorated the problem. To some extent that is true, and he improved it again this year, but his general claim is not borne out by the facts. In its first full year, under Labour the tax yielded £7 million. In the first three years of Conservative Administration it yielded £27 million, £39 million and £65 million respectively. Those figures have been published in Hansard. On 21 March my hon. Friend the Minister of State wrote to me saying that the fears about this tax were exaggerated. However, that statement is not borne out by the facts.

The Inland Revenue does not attend board meetings, but I have made inquiries at an insurance company, two major surveyors, a top chartered accountant, a merchant bank and three or four industrial companies in Britain and in Northern Ireland. There are more than 100,000 large and medium-sized companies in Britain but the Treasury does not seem to know what is happening. I shall give some examples of delay in, or complete inhibition of, development caused by the tax.

For two years London Transport was unwilling to sell an undeveloped site because of the tax, and for that time capacity for construction was lost. As the Treasury is aware, British Leyland was unable or unwilling to develop surplus land because of the tax, which again meant more unemployment in the building industry. From other sources I have heard of four stadia which, because of the tax, have not been developed nor the assets transferred to more useful purposes. A major laundry proprietor would not redevelop his property because of the tax. Over-large garage forecourts and premises unsuited to the modern motor car cannot be redeveloped because of the tax. There is an engineering works in the midlands, which is well known for building stationary engines, where a change of use would create a liability of more than £600,000 and, therefore, it has not disposed of its surplus land.

There are several examples in Northern Ireland, where unemployment is more than 20 per cent. They are all industrial establishments where money is needed for the development of new enterprise, and are not green field sites. If one examined green field sites, one would doubtless find hundreds of farmers holding out for what eventually must be reform of the tax or an increase in land values.

The Minister of State promised to be helpful and to investigate those matters. A London firm wrote to my right hon. and learned Friend the Chancellor on 22 Feburary this year. That manufacturing company, 90 per cent. of whose machinery is exported and which employs 350 people, asked for help and advice about the development land tax. The manufacturer wishes to change premises for technical reasons because it is not possible for him to carry out a new mechanical process in his existing premises. The letter stated: On a project where disposal proceeds from the existing site and construction costs on the new one are of the order of just over £3 million our tax advisers calculate that we will be liable for between £1 million and £1.5 millions of DLT. This makes the proposed move impractical. Yesterday I telephoned the company's consultant, who told me that there had been no offer of help from the Government because, within the terms of the tax, none can be given. That company could be forced out of business.

Those are only a few examples, but, apart from the inhibition of capital redeployment, I have calculated that even these mean that at least 2,000 people are not being employed because decisions are being delayed or abandoned by boards of directors. Those who are being employed are several hundred lawyers and accountants who find ways of avoiding the tax for private industry. For the Government I calculate, from the figure quoted in Hansard of about £5 million in collection fees, that they are employing about 500 clerks, lawyers, typists and surveyors to deal with the tax. They must also pay for court actions to defend appeals against its imposition.

This is ridiculous. The tax has become a nonsense. It was meant to catch the developer, but it never caught him, only the vendor. It is full of the Socialist concept of taxing at a higher rate than any other capital gains windfall profits deriving from planning permission. That is foolish. Windfall profits arise for a variety of reasons, but chiefly from Government action. Governments always have been and always will be the chief engines of inflation.

The biggest windfall profits arise from various Governments mismanaging currencies. In those cases not a ha'penny of tax is paid. During the past 18 months, it has been possible to have made at least 200 per cent. by playing the pound against the dollar against the mark.

I believe that the Government have three courses of action open to them to put the matter right. First, they could accept the advice of the Royal Institution of Chartered Surveyors, which was put to the Chancellor in December, to allow a roll over as in capital gains tax. The second is to tax windfall gains at the normal 30 per cent. rate of capital gains tax—half the current rate. The third is to regard windfall gains as coming within the ambit of the 40 per cent. or 52 per cent. corporation tax. Any of those proposals would bring in more money than the present tax because developments would then burgeon. More men would he in work and earning and more taxable income would come from the removal of inhibitions on what is meant to be a market economy.

I hope that the Government can assure us tonight that they will consider these reforms, for the sake of employment and the more rapid deployment of financial resources, otherwise I shall urge my hon. Friends to force the necessary changes in Committee.

6.12 pm

Mr. Richard Wainwright (Colne Valley)

I gladly follow the right hon. Member for Stafford and Stone (Sir H. Fraser) in congratulating the hon. Member for Darlington (Mr. O'Brien) on an accomplished and attractive maiden speech. All hon. Members who live and work between the Trent and the Tweed are concerned that northern England should be represented as diligently and capably as is possible on all these Benches, no matter which Benches they are. We have no cause for anxiety about the standard of representation of his part of the north of England by the hon. Member for Darlington, and I am sure that we all look forward to his further contributions.

I endorse, though I fear not as eloquently as the right hon. Member for Stepney and Poplar (Mr. Shore), the concern felt by the Labour segment of the Opposition at Treasury Ministers' current handling of statistics on the economy. The Chief Secretary is particularly guilty. Perhaps as a barrister he is not accomplished or trained in the use of statistics. He seems to prefer mere anecdotal evidence from documents such as the CBI's "Survey of Stock Movements" which contain not statistics but generalised observations.

I wish to make two points about the Chief Secretary's presentation—which apply also in many ways to his Treasury colleagues. The first is that, if they had practised accountancy for any length of time, they would know—they seem to be innocent of this—that certain people in business, if they want to disguise either a bad year's trading or a good year's trading, fudge the stock figures. It is a well-known trading occurrence the world over—from Hong Kong to Reykjavik, including Great Britain. It does no credit to the Treasury, which may, after all, need to impress the IMF—I am looking at the Labour Front Bench—with a reputation for statistical accuracy before many years are up, to go before the Treasury and Civil Service Select Committee, and more importantly the Floor of the House, with fudged anecdotes about stock movements in business.

I must remind the Economic Secretary, who is now alone on the Front Bench, of the report of the Treasury and Civil Service Committee delivered yesterday on the outturn for 1982: Instead of rising, as expected, stock levels continued to decline. Official estimates of stock level trends given to us year by year have proved ill-founded. The report draws lessons from that.

The Government's other fundamental method, not just that of Treasury Ministers, is a new technique to me. It is the Prime Minister's discovery that, if one can find a low base line with which to compare the current position, it no longer matters that one created that ghastly base line oneself. So venal is our press and so timid our broadcasting media that, mostly, they swallow this nonsense.

No one stops to point out that all the base lines against which the Chief Secretary produced his triumphant and bogus statistics today were created by his Government. One has to look only at the ingenious tables constructed week by week by Mr. Brittan of the Financial Times and the remarks of other commentators to see that. There is a table in the Financial Times today that shows that manufacturing output and the predictions for manufacturing output for the next few months, both from the CBI and the Government—those heavenly twins—are climbing only a little from the ghastly record base line to which the Government itself reduced manufacturing output by the policies of the first 18 months. They are nowhere near recovering even the rather dismal base line on which the Labour Government left our industry in 1979. It is a new technique in Government trickeries. I hope that whoever takes charge of our affairs after the forthcoming election will spare us that one.

I do not intend to weary the House by repeating the arguments against the annual Budget ceremony, which belongs to a pastoral economy in which the twelve-month cycle was the natural period for Governments to consider. Nevertheless, despite all the arguments against the rnyth of the Chancellor's dispatch box, which is empty or full of toilet paper or something, there is in fact some advantage in this great annual ceremony because it enables public attention to be focused for one or one and a half days each year on the state of the economy, on what the Government intend to do and what other people think should be done about it.

The ceremony is a wonderful occasion for a Chancellor who believes that he has a strategy and who at one time believed that if he could only make shop stewards concentrate on the target range for M3 they would all go back to their negotiating tables and say, "Well, chums, we must play it low this year because M3 will not expand." It is a wonderful stage around which all the cameras, all the expensive equipment, all the reporters and pundits are gathered. The Chancellor comes on to this wonderfully set stage this year and announces only a jumble sale. Then, as I have known with other organisers of jumble sales, he sneaks away before the door opens and does not present himself in the House today. The Bill is a jumble sale catalogue with, as usual on such occasions, one or two relatively new goods stuck in to make it appear convincing. Therefore, it has little basic relevance to the appalling state of our economy and the fact that we are ill-equipped to respond to a world recovery in trade.

I was astonished that today the Chief Secretary pretended to relish a world upturn in trade, when he must know perfectly well that he and his colleagues have so debilitated our economy that Britain will be the last major country to be able to take advantage of an upturn in world trade, which we all profoundly hope is on the way. There is not the training, there are not the skills, there is not the confidence, there is not the apparatus and there is certainly not the tax regime to enable British industry to respond properly to such a recovery.

Not only is the obsession of the Chancellor with fussy matters of detail responsible for the irrelevance of the Bill, but there are various other reasons why it has suited the Chancellor to cover his tracks with this huge miscellany of tiny measures. First, he wants to disguise the gross failure to redeem the Tory promise of 1979 to reduce taxation. I shall not repeat the telling set of examples or provide others to add to those that were given by the right hon. Member for Stepney and Poplar. As soon as the election bells begin to ring, it will be dinned home to the public that the Conservatives and their Government have failed to honour their clear and repeated promises of 1979 that the overall tax burdens would be reduced.

Secondly, the Chancellor is trying in this miscellany that he has produced to disguise the fact that he no longer has a strategy. Personally, I am in favour of medium-term strategies as a method of conducting fiscal affairs, but the Chancellor based his 1979 strategy on misguided dogma, which was exploded from within the House two years after the Government took office. He now knows that these monetarist origins must be concealed as far as possible.

Above all, I believe that the history of this Budget and this Finance Bill is vitiated by the fact that the Chancellor cannot bring himself to have any coherent policy about the most vital factor affecting our economy, which is the sterling exchange rate. I would be grateful for the tiniest indication that the Chancellor could give that he has from day to day a coherent strategy—I would even settle for tactics, but I would prefer a strategy—on the sterling exchange rate. However, the Chancellor's performance before the Select Committee during the past few months leading up to our report of yesterday has been dismal, as he has neither admitted to nor denied a strategy. He has simply floundered and contradicted himself from month to month.

The report of the Select Committee on the Treasury and Civil Service is right to state that the influence of the sterling exchange rate on British industry, trade and employment is far more important than all the Budget measures this year or last year put together. I regret that the CBI in its recent check list for parliamentary candidates ignored that obvious and potent fact.

The Economic Secretary to the Treasury (Mr. Jock Bruce-Gardyne)

The hon. Gentleman said that what is missing from the Budget strategy is a coherent policy on the sterling exchange rate. Will he please tell the House —it is entitled to ask him this—what would be his party's coherent strategy to achieve a particular exchange rate? Would it be to manipulate interest rates regardless of domestic monetary conditions? Would it be massive intervention? Why, if such methods can be used, have they failed to achieve a stable exchange rate in other countries?

Mr. Wainwright

The hon. Gentleman represents a Cheshire constituency. I would be glad if the Minister could attend one of my regular orations on this subject at a suitable venue such as Manchester. He knows perfectly well, as well as his flock on the Back Benches, that this is not a debate on Labour, Liberal or Social Democratic policies but an attempt to get some sense out of the Government on their Finance Bill.

Mr. John Home Robertson (Berwick and East Lothian)

Will the hon. Gentleman or the hon. Member for Gateshead, West (Mr. Horam) be the Chancellor-designate for the alliance at the coming election?

Mr. Wainwright

Who knows whether it will be the policy of an alliance Government to have a Chancellor of the Exchequer? I give the hon. Gentleman that thought to amuse him during the rest of my boring speech.

Before he took up his post, the present Chancellor of the Exchequer established a reputation in taxation circles as a reformer. Many of us, regardless of party, were glad to know that a distinguished figure who was bound to have high office if a Tory Government arrived was seized of the urgent need for reforming the tax structure. The sad thing is that, after all these years in office at the Treasury, the Chancellor has left no reforming mark on our taxation structure. Just as in other spheres of government, no structural improvement is left behind by the Government, but simply depression of the economy to achieve a temporary disinflation, so anyone from outside this country looking at taxation and this year's Finance Bill would say that it was the work of tinkers and not reformers.

We all know that our tax structure is way behind the times, particularly for what Conservative Members like to call a free economy. I shall give one example. On matters of depreciation, the apostles of a market economy would surely share with us Liberals the view that, when it comes to accounting for the profits of business for taxation purposes, the methods of professional bodies of accountants and auditors ought to be followed by the Inland Revenue. However, the Government, who are the apostles of business and the market economy, have done more than ever before to insist that the Inland Revenue must have accounting standards entirely of its own and that the professional standards of what is commonly agreed to be the most skilful accountancy profession in the world are still to be of no account for tax purposes because the Inland Revenue insists on keeping thousands of people employed rehashing everyone's figures every year according to its primitive notions.

I refer now to the expenditure side of the Budget in connection with the Finance Bill. The Government have demonstrated more clearly than previous Governments — I used not to think that it would be possible to demonstrate it more clearly than previous Governments — that they have no competence to manage capital spending. With their abacus, bead frame and cash accounting they can just about manage to keep account of current expenditure because it falls within 12 months, but give the Government a project that takes more than two years' expenditure and they fall apart, as we know from every major capital project, from the groundnuts scheme to the Humber bridge, Concorde, Trident and many of the horrors that the Conservatives promise us for the future. It is a scandal that, after four years of this Government, there should still be this total incompetence to manage our capital spending, which is evidenced in yesterday's report by the Select Committee on the Treasury and Civil Service.

The only part of the Chief Secretary's speech with which I even began to agree was his hasty reference to the financial time bomb contained in the otherwise rather seductively written Labour document, "New Hope for Britain". He was right to say that, hidden away under some attractive Social Democratic phrases in the new Labour programme for Britain, there is an economic time bomb which it will be our job at the election—probably it will be left to the alliance to do it—to expose to the people. I am glad that there is no reference to "New Hope for Britain" in the Opposition's reasoned amendment. I shall recommend my right hon. and hon. Friends to vote for the amendment tonight.

6.30 pm

Mr. Ralph Howell (Norfolk, North)

I shall not attempt to follow the line of argument of the hon. Member for Colne Valley (Mr. Wainwright). He has had great experience in attacking Governments; no doubt he will continue to attack Governments for a long time to come. It is a pity that he could not have seen some good in the strategy of the Government inasmuch as it has been so successful in reducing inflation. I should like to congratulate my right hon. and hon. Friends at the Treasury on their steadfast policy, which has improved the economic health of the country and created the conditions for the upturn.

In regard to personal taxation, I welcome the £1.5 billion which has been devoted to raising the tax thresholds by 14 per cent. This is only a small beginning in trying to solve the taxation problem. The only thing on which I find myself in agreement with the hon. Member for Colne Valley is that this Budget, like all other Budgets in the last 30 years, does nothing more than make slight adjustments. It does little to change taxation or economic policies. Therefore, I was delighted by the exciting final passages of the Chancellor's speech when he talked about solving the unemployment and the poverty trap and the "Why work?" problem. What he said seemed to hold promise for something dramatic in the future.

We should study the passage in my right hon. and learned Friend's speech in which he talked about the 30 years in which we have been drifting into this state of affairs because of too much public expenditure, necessitating too high a level of taxation. That must be reversed. He talked about the enormity of the problem and the stupidity of the overlap of taxation and benefits, whereby people are being taxed and at the same time are receiving benefits. He said that this demanded reform. I hope it is the intention of the Chancellor to do something about it in the next Budget. I stress strongly the need for something to be done.

The Chancellor referred to the fact that in 1950 a married man who was earning two thirds of the national average wage paid no tax. Before the Budget a married man who earned only 29 per cent. of the national average wage started to pay tax at that level. As a result of the raising of the tax thresholds, tax for a married person will still begin at 33 per cent. of the national average wage. That brings into perspective the size of the problem confronting us.

To illustrate the point further, I should like to draw attention to a person who works for the Norwich city health authority, earning about £80 a week. I have brought this case to the attention of the Select Committee on the Treasury and Civil Service and of several Ministers. Before the Budget, he was £7 per week worse off when working than he had been in the previous two and a half years when he was unemployed. As a result of the raising of the tax thresholds, he will be£5 a week worse off when working. He and hundreds of thousands of people are still conscientious enough to continue to work, although they are worse off or hardly any better off than they would be if unemployed. No hon. Member should feel proud of this.

The problem has been getting steadily worse for the last 30 years under all Governments. I am delighted that a check is being put on it now, but we have scarcely begun to realise the severity of the problem and the need for measures to get rid of it. It is not just the poverty trap and the unemployment trap which are important; there is also the treadmill on which people who are earning less than the national average find themselves. If a married man with two children increases his earnings from £60 to £160 per week, he is only £25 a week better off. People are demoralised. They feel that there is very little they can do to help themselves. A person earning £100 per week is only £2 or £3 better off than he would be if unemployed.

I urge the Government to give serious attention to this matter and to realise that big changes will have to be made. About £12 billion is being deducted from people who earn less than the average national wage. This does not make sense. We are giving back in benefits a similar amount. If we are to disentangle the overlap of taxation and benefits it will cost in the region of £15 billion. The Treasury and Civil Service Sub-Committee has given much thought to this, but no one has been able to find a solution which would cost less than £15 billion. It is high time we applied our minds to finding out how we can solve this problem, which has been developing for 30 years. The way out is to cut out waste.

