Finance Bill

HC Deb 06 July 1983 vol 45 cc279-365

Order for Second Reading read.

3.32 pm

The Chief Secretary to the Treasury (Mr. Peter Rees)

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

The House has already had the opportunity of a full and interesting discussion on the economy during the debate on the Loyal Address last week, so it is unnecessary for me to go over that ground again. Nor should this Bill be regarded as a commentary on the economic position of the country. It is a modest Bill designed largely to restore some clauses that were dropped from the Finance Bill earlier this year, following the announcement of the general election, at the instigation of the then Opposition. There will be an element of deja vu for those who took part in those interesting debates. I could hardly call it nostalgia since there is little nostalgia about Finance Bills, although perhaps the House will allow me to draw attention to one small nostalgic matter.

The debates on the Finance Bill in April were the last occasion when the former Member for Heywood and Royton, Mr. Joel Barnett— who occupied my present position with much distinction for many years —participated, and I mark my appreciation of his contribution to the many debates in which I was privileged to take part with him. Whether he will be given the opportunity in other places to take part in financial debates remains to be seen, but it would be improper for me to speculate about those opportunities.

My right hon. and hon. Friends and I believed that the House would not wish to stay here until well into August to debate the minutiae of other clauses that had to be dropped from the Bill.

Mr. Robin Cook (Livingston)

indicated assent.

Mr. Rees

I am glad to have the hon. Gentleman's assent on that. However, I shall mention some of those 50 clauses later in my speech. With superhuman restraint, which I hope will commend itself to the House, the Government have limited this Bill to 16 clauses and two schedules, which represent no more than 15 pages of legislation, should the House approve it. The overall cost will be £236 million this year and £403 million in a full year.

Mr. Robin Cook

The Chief Secretary will be aware that he has just committed a large tranche of public resources to a small section of taxpayers—the top 4 per cent. Before the Bill goes through the House, can he assure us that he does not intend to come back in the autumn with panic measures to cut the public expenditure that provides services to the poor, the sick and the unemployed, who will not benefit by a penny from this Bill?

Mr. Rees

The hon. Gentleman puts forward a partisan view of the Bill and seeks to detach it from the Bill which my right hon. and learned Friend the Foreign Secretary, who was then Chancellor of the Exchequer, with the able assistance of my right hon. Friend the Financial Secretary to the Treasury, piloted through the House in April. That Bill gave much relief to many of our fellow countrymen, with 1,250,000 taxpayers being taken out of tax. That puts these measures a little more closely in perspective.

Mr. Robin Cook

rose—

Mr. Rees

I have already given way to the hon. Gentleman, which, as I am sure he will appreciate, is not always convenient at an early stage in a speech. I always recognise the force and coherence of his interventions, and I know that he would wish me to reply in full. I hope that panic measures will not characterise this Administration. I hope that we shall not have the spectacle of a Chancellor of the Exchequer being taken off an aeroplane to speak to Back-Bench committees, important though Back-Bench committees are. A guiding principle of this Administration —I take this occasion to reaffirm what my right hon. Friend the Chancellor said during the debate on the Loyal Address—will be the firm control of public expenditure. I hope that that reassures the hon. Gentleman and the House.

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

Has the Chief Secretary read this morning's national newspapers, especially The Times and The Guardian, which outline arguments in the Cabinet between the Chancellor and other Ministers about cuts in public expenditure that are due later this year? How can he come before the House today and hand back money to a select few people in society, while at the same time he knows — as do all his colleagues on the Back Benches—that the Chancellor is running round the Cabinet like a madman demanding cuts in public expenditure? Do not the Government owe the British people some consistency in this highly important area? The hon. and learned Gentleman should give the assurances for which my hon. Friend the Member for Livingston (Mr. Cook) asked.

Mr. Rees

I have given some firm and full assurances. Before the right hon. Gentleman gets carried away by his rather indifferent rhetoric, I should point out that the Government are demonstrating remarkable consistency. It is precisely because they believe in consistency and in honouring pledges that when, at the insistence of the then Labour Opposition—perhaps the hon. Gentleman wishes to distance himself from what happened in April—some measures were dropped from the Finance Bill, my right hon. Friend the Financial Secretary said that we would restore those measures after the election. On that occasion, we were promised by the Opposition that they would introduce an autumn Finance Bill that would include swingeing tax increases, probably for all members of society. Luckily, that proved to be a rather chimerical idea, and we need not concern ourselves with it. Consistency was the hallmark of the previous Administration, and I can say without undue arrogance and with confidence that it will be the hallmark of this one.