Mr. Austin Mtchell (Grimsby)

By £15 billion?

Mr. Howell

Yes. Despite all that has been said against the Government for reducing expenditure, we have not done nearly enough. We have not scratched the surface. We are still wasting vast sums of money. We are employing 2 million more in the public sector than we were in 1960. What are we getting for it? Are we getting better education? What is local government doing better than it was doing in 1960? Is the Health Service that much better even though 700,000 more people are working in it? In 1960 there were fewer than 600,000 people in the Health Service and now there are nearly 1.3 million. If we intend to solve the appalling problem that is posed by the "Why work?" syndrome and the poverty trap, we must find ways of cutting Government expenditure by at least £15 billion.

Dr. Jeremy Bray (Motherwell and Wishaw)

Is the hon. Gentleman aware that if we had full employment and the American distribution of employment between services the increase in employment in the public sector would be 2 million?

Mr. Howell

I am not especially interested in what goes on in America. I am talking about what is happening in Britain. The Government can think of all the schemes that they like to try to help small businesses and industry generally, but the best thing that they can do is trim overmanning in the public sector and get the Government, local government and all sectors of nationalised industry off the backs of the people and the back of private industry. If that were achieved, Britain would thrive and prosper and more jobs would be created as a result of the reduction of unnecessary Government expenditure.

6.41 pm

Mr. Jim Craigen (Glasgow, Maryhill)

First, I congratulate my hon. Friend the Member for Darlington (Mr. O'Brien) on his competent contribution. I am especially delighted that my hon. Friend is a member of the Co-operative parliamentary group. I know that 13 is not usually regarded as a lucky number, but my hon. Friend is a helpful and significant addition. I know that his warmth, sincerity and good sense will make an excellent contribution both to our work and to the activities of the House.

I am amused that Conservative Back Benchers have avidly been reading the Labour party's election proposals. It seems that they have conveniently forgotten many of their own party's manifesto promises. The hon. Member for Norfolk, North (Mr. Howell) talked about the burden of personal taxation on the low paid. Conservatives promised that they would be lifting many of the lowest paid out of the tax net. In his Budget statement the Chancellor of the Exchequer told us that he would be lifting 1.25 million out of the net by his 1983–84 proposals. Those who have considered the figures more closely estimate that the net change is more likely to be about 500,000. The Low Pay Unit has estimated that there are probably 6 million adult low paid, which is roughly one third of the work force—a much reduced work force since this Government took office.

It is interesting to reflect that if the single low paid were to be taken back to the 1979 structure of personal allowances, there would need to be an uprating of 37 per cent. There would have to be an uprating of 32 per cent. above that which the Chancellor is proposing in the Bill for the married man's allowance. For a Government dedicated to the reduction of bureaucracy and cutting the number of civil servants, one convenient way of achieving those objectives would be to take more of the low paid out of the tax net. That would mean much less paperwork and form filling and an infinite easement in the position of many low paid.

I shall not repeat some of the arguments that I advanced in the Budget debate. I merely say that the Government have missed a great opportunity. They could have reintroduced the 25p tax band rate, which the Chancellor abolished in 1980. That would have made a significant contribution towards assisting the low paid.

The hon. Member for Norfolk, North should be reminded that, within the public sector, which he is so keen to see cut, there are many of the low paid. I agree with him up to a point over his comments on the waste in public spending. We were given a taste of that this afternoon when the Secretary of State for Defence made a statement on the military service element within the youth training scheme. The right hon. Gentleman has suddenly found money for about 5,000 young men and women. When he was Secretary of State for the Environment, he constantly cut the areas of meaningful employment in community services that affected most men and women. That is what I found astonishing. Without being anti-Army, Navy or Air Force, I found it astonishing that the right hon. Gentleman could introduce a temporary scheme for young people in the armed services when in his last job he was constantly telling local authorities that they should create more redundancies and pay off people.

A considerable waste is being developed in central Government management. Moneys are being withdrawn by central Government from public bodies which were well equipped and elected to get on with their tasks. There have been sizeable reductions in the rate support grant and at the same time moneys have been given to bodies such as the Manpower Services Commission to spend on projects that local authorities would not have considered priorities had they had the money. It is easy to repair church roofs through the operation of the community programme, or its predecessor, the community enterprise programme, but there is no money available for local authorities which want to modernise houses or remove slums from inner city areas. Considerable waste is accumulating.

It is apparent that local authority officials are spending half their time considering areas in which they could cut back existing relevant services to the community while occupying the other half scrambling around looking for coordinators to spend money on the Government's community programme for the long-term unemployed. That applies to some of the projects that are emerging for the youth training scheme too.

The Government are facing difficulties because they are running out of employers. Encouragement is being given to new businesses but I suspect that much more money is being spent by central Government on public relations and advertising promotion than on employment creation. When I switch on the television there appears to be an endless series of advertisements about people climbing up rock faces. I do not know where they are going but it is certainly not to the top. Viewers are told that by means of a Freefone facility they may acquaint themselves with the latest grants that are available for setting up businesses. I find that more of my time is taken up by folk phoning about redundancies and job losses in existing businesses than inquiries about establishing new businesses. Indeed, what worries most business men is the nature of the market situation that they are facing rather than the question of endless Government leaflets or new units within the Department of Industry to cope with the expansion of business.

I do not get many letters from west Sussex, though I got one the other day. The member of the public who wrote it was complaining about the money that was spent through MSC special programmes in employing unemployed archeologists and people in other related occupations to look over the historic past of west Sussex. I am sure it is all very important and good stuff, but I am concerned to see money spent on inner city development in our urban areas rather than on these matters. That is something that I have taken up with the chairman of the MSC.

One of the things covered in the Finance Bill is the extension of the enterprise allowance scheme which is operating in five pilot areas. I wonder whether the Minister who is to wind up would tell us whether this is to be entirely self-financing in the sense that its introduction will not result in cutting back other useful services within the MSC.

On the cost of unemployment, reference has already been made to the substantial proportion of public expenditure now devoted to sustaining unemployment within our society. The figure varies between £15 and £18 billion, according to how the arithmetic is done, but the impact is the same on the people who are affected and on the households that are afflicted by unemployment.

The biggest challenge that the Government have on their hands in respect of transfer payments is over the proportion of our national expenditure that is now devoted to unemployment. The Government could save themselves a great deal of public expenditure by looking at more meaningful ways in which to transfer the unemployed into employment.

The Financial Secretary is looking a little bored—I was going to say, "ill at ease". I do not know whether he suffers from high blood pressure. I think that, unlike some of his colleagues, he has already got settled with a parliamentary constituency. I can assure him, however, that one of the things that matters most to people at present is not just the high level of unemployment but the unsatisfactory prospectus that the Government have for coping with the future employment situation.

We had a laugh a line from the hon. Member for Colne Valley (Mr. Wainwright), who is not present now, when he was speaking about the policies of the alliance. It seems to me that, when one cannot agree with one's coalition partners about who is to be Chancellor, one ends up by saying that there will be no Chancellor, just as, when one cannot agree on who is Prime Minister-designate, as the right hon. Member for Plymouth, Devonport (Dr. Owen) suggested at one time, perhaps a Prime Minister is not needed.

In the real world, however, we have to reach hard and fast decisions and I would suggest that there is little in this Finance Bill that will make any impact on the reduction of the current level of unemployment. Indeed, implicitly we shall see an increase of 300,000 by the end of the current financial year. That is not good enough for a Government who always claim that they want to cut public expenditure.

6.55 pm

Mr. John Browne (Winchester)

May I first echo the words of congratulation of my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) to the hon. Member for Darlington (Mr. O'Brien). In my opinion, his was a very interesting and good maiden speech. Like many others, I worked in the Darlington by-election, and I congratulate the hon. Gentleman on his victory. If he thinks that his speech today was uncontroversial, we are obviously in for some very interesting speeches from him which may even test the hon. Member for Bolsover (Mr. Skinner).

To get down to the Bill, the hon. Member for Colne Valley (Mr. Wainwright) pointed out that exchange rates were critically important and he measured them against movements in the Budget. I entirely agree with that. Last night, that excellent BBC programme "Financial World Tonight" included words to the effect that the Treasury Select Committee was critical of the Government on their exchange rate policy. As a member of that Select Committee, I should like to place it firmly on the record that I strongly support the Government's exchange rate policy. For evidence of that I turn to the verbatim evidence in the Treasury Select Committee's report, at paragraph 270 on page 42, where I said, may I first of all say to the Chancellor that I entirely agree with his views on the exchange rate. I for one find them extremely responsible and utterly realistic. I think that basically the Government's exchange rate policy is very good, because it accepts certain realities. The first reality is that we are living in an era of floating exchange rates. The second reality is the relative size of the vast Eurodollar and Eurocurrency markets compared to our own reserves. The third reality is the great influence and volatility of international interest rates and the prices of international key commodities such as oil.

Finally, it represents the reality that if we were to have publicly announced exchange targets, all that would mean would be that our Treasury, or the Bank of England, would become a buyer of last resort against international operators in the international foreign exchange markets, thereby incurring a huge contingent liability on the British taxpayer.

I think, therefore, that the stated policy of the Chancellor, that he is trying to round out the worst short-term fluctuations in exchange rates, is excellent. This lack of arrogance, this willingness to face reality, is right. My right hon. and learned Friend has accepted that we cannot do all that we would like to do. We live in an era of floating exchange rates and therefore, in the absence of a fixed exchange rate and the discipline that that imposes, the Government have said that we must have some other type of discipline — hence the introduction of the medium-term financial strategy.

Mr. Hooley

Is the hon. Gentleman aware that in the past two years the value of the pound has swung from $2.45 to $1.45? Does he call that an exchange rate policy?

Mr. Browne

That has exactly brought out the point I was trying to illustrate, which is that the Government are not trying to defend an exchange rate at any particular level, but are trying to iron out short-term fluctuations. The move to which the hon. Gentleman has referred is a fundamental market change related to oil prices more than anything else. The money that the Government would spend in defending an exchange rate of $2.;45 would be money poured down the drain. That has exactly brought out the point that I was trying to illustrate.

I should like to draw to the attention of the House some of the comments made in the Treasury Select Committee report, first, on interest rates, and especially on the need for lower real interest rates if sustained long-term investment is to be encouraged. Moreover, I would urge that even more important than low interest rates is that we have an outlook for and an expectation of stable low real interest rates.

My second point concerns the seriousness of the international debt crisis, which is still far from over. That is something that we must all remember. Thirdly, there is the restoration of cost competitiveness. The hon. Member for Sheffield, Heeley (Mr. Hooley) mentioned the large fall in sterling. Of course that has had a dramatic effect on our cost competitiveness as a nation. The report of the Treasury and Civil Service Committee urges the House to hold on to that cost competitive advantage. We should not —as we have so often done in the past—allow it to be eroded by massive wage increases.

The Government have had some very fine economic achievements. The reduction of inflation was the Government's main objective and it has fallen from 22 per cent. to less than 5 per cent. For the first time in recent history we have had a real inflation rate, free from dividend and pay controls, and so on. That is a major achievement. It is almost mealy-mouthed of people to deny it. Of course a price has had to be paid —[Interruption.] No one said that it would be easy to tackle inflation. Did the Prime Minister say that it would be easy when she came into office? Of course not. The price has been a short-term fall in output and a short-term rise in unemployment. However, the great thing is that British industry is now not only more cost competitive, but, more importantly, more market competitive.

British industry is changing. Attitudes, even in companies such as British Leyland, are changing. Importance is being attached to the design of products, quality of production, prompt delivery and after-sales service. That was forgotten for 10 or 15 years and is something new. Look where that forgetfulness got us! The right hon. Member for Stepney and Poplar (Mr. Shore) started to blame the fall in automobile sales in 1981 and 1982 on the Government, but he knows full well that the lead time for products such as new motor cars is five or six years. Therefore, the finger should have been pointed at the Labour party's Front Bench.

The introduction of the medium-term financial strategy was extremely bold and wise, and has given us a discipline. I praise the Government because, unlike many other countries that are trying to eradicate inflation, they are sustaining their strategy. They are holding on and are not doing a U-turn. British industry now has a chance, such as it has not had for more than 40 years, of real—as opposed to synthetic—growth. Consumer spending and private investment are up. The outlook for world trade is up. There are arguments about how much it will go up, but there are hopeful signs.

At the same time, British industry is now not only cost competitive, but is market competitive. That is most important. The rate of increase in wage demands is down. The value of sterling dropped by about 13.;9 per cent. between 5 November 1982 and 8 April 1983. Each percentage point of that drop is worth approximately £1 billion to British industry. Therefore, the help given by that fall in the exchange rate is worth roughly £14 billion. That represents a real opportunity.

I have two criticisms to make of the Government's economic and financial policy. I concurred with my hon. Friend the Member for Norfolk, North (Mr. Howell) when he said that Government spending was still too high. It is far too high. The balance of spending between current and capital expenditure is worse than it was, when it should be better. I lay the blame for that at the door of the employment cartels, which we have so far failed to break. I hope that after the next election we shall find that we have had only the hors d'oeuvre so far.

My second criticism is of the Government's policy on help to new and small businesses. Of course I welcome the measures taken, but they are not sufficient, and they are not nearly simple enough. As I have said in several debates in the House, it will take a bombshell to shake 30 years of decay. This country has been overtaxed and people have been left with very little money in their pockets to invest in new businesses. Successive Governments have given favourable tax treatment to institutions such as insurance companies, building societies and pension funds, while working against the individual. Conservative Governments have maintained that favourable treatment, so that vast capital accumulations are held in huge institutions and nothing is left with the individual. However, it is the individual venture capitalist who, in terms of equity investment, will get new and small businesses off the ground.

Therefore, we need a minimum of £4 billion in a programme for new and small businesses. We want very few measures, and they should be simple so that the man in the street finds them easy to understand, but what do we have? We have more than 100 small measures that are far too complex. Even the Chancellor of the Exchequer has started talking about schemes. The moment that someone talks about a scheme, he is talking no longer about the average Joe Soap who will back his brother, father or son in a business, but about accountants and bankers. That is what schemes mean.

Therefore, I totally support the Government's exchange rate policy and have great admiration for their achievement in reducing inflation and, more importantly, in changing attitudes in industry. As a result of the Government's actions, businesses—including even local authorities—are more market-conscious and able to face reality. The Government have given British industry a mammoth chance to face the world and to provide not the synthetic jobs which, consciously or unconsciously, Opposition Members urge, but real jobs.

I hope that much more work will be done—it is too late for this Bill—on curbing public spending and on restoring the balance towards capital expenditure within it. I also hope that real effort and much more thought will be given to finding an effective conduit for the funding of new and small business equity, as opposed to debt investment.

7.7 pm

Dr. Jeremy Bray (Motherwell and Wishaw)

I hope that the hon. Member for Winchester (Mr. Browne) will forgive me for saying that he is a far more intelligent man than he sometimes appears to my hon. Friends. When he speaks on matters that he knows about, he is well worth listening to.

Mr. Austin Mitchell

He knows Sandhurst.

Dr. Bray

I am sure that my hon. Friend would agree that the hon. Member for Winchester is also well worth listening to when he speaks about banking and businesses.

However, before I embarrass the hon. Gentleman with too much praise I must tell him that I take exception to one of his statements. He said that we had a low real inflation rate. He meant that the inflation rate was unencumbered by dividend restraints, wage norms, and so on. However, we do not have a low real rate of inflation, because it has been achieved only by having 3 million people unemployed. It is maintained at that level only because of the 3 million unemployed. We do not know what the rate of inflation would be if there was any recovery in the unemployment rate.

The Government have built up a tremendous reserve of animosity. Industrial relations have degenerated, and hostility between management and responsible union leaders has increased to a level the like of which we have not seen since the 1930s. We need a Government with an altogether different attitude to industrial relations if we want to obtain the circumstances within industry in which it is possible to reduce unemployment.

Mr. John Browne

Many of my constituents believe, as I do, that there was vast overmanning in British industry. People knew that. Of course unemployment is a desperate and dreadful problem, but we shall not solve it by recreating synthetic jobs. I was trying to say that this Government have offered an opportunity for the creation of real jobs and, therefore, we hope that there will not be an increase in the inflation that was caused by the financing of synthetic jobs.

Dr. Bray

But not only overmanning has been reduced, and I have a reasonable record both in the Chamber and in my constituency on discussing the problems of overmanning, not least in steel. The present level of unemployment is due far more to a huge reduction in the capacity in operation in manufacturing industry. Manufacturing output has fallen by 20 per cent. If one simply decapitates the least competitive 20 per cent. of manufacturing industry, of course the remaining 80 per cent. will be more aggressive in marketing, more cost-competitive, more product-competitive and better in all the respects that the hon. Gentleman rightly seeks as the objective for British industry. But the point that he has not grasped is that, if we are to recreate employment so that we recover that 20 per cent. of lost manufacturing output and far more, there must be a quite different climate in industrial relations from that which we have now and, indeed, a different economic strategy.

I should like to add to the congratulations that hon. Members have given to my hon. Friend the Member for Darlington (Mr. O'Brien). I have a particular delight in congratulating him because the 1962 by-election in Middlesbrough, West which I fought was the first Labour gain of that Parliament. My hon. Friend helped in that election. My hon. Friend was, as he told us in his maiden speech, active in Darlington politics at that time and has been an outstanding contributor to the political life of the north-east ever since. All the interest that he has taken locally will now find expression on a wider platform.

The hon. Member for Winchester, if I may pursue him on the other points he made, agrees with the observation in the Select Committee report on the revision of the principles on which the Government's medium-term financial strategy is based. Paragraph 22 on page 11 of the report states: The failure to meet monetary targets in 1980–81 and 1981–82 … has been attributed to structural changes. Treasury officials acknowledged that those structural changes are likely to continue in the future and that to base a financial strategy merely on sterling M3 was a mistake.

Mr. John. Browne

indicated assent.

Dr. Bray

I see that the hon. Member for Winchester agrees—certainly the Select Committee was agreed on that. The Government are now pursuing a range of monetary aggregates but also a bird of an altogether different feather—the exchange rate—as a factor in the determination of their monetary policy. The hon. Member for Winchester says that we should not have an exchange rate target, but he agrees that we should have an exchange rate policy.

Mr. John Browne

Publicly declared.

Dr. Bray

I agree with the hon. Gentleman and we shall be considering that in great detail and in carefully-worded terms when our report on the exchange rate is considered in the Select Committee and published, I hope, before the end of May and certainly before the Williamsburg summit.

It is possible to stabilise the expectations of what will happen to exchange rates. It is important to do so because industry must know the terms on which it will trade in the future. It must know the real terms—the relative unit labour costs—between one country and another. Unless industry has that reasonable assurance of what will happen to its manufacturing costs by comparison with other countries, it cannot possibly recover and stabilise in Britain or any other country. Of course, we are initially concerned with ourselves., as a relatively small open economy in a large world. If we can gradually develop sensible policies on the exchange rate, both the processes of emulation and negotiation will, we hope, lead to more stable policies in other countries.

In published evidence to the Treasury and Civil Service Committee, we have spelt out already the technical means by which it is possible to design policies for the exchange rate that are consistent with interest rate levels, expected relative inflation rates, the current account and with all the aspects of the domestic economy both internally and in its relations with external economies. The appendices in volume 3 of our report on international monetary arrangements and the banking crisis, and particularly papers by David Begg and by Artis and Karakitsos which we discussed with officials of the Federal Reserve Board and the IMF—who have totally failed to develop them because of the obscurantism of the leading Governments of the world—show that the IMF will have to follow suit. Such work is being done in the Treasury as well. There is a tremendous potential both in governmental and inter-governmental organisations for the rapid development of a sensible exchange rate regime, once Governments are seized of the technicalities and of the methods by which such a policy can be constructed. It is possible to avoid the plus or minus 30 per cent. variations in competitiveness that we have seen recently.

We need a new generation not only of Finance Ministers—we shall shortly solve that problem—but of chairmen and governors of central banks and of heads of international agencies so that the young Turks who are capable of doing the work have a better climate than the extremely frustrating one in which they have had to work for the past four years.

When Conservative Members read our excellent document "The New Hope for Britain", they ask about the implications for public spending, for interest rates, for Government borrowing and so on. I ask them to read that document with as much care as they read and write their own policy documents. Paragraph 11 of our document states: Our central aim will be to reduce unemployment to below a million within five years of taking office. In his admirable speech today, my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) endorsed the specific constraints and qualifications which must be put on that overriding objective. He specifically endorsed the part of the Select Committee report which said: It is essential that the recent decline in sterling's value by which some measure of lost competitiveness has been restored is not then translated into domestic inflation as has previously occurred. Of course there is an inflation constraint, but whereas the present Government have an inflationary objective, we have an employment objective and an inflation constraint. That will lead to an altogether different approach to economic policy, but it is just as coherent as an economic strategy. Conservative Members will also find discussed in our documents the role of the current account. It is necessary over the years to have a reasonable current account and an exchange rate which is consistent with maintaining it.

Finally, they will find, if they read our document carefully, that in all wisdom we recognise that it is necessary to maintain a positive growth of real disposable incomes because if the real disposable incomes of large numbers of people are cut an atmosphere will be created in which they will reject reasonable attitudes to wage bargaining and reasonable levels of wage settlement. It is necessary to maintain that positive growth in real disposable incomes. The objective of reducing unemployment as fast as possible and accepting the constraints on inflation, on the current account and on the maintenance of positive growth in real disposable incomes, produces a perfectly coherent strategy. All the fundamental theories about how the economy works will operate just as effectively under the Labour strategy as set out as the Government believe they do under their monetary strategy.

The Government thought that, by simply pursuing monetary targets, unemployment and the rate of inflation would look after themselves and there would be a full employment economy with little cost in lost output. But the Opposition do not think that the economy automatically stabilises. It needs to be stabilised, and we will take the appropriate measures to do so.

Within those constraints it is impossible to say what will be the increase in public spending over a period of five years. It is possible to say what the expected level might be, given a particular economic model and certain assumptions about world trade and so on. But the Government's qualifications that they originally wrote into a principle central to their strategy—the public sector borrowing requirement—need to be applied to the levels of taxation and public spending implicit in the Labour strategy.

The Opposition have put forward, in far more specific detail than any previous Opposition, a strategy that will stand up. There is no coherent strategy from the Government. We face a breakdown of their strategy that has resorted to a sentimental, emotion search for the principles of Victorian housekeeping. They use all the Dickensian formulations and analyses that we thought we had been rid of these 50 years and more.

That lack of coherence is most frighteningly exemplified in the Government's attitude to industrial policy. Having spoken to large and small companies, I am appalled by their complete confusion about the industrial future of Britain. The Chief Secretary has been adopted for a constituency where I once lived — Richmond in Yorkshire. He will find that a large proportion of his more articulate and better-informed constituents will be my former colleagues in the management of ICI. Many of his constituents will work in the petrochemical division, where not only are three of the four crackers laid up, but recruitment at managerial and scientific levels has so degenerated that, of the eight graduate trainee engineers recruited four years ago, ICI has offered a job to only one of them. That is the measure of the future provision for technologically-advanced industries that has taken place under this Government.

But an even more frightening position has arisen in my constituency. The Government are allowing the chairman of a nationalised industry to negotiate the close of one-third of our strip mill capacity on the basis of sales forecasts prepared during the depths of the recession in November of last year. Since then there has been an increase of 33 per cent. in the output of steel in the United Kingdom. Yet that fact was brushed aside by Mr. MacGregor and Ministers as a flash in the pan. But it was the depression in November that was a flash in the pan. The prospects for maintaining strip production now run as far forward as it is possible to foresee orders in steel. Firm production programmes are running at Ravenscraig, with 35,000 tonnes a week of liquid steel, Llanwern with 45,000 tonnes and Port Talbot also fully loaded. The quality, the output per man shift and the man hours per tonne are all at record levels.

If the Government scrap the strip mills at Ravenscraig in exchange for investment in strip mills in Pittsburgh, they will cut by 33 per cent. the capacity for which we already see the need—only three months after the base for BSC's plans. One would have thought that the Government would be at least interested in the medium-term prospects for the demand for steel. But there has been no independent check by either the Department of Industry or the Treasury of what will be the forward demand for steel in the United Kingdom.

A rather poor report was produced by the Select Committee on Industry and Trade, which examined the prospects for steel demand. So superficial was its analysis that it quoted a report by the Treasury Committe saying that the forecasts of the Government might not be met. But the Treasury Committee was talking about a short-term horizon, whereas closing a strip mill involves the prospect of demand for five, 10 or even more years. It has not yet been the job of the Select Committee to prepare forecasts on that basis, although I hope that it will be under a Labour Government when there is a sensible industrial policy.

The Government are prepared to make decisions involving £1 billion and £2 billion without even checking the arithmetic. Conservative Members may say that that is an absurd suggestion, but is it? I ask hon. Members to look at the sums for British Telecommunications' investment, for which the Financial Secretary was responsible. When Treasury officials appeared before the Select Committee, we asked them why the Government had made a reduction of £171 million in the provision of the external financing limit for British Telecommunications. Mr. Mountfield, the Treasury official responsible for public expenditure, said in reply to my question: Yes, you did go into it at that time. I know that you received a letter from the Chairman of British Telecom, explaining what had happened during 1982–83. In the light of that, there was a reappraisal of their requirements during 1983–84, and a revised figure was agreed between the Government and the industry. I asked: Does this indicate a further cut of £171 million in their expected investment? Mr. Mountfield replied: No, it is not only on investment; it is a mixture of investment and cashflow. But, as we later discovered, there was a cut in investment of not £171 million, but of £275 million in a previously planned total of £2,149 million. Over 10 per cent. of BT's investment was cut by the total failure of financial control of a nationalised industry by the Treasury and the Financial Secretary.

With such a wholly irresponsible attitude towards nationalised industries, do the Government really wonder why those industries do not know whether they are coming or going? The Government have shown the nature of their management. They have had to man the Treasury with clapped out lawyers who have never had any practical experience of industry. The Chancellor plainly does not understand the arguments, and the Chief Secretary cannot even learn his brief. They are backed by junior Treasury Ministers, whom we know well and have worked with over the years. I will not bother with them because they are not allowed a great deal of influence over what goes on.

The consideration that we face is not simply the competence and realism of planning — which have broken down under this Government—but social justice. I hope that in Committee we shall pursue the extraordinarily elitist defence of privilege that is yet further reinforced in the Bill.

I shall mention two measures. The limit for tax relief on mortgage interest increased from £25,000 to £30,000, not just at the standard rate of tax but up to the highest rate of tax on income, so that there will be a huge bonanza for the people who are paying tax at the higher rates and who can afford this increase in their mortgages, if they do not already have £30,000 mortgages.

Secondly, there was the exemption of charities from capital transfer tax. Our major charities which raise large sums for the causes that people feel most passionately about—Oxfam, Christian Aid, War on Want, Help the Aged—are financed not by large capital transfers, or by huge donations and legacies, but by small contributions from the great mass of people. This is not the type of charity that the Government are trying to help. It is the charities such as the big public schools, and those that are based on the protection of privilege and the bolstering of the society to which the Government are trying to return —that of the Victorian period. This is an extraordinarily incompetent, immoral and decadent Government, and I thank God that this is the last Budget that they will bring in.

7.31 pm

Mr. James Kilfedder (Down, North)

As some hon. Members have already spoken about personal taxation, and as time is short, I do not intend to repeat the arguments, but in my opinion the burden of personal taxation on the average earner is too high, particularly with the increase in the national insurance contribution.

As time is limited, I shall confine my remarks to the effect of the budgetary measures in the Finance Bill on the people of Ulster. In Northern Ireland the blight of unemployment has wrought havoc with the lives of many men and women, and particularly young people, who leave school full of idealism, hoping for a job and to earn money and make a life for themselves. No one, unless he is bereft of all compassion, can view the never-ending dole queues in Northern Ireland without a feeling of heartbreak. I feel that every time I look at the people who are queuing up at the unemployment exchanges in my constituency.

Northern Ireland has about 21 per cent. unemployment, or 112,000 people out of work. The Chancellor, in introducing his Budget, made it clear that he did not expect his measures to have any dramatic effect on the unemployment figures in Great Britain. The sad fact is that the financial measures will not stop the sickening spiral of unemployment in Ulster. The number of unemployed will continue to rise, and that is a tragedy in a region that has suffered so much from terrorist deaths, mutilation and destruction — and that terrorism continues its obscene course.

With the desperate need for homes in Northern Ireland, the Government should provide more finance for construction work in the Province. It is ludicrous that so many construction workers should be unemployed when houses and other buildings are required.

Old-age pensioners are facing great difficulties in this part of the United Kingdom where they must meet higher costs for food and heating. Some pensioners are finding it increasingly difficult to pay for electricity, gas and coal fires. Some use portable gas and oil heaters, which are not beneficial to their health. Some of the pensioners reduce the amount of heat to economise, particularly in all-electric dwellings. This is not an economy which they should be forced to take. Mere compassion for the senior citizens of our nation should tell us that.

The cost of living is higher in Northern Ireland, as I have often pointed out, than in the rest of Great Britain, and the wages are on average lower for those who are lucky enough to have a job. Against this background, public sector rents have been increased a number of times in recent years and will be increased again by the Housing Executive. In such dire circumstances in Ulster, it would be reasonable for the Government to freeze public sector rents for a considerable period. As the Government are confident that an upsurge in the United Kingdom economy is about to take place, it is right that something should be done to help Northern Ireland, which will not benefit from such an upsurge for some years to come.

The Budget will probably give little direct benefit to the Northern Ireland economy. Where a concession has been granted, it has been cancelled out to an extent by an increase elsewhere. For instance, the national insurance surcharge rate reduction is neutralised by the increase in vehicle excise duty. The effect of the Budget goes only some way to repair the damage caused to the Northern Ireland economy by previous Budgets.

The reduction in corporation tax from 40 to 38 per cent. for small companies with less than £100,000 a year profit should help firms in Northern Ireland. I accept that and thank the Government, but most firms in Northern Ireland are operating on profits of less than that amount and many firms may not be paying much corporation tax because of the various reliefs that are available to them, such as when they invest in new plant.

I pay tribute to the Government for the arrangements recently announced for Northern Ireland whereby firms that invest their profits in the company can benefit from a much lower rate of tax. That should help to get some life back into industry in Northern Ireland. The new scheme provides an incentive to most firms to become viable in the future, as well as encouragement to profitable companies.

It was hoped that the national insurance surcharge would be abolished completely, as it amounts to a tax on jobs. However, it is to the credit of the Government that during their period in office they have reduced the surcharge from 3.5 to 0.5 per cent.

Mr. Ridley

To 1 per cent.

Mr. Kilfedder

I am too much of an optimist. The Government always make one realise the cold facts.

Although there is a considerable saving for industry throughout Great Britain, it is not too much of a saving in Northern Ireland. On a pro rata basis, the reduction in Northern Ireland will amount to about £9,750,000, but the saving may be substantially less than that. Even taking that larger figure, the reduction does not constitute a substantial cash injection for Northern Ireland industry.

The hefty increase in vehicle excise duty to be paid on articulated lorries of 32 tonnes or more carriage weight will hit road hauliers in Northern Ireland. On such lorries, road tax is to be increased by 25 per cent., from £1,820 to £2,290. Before the Budget, transport costs in Northern Ireland accounted for about 15 per cent. of the cost of the product. Now, the vehicle excise duty increase, together with the addition of 3p per gallon on the price of derv, will mean that manufacturers who export their goods will be penalised in the transport of those goods. That will make it more difficult for Ulster firms to compete in world markets. The cost of transport in the Province has always been an obstacle for Ulster firms. In most cases, firms have to bring in the raw materials. They must then add on the cost of transporting the finished article to Britain or beyond.

Perhaps this is a Committee point, but I hope that I shall be forgiven for raising it at the end of my speech. Northern Ireland would have been helped by the use of 38-tonne lorries. But the vehicle excise duty on a 38-tonne lorry with a three-axle trailer is £2,590, and £2,940 on a 3-tonne two-axle vehicle. Undoubtedly, the larger vehicles would have benefited Ulster's industry as a result of reduced haulagee costs, but the increase in the duty will cancel any benefit.

Thus, the Finance Bill does not hold out too much hope for industry in Northern Ireland. It does not hold out too much hope for the 112,000 men and women and young people who are unemployed in the Province. I appeal again to the Government to treat Northern Ireland not just as a special case, but as a special case which requires dramatic measures to restore to it the standard of living of the rest of the United Kingdom.

7.41 pm

Mr. John Horam (Gateshead, West)

I do not believe that even the Government would dissent from the view that since they came to power they have proceeded from a position which, at its kindest, was heavily influenced by dogma. Monetarism must be considered to be a dogma in the same way as Marxism is a dogma. Keynesianism is a rational and relevant analysis. The trouble with monetarism is that it is arcane, out-of-date and irrelevant to the circumstances of today.

In the years since the Government started down the path of monetarism they have clearly modified the original concept with which they came to office. First, they dropped the idea of adhering to one monetary target. That expanded into three or four different monetary targets. The relationships are now much looser. The Government now pay much less lip-service to monetarist ideas. Even the medium-term financial strategy has altered along the way. The right hon. Member for Heywood and Royton (Mr. Barnett) entertained us in one Finance Bill debate by telling us how it was possible to fudge the figures so as to arrive at the conclusions that the Government had achieved in that respect over the past few years.

As the Government have gradually abandoned the tenets of the faith, the position has become clearer in one way, but, unfortunately for the Government, more threadbare. It has become apparent that underneath all the new jargon there is something much more pessimistic and old-fashioned — a melange of old-fashioned, pre-war Tory nostrums and the grocer-shop-type of economics. The cries that we still hear from the Government, such as "We must live within our means", are still there, although the economic technical jargon has disappeared. Their ideas are old-fashioned and deeply irrelevant to the circumstances of today.

The Government, and the Chief Secretary in particular—he does this every six months, and this was a further effort—tell us that today we are seeing a recovery. I do not know how many times he has said this. He started with the idea that recovery was all around us and must follow as day follows night. That was the original idea. Since then we have marched into increasing gloom. Now he is trying the same operation again. It is known as talking up the economy.