This Bill is designed to restore some important tax reliefs that had to be dropped. Clause 1 provides for the income tax higher rate and the investment income surcharge thresholds to be raised by about 14 per cent. As the House will recall—again this is a measure of the consistency of this Administration—this was the same rate of increase enacted in the earlier Finance Act for the main personal allowances. Therefore, we are doing no more for the higher rate bands and the investment income surcharge than has been done for the basic rate of income tax. I am sure that that will commend itself to any fair-minded hon. Member—and I emphasise fair-minded.

The indexation provisions for which my right hon. Friend the Chancellor was in part responsible during the years of the last Labour Administration would have required an increase of only 5.5 per cent. However, my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), now Foreign Secretary. thought it right to increase all the thresholds by 14 per cent. The magnitude of his achievement was probably over-obscured by the imminence of the election, but what he proposed and carried through took more than 1 million taxpayers out of tax altogether. That was a considerable achievement, and perhaps in due course Labour Members will wish to pay tribute to him when they catch the eye of the Chair.

As the House will recall, the same indexation rules as for the main allowances were extended to the higher rate bands and the investment income threshold by the Finance Act 1980. Therefore, we are merely carrying out what was foreshadowed then as well as in earlier debates in the spring. Under our proposals, the first higher rate threshold would be raised to £14,600 per annum and the subsequent higher rate bands adjusted accordingly. Similarly, we propose that the investment income threshold should be raised to £7.100.

This year, the cost of these measures over indexation will be about £80 million. and in a full year they will cost about £150 million. Had the Opposition had their way, and had these reliefs been deleted, it would have involved an additional 350 staff at the Inland Revenue, but I know that that matter is of little concern to Labour Members who seem to be reckless about the cost of administration.

Mr. Jack Straw (Blackburn)

The Chief Secretary invites us to pay a tribute to his right hon. and learned Friend for the tax concessions made in the Budget. Before we do so, does the Chief Secretary agree that, even after the changes in the level of taxation proposed in the Budget, only those earning well over one and a half times average earnings have a lower tax burden this year than they did in the last year of the last Labour Government and that 90 per cent. of the population now pay a higher proportion of their earnings in direct taxation than they did when the Labour Government left office?

Mr. Rees

The hon. Gentleman reaches those somewhat extravagant conclusions only by treating insurance contributions as though they were taxation. I remind the House that insurance contributions in this country are far lower than those in most other western European countries.

That brings me to the administrative consequences of what was proposed in April and what we propose now. The House may recall that the last Finance Act provided that PAYE should be operated on the basis of the limits then proposed until 31 August this year. In consequence, should this provision commend itself to the House, there will be no need for any further PAYE changes.

Clause 2 proposes an increase in the profits limits for the purposes of the reduced rate of corporation tax for small companies. This rate has, of course, been cut from 40 per cent. to 38 per cent. by the last Finance Act. Despite the changes made in the last four years, one of the features of this part of the corporation tax structure is the high marginal rate between the limits. With the limits now proposed, this marginal rate will fall from 60 to 55.5 per cent. It will thus be only 31/2 percentage points above the full rate of corporation tax. Our intention is that it should largely eliminate any discouragements to expansion by small and medium-sized companies. I hope that there will be common ground between both sides of the House on that objective.

Clause 3 increases the mortgage interest relief limit from £25,000 to £30,000. A £25,000 limit was set by the Labour Government in 1974, and house prices have risen somewhat since then. This limit is beginning to hinder a growing number of families who want to buy their first home or to move, particularly, but not exclusively, in the south-east. The increase that we propose is modest but reasonable, and it should help the construction industry as well as home buyers. That is entirely consistent with the Government's enthusiasm for home ownership, an enthusiasm clearly shown by the electorate in 1979 and, indeed in June this year—

Mr. D. N. Campbell-Savours

Why not use the money for council house repairs?

Mr. Rees

The plans of the hon. Member for Workington (Mr. Campbell-Savours) again to turn us into a nation of council house tenants engendered no enthusiasm whatever, even in his own constituency.

Clause 4 reintroduces provisions in the earlier Finance Bill to prevent excessive mortgage interest relief where employees also get interest-free loans from their employers. I am sure that the House will recognise the equity of that.

Clause 5 makes some technical amendments to the business expansion scheme which was introduced in the earlier Finance Bill. The details of the amendments are set out in schedule 1. They do not involve any alterations in the categories of investors or companies eligible for relief.