I would be the first to agree that in this instance the operation may have a little more substance, a few more bricks for building on than on previous occasions. It is perhaps less of a mirage. There are a few encouraging pointers. But what do they add up to? As the hon. Member for Darlington (Mr. O'Brien) said in an admirable maiden speech, the only reason why the Chief Secretary can bring this slightly more optimistic picture to the House is that he starts from an incredibly low base. If one starts from a position where industrial production is 20 per cent. down on what it was when one came to office—the level that existed in the 1960s, with car production back to the level of the 1950s, and housing at the level it was in the 1940s—one can certainly claim that any increase is substantial.

How substantial is the increase? Shall we now see a substantial and steady increase in industrial production, lasting for two or three years, which will lead to higher investment, greater production, and ultimately a decline in the rising level of unemployment—perhaps an actual decline in unemployment? Or shall we see a small flicker of improvement, short-lived, perhaps just enough to enable the unemployment figures to flatten out and not increase for a short time, followed by a period of further and higher unemployment and further recession? At this stage it is not at all clear which of the two scenarios we shall see.

The danger has been underlined by the National Economic Development Council. It has said that we still have the underlying problems of import penetration and heavily reduced capacity as a result of bankruptcies of both good and bad companies. As a result, any small upturn is difficult to sustain. It could lead to greater import penetration. It could not benefit domestic industry all that much. We may get equilibrium, but it will be equilibrium at a lower and lower level of economic activity. That is the danger that underlies the Government's progressively deflationary approach.

Even if we have a reasonably sustained recovery, the Government may have to hit it on the head. They are worried that a recovery will reignite inflation. Their only defence against inflation has been deflation, and progressive deflation has reduced inflation. Once deflation stops the inflation will start again, because there is no defence—no incomes policy or anything of that nature—against reflation leading to inflation. They say that reflation must lead to inflation. That is true for this Government, but it is not necessarily true for an alternative economic policy. So the Government may find themselves in a trap. On the one hand, they may face progressively lower levels of activity, even although inflation may stay at a reasonable level, and, on the other hand, if things do really take off, they may have to nip that process in the bud because inflation will start again.

We must also look, as has been said in this debate, in particular by some Opposition Members, at the regional consequences of this policy. What is happening in my region—the region of the hon. Member for Darlington — is of extreme concern. The hon. Member for Motherwell and Wishaw (Dr. Bray) previously represented a constituency in the northern region and he will know, as reputable bodies are now pointing out, that the viability of the northern region will be in extreme doubt if we carry on with more and more of this sort of policy.

The northern region now has 18 per cent. unemployment. The experts believe that that will rise to 20 per cent. in the next year or two if the present policies are carried through and that many of our major industries will simply not exist. Insufficient new industry is being attracted to the northern region by pure market forces. They will go to the more affluent areas in the south, East Anglia or wherever. We face the prospect of a reasonably affluent south and a progressively impoverished midlands, north, Scotland and Wales. That will be borne out, I suspect, at the general election.

The Government's policies are fine for the city of London, where a great deal of money is being made. It is not uncommon for someone in the city of London to earn £250,000 a year. The idea that one can no longer obtain real wealth from earnings is no longer true for those who live in the city of London. They are all doing very well out of the Government. However, for industry in the provinces it is a wholly different story. That is a telling comment on the Government's performance.

The hon. Member for Winchester (Mr. Browne) spoke well about small businesses. The Chancellor and the Financial Secretary may recall that they received a submission in good time last December from the National Federation of Self Employed and Small Businesses Ltd. In a considered and costed lengthy paper, it made many cogent points. In a covering note to the Chancellor, Mr. Miller, the chairman of the VAT/Taxation committee, said: The present Government has placed great emphasis on assistance and start-up schemes for small businesses. Unfortunately, its notion of what is a small business is not what most people think of in that terminology. He points out that 80 per cent. of small businesses in Britain—rather over 1 million—have a turnover of less than £100,000 a year. That is what the National Federation of Self Employed and Small Businesses Ltd. is worried about.

Mr. Miller said: The many financial aids and schemes introduced in successive Budgets may be of great help to corporate bodies, but simply do not apply to much of this sector."— that is, the sector that the federation represents.

The £2,000 deduction in the calculation of stock relief, for example, removes in a stroke any help for many small businesses … Business start-up schemes, interest relief for investment in close companies, equity loar s and other similar schemes are undoubtedly of considerable benefit to some. On the whole, however, they do not help the people that this Federation represents. Interestingly, Mr. Miller goes on to argue for a variation of the scheme introduced by the Highlands and Islands Development Board for small grants to small companies. He says that it often requires no more than £1,000 to £5,000 to help a small entrepreneur to get his business off the ground. The philosophy of making grants available to small companies is outside the Government's dogma—as I have chosen to call it—and it is therefore not available.

I echo the words of the hon. Member for Winchester when he said that the Government's measures to help small businesses have not helped the real small businesses. They have been tied up with far too much red tape and have been far too complicated. Most small businesses have simply been passed by and there is no possibility of their making a significant contribution to an improvement in the economy. If the Government really want to know what to do about small businesses they should study what has happened in Italy, where there have been major and substantial changes. The lion. Member for Winchester talked about £4 billion as a change of some substance. Something of that kind should be done on a large scale so that people do not have to fill in endless forms before they qualify for grants. That is the way to approach the problem. Even on their own terms the Government have failed to measure up to what is necessary in that area.

Mr. Richard Wainwright

Does my hon. Friend agree that the arbitrary denial of important tax reliefs to small businesses, such as stock relief, in part derives from the Government's perverse determination to rob the Inland Revenue of staff in pursuance of the numbers game in the Civil Service? Therefore, the Inland Revenue, with some truth, is able to plead that it simply does not have the staff to administer reliefs below a certain arbitrary threshold.

Mr. Horam

Indeed, the Government are penny wise and pound foolish, because many of the schemes will regrettably require more bureaucrats to administer them. However, because of the Government's commitment to cut back at all costs, they cut back many sensible schemes. I know from my experience as a former Minister in the Department of Transport how often sensible road construction schemes are held back because there are too few people to supervise the schemes properly according to our democratic procedures.

Mr. John Townend (Bridlington)

Surely that is not the case with stock relief. The accountants and the Inland Revenue must still calculate the stock relief to see whether it is under £2,000. It is not done for the purpose of saving staff in the Inland Revenue.

Mr. Horam

No, often the Inland Revenue fixes a high threshold to a particular scheme in order to save effort and expense. It does that simply because it is under an instruction from the Government, at all costs, to cut back on the number of officials. It is a great pity that the Inland Revenue has to take that into account when trying to work otherwise sensible schemes.

The right hon. Member for Stepney and Poplar (Mr. Shore) successfully made the point about taxation, and I shall not labour it. There is no doubt that the Government were perfectly explicit about that before the last general election. However, the right hon. Gentleman did not give us what is perhaps the most telling quotation, which was made by the Prime Minister at her adoption meeting on 11 April 1979 when, in her pungent way — rather more pungently than the Chancellor has ever thought it proper to express himself—she said: Taxes must and taxes will come down. That was an explicit statement. However, from the answers that I have received to the questions that I and the hon. Member for Blackburn (Mr. Straw) have tabled, it is obvious that that has not happened. The Government have provided the statistics; they are not ours. As we know, one has to earn rather more than £29,567 a year to pay less in income tax and national insurance contributions. That is true for that particular combination of taxes.

The total tax burden has increased for the average family from about 38.5 to 40.5 per cent. since the Government took office. There is no doubt that the Government have completely failed to live up to their promises in that regard. Although they can wriggle around by making all sorts of comparisons, that fact is particularly important, because the Government put so much stress on the incentive effects of taxation. If they had not made so much of their promises before the general election, one could more readily have understood what has happened about taxation and national insurance. However, the Government have been hoist with their own petard. It is a particularly cruel one for a Conservative Government to face.

In his reply to the Budget debate the Chancellor, in one of his better speeches, laid great stress on his personal acquaintance with unemployment in his earlier days. He said that he had been familiar with it in south Wales and, having moved to Surrey, had found many people there who had no personal experience of unemployment and therefore could not understand it.

The Government should be made to live by their own words. Although the Budget does little about unemployment, which will continue to rise, something could have been done for the unemployed. They could have been given the long-term rate of supplementary benefit instead of the short-term rate. That would make a difference of 20 per cent. to the incomes of those unemployed for more than a year, of whom there are now more than one million. At £110 million the cost is small, but it would be a significant improvement for the people involved. It is certainly small beer compared with the amount of money given away by the Chancellor on mortgage reliefs and so on, which will benefit only those with larger houses in the south of England.

That is the test. The Government could have made a simple and relatively inexpensive improvement, but they chose not to do so although it was urged upon them by many pressure groups as well as political parties and would probably have been supported by many Conservative Members. The fact that the Government did not do that shows the sheer meanness of their approach. What has gone wrong with the Conservative party in the past four of five years, apart from their obsession with monetarist dogma, is that it has become a far more mean-spirited party than it was 10 or 15 years ago. That was certainly made clear to me on the doorsteps of Darlington and it will cost the Government dearly in my part of the world. They should pay attention to that charge, which is commonly levelled at them by ordinary people who, although they may applaud some of the Government's actions, cannot understand their total lack of concern for the people who have suffered the worst impact of their policy.

The right way to approach economic policy is to look at the facts clearly, without dogma, and to decide, on a practical, basis what can be done. There are clear signs and a growing consensus—not only in the House but outside in the CBI, the chambers of commerce and industry, the National Federation of Self Employed and Small Businesses Ltd. and so on—that there is an alternative. Unfortunately, it is not the Labour party's alternative, which is wildly inflationary and hopelessly impractical. Nevertheless, there is a clear alternative which attracts wide support, even from Conservatives. The Minister has only to read the devastating critique of his own philosophical and economic position in the book, "Britain Can Work", written by his right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) to see that members of his own party are aware that there is such an alternative. The only political party to advocate that clear alternative is the alliance. That is why I believe that we shall achieve a substantial increase on the number of votes recorded for the Liberal party alone at the last general election.

8.2 pm

Sir Julian Ridsdale (Harwich)

The hon. Member for Gateshead, West (Mr. Horam) referred to the article in the Daily Telegraph about small businesses in Italy. I believe that he was a Minister in the Labour Government who introduced the Employment Protection Act. The way to help small businesses more than anything else is to carry out some of the advice in that article and to extend exclusion from that Act to firms employing 20 people. That is a simple way to help small businesses far more than has been achieved so far.

I join in congratulating the hon. Member for Darlington (Mr. O'Brien) on his sincere and able maiden speech. It was far abler and more sincere than the contribution from the Labour Front Bench by his right hon. Friend the Member for Stepney and Poplar (Mr. Shore). The right hon. Gentleman attacked the Government without a word about the policies that he would advocate or any attempt to defend the Labour party's record in creating the inflation with which the Government have had to deal. It was a very weak speech indeed. To pursue the Labour party's policies would be disastrous not only for the country in general but for pensioners and lower wage earners in particular.

In view of the right hon. Gentleman's attack on the Government, I remind him that inflation is now at its lowest for 13 years. Interest rates have fallen by 5.5 percentage points from the clearing bank rate of 16 per cent. in late 1981. In 1982, despite a 3 per cent. drop in world trade, United Kingdom exports increased. Labour Members seem to have their heads firmly in the sand, as they take no account whatever of world conditions. The right hon. Member for Stepney and Poplar shakes his head. That simply shows the guilt that must be in his heart at not dealing with these matters. Since the Government came to power, the total official external debt has been almost halved— from $ 22 billion in 1979 to $ 12 billion today. The price of Socialism was a debt of $ 22 billion. Moreover, by 1982 the balance of payments on current account was in surplus by £ 4 billion.

Against that background, I welcome the Finance Bill, especially as it takes 1.5 million people out of tax altogether. Moreover, there are good prospects for still lower inflation if common sense prevails in wage bargaining. With the help given to industry by the Budget, there are already signs of increasing exports and activity in the port of Harwich and the Navy yard in my constituency. I certainly welcome the idea of free ports and I hope that Harwich will be considered. In this context, one must consider the back-up provided by an enterprise zone near a free port. Otherwise, I fear that a free port area alone may be considered too small for the kind of zone that the Government have in mind.

I wish to raise a number of matters with the Chancellor in relation to the Bill. With regard to the clauses to help employment, I am delighted with the enterprise allowance. With the community programme and the youth training programme, this will be a considerable help in tackling the problem of the long-term unemployed. For the same reason, I welcome the announcement today that the armed services, too, will help in the training of the long-term unemployed which, for young people under 26, means six months unemployment.

Will the Chancellor assure the House that these policies are not temporary but will continue and will be improved upon as we move into the new technological age that is affecting employment prospects throughout the world? We have not so far considered in depth today the fact that we must keep our industry competitive in the new technological age and that in so doing we must devise ways to take up in the service industries the employment displaced by the increased use of technology and machines in manufacturing industry. In the Government's attempts to help the long-term unemployed through the community programme and the youth training programme, I detect, far from a monetarist approach, a pragmatic approach to the serious problem confronting not only this country but other countries in this new technological age. The measures that the Government have already taken have brought more than 500 jobs to my constituency since October.

To further this aim I urge the Chancellor to look again at the rules governing sea defence works. It is highly paradoxical that community programme projects should be improving the inland environment and amenities in my constituency when we are unable to tackle the problems of sea defences in a vital area of considerable environmental importance. We must be flexible.

Mr. Straw

That means public expenditure.

Sir Julian Ridsdale

Yes, public expenditure. One cannot be dogmatic, especially when we are faced with present circumstances. I am asking not for vast Government expenditure, but for a reasonable amount that will not increase industry's costs but will enable people to be employed in service industries to reduce our present high level of unemployment. Surely that cannot be laughed at by Opposition Members. I have sent my right hon. and learned Friend the Chancellor details of some of the paradoxical problems that arise out of the community programme in my constituency.

Clacton-on-Sea, which is in my constituency, has the second largest rate of unemployment in East Anglia. It was always high, even under a Labour Government.

Mr. Straw

How high?

Sir Julian Ridsdale

I wish that the hon. Gentleman would not continually interrupt me from a sedentary position. If he wishes to do so, he should interrupt in a parliamentary and courteous way.

Mr. Straw

I meant no offence to the hon. Gentleman, and I am grateful to him for the opportunity to intervene. As unemployment in his constituency has risen so dramatically since 1979, I should be glad to know whether he warned the electorate that that would be a consequence of Conservative policies or whether, like many Conservative candidates who expounded the Tory manifesto in 1979, he promised more jobs and lower taxation.

Sir Julian Ridsdale

The hon. Gentleman cannot have been listening to what I said. I was saying that unemployment in Clacton-on-Sea, which is the second highest in East Anglia, was nearly as high under a Labour Government.

Mr. Foulkes

It is higher now.

Sir Julian Ridsdale

It is only proportionally higher now and not nearly as high as the hon. Member for Blackburn (Mr. Straw) suggests.

I am trying to reach a constructive solution. Unemployment results from there being many seasonal workers and the high age of the working population. Many are over 60. One way in which to solve the problem is to lower the retirement age voluntarily. The difficulty with that is the consequent enormous burden on Government expenditure. I appreciate that difficulty, but I hope that the Treasury will advance some of its ideas about people aged over 62 and say whether it is possible voluntarily to lower the retirement age. Unless a person is a specialist, if he is in his 60s, he finds it extremely difficult to find reasonable employment, especially now, once he has become unemployed.

Mr. Foulkes

Could the hon. Gentleman reveal his age and say whether he believes in early retirement only for other people?

Sir Julian Ridsdale

I am coming up to 68.

Mr. Straw

Older than the Labour party.

Sir Julian Ridsdale

Only just, but young enough to become the President of the United States of America. The hon. Member for South Ayrshire (Mr. Foulkes) may find that, when he reaches my age, like me, he will enjoy doing his job as long as he is in good health. If one has the necessary experience and specialist knowledge, one hopes to be able to continue to enjoy one's position.

Mr. Foulkes

I am not suggesting that the hon. Gentleman should not be here— far from it. I introduced the Age Discrimination Bill earlier this week. My point is that he seems quite happy to blackmail other people into retirement because of the high level of unemployment that the Government have created.

Sir Julian Ridsdale

Not at all. I am suggesting that retirement should be voluntary. I assure the hon. Gentleman that there are unemployed people aged over 60 in my constituency who are spending their savings because they cannot get retirement pension. It is not an issue that should be dealt with lightly. I especially wanted to draw the Government's attention to the over-60s. I knew that in doing so I might be open to criticism such as the hon. Gentleman has made. My skin is thick and I am quite willing to face up to that criticism. Inflation has hit that age group hard. I hope that the Chancellor will examine some measures through which he can help them.

I also welcome the provision which helps widows through the widow's bereavement allowance. Will the Chancellor re-examine the£30 death grant? We should examine it closely. It is not costly in terms of Government expenditure, but people with little money feel deeply about it.

I am sure that the time has come to do something for people who live alone, especially when they pay high water rates. I see no reason for there not being a water rate rebate. That would be an easy way in which to help a deserving section of the community. As we have not been able to carry out the rate reform which I had hoped for, because we have to pay out a vast amount of money in unemployment benefit, such a rebate would be one way in which to help a deserving part of the community.

On the whole, I am satisfied with what the Government are doing. I know that they are giving every incentive for industry to make more wealth. When it does so, I am sure that the next stage will be to ensure that help goes to those people who need it most. I have advocated that today and that is what the Government have been doing. I am sure that the country will understand that, because the country realises the real difficulties which many parts of the world face.

I am optimistic enough to believe that world trade will pick up this year. Things are improving. I hope that the gloomy period that we have recently been going through will not continue and that we shall be able to tackle the problems of the technical age realistically and humanely.

8.18 pm

Mr. David Winnick (Walsall, North)

I am familiar with some of the constituency points that the hon. Member for Harwich (Sir J. Ridsdale) made because many years ago, and certainly before he was 68, I contested the seat that he represents.

I pay tribute to my hon. Friend the Member for Darlington (Mr. O'Brien) who made a distinguished maiden speech. I was especially pleased with the tributes that he paid to his predecessor, Ted Fletcher. Ted Fletcher and I were in the same union— APEX— for which he worked as an organiser and area secretary before being elected to the House. He was a dedicated Socialist and trade unionist and never changed his views as a result of coming here. No one expected that he would. He was loyal to the cause that he served when he first entered the working-class movement. It was a privilege to work with Ted Fletcher both in the union and in the parliamentary Labour party.

During debates on Budgets and Finance Bills we are used to hearing about economic recovery, and we heard an example from the Chief Secretary today. It happens every year, but in practice the economy gets worse and unemployment continues to increase. There are no signs that unemployment will decrease as a result of the Budget. Indeed, the signs are to the contrary. A brief issued by the Association of British Chambers of Commerce states: The West Midlands' survey, covering the area which has seen the most rapid rise in unemployment over the past four years, shows that the position in home deliveries and orders is worse than in March 1982, and the position in export deliveries and orders is significantly worse than in March 1982. In a written reply that I received after the Budget statement I was informed that in the four years during which the Government have been in office there has been an increase of 356 per cent. in the number of people in the west midlands who have been unemployed for 12 months or more. That is a serious illustration of unemployment. In the Walsall travel-to-work area it is even worse, with an increase during the past four years of 439 per cent. That is a sign of how the black country has suffered as a result of Government economic policies.

Hon. Members who talk about the sacrifices that must be made should understand what unemployment means to many people, including the young. A written answer that I also received showed that in April 1979 there were 18,300 unemployed people aged under 20 in the west midlands, whereas the latest figure is 65,000. That shows how unemployment has hit youngsters, and we know well how it has hit other working people.

I am pleased that there will be another people's march for jobs similar to that of two years ago. It will begin in Glasgow on 23 April and will go through parts of the black country— I hope that it will come to my constituency— then to Birmingham and then on to London. I have tabled a question to the Prime Minister asking her whether she will receive a deputation from the people's march for jobs. She refused to do so two years ago, and instead the then Secretary of State for Employment received the deputation. We should demonstrate the anxiety of Labour Members about unemployment, and the fact that many youngsters will be marching through Britain will be a sign of the nationwide anxiety about joblessness.

Since the Budget statement we have been informed that a Minister for the west midlands has been appointed. I regard that as a pre-election gimmick. I understand the electoral anxiety of leading members of the Government about what has happened in the west midlands since they came to office, but does anyone seriously believe that taking an Under-Secretary of State from the Department of Industry and telling him, "You must stay in the west midlands for one and a half days each week", will resolve any of our problems, to the extent that people in the west midlands can once again earn their living? The solution must come from other sources in the Government. It is a matter of Treasury and Cabinet policy, and it is an insult to the people of the west midlands to say, "Here is a Minister who will solve your problems." We know that he will have no power to do so.

A major source of concern is the return of the poverty and near poverty that arise from mass unemployment. The economic development unit of west midlands county council has sent to hon. Members from the region a report which shows that nearly one in three of the population in the county area lives in poverty or near poverty. I receive letters on this subject, not always from my constituents, following remarks that I have made in the House and outside. Most of the letters are from middle-aged people who have been made redundant. They tell me how difficult it is to keep their families on a restricted income such as unemployment benefit and supplementary benefit when they have no capital. Moreover, they know that their chances of getting a job again are remote. I sometimes wonder whether if Conservative Members had to go through such a humiliating experience with no capital behind them they would be so complacent about the Government's economic policy. They would then no doubt be as worried and angry as Labour Members, and would insist on a change in policy.

Ministers are understandably sensitive about the charges made again today by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) about the increase in taxes and national insurance. We must understand that, despite the promise made at the general election that income tax would be cut at all levels, the vast majority of people now pay a greater percentage of their earnings in income tax and national insurance than they did before the Government took office. My hon. Friend the Member for Blackburn (Mr. Straw) should be congratulated on eliciting the figures from the Government by tabling parliamentary questions. One must earn more than £29,000 a year before one receives a real benefit and pays less in income tax and national insurance contributions than one did before 1979.

I do not believe, nor do my hon. Friends, that tax cutting should be our motto. I have never advocated that policy. I believe that people on low incomes should receive as much benefit as possible from any tax reductions. The Government should ensure that the benefits from reducing income tax should go to those most in need. The opposite has happened under this Government. People with very substantial incomes have benefited most. Those who need it less have been well rewarded. If it is argued that they have received tax cuts to provide incentives, we have not had much illustration of any incentive working during the past four years. The opposite has prevailed.

Not just direct taxation but indirect taxation such as VAT has been increased. There have been fuel cost increases, and exorbitant rent increases for council tenants. They are a heavy burden which ordinary people have had to face during the past four years.

We need a change of policy. Mr. Samuel Brittan, writing in the Financial Times today, warns the Government that they should be careful about calling a June election. He states: It would look like cut and run while inflation was at a temporary low; … My guess is that such a gambit would be rumbled by the electorate. Of course the name Brittan is rather familiar.

Although I know that there is mounting pressure on the Prime Minister from her side to call a June election, the right hon. Lady has enough political sense to realise what has happened previously when elections have been called early. The Opposition feel that the sooner there is an election the better. Conservative Members are afraid that the position will become worse. Whereas they could now say that inflation has been cut— I am sure that they will not remind the electorate that inflation increased a great deal during their first couple of years in office although we shall— and claim a victory, will it be such a victory in October or next year? It is likely that both unemployment and inflation will increase. I understand the feelings of Conservative Members who represent marginal seats and wonder whether they will be re-elected.

There have been a number of attacks on the policies that we have outlined in our party document. Conservative Members want to get away from an examination of what the Government have or have not achieved since they have been in office and turn attention to our programme. There will be no economic recovery until there has been a drastic change of policy. It is essential to have an injection of demand in the economy if there is to be any reversal of mass unemployment. There should be a policy of reflation. There will be no recovery while we continue to have the policies pursued by the Chancellor since he took office. Many of our constituents who are now working will find themselves joining the dole queue.

Britain needs a change of policy and a change of Government. As soon as the electorate has the chance, the Labour party will return to office and start implementing the policies that it has already outlined.

8.33 pm

Sir Brandon Rhys Williams (Kensington)

I should like to join my colleagues who have congratulated the hon. Member for Darlington (Mr. O'Brien) on his maiden speech. It was a most attractive contribution. Few of us who heard it could look back to our maiden speeches and feel that we did better. It was a remarkable and interesting event.

I do not want to deal with the economic judgment of the Budget as expressed in the Finance Bill. Every clause is a step in the right direction, but I am somewhat critical of the Finance Bill in the form in which it comes be fore the House. The mechanism of our tax system leaves a great deal to be desired. The 164 pages of the Bill contain no major measure of administrative reform.

If we are going to look at the tax system, it is reasonable to ask at least four questions. Is it just? Is it well constructed in terms of its impact on the economic process? Is it comprehensible? Is it easy to administer? The present taxation system falls down hopelessly on every one of those counts.

Is the tax system just? The House should be anxious about the fact that there has been a decided loss of good will on the part of the public towards the Inland Revenue in recent years. That is not just due to the growing complexity of the tax system, but it is because people have the feeling that justice cannot always be seen to have been done. There is a case about which I have the misfortune to know personally, and which I intend to take up with the Chancellor, but I shall deal with a matter of major importance before I pass on from this point. That is the tax on so-called capital gains.

In recent days the Stock Exchange has been coming to the highest point recorded in numerical terms, but after compensation has been allowed for changes in the value of money it is substantially below the previous peaks of a few years ago; yet if investors dispose of their shares, they are obliged to pay capital gains tax as if a real gain had accrued. Plainly, that is not justice. It is destroying our capital assets and ought urgently to be reformed.

Is our tax system well constructed in relation to the health of the economy? I have often put the stone age question: in any year, how much can we afford to eat and how much do we have to plant? I do not think that the British economy has got the balance right between what we consume and what we put aside in the form of savings for genuine investment. Even the investment that we make tends to go into assets such as houses which, after they are paid for, do not contribute significantly to the further growth of the wealth in the economy.

This year's Budget does not give adequate encouragement to savings and the creation of wealth. That is a difficult matter, as public sentiment comes into it and many factors affecting the economic process are probably outside the Chancellor's control. However, it is not right that we should place as much emphasis as we do in our tax system on burdens that discourage investment and the creation of wealth— for example, corporation tax. That is a superfluous tax on companies. The money that is generated in corporate activity is taxed if it goes out in wages and dividends. There is no justification for corporation tax in addition. I hope that in coming years we shall work towards the abolition of corporation tax, because it is doing much more harm than good and is creating many distortions in the economy that ought to be avoided.

I have already mentioned capital gains tax. I also do not like the investment income surcharge. It seems to extend from the politics of envy that we should put a higher rate of tax on the income that is derived from savings than that derived from earnings. Savings are what make earnings possible. If we place a higher rate of tax on savings, that shows that our philosophy on future capital investment has a flaw in it.

I also emphasise the damage that is done by the employers' national insurance surcharge. I know that my right hon. and learned Friend has made gallant attempts to reduce that high-yielding tax. He made a further significant step towards doing so this year, but it is wrong to place the burden on employers. If necessary, it ought to be made a transparent part of the income tax system, but in the present form it is doing nothing but harm.

Another aspect of the construction of the tax system and the way the burden falls relates to the incentive to work. My hon. Friend the Member for Norfolk, North (Mr. Howell) has made a study of the matter, and the whole House appreciates the work he has done on the subject, which has always been a particular interest of mine. There are two ways of approaching the problem of withdrawing benefit from people so that their incomes may rise without the loss of incentive to work. One can solve it through a test of means, but the difficulties of making clear water between what people get when they are out of work and what they get when they are in full-time work are well known. That approach will not yield much more fruit. We have to rely on the taxation of incomes as they rise, leaving the basic income guarantee for every citizen intact. The basic income guarantee could be introduced without adding significantly to total spending power. It is an administrative reform which is long overdue and has to come.

As to whether the tax system is comprehensible, scarcely a page of the Finance Bill and very few individual clauses could be understood by the average taxpayer or even by a competent business man without reference to a tax specialist. That is not a happy state of affairs. The system ought to be transparent and the impact of tax ought to be readily understood, easily calculated and just.

That brings me to my last question: is the tax system easy to administer? It requires tens and tens of thousands of people in the public sector and tens and tens of thousands of people in the private sector to administer the present system. As a result of the reductions in income tax, I understand that 1.5 million fewer people will come into the income tax bracket in the current year. That is a major step forward. Without such a reform, probably the pay-as-you-earn system would have collapsed or would have come near to collapse this year.

The whole system of the national insurance contribution is hopelessly anomalous and without a moral basis. Probably it never had a strict arithmetical foundation, but now that it is a matter of earnings-related contributions financing flat rate benefits there is no principle left to which one could point. It would be better to amalgamate national insurance contributions wholly into income tax and bury them altogether.

We are still making at least 25 million manual entries every week as the back-up system for PAYE. Although the computerisation on the distant horizon of PAYE has been put in hand it will not be ready for some years. When it is brought in, it will simply perpetuate a system which was obsolete even when it was introduced during the war.

As for company taxation, this has become a special profession, with highly-paid people giving the whole of their expert professional time to advising companies how to distort their affairs to minimise their tax burden. That is not a healthy activity for companies. Company taxation ought to be drastically reformed.

In the private sector as well as in the public sector large staffs of expert people are doing a conscientious job, yet the whole lot of them are not producing even £1 of real wealth in the course of a whole year. They are necessary just to carry on our archaic income tax and company taxation system.

As we consider this year's Finance Bill, the House ought not to overlook the need for wholesale modernisation of the tax system. It is difficult to ask my right hon.. and hon. Friends to tackle such a long overdue reform as well as carrying on the Government at a difficult economic time. Nevertheless, a major contribution would be made to the economy if the tax system were simple, transparent and fundamentally just and acceptable.

Probably through no fault of its own, the power of the Inland Revenue has grown, is growing and ought to be diminished. The House should lose no opportunity to press for a wholesale reform of the many and varied aspects of the redistribution of income and of the personal, capital and corporate taxation systems.

8.45 pm

Mr. George Foulkes (South Ayrshire)

I shall not take up many of the remarks of the hon. Member for Kensington (Sir B. Rhys Williams) except to underline and echo the congratulations that he offered my hon. Friend the Member for Darlington (Mr. O'Brien) on his outstanding maiden speech.

It is illustrative that the hon. Member for Kensington is able to indulge in the relative luxury of talking about the administration of the tax system when those of us outwith the relatively privileged and prosperous south-east of the United Kingdom have to talk about the havoc that the Government's policy is wreaking on our areas.

It is commonplace to talk about the two nations, the relatively privileged south-east and the rest of the country. There is a clear division between Ministers' rhetoric and reality outside the Chamber. I sit in my place from Monday to Thursday and I hear the Chief Secretary to the Treasury, the Chancellor of the Exchequer and the Prime Minister talking about upturns and recoveries and using many other marvellous terms. On Thursday nights I take the sleeper train to return to Scotland and there I face the reality of closures and redundancies. It seems that Ministers live in a different world.

In the past month there has been a discernible erosion and attrition of jobs in my area. We have seen the closure of Highouse colliery. The threatened closure of Sorn colliery was announced today. There are to be 180 redundancies at the Ayr stamp works. There are to be another 47 redundancies at Girvan. At the St. Ivel creamery there will be another 50. The list goes on and on. That is the reality in Britain that has to be contrasted with Ministers' rhetoric.

I am glad that my right hon. and hon. Friends have drawn attention to the way in which poorer people are being taxed substantially more in real terms than the well off. I wish to emphasise the division between council house tenants and those who own their own houses. As council house tenants tend to be the least well off, they are doubly disadvantaged by the tax system and the way in which rents are being forced upwards. House owners have had the advantage of a reduction in mortgage rates.

The Chief Secretary referred to dogs that had not barked. I wish to say a kindly word about the proposed setting up of free ports. I am in favour of the principle, although I am not in favour of what I understand to be the the exact nature of the Government's proposal. Along with my hon. Friends the Members for Kilmarnock (Mr. McKelvey) and for Central Ayrshire (Mr. Lambie) and the hon. Member for Bute and North Ayrshire (Mr. Corrie), I have been suggesting the setting up of a free port at Prestwick. I and my colleagues were suggesting that that should be done long before it was suggested elsewhere and the suggestion was taken up by the Treasury. We had great difficulty in persuading Customs and Excise and the Inland Revenue that it was a good idea. I am still worried about potential sabotage within. Customs and Excise and the Inland Revenue as those bodies formulate the guidelines. I hope that we shall not witness any sabotage. I hope also that the regulations will appear soon and that the Government will reconsider the non-involvement of public money. It is important that the public sector should be involved in the establishment of free ports.

When a Labour Government take office after the next general election they will want a system which they find relatively acceptable. I underline the case for a free port at Prestwick. It is North America's gateway to the north of England as well as Scotland and most of our potential development will come from North America. That is where the extra business lies. There is a large industrial estate at Prestwick. There is a proven demand in the area. We want these free ports to channel in new work and new employment, not just to give advantages to those currently using airports or seaports, as is the case in Aberdeen. The oil explorers and the oil companies want to get an extra advantage for the business that they are already doing, but that is not the purpose of free ports. The purpose is to create new business.

The other dog that did not bark—it will bark in the future, but it has not barked yet—is the clamp-down on tax dodging. I have raised this matter again and again, year after year, and I hope to raise it for many more years. I am sure that when we get a Labour Government we will see some clamp-down on tax dodgers — particularly those who use the havens of the Channel Islands and the Isle of Man for tax dodging. The Government keep saying that they are going to do something, but every time we get any suggestion it is delayed or it is a neutered as well as a toothless dog that we see in this area.

Perhaps we ought not to be surprised at that, because when we get the revelation that the Secretary of State for Trade has a residence on the Isle of Man and uses that tax haven to go away for what he describes as "privileged anonymity" we can see the kind of interest that there is on the Government Benches and in another place in this kind of privileged anonymity and tax haven. I wonder whether there are others, apart from the Secretary of State for Trade, in this situation.

There are other dogs that did not bark, such as VAT relief for charities. Government Members signed an early-day motion, but we did not see much of that. The charities exploded the myth put forward by the Chancellor of the Exchequer that this would be difficult to administer. When they were giving great sums of money away, it is a pity that they did not give some to the charities.