Clause 6 provides for three amendments to capital allowances for assured tenancies that were introduced in the last Finance Act to encourage the construction of dwellings for letting by approved bodies under the assured tenancy scheme. Two of the amendments merely make technical corrections and the third restricts the allowance to approved bodies that are companies.

Clauses 7 and 15 were not in the original Finance Bill, but they would have been tabled during the Bill's later stages had the Dissolution not intervened. They are inserted in this Bill because the need for them is immediate. These provisions will enable relief to he given against certain charges on capital gains tax and stamp duty that might otherwise have been incurred by local constituency associations when property changes hands as a result of the changes in parliamentary boundaries consequent on the recommendations of the boundary commissioners. Although this is a new provision not found in the original Finance Bill, I hope that it will commend itself to the whole House.

Clauses 8 to 13 reintroduce several capital transfer tax provisions that were in the original Finance Bill, in particular the proposed increase in the threshold to £60,000, the increases in the rate bands and the improvements in the reliefs for businesses and agriculture.

Clause 63 of the previous Finance Bill proposed rate bands similar to those for 1982 after indexation by reference to the change in price levels over the year ended last December. The amounts for most bands were, however, somewhat more than rounded up to the nearest £1,000 stipulated by section 91 of the Finance Act 1982. The extra rounding was mainly intended to provide a more sensible graduation of the tax scale. It is proposed that clause 8 should take effect on the same day as clause 63 would have done—15 March 1983—so the effect would be as if clause 63 had never been dropped.

The capital taxes offices have not been finally settling the tax liability on transfers made on or after 15 March, so there should be no difficulty in operating this clause as from 15 March this year. The cost of these proposals over and above the indexed scales is estimated to be £5 million in 1983, £12 million in 1984–85 and £15 million for subsequent full years. This has already been accounted for in the Budget arithmetic.

Clause 14 provides exemption from development land tax for certain operations in connection with the installation of advanced telecommunications networks. Such developments could not have been foreseen at the time the development land tax was introduced, and it would be wrong for the Government's policy of encouraging further developments in this area to be frustrated purely because of this tax.

Sir William Clark (Croydon, South)

My right hon. and learned Friend has just said that the cost of the collection of certain taxes is extremely high. I presume that he would agree that the cost of the collection of development land tax is the highest in our fiscal system. I think that development land tax produces between £40 million and £42 million in revenue, but it costs £10.2 million to collect. Is it not about time that we had a long and serious look at this tax, which in many cases deters and inhibits development? Would it not produce more revenue to the Exchequer if only capital gains tax was paid on development land, and in addition would not that release far more land for development?

Mr. Rees

My hon. Friend, who has a deep knowledge of these matters, has opened up an interesting subject of debate. However, I cannot give the House any assurance that the extinction of development land tax is imminent. I do not doubt that my hon. Friend will take every opportunity to press a cogent case, but, as he will appreciate, the change that he desires might well involve the recasting of capital gains tax, and I cannot embark on that subject this afternoon.

Some 50 clauses were dropped from the original Finance Bill. They amounted to almost 100 pages of legislation, much of which was highly technical. The Government consider that it would be wrong to consider legislation of such a scale and complexity before we rise for the summer recess.

Mr. Donald Stewart (Western Isles)

Why?

Mr. Rees

The right hon. Member for Western Isles (Mr. Stewart) appears to be keen to stay here into August and September. We hope that the House will agree that the proper course is to bring such measures forward in such a way that, if they wish, hon. Members will have an opportunity to consider them in detail in Committee. We shall take advantage of the intervening months to consider the comments made on the original Finance Bill proposals by a number of representative bodies and others, so that the provisions in next year's Finance Bill can be prepared with the benefit of the fullest possible consultation.

Mr. Tim Smith (Beaconsfield)

The fact that some clauses in the original Finance Bill do not appear in this one creates a difficulty about commencement dates. For example, clause 58(4) in the previous Bill would have increased the retirement relief for capital gains tax from £50,000 to £100,000. I am very sorry that that short and worthwhile provision does not appear in the present Bill. The original commencement date would have been 6 April 1983 and, understandably, some people started to plan their affairs on that basis. If such a provision is introduced next year, what will the commencement date be?

Mr. Rees

I understand my hon Friend's concern and I assure him that a clause modelled on clause 58 will find a place in next year's Finance Bill. I remind my hon. Friend that, although clause 58 increased the limit, it also withdrew a measure of relief. That demonstrates the complexity of the clause. I would not like, therefore, to give my hon. Friend a firm assurance about the starting date before we have considered the matter more carefully. Meanwhile, we will be happy to receive representations on that clause.

The oil taxation provisions also do not find a place in the Bill. Major fiscal provisions for oil were enacted in the earlier Finance Act, and the petroleum royalties (Reliefs) Bill is currently before the House. We feel that it is important to enact the remaining Budget proposals on oil as soon as possible, in order to end any uncertainty which may be holding back developments in the North sea. We therefore propose that those provisions should be contained in a separate Bill which will be introduced in the autumn. As will be recalled from 1975 and 1980, it is not unusual for oil tax legislation to appear in a separate Bill. I am sure that this procedure will lead to better consideration of complex and important provisions.

Mr. Peter Viggers (Gosport)

My right hon. and learned Friend has stressed consistency. It is extremely important to the building industry to know whether the stock relief provisions for houses taken in part exchange will be reintroduced. Are the Government committed to them, or will they be distracted by the lapse of time?

Mr. Rees

I can assure my hon. Friend that a clause —perhaps not precisely the same clause, but one that is the same in principle—will find a place in next year's Finance Bill. I should like to have time to think about the starting point and cannot give an assurance on that point at the moment, but I understand the concern of my hon. Friend and of the building industry.

This is a modest Finance Bill. I cannot guarantee that future Finance Bills will be of a similar length. The Bill does not provide a massive blueprint for tax reform—

Mr. Austin Mitchell (Grimsby)

Handouts.

Mr. Rees

Not handouts, but the honouring of commitments honourably given earlier in circumstances which should bring a blush to the cheeks of the hon. Member for Great Grimsby (Mr. Mitchell). It is intended to put no gloss on the statement of economic policy given by the Chancellor of the Exchequer in the debate on the Gracious Speech. The Bill is a short, practical measure, and I hope that it will be welcome to the House. It reaffirms the Government's commitment to continue, as circumstances allow, the reduction in the levels of direct taxation initiated by the previous Administration. I commend the Finance Bill to the House.

3.56 pm

Mr. Jack Straw (Blackburn)

I welcome the right hon. and learned Member for Dover (Mr. Rees) back to the Treasury Bench, and congratulate him on his elevation to the Cabinet after his exile to the Department of Trade. We look forward to many exchanges with him, and we hope that he will become a wiser, if not a better, man during his interlude at the Department of Trade. On behalf of my right hon. and hon. Friends, I also thank him for his kind words about our friend Joel Barnett, the former Member for Heywood and Royton, who will be sadly missed in the House.

This is a slim Bill. It is one of the shortest Finance Bills ever presented to the House. As the Chief Secretary to the Treasury pointed out, it is a fag end from the last Parliament, containing the clauses which Labour Members refused to allow through when the Prime Minister, in her dash for an early election, scuppered the chance of proper consideration of the legislative provisions in the March Budget.

The fact that the Bill is short and the fact that it is left over from the last Parliament should not obscure from the House the significance of the measures or the context in which they are presented. The Bill is modest, to use the Chief Secretary's words, but it is modest only in length. It is far from modest in its economic and social effect, and it provides a searching commentary on the Government's economic policy.

In our judgment, the Bill raises one central issue of great importance. At a time when the Government have already made many cuts in public spending and propose to make many more, is it just, fair or equitable for the House to agree to spend £60 million on additional mortgage tax relief, £50 million on additional cuts in capital transfer tax, and £280 million on tax handouts to the most wealthy members of our society? Such handouts are not only unjust, unfair and inequitable. When made by a Government who have presided ever the greatest increase in poverty and deprivation since the war, they are obscene and immoral.

On almost every day since 9 June, there have been announcements of bad news about the economy, bad news about the Government's policies to deal with that bad news, and forecasts of further bad news to come. Since 9 June, 21 major firms and employers have announced the loss of a total of 79,153 jobs. The latest unemployment figures, released last week, show that the trend in unemployment is remorselessly continuing on its ever-upward path. Despite wild claims about recovery, the level of manufacturing output is as depressed as it was a year ago. There has been the sharpest fall in our overseas trade yet witnessed in the post-war period. After a £4 billion surplus last year there was no surplus at all this year, even allowing for North sea oil and the earnings of the City. There has been the first-ever deficit on trade in manufactured goods since the Tudors. Prices—including petrol prices, as I discovered this morning—are going up. The mortgage rate has been pushed up by 1.25 per cent., leading to an immediate £11 a month increase in repayments for those with a £20,000 mortgage.