The Chief Secretary said that the widow's bereavement allowance change was welcomed, and of course it was by the association of widows, but how much more would it have welcomed an increase in the widow's tax allowance, which is what it has been arguing for. It would have given widows a substantial benefit and improved their tax position, which is the principal aim of the association of widows. That is a dog that did not bark, and such an increase would have given a great deal of very welcome help to many widows.

Finally, the Chief Secretary said his priority had been to reduce the tax burden on industry, but it has happened at the expense of many individuals. It has harmed many individuals. We have not seen private industry raking advantage of all the incentives that it has been given over the last few years. What seems to me to be happening —and perhaps my hon. Friends who have more experience of this than I have will confirm this—is that, because of the abolition of exchange controls, much of the capital which these industries get and might otherwise employ in the United Kingdom goes overseas. That could be dealt with by the reintroduction of exchange controls and by the kind of planning agreement that we talk about in "The New Hope for Britain", which will make sure that private industries that get money use it in the United Kingdom and do not divert other moneys out of the United Kingdom.

The Finance Bill and the Budget hold out very little hope for the people of Scotland and, as the hon. Member for Down, North (Mr. Kilfedder) said, of Northern Ireland. The only hope that we have is in "The New Hope for Britain" — the document published by the Labour party—and in the return of a Labour Government. We in Scotland will do our bit to ensure the return of a Labour Government at the next election and I hope and expect that my colleagues south of the border will do so as well.

8.54 pm

Mr. John Townend (Bridlington)

There is much that is good in this Finance Bill, but time will not allow me to go into all the things that I support. However, I should like to mention one important omission from the Bill, which I would imagine affects all hon. Members who have constituencies in which the tourist industry is important. I and several of my hon. Friends — and I trust Opposition Members— were hoping, indeed expecting, that the Bill would rectify an injustice to operators of holiday flats who, as a result of a recent court decision, have been notified by the Inland Revenue that the income from their businesses, which were formerly assessed under schedule D, case 1, as trade, would now cease to be treated as earned income and would be assessed under case 6 as unearned income from property. That decision will have significant implications for income tax and will make such operators liable for investment income surcharge. In addition, they will lose the retirement relief under capital gains tax and rollover relief.

Anyone who has any knowledge of operating short-term holiday flats will appreciate that it is nonsense to treat the income as unearned. An awful lot of work is involved, such as secretarial work in taking the bookings, cleaning between tenancies, cleaning mid-week at additional cost where required, organising the laundering of bed linen, checking in the old and the new tenants, dealing with breakages and replacing furniture. In addition, many operators organise additional services for their visitors, such as taxi bookings, personal laundry arrangements and the delivery of milk.

Furthermore, these businesses are treated as such by many public authorities and other bodies. For example, in my area they can operate only if they comply with the standards laid down by the local district council and have a certificate of establishment as a holiday flat business. They pay the commerical rate for gas, electricity and the services of British Telecom. Within the past few years, the district council has been to court to establish that operators should pay commercial rates for refuse rather than domestic rates. They also have to take fire precautions over and above what would be required for a normal domestic property.

One point that I should like to put most strongly to the Government is that many of the owners are in their present predicament because they have followed the Conservative philosophy, propagated so strongly by the Treasury team on our Front Bench, of responding to market forces. Many of those involved operated small hotels and boarding houses, but the demand for accommodation in many British resorts, which faced competition from the sunny continent, began to be for more self-catering facilities. Therefore, they responded to that market demand and are being penalised for having done so. Some of these people have already suffered. They have been declared redundant and have used their redundancy money to acquire such businesses.

It is up to the Government now, without delay, to set this court case aside by adding a new clause to the Finance Bill. I hope that they will do so in Committee to right that wrong. I am particularly hopeful, as the Chief Secretary my right hon. and learned Friend the Member for Cleveland and Whitby (Mr. Brittan) and his constituents suffer from this injustice just as much as we do. I am sure that his pending transfer to the rural delights of Richmond will not in any way affect his decision on this case.

I listened carefully to the speech made by the right hon. Member for Stepney and Poplar (Mr. Shore). It struck a chord with me when he said that this country was suffering from too high a rate of taxation. I entirely agree. However, if we are to reduce taxation, we need to reduce public expenditure. If I have any criticism of the Government, it is that they have not been as successful in achieving that aim as I had hoped. However, I have some sympathy, because they are continually pressed from all quarters, and particularly by the Opposition, to increase expenditure. The right hon. Member for Stepney and Poplar advocates a massive increase in expenditure, yet he advocates reduced taxation. Where is the money to come from?

The right hon. Gentleman says that he will borrow that money, but everyone knows that borrowing the money will increase interest rates. But, at the same time, the right hon. Gentleman says that he will bring interest rates down. The only alternative is to print money, and that means massive inflation. The whole policy does not hang together: Opposition Members know it, we know it and the electorate knows it. Without any doubt, the greatest asset' to the Conservative party at the next election is the programme that has been put forward by the Opposition, because no one believes it.

9 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The hon. Member for Bridlington (Mr. Townend) did better to bring to the attention of the House a particular constituency case than his more general observations about the financial situation. I do not propose to go into the details of our programme as it is available for hon. Members to read, but it would be of advantage to the hon. Gentleman if he perused it with a little more care and interest and gained some understanding of it. The hon. Gentleman might then realise that the Government whom he is happy to support in most of his observations are not quite so worthy of the uncritical admiration that he shows.

My hon. Friend the Member for Darlington (Mr. O'Brien) made an outstanding maiden speech to which we listened not only with interest but with great enjoyment. He mentioned his friend, Ted Fletcher, who represented Darlington for so many years and whom we knew very well. My hon. Friend explained the problems of deflation in his constituency, knowing as he does and has done for so many years the matters that count in his constituency. He drew attention to what some Opposition Members but few Conservative Members have mentioned throughout the debate—the great gulf that exists between the part of the country where the House of Commons is situated and those parts of the country to which some hon. Members must journey each weekend. My hon. Friend evinced moral outrage at what he saw each week—people suffering from the effects of the Government's policies. He castigated those who thought that good times were just around the corner. It was an excellent beginning to his contributions in the House of which I hope we shall hear many more. We look forward to his contributing as frequently as he is able during his parliamentary career.

The Treasury and Civil Service Committee recently published two documents. In the absence of special debates on those reports, it is essential that we should make full use of them in our economic and financial debates. The Committee's report on the 1983 Budget is particularly relevant to our debate but the Committee has also produced a report recently on international monetary arrangements, to which hon. Members have referred. It is valuable to have a Committee which examines issues, takes evidence and responsibly brings to the attention of the House of Commons those matters that it considers to be of importance both to it, examining the subject with an expert's eye, and to the House as a whole, which then uses the comments and aspects of economic and financial matters that are brought to our attention.

In his Budget statement, the Chancellor of the Exchequer said: It is our purpose as well to secure a sustainable growth in job opportunities."—[Official Report, 15 March 1983; Vol. 39, c. 138.] That is a splendid aspiration but the crucial question we must ask is "What is he doing about it?" That may be the Chancellor's purpose, his hope and his aspiration but, as he almost concedes, he has not the slightest intention of undertaking any action. Paragraph 2.01 of the Red Bookstates: The objective over the medium term is to continue reducing inflation, and to secure a lasting improvement in the performance of the UK economy, so providing the foundations for sustainable growth in output and employment. As we heard in the debate on 17 March, the right hon. Member for Chesham and Amersham (Sir I. Gilmour) said: After four years we are still providing the foundations. It is just as well that the Chancellor is not a builder. If he were, his buildings would never appear above ground level. He would always be laying foundations. Even the foundations are not all that solid, because 3 million or 4 million unemployed people and a large loss of manufacturing capacity are not the best foundations upon which to build." — [Official Report, 17 March 1983; Vol. 39, c. 373.] There is insufficient demand in the economy. It is quite wrong to point, as the Prime Minister sometimes does, to our imports as evidence that demand is sufficient. Even if our imports were replaced by our production, we must remember that the level of imports is directly related to the still over-valued exchange rate. Because of that, imports are still too cheap and any demand goes disproportionately into imported goods.

We must remember that six years ago we had a surplus on trade in manufactured goods of about £5 billion a year. Today, we have a deficit of £500 million a year. Even if the £5 billion extra output was miraculously restored, the extra demand in the economy — although much improved— would not be enough to bring a large and sufficient reduction in unemployment. That is the scale of the problem.

The opening comments of a Chancellor of the Exchequer in his Budget statements frequently include some sort of think piece in which he indulges himself while everyone sits and waits for the tax changes. This Chancellor is no exception. In his Budget statement there were a few matters relating to the relationship between inflation and unemployment. A typical example was: Progress on inflation is crucial to the prospects of higher output and lower unemployment." — [Official Report, 15 March 1983; Vol. 39, c. 138.] We must ask ourselves what is the connection between the progress of inflation and lower unemployment? The Chancellor appears to believe in some magical link between them. But we know that, as inflation has come down, unemployment has risen. We now know that inflation is due to rise again. The Chancellor admits it and the Treasury and Civil Service Select Committee documents it. What, then, happens to unemployment? If the Chancellor is passively waiting for low inflation to reduce unemployment, the magical moment has passed. The low point in inflation has passed. The conjuring trick has gone wrong and he is left looking like Tommy Cooper with another disaster and a string of inadequate excuses.

The problem for the Government is that we are seeing a normal growth of productivity, about 2 to 3 per cent. —the Red Book shows that—which is higher than the total improvement in output in the economy. On that basis, unemployment rises. The question is, what are the conditions that enable output to catch up with the gains in normal productivity? Even when that is achieved, and productivity gains match output, all that will have happened is that the present level of unemployment will have been stabilised at the highest level.

But there is not real stability in 3.5 million unemployed. We can maintain an economy that hands out £ 15 billion a year to people who do nothing only because the payment is made in oil money. The cheque for such economic nonsense is drawn on the North sea and it is that, and only that, which enables the Government to maintain their current economic policies.

We know, because the 40 sectoral committees of the NEDC tell us, that the improvement in unemployment will not occur. When we start quoting experts at each other, we must remember that the 40 sectoral working parties of NEDC are not politicians playing at being part-time industrialists. These are the people with a knowledge of their industries who come together in large numbers to discuss the state of their industry. They know it better than most of the people in industry and certainly better than most of the people in the House of Commons. Their report ties up with much that we know.

In Tameside a couple of weeks ago, 100 clerical jobs were advertised and 5,600 people applied. What sort of economy is this where the hopes of young people will be dashed so often, and with such large numbers and in such large proportions? We know that, face to face with failure, the practice of those who are unsuccessful is to search for signs of success wherever it can be found and in whatever limited form it might appear. It is the clutching of the straw by the drowning man, the wishful thinking of the profligate, the dreams of the failed or the belief of the Government that the destruction of our industry is offset by the new companies that they claim to have fostered.

What is the basis of this claim? What energies have this Government released that were not there before? One thing is clear—many of the firms that have now closed have been responsible for sustaining entire communities and many of them have had a continuing record of success that has been brought to an end by the economy being operated by the Government.

The report of the Treasury and Civil Service Select Committee, dealing with the 1983 Budget, says in paragraph 45, when talking about the small businesses and their encouragement: In formulating their policies, however, we feel that the Government should not ignore the position of medium and large businesses, which are the most important providers of jobs in the economy. The Government should take greater note of that, especially when we hear the closures set out in some detail by my hon. Friend the Member for South Ayrshire (Mr. Foulkes).

Let us examine a little more closely the Government's benefits to small firms. They are useful, but limited. In the main, they are the complex tax arrangements that benefit the fat firms and the accountants who advise them. What do all the proposals and the measures set out in the slabbed wording of our Finance Bills do for the young companies? How important is it to them that corporation tax has been reduced under this Government from 40 per cent. to 38 per cent., while the demand for their products has savagely declined? Small young companies need, first, a market for their goods and, secondly, cheap money to be able to expand. All the efforts of Government will not compensate for this.

The start-up scheme, the complex loans, the form filling and all the cornucopia of doubtful and indigestible fruit poured out by the Chancellor will not answer the basic questions that all new firms need to answer. If they invest their money, will they be able to sell their goods or services? The best opportunity that they have to sell their goods is a buoyant economy. Whatever else the Chancellor may do, he will not be able to compensate for this. The few benefits that he has provided for the small companies are not worth as much as the damage that he has done to them, still less the devastation that he has wreaked on the great industries in our economy. Everything that the Government have done for small business is not worth as much as a percentage point or two off the interest rates and a little extra demand. All that the Chancellor can have claimed to achieve is to have watered the odd sapling while great oaks go crashing to the ground.

The Chinese leader Deng Xiaoping, in a comment of great modesty, once said that his achievements had been 60 per cent. good and 40 per cent. mistaken. The proportion of the Government's mistakes is much higher than that. If one walks the streets of Manchester, Darlington or Glasgow, one sees little good resulting from the efforts of the Government. Their mistakes are clear and prominent. They started right from the beginning. They doubled value added tax so as to reduce the cost of living; they reduced the investment income surcharge so that people on unearned income would work harder; they wrecked the capital transfer tax to encourage the wealthy to leave more prosperous heirs; and they reduced the highest rates of income tax to bring about an explosion of entrepreneurial talent.

All this tax legislation was born in the idea that, in the words of the Prime Minister, the entrepreneurs were "absolutely marvellous". She showered them with all the advantages that a series of five Finance Bills could provide. The hope — no, the expectation, even the certainty—was that, freed from the manacles of tax, we would build a new Hong Kong in England's green and pleasant land.

These ideas are not new. They are more extreme, but they are not new. In 1962 the rates of surtax were drastically reduced. In 1972 the unified tax system reduced very substantially the levels of tax on the highest incomes, and the attempt has been made again in the current sequence of Finance Bills.

We have had 20 years in which to study the results of those actions. We can challenge anyone to show the benefits, whether in production, wealth creation, or in advantage to the economy as a whole, which can be said to have derived from the tax changes for which so much was claimed.

If, in spite of the evidence, the Government really believe that tax reductions for the wealthy produce great advantages for the economy as a whole, why have they not yet differentiated between the entrepreneur starting up, developing or expanding his enterprise, creating the jobs and the prosperity, and, on the other hand, the person who inherits wealth, who receives the identical benefits, with no advantage to his fellow citizens? What on earth is the rationale for reducing tax on the landowner living off the rents of his land? What benefit does the nation obtain from the passage of great amounts of inherited wealth from generation to generation? Why should those in receipt of large unearned income find their tax reduced by the same amounts as those with earned income? Why should those who are liable to capital transfer tax, the only serious attempt ever made to tax properly inherited wealth, be able to have their slate wiped clean every 10 years? Why should they have that, so as to make this country a land fit for wealthy heirs to live in? The final question that we have to ask is: Why should these benefits be given while VAT was doubled and the personal allowances fell far behind the level of inflation?

A number of hon. Members have commented in this debate on the Williamsburg conference. There has, of course, been a great deal of dissatisfaction about the extent of international financial co-operation. Williamsburg will be a most important international conference. After the first oil shock it was clear that concerted action would be needed. It had been proposed by the OECD countries and organisations on a number of occasions, but the suggested principles that they set out were never properly applied. In the late 1970s, the principles involved, which were mainly monetarist, made the situation worse, and we had volatile exchange rates and interest rates, with wide fluctuations which did nothing but deepen the recession.

More recently, the United States and the United Kingdom have become disillusioned with their former addiction to monetarism. However, there is still a long way to go to get a common basis of agreement. In particular, the present levels of real interest rates, at about 5 per cent., are far too high for the restoration of steady international growth.

The danger would be if a minority of countries were to expand with an inadequate understanding of their position. They could then be exposed. We must agree in terms capable of some sort of subsequent monitoring the amount of expansion that each country undertakes. Due to extremely restrictive policies, inflation has recently slowed down in the industrial countries and consequently there is uniquely now scope for reflationary — not inflationary—action in which countries can co-operate. At the same time, the drop in oil prices has eased the inflationary pressures. It is important that the opportunity of Williamsburg should not be lost. The problem has been that inflation has been rampant and oil prices have increased. We must make use of the advantages to be gained from the reduction in inflation and oil prices.

Another point that must be discussed at Williamsburg is the problem of debtor countries. At present, 34 members of the IMF are in arrears with their debt services. They have over-borrowed, with high interest rates and with a sluggish demand for their exports at low prices. They are caught in the pincer of large debts with a rise in interest rates and a fall in the demand for and price of their exports.

We need to find some way to get Western industrial countries working together and strengthening the international financial institutions. What has been done up to now has been the short-term rescheduling of debts by the commercial banks, assisted by IMF loans, with conditions applied by the IMF. We need to open the pincer to encourage industrial countries to expand, together with some sort of monitoring to ensure that those who expand earliest will not be disadvantaged, as they have been in the past.

At this stage of a Parliament it is normal that several Ministers should survey the results of their efforts and become sceptical about the consequences that lie ahead. How else can we explain the proposals for the restructuring of the welfare state that were disclosed by The Guardian on 17 February? One Civil Service paper asked Ministers: What more can be done to encourage families in the widest sense?"— whatever that may mean. That led to the hilarious nonsense of advice being proffered by the Chancellor of the Exchequer that children should be trained to manage their pocket money—the same Chancellor who was not able to manage his trousers in a railway compartment.