Yesterday we had the announcement that the money supply as measured by M3 was now way over the top of the Government's 7 per cent. to 11 per cent. target, with a 1.75 per cent. increase this month bringing the annual rate to 16 per cent. This is a matter of great significance now, if only because of the misplaced importance which the Chancellor attaches to these worthless, clairvoyant signs—these tea leaves of economic indicators—which, the country has learned in the past four years, the money supply figures have become.

They are important, however, because the Government and the City are attaching such significance to them; and, as we have seen from this morning's newspapers, their misguided attachment to the figures is likely to lead them to even more misguided decisions which will force up interest rates—the markets have already started to move —and cut public spending even more.

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

As the hon. Gentleman fought the election on the basis that the money supply figures did not matter and that the country needed a massive bout of reflation, surely these straws in the wind should be welcome to him. What is he complaining about?

Mr. Straw

I can see no circumstances in which an increase in interest rates and cuts in public spending, in the depths of a recession, should be welcome to any hon. Member. The prospect from the catalogue of bad news which we can see before us, as even the most sympathetic Government supporters must admit, is of dole queues continuing to lengthen, with many more thousands of people of all ages who want to work — who are desperate to enjoy the dignity of work to the point when many of them would do it for washers—being denied that chance.

The prospect is of any recovery — as the Prime Minister has admitted with her new-found post-election candour — being only patchy, and of being wrecked altogether by the looming balance of payments crisis, with a major fall in sterling, a rise in interest rates and a tight consumer squeeze. As I say, we are likely to see a depressing hike in interest rates in the wake of rises in the United States as part of the Government's response to the money supply figures.

The prospect is also of rising inflation, with almost all the forecasters predicting an increase of 6 per cent. by the end of this year and of 7 per cent. to 8 per cent. by the end of next year. In short—to answer the intervention of the Financial Secretary—Labour Members will shortly see confirmed our worst fears and predictions about the economy.

The Government know what a terrible state the economy is in, but what has been their response since the election? Has the response of the Prime Minister been to heed the words of the right hon. Member for Cambridgeshire, South-East (Mr. Pym) and use, as he suggested she should, her formidable talents to serve all the people of the country—not only those able to stand on their own feet, but those who cannot?

Have the Government given a moment's sympathetic thought to the worsening plight of our once-prosperous regions of Merseyside, the north-east and north-west, Scotland, Wales and the west midlands, which are facing more and more closures? Have they given a moment's sympathetic thought to the poverty and deprivation that those on the dole and their children now face? Have they given a moment's sympathetic thought to the increasing burden which unemployment, poverty and the growing population of the elderly place on health, education and social services? Have they given a moment's consideration to the hardship which millions of pensioners will face this winter?

The answer to all those questions is no. Instead, what thought has been given to the economic and social life of that part of the nation which cannot stand on its own feet has made matters worse, and for many of those who are still standing the decisions which have been made may cripple them for life.

The responses to the mounting crisis in the regions has been for the Secretary of State for Trade and Industry to announce a review of industry aid, savagely cut back once in 1979, with the undisguised prospect of still more cuts. Those already on the dole have seen a dramatic reduction in their standard of living with the abolition of the earnings-related supplement, and now they face not the prospect but the certainty that from November 1984 unemployment benefit will be cut. I add my prediction that not only will the real rate of benefit be cut but that the period for unemployment benefit will be reduced from one year to six months and that the wage stop will be reintroduced.

The response to the increasing pressure on the education, social and housing services was seen yesterday, with cuts of £280 million being imposed on local authorities, especially those struggling with the greatest concentration of social and economic problems. That figure should be noted and savoured, for the figure of £280 million which was yesterday cut from the budgets of local authorities struggling to maintain their social and education services in our towns and cities is exactly the cost of the tax handouts to the very rich which we are today being invited to approve. Somehow the Government can find money when it comes to lining the pockets of their friends, but when it comes to providing money for desperately needed services they say that there is no more.

The response to the crisis in the Health Service has been to announce—behind an entirely fraudulent claim of a 0.5 per cent. growth — real and effective cuts in provision of 1.2 per cent. for the next five years. In response to the hardship which pensioners would, in any event, face this winter, the Government have taken away at least £50 from each pensioner by setting their increase at May's level of inflation instead of at November's.

All that has been bad enough. But, in Al Jolson's immortal words, "You ain't heard nothin' yet." Trapped in the web of monetarist dogma which Treasury Ministers have wound round themslves, the Chancellor now sees his only way out as further and large cuts in public spending, as presaged in this morning's newspapers.

My hon. Friends and I draw great significance from the fact that, when pressed first by my hon. Friend the Member for Livingston (Mr. Cook