All that ought not to prevent us from understanding —indeed, it should help us to do so—the source of that buffoonery. When Ministers are asked foolish questions and they attempt seriously to reply to them, the identity of the questioner is revealed. It can only be the Prime Minister; no one else can provoke such a chorus of adulatory nonsense. Apart from the interesting insight into how the Government work, the important aspect is that behind these antics is a serious and dangerous purpose —to strike against the very basis of the welfare state.

The attacks upon the welfare state are so frequent, so widespread and so prevalent that we know almost as clearly as if it were written in the Conservative manifesto that the plan is fundamentally to alter the balance between the public and the private provision of health, education, housing and welfare services. It is not enough that a public service be efficient, be seen to be efficient, be appreciated, be admired, be staffed with dedicated personnel and be recognised as successful. It may be all those things, but if there is a profit to be made by somebody the Government's answer is to sell it off—to sell off the know-how, the expertise, the dedication, even the idealism, all of which are great public assets with a price that the purchaser will never be called upon to pay.

All this can lead only to the deterioration of the public sector, because the greater its success the greater the potential profit and the more likely it is that the reward for success will be dismemberment. The Government hope to reduce the public sector, to reduce public expenditure generally and thus to reduce taxation, but they will be disappointed in their expectations if ever they are given that opportunity. The consequences of the demoralised public services prevalent in many countries are a decline in both status and performance. Efficiency falls and the true cost rises. The amount of taxation required for a poor service may be greater than that needed for an efficient and effective service.

The Guardian says that according to the NEDC report: There is no prospect of an increase in jobs in any of the major industrial or service sectors before the end of the decade … The report says that in many areas employment will continue to fall. And it warns that over the same period import penetration is likely to increase while the UK's export competitiveness will decline—unless government and industrial policies undergo a fundamental change. To me, that is the truest voice of industry as I see it in my constituency, in those firms that have survived the sorry record of the Conservative Government. Three years ago a survey was carried out in my constituency. Fewer than 75 per cent. of the firms covered by that survey remain for me to make my industrial visits, to correspond with them or to seek assistance for them from the Department of Industry. That is just a small part of what I know is happening in this country.

The tragedy is that in the House we have representatives not just of two parties but of two parts of the country experiencing quite different circumstances and seeing things quite differently when we leave the closeted atmosphere of this building. We must find a way to inform the party that happens to run the country but is nothing like so well represented in the areas suffering the most about what is really going on and the disadvantages and tragedies taking place in the areas that we have the privilege to represent.

What saddens me most about the Government's sorry record of failure in the public service generally and the expectation of yet more of the same is the defeatism of their proposals. They assume that we are a nation incapable of undertaking not so much the great deeds that we achieved in our glorious past, giving us a history that we enjoy and admire, but even of bestirring ourselves to unite in sensible actions for the benefit of all. They assume that our national fund of common sense and reasonableness has departed these islands and that we can work only under the rod of unemployment and the whip of circumstances. That is fundamentally to misjudge the British character, and in clue course it will fall to the British people to judge us and to judge the Government on what we see as the crucial Issue of our time.

9.29 pm

The Financial Secretary to the Treasury (Mr. Nicholas Ridley)

It is my pleasant duty first to congratulate the hon. Member for Darlington (Mr. O'Brien) on his maiden speech, as many hon. Members have done before me. He spoke with fluency and confidence. I am sure that he will forgive me if I match his complete non-controversiality by saying that it is incontrovertible that a 1 per cent. swing to his party in the recent by-election represents the dawn of Labour recovery.

Mr. O'Brien

We won.

Mr. Ridley

I am more gloomy about the prospect of a Labour recovery than he is about the prospect of an economic one. He talked of unemployment, which is a subject that is close to every hon. Member and about which we are all anxious. I merely ask him to question his automatic assumption that no responsibility for the tragic level of unemployment lies anywhere but with the Government. I also ask him to question whether his party's policy would not make it worse. I shall come to that later.

The hon. Gentleman told us that he nearly got the Labour nomination for Darlington in 1962. I nearly got the Tory nomination for Darlington in 1959. I would have been as short-lived in that seat as he will be.

The right hon. Member for Stepney and Poplar (Mr. Shore) and the hon. Member for Gateshead, West (Mr. Horam) were worried about the likelihood of the hon. Gentleman's short-lived stay at Darlington. They talked about the window in June when all of the economic factors will be at their maximum just before Wakes week and just after the bulk of the Government's legislation is through. It was clear from the way in which they talked that they are scared stiff of an election. The Government are quietly content to let the recovery gather pace. Inflation is under control. There are many windows in the 14 months at the end of which this Parliament must end. They can continue to remain alarmed about which one the Government will choose. I can tell them that it will not be a French window and it will not be the type of window which the right hon. Member for Stepney and Poplar was looking for.

The right hon. Gentleman reminded me of Keats. That great English poet wrote of Charm'd magic casements, opening on the foam Of perilous seas, in faery lands forlorn. The right hon. Gentleman lives in a "faery land forlorn". He was longing for the past and to debate any Bill but the Finance Bill 1983. He wanted to debate the 1979, 1980 or 1981 Finance Bills. All Opposition Members were searching to be allowed to live and debate in the past. Their one pious hope, especially that of the hon. Member for Gateshead, West, was that we are merely experiencing a transient fillip in the economy and that we can soon return to gloom, gloom, gloom, so that he can have a slightly improved electoral prospect.

We had an interesting debate on exchange rates when my hon. Friend the Member for Winchester (Mr. Browne) took on the hon. Members for Colne Valley (Mr. Wainwright) and for Motherwell and Wishaw (Dr. Bray). I am afraid that my hon. Friend won the argument hands down. He had only to point out that it is overseas investors who fix the exchange rate, and there was no answer from the Opposition. The hon. Member for Motherwell and Wishaw might take account of the French experience. They did exactly what he said and made an employment level target a priority. The hon. Gentleman said that if we did that, we could fix the exchange rate. But what happened three weeks ago in Brussels when, for the second or third time, the French exchange rate fell and they had to take orthodox economic measures? That policy has been demonstrated to be a failure.

I interrupt the thread of the debate to mention the Bill before the House, but I do so briefly because few hon. Members have referred to it. I am grateful to my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) for mentioning development land tax. It remains our view that gains produced by the actions of the community through the planning system should bear a substantial tax burden. We shall keep the burden of development land tax under review, but my right hon. Friend's proposals probably go too far. My hon. Friend the Minister of State will study carefully what he said and the evidence that he produced this afternoon, and will write to him to discuss the problem in more detail.

My right hon. Friend also mentioned heavy goods vehicle duties, to which the hon. Member for Down, North (Mr. Kilfedder) referred in terms of the serious problems of Ulster. I doubt whether many of the lorries about which he was anxious are in the very heavy category. The owners of heavier lorries have been asked to bear their full share of the cost of road usage, whereas the owners of lighter lorries have enjoyed a reduction in vehicle excise duty because their vehicles will cause less damage to our roads. That is not so much a taxation matter as a decision that the House asked the Government to take on environmental grounds, and, that decision having been made, I fear that the House must live with the consequences, if it accepts the relevant clauses in the Bill. However, I hope that both my right hon. Friend and the hon. Member for Down, North accept that the changes were made on environmental grounds.

The hon. Member for Glasgow, Maryhill (Mr. Craigen) asked what the enterprise allowance would cost and whether it was new money. This year it will cost £25 million to extend it to the entire country, and it will cost £29 million in a full year. Two thirds of that will be new money over and above that which is saved from unemployment benefit. I hope that that is a satisfactory answer.

My hon. Friend the Member for Bridlington (Mr. Townend) asked a difficult and important question about the taxation of holiday lets. He will know that we are studying this matter carefully. However, I must put him right on one point. The tax system has not been changed as a result of a recent court decision. The law has always been the same, but the switch from more active participation in providing services to holiday makers to holiday lets has, technically, brought that activity to the other side of the earned-unearned income line. As I said to my hon. Friend privately, the Government are studying the matter carefully but have not yet reached a conclusion. It raises difficult questions of tax principle, and my hon. Friend must bear with us a little longer until we have given sufficient thought and time to a problem that we realise causes some trouble to him and to his constituents.

Mr. John Townend

Is my right hon. Friend aware that I have a copy of a letter circulated to holiday home owners in the Bridlington area by Her Majesty's inspector of taxes informing them that, although they used to be assessed as a trade, the system would be altered as a result of that court case?

Mr. Ridley

That is not quite right. I must tell my hon. Friend that the law has always been the same. I cannot answer for the remarks of an individual inspector now.

My hon. Friend the Member for Winchester asked about help for small businesses. No other country has a system that allows someone to invest out of his gross income in the equity of a small, medium or large company, provided that it is unquoted, with full tax relief which can be as much as 75 per cent. There is nothing in the world like it for generosity or originality. It is coupled with the company's ability to buy back its shares under certain not very onerous or difficult conditions. That combination provides equity capital for small and medium-sized businesses which is unrivalled. The Opposition poured some cold water over these measures, but I assure them that they will bear fruit.

Mr. John Browne

I do not want my right hon. Friend to think that I am not grateful for what he has said. Institutions are heavily capitalised at the moment by a favoured tax treatment. I was urging that more should be done on a simpler scale than at present.

Mr. Ridley

There is much greater tax relief for investing in the business expansion scheme than for investing in institutions or life assurance. It has taken the bias the other way. One cannot do more than that. There is no more tax to be relieved, because tax is not being paid on such investments.

My hon. Friend the Member for Kensington (Sir B. Rhys Williams) made some telling points about the administration of the tax system. He said that it was unjust, did not do enough to encourage wealth creation and was expensive to administer and that tax legislation was incomprehensible. There is a grain of truth in all that, and I have a great deal of sympathy for my hon. Friend. We have started already to do a great deal about it. Tax thresholds increased over and above indexation requirements and increases in child benefit in November will improve incentives for the low paid.

In each of his Budgets, my right hon. and learned Friend the Chancellor has introduced some invaluable measures for small businesses. The result is that we have been able to reduce Inland Revenue staff by 11,000, or 13 per cent., and Customs and Excise staff by 3,000, or 11 per cent. It will be more in a year's time. I assure my hon,. Friend the Member for Kensington that the Revenue has not become over-powerful. The Revenue responds entirely to Ministers and Ministers are happy to accept responsibility for anything to do with tax law, although the care and management of taxes remains with the Revenue Departments.

The main burden of the Opposition's attack has been one with which we are becoming all too familiar. It comes in two parts—that the Government have increased the burden of personal taxation, despite our earnest promises at the last election to reduce it, and that the only people who are better off are the rich. I want to deal with both those points and I hope that I may be allowed to develop the argument logically. I shall take the second point first.

Mr. Foulkes

That is very logical.

Mr. Ridley

I shall start with capital transfer tax about which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) talked a good deal. Many of my supporters will not thank me for saying this, but a return to the real burden of the tax that the Labour party introduced in 1974 would cost the Revenue about £75 million in a full year. It means that capital transfer tax, fully indexed, is yielding £75 million more than the right hon. Gentleman advocated. If one were to ret0075rn to the 1978 levels in real terms it would reduce the burden on the most wealthy owners of capital and increase it for the lowest payers of the tax. I shall be surprised if that is what the right hon. Gentleman wants. I do not understand what the right hon. Member for Stepney and Poplar meant when he talked about restoring the rates of capital transfer tax to their proper levels. That would mean reducing them by £75 million. I do not know whether that is what he has in mind.

The Labour party plans to reimpose the absurdly high higher rates of tax that they bequethed to us. That is impossible. If we went back to those higher rates and bands, indexed for this financial year, in theory it would yield an extra £700 million. I say "in theory" because we do not know how many of our higher-paid people would avoid that extra tax by going overseas to work for our competitors or, most pernicious of all, by simply not giving of their best and helping to recreate our industrial base. Higher-paid people gained from the reduction of the astronomically high rates of tax which we inherited in 1979, although they have not gained in relative terms since then. Therefore, there has been a small switch. Even if it were reversed, it would not do much, but would raise allowances by 4 per cent. more, or £1.25 per week for a single person and £1.90 per week for a married mart, or reduce the basic rate of income tax from 30p in the pound to 29½p in the pound.

All that would depend on the money being there and on there being no loss in effective management, competitiveness or jobs provided. Contrary to what Opposition Members think, we do not have a national income for politicians to allocate according to their prejudices. When politicians start doing that we shall soon find that the amount that they allocate diminishes sharply. I draw the attention of the right hon. Member for Ashton-under-Lyne to the other measures in the Bill, which attack—

Mr. Shore

rose—

Mr. Ridley

I shall not give way just now.

I draw the attention of the right hon. Member for Ashton-under-Lyne to the clauses on expensive houses provided by employers, directors' PAYE tax paid by employers, scholarships awarded by employers and beneficial loans in the Finance Bill, which are direct attempts to make the tax system fairer for those who have been trying to evade with expensive devices. Many other people have benefited too.

Mr. Straw

rose—

Mr. Ridley

I shall spend the rest of my speech on this matter. We have plenty of time.

Many others have benefited, too. All taxpayers have gained from the increases in personal allowances. Everyone with children gains from the increase in child benefit, which has reached the highest real level ever. Everyone gains from help given to business, which is the only way to get growth and jobs. Everyone gains from economic policies directed towards lower inflation and interest rates. For the less well off there has been the restoration of the 5 per cent. abatement on unemployment benefit, the new method of pension uprating, bringing more certainty to the arrangements and leaving pensioners with increases in real terms since 1978–79, the removal of the invalidity trap, the extension of the enterprise allowance nationwide, the raising of the level of supplementary benefit cut-off and the improvement of the widow's bereavement allowance by extending it into the year after bereavement. They are all a major help for special groups.

Those benefits only carry on the developments that we have made since 1979. Of course, it suits the Opposition to ignore or forget about them, but the House and the country know that those achievements are there and that we are proud of them. We seek to make everyone better off. The Opposition seek to make some people worse off. The only result will be to make everyone worse off.

Mr. Shore

The Minister is making some extravagant claims, as I think he realises. [HoN. MEMBERS: "No."] Will the Minister assert to the House that the 3.5 million unemployed are better off by being unemployed than they were when they had jobs? Will he confirm or deny that the burden of taxes on the country has risen from 34 per cent. in 1978–79 to 39 per cent. today? Will he clear up the point of dispute that I had with the Chief Secretary, when he alleged that people on a modest three quarters of average earnings with a typical family were paying less tax today than four years ago? Will he please answer those central questions?

Mr. Ridley

If the right hon. Gentleman would let me do so, I intend to clear up the points which he made in what I have to say; I told him I was going to.

I come to the burden of personal taxation. Has it been increased? I will give the overall results of our five Budgets. First, there is one other objective: that is, to make industry competitive and to create jobs and wealth. A second objective is to get direct tax levels down. For industry we have reduced taxes. If industry were paying the same share of non-oil taxes as in 1978–79, it would be paying £3 billion more this year.

Let us take just one example. When we came into office the combined rate of employers' national insurance contribution and surcharge was 13.5 per cent. From August for contracted-in people it will be about 11.5 per cent., a fall of two percentage points, worth nearly £2 billion a year to private sector employers. On the other hand, Labour managed to increase the combined burden by no fewer than five percentage points, which included the introduction and then increases in the notorious national insurance surcharge tax on jobs. At today's prices and earnings, that would have added some £4 billion extra to the burden on employers. Let us be clear, therefore, as to who reduces taxes on industry and who increases taxes on job creation. That is the first point.

Getting inflation and interest rates down is equally important. Inflation is down to 5 per cent. and interest rates have gone down today to 10 per cent. Each one per cent. fall in interest rates is worth £250 million to business. Relieving industry in principle means not relieving people unless one relies on fool's gold, as the right hon. Member for Stepney and Poplar did in his fairy-tale dream. It ought not to be disputed that there has to be some sort of balance between spending and taxation. Despite all this—the need to reduce inflation and the taxation of industry— people have done fairly well during the last four years. Under Labour the basic rate of income tax reached 35p in the pound while we have reduced it to 30p and held it there.

Mr. Robert Sheldon

Twenty five per cent.

Mr. Ridley

No, because the right hon. Gentleman forgets entirely that for many years he ran a 35 per cent basic rate before he brought in the 25 per cent. rate.

Secondly, under Labour, higher rates reached 83 per cent. of earned income. We have reduced them to 60 per cent. Under Labour income tax thresholds compared with prices fell by 20 per cent. for a single person and by 5 per cent. for a married man. So far in our term of office income tax thresholds have increased by 6 per cent. more than prices. During our term of office the percentage of gross income paid in income tax for a married man on average earnings compared with 1978 is 0.9 per cent. lower.

This is where I come to the error in the figures of the right hon. Member for Stepney and Poplar. He accused the Government of plundering statistics over and over again. I confirm that the answers that he read out were the correct answers to the questions that had been put down. The mistake that the hon. Member for Blackburn (Mr. Straw) made was to put down the wrong questions. The burden of income tax for a married man with two children on three quarters of average earnings has not increased since 1978–79. I am afraid that the bases of the figures, while respectable in themselves, do not entirely allow for the transition from child tax allowances to child benefit. If one takes tax less child benefit as a percentage of earnings —a basis which does fully allow for the change—the figures for a married man with two children on three quarters of average earnings are 8.6 per cent in 1978–79 and 8.1 per cent. in 1983–84, a reduction of 0.5 percentage points. Thus, married men with children on three quarters of average earnings, like all others on three quarters of average earnings, have had a reduction in the tax burden since 1978–79 as a percentage of their gross income. Perhaps that will put part of the right hon. Gentleman's mind to rest on this issue.

Mr. Shore

The hon. Gentleman has clouded the issue. My colleagues and I have merely quoted the figures with which the hon. Gentleman's Department, the Treasury, has been good enough to supply us. If he has misled the House in the answers that he has given so far, he should apologise most humbly for so doing, and should not now try in a few verbal exchanges to deny what he previously confirmed. We shall certainly table further questions to explore this issue, and I shall be surprised if we are found to be wrong.

Mr. Ridley

The right hon. Gentleman has accused the Treasury of being grudging to release the information that he sought. We were a little grudging because we knew that he was seeking information on the wrong basis. The right basis on which to get a proper comparison between the effect of child tax allowances and child benefits is to express the top of the fraction as tax minus child benefit over earnings. If he would like a full explanation of why that is right, I shall send it to him. If he wants to table questions asking for the figures—

Mr. Straw

I intervene because this issue is crucial. The hon. Gentleman has been answering my questions on the tax burden for the past two years and this is the first occasion on which he has ever mentioned a different basis. Is it not a fact that I asked him for the proportion of income tax for a married man on 75 per cent. of average earnings and that he told me that the proportion in 1978–79 was 14¾ per cent., adding that it will be 16 per cent. in 1983–84? In other words, the burden of income tax alone for a man on three quarters of average earnings will have increased by 1¼ per cent. under this Government.

Mr. Ridley

I never stop answering long and complicated questions from Labour Members. I try to answer them as accurately and precisely as can be. I think that we should pay tribute to those who have to toil away to drag out the figures. I always answer the question that I am asked. If I am asked to state the rate of income tax at the beginning and the end of the Government's term of office, I have just given the figures.

It must be stressed that earnings have risen too. We should consider together earnings, tax and national insurance because it is the result of that consideration which matters. Under the Labour Government real net take-home pay—the amount that families have to spend after allowing for inflation and tax—fell for households on average earnings. Under the present Government there is expected to be a rise for those on average earnings of about 4 to 5 per cent.

The simple truth is that industry is taxed harder under a Labour Government than individuals, and that under the previous Labour Administration people became worse off. They have become better off under this Government, even after taking into account the essential steps that my right hon. and learned Friend the Chancellor of the Exchequer has had to take to combat inflation to reduce it to 5 per cent., to reduce interest rates and, at the same time, to help businesses by massive tax reliefs to enable them to get through the recession into the new stage of our recovery. That is something that I am sure the whole House will welcome, as I am sure that it will welcome the Bill, about which there has been no complaint. Therefore, I imagine that we shall have a happy and uncontentious Committee stage. I commend the Bill to the House.

Question put, That the amendment be made:—

The House divided: Ayes 188, Noes 268.

Division No.114]	[10pm
AYES
Abse, Leo	Davies, Rt Hon Denzil (L'Ili)
Adams, Allen	Davis, Clinton (Hackney C)
Allaun, Frank	Davis, Terry (B'ham, Stechf'd)
Alton, David	Deakins, Eric
Anderson, Donald	Dean, Joseph (Leeds West)
Archer, Rt Hon Peter	Dewar, Donald
Ashley, Rt Hon Jack	Dormand, Jack
Ashton, Joe	Douglas, Dick
Atkinson, H.(H'gey,)	Dubs, Alfred
Bagier, Gordon AT.	Dunnett, Jack
Beith, A. J.	Dunwoody, Hon Mrs G.
Benn, Rt Hon Tony	Eadie, Alex
Bennett, Andrew(St'kp't N)	Eastham, Ken
Bidwell, Sydney	Edwards, R. (W'hampt'n S E)
Bottomley, Rt Hon A.(M'b'ro)	Ellis, R. (NE D'bysh're)
Bray, Dr Jeremy	English, Michael
Brown, Hugh D. (Provan)	Ennals, Rt Hon David
Brown, R. C. (N'castle W)	Evans, loan (Aberdare)
Brown, Ron (E'burgh, Leith)	Evans, John (Newton)
Buchan, Norman	Flannery, Martin
Callaghan, Jim (Midd't'n & P)	Foot, Rt Hon Michael
Campbell, Ian	Ford, Ben
Canavan, Dennis	Foster, Derek
Cant, R. B.	Foulkes, George
Carmichael, Neil	Fraser, J. (Lamb'th, N'w'd)
Clarke, Thomas(C'b'dge, A'rie)	Freud, Clement
Cocks, Rt Hon M. (B'stol S)	George, Bruce
Coleman, Donald	Gilbert, Rt Hon Dr John
Concannon, Rt Hon J. D.	Ginsburg, David
Conlan, Bernard	Golding, John
Cook, Robin F.	Graham, Ted
Cowans, Harry	Grimond, Rt Hon J.
Craigen, J. M. (G'gow, M'hill)	Hamilton, James (Bothwell)
Crowther, Stan	Hardy, Peter
Cunliffe, Lawrence	Harman, Harriet (Peckham)
Cunningham, G. (Islington S)	Harrison, Rt Hon Walter
Cunningham, Dr J. (W'h'n)	Hart, Rt Hon Dame Judith
Dalyell, Tam	Healey, Rt Hon Denis

Heffer, Eric S.	Race, Reg
Hogg, N. (E Dunb't'nshire)	Radice, Giles
Holland, S. (L'b'th, Vauxh'Il)	Rees, Rt Hon M (Leeds S)
Home Robertson, John	Richardson, Jo
Homewood, William	Roberts, Allan (Bootle)
Hooley, Frank	Roberts, Ernest (Hackney N)
Horam, John	Roberts, Gwilym (Cannock)
Howell, Rt Hon D.	Robertson, George
Hoyle, Douglas	Robinson, G. (Coventry NW)
Huckfield, Les	Rodgers, Rt Hon William
Hughes, Mark (Durham)	Rooker, J. W.
Hughes, Robert (Aberdeen N)	Roper, John
Janner, Hon Greville	Ross, Ernest (Dundee West)
Jay, Rt Hon Douglas	Rowlands, Ted
Jenkins, Rt Hon Roy (Hillh'd)	Ryman, John
John, Brynmor	Sandelson, Neville
Johnson, James (Hull West)	Sever, John
Jones, Barry (East Flint)	Sheldon, Rt Hon R.
Kaufman, Rt Hon Gerald	Shore, Rt Hon Peter
Kerr, Russell	Silkin, Rt Hon S. C. (Dulwich)
Kilfedder, James A.	Silverman, Julius
Kilroy-Silk, Robert	Skinner, Dennis
Lamond, James	Smith, Rt Hon J. (N Lanark)
Lead bitter, Ted	Soley, Clive
Lestor, Miss Joan	Spearing, Nigel
Litherland, Robert	Spellar, John Francis (B'ham)
Lofthouse, Geoffrey	Spriggs, Leslie
Lyon, Alexander (York)	Stallard, A. W.
Lyons, Edward (Bradf'd W)	Stoddart, David
McCartney, Hugh	Strang, Gavin
McElhone, Mrs Helen	Straw, Jack
McKay, Allen (Penistone)	Thomas, Dr R.(Carmarthen)
McKelvey, William	Thorne, Stan (Preston South)
MacKenzie, Rt Hon Gregor	Varley, Rt Hon Eric G.
McNamara, Kevin	Wainwright, E.(Dearne V)
McTaggart, Robert	Wainwright, R.(Colne V)
McWilliam, John	Walker, Rt Hon H.(D'caster)
Marshall, Dr Edmund (Goole)	Wardell, Gareth
Marshall, Jim (Leicester S)	Watkins, David
Martin, M(G'gow S'burn)	Wellbeloved, James
Mason, Rt Hon Roy	Welsh, Michael
Meacher, Michael	White, Frank R.
Mikardo, Ian	White, J. (G'gow Pollok)
Millan, Rt Hon Bruce	Whitehead, Phillip
Miller, Dr M. S. (E Kilbride)	Whitlock, William
Mitchell, Austin (Grimsby)	Wigley, Dafydd
Mitchell, R. C. (Soton Itchen)	Willey, Rt Hon Frederick
Morris, Rt Hon C. (O'shaw)	Williams, Rt Hon Mrs(Crosby)
Oakes, Rt Hon Gordon	Wilson, Gordon (Dundee E)
O'Brien, Oswald (Darlington)	Wilson, William (C'try SE)
Ogden, Eric	Winnick, David
O'Halloran, Michael	Woolmer, Kenneth
O'Neill, Martin	Wright, Sheila
Orme, Rt Hon Stanley	Young, David (Bolton E)
Palmer, Arthur
Parry, Robert	Tellers for the Ayes:
Powell, Raymond (Ogmore)	Mr. Frank Haynes and
Prescott, John	Mr. George Morton.
NOES
Adley, Robert	Bowden, Andrew
Alison, Rt Hon Michael	Boyson, Dr Rhodes
Ancram, Michael	Braine, Sir Bernard
Arnold, Tom	Bright, Graham
Aspinwall, Jack	Brinton, Tim
Atkins, Rt Hon H.(S'thorne)	Brittan, Rt. Hon. Leon
Atkins, Robert (Preston N)	Brooke, Hon Peter
Atkinson, David (B'm'th.E)	Brotherton, Michael
Baker, Kenneth(St.M'bone)	Brown, Michael (Brigg & Sc'n)
Baker, Nicholas (N Dorset)	Browne, John (Winchester)
Beaumont-Dark, Anthony	Bruce-Gardyne, John
Bendall, Vivian	Bryan, Sir Paul
Berry, Hon Anthony	Buchanan-Smith, Rt. Hon. A.
Best, Keith	Buck, Antony
Bevan, David Gilroy	Budgen, Nick
Biffen, Rt Hon John	Bulmer, Esmond
Biggs-Davison, Sir John	Burden, Sir Frederick
Blackburn, John	Butcher, John
Bonsor, Sir Nicholas	Butler, Hon Adam
Bottomley, Peter (W'wich W)	Carlisle, John (Luton West)

Carlisle, Kenneth (Lincoln)	Hogg, Hon Douglas (Gr'th'm)
Carlisle, Rt Hon M. (R'c'n)	Holland, Philip (Carlton)
Chalker, Mrs. Lynda	Hooson, Tom
Chapman, Sydney	Howe, Rt Hon Sir Geoffrey
Churchill, W. S.	Howell, Rt Hon D. (G'ldf'd)
Clark, Hon A. (Plym'th, S'n)	Howell, Ralph (N Norfolk)
Clark, Sir W. (Croydon S)	Hunt, John (Ravensbourne)
Clarke, Kenneth (Rushcliffe)	Hurd, Rt Hon Douglas
Clegg, Sir Walter	Irvine, Rt Hon Bryant Godman
Colvin, Michael	Irving, Charles (Cheltenham)
Cope, John	Johnson Smith, Sir Geoffrey
Cranborne, Viscount	Jopling, Rt Hon Michael
Crouch, David	Joseph, Rt Hon Sir Keith
Dickens, Geoffrey	Kaberry, Sir Donald
Dorrell, Stephen	Kershaw, Sir Anthony
Douglas-Hamilton, Lord J.	King, Rt Hon Tom
Dover, Denshore	Kitson, Sir Timothy
du Cann, Rt Hon Edward	Knight, Mrs Jill
Dunn, Robert (Dartford)	Knox, David
Durant, Tony	Lamont, Norman
Dykes, Hugh	Lang, Ian
Eden, Rt Hon Sir John	Langford-Holt, Sir John
Edwards, Rt Hon N. (P'broke)	Latham, Michael
Eggar, Tim	Lawrence, Ivan
Emery, Sir Peter	Lawson, Rt Hon Nigel
Fairbairn, Nicholas	Lee, John
Fairgrieve, Sir Russell	Le Marchant, Spencer
Faith, Mrs Sheila	Lennox-Boyd, Hon Mark
Farr, John	Lewis, Sir Kenneth (Rutland)
Finsberg, Geoffrey	Lloyd, Ian (Havant & W'Ioo)
Fisher, Sir Nigel	Lloyd, Peter (Fareham)
Fletcher, A. (Ed'nb'gh N)	Loveridge, John
Fookes, Miss Janet	Luce, Richard
Forman, Nigel	Lyell, Nicholas
Fowler, Rt Hon Norman	McCrindle, Robert
Fox, Marcus	Macfarlane, Neil
Fraser, Rt Hon Sir Hugh	MacGregor, John
Fraser, Peter (South Angus)	MacKay, John (Argyll)
Gardiner, George (Reigate)	Macmillan, Rt Hon M.
Gardner, Sir Edward	McNair-Wilson, M. (N'bury)
Garel-Jones, Tristan	McNair-Wilson, P. (New F'st)
Gilmour, Rt Hon Sir Ian	McQuarrie, Albert
Glyn, Dr Alan	Madel, David
Goodhart, Sir Philip	Major, John
Goodlad, Alastair	Marland, Paul
Gorst, John	Marlow, Antony
Gow, Ian	Marshall, Michael (Arundel)
Gower, Sir Raymond	Marten, Rt Hon Neil
Gray, Rt Hon Hamish	Mates, Michael
Greenway, Harry	Maude, Rt Hon Sir Angus
Grieve, Percy	Mawby, Ray
Griffiths, E.(B'y St. Edm'ds)	Mawhinney, Dr Brian
Griffiths, Peter (Portsm'th N)	Maxwell-Hyslop, Robin
Grist, Ian	Mayhew, Patrick
Grylls, Michael	Mellor, David
Gummer, John Selwyn	Meyer, Sir Anthony
Hamilton, Hon A.	Miller, Hal (B'grove)
Hamilton, Michael (Salisbury)	Mills, Iain (Meriden)
Hampson, Dr Keith	Mills, Sir Peter (West Devon)
Hannam, John	Mitchell, David (Basingstoke)
Haselhurst, Alan	Moate, Roger
Hastings, Stephen	Monro, Sir Hector
Havers, Rt Hon Sir Michael	Moore, John
Hawkins, Sir Paul	Morrison, Hon C. (Devizes)
Hawksley, Warren	Morrison, Hon P. (Chester)
Hayhoe, Barney	Neale, Gerrard
Heddle, John	Nelson, Anthony
Henderson, Barry	Neubert, Michael
Heseltine, Rt Hon Michael	Newton, Tony
Hicks, Robert	Onslow, Cranley
Higgins, Rt Hon Terence L.	Oppenheim, Rt Hon Mrs S.

Page, Richard (SW Herts)	Steen, Anthony
Parris, Matthew	Stevens, Martin
Patten, Christopher (Bath)	Stewart, A.(E Renfrewshire)
Patten, John (Oxford)	Stewart, Ian (Hitchin)
Pattie, Geoffrey	Stokes, John
Pawsey, James	Stradling Thomas, J.
Percival, Sir Ian	Tapsell, Peter
Peyton, Rt Hon John	Taylor, Teddy (S'end E)
Pink, R. Bonner	Temple-Morris, Peter
Pollock, Alexander	Thatcher, Rt Hon Mrs M.
Porter, Barry	Thomas, Rt Hon Peter
Prentice, Rt Hon Reg	Thompson, Donald
Price, Sir David (Eastleigh)	Thorne, Neil (Ilford South)
Prior, Rt Hon James	Thornton, Malcolm
Proctor, K. Harvey	Townend, John (Bridlington)
Pym, Rt Hon Francis	Townsend, Cyril D, (B'heath)
Raison, Rt Hon Timothy	Trippier, David
Rathbone, Tim	van Straubenzee, Sir W.
Rees, Peter (Dover and Deal)	Vaughan, Dr Gerard
Rees-Davies, W. R.	Waddington, David
Renton, Tim	Wakeham, John
Rhodes James, Robert	Waldegrave, Hon William
Rhys Williams, Sir Brandon	Walker, B. (Perth)
Ridley, Hon Nicholas	Walker-Smith, Rt Hon Sir D.
Ridsdale, Sir Julian	Wall, Sir Patrick
Rossi, Hugh	Walters, Dennis
Rost, Peter	Ward, John
Royle, Sir Anthony	Warren, Kenneth
Sainsbury, Hon Timothy	Watson, John
St. John-Stevas, Rt Hon N.	Wells, Bowen
Shaw, Giles (Pudsey)	Wells, John (Maidstone)
Shelton, William (Streatham)	Wheeler, John
Shepherd, Colin (Hereford)	Whitelaw, Rt Hon William
Shepherd, Richard	Whitney, Raymond
Shersby, Michael	Wiggin, Jerry
Sims, Roger	Wilkinson, John
Skeet, T. H. H.	Williams, D.(Montgomery)
Smith, Tim (Beaconsfield)	Winterton, Nicholas
Speller, Tony	Wolfson, Mark
Spicer, Jim (West Dorset)	Young, Sir George (Acton)
Spicer, Michael (S Worcs)	Younger, Rt Hon George
Sproat, Iain
Stainton, Keith	Tellers for the Noes:
Stanbrook, Ivor	Mr. Carol Mather and
Stanley, John	Mr. Robert Boscawen.

Question accordingly negatived.

Main question put forthwith pursuant to Standing Order No. 41 (Amendment on Second or Third Reading), and agreed to.

Bill accordingly read a Second time.

c1028
1. FINANCE BILL (COMMITTAL) 116 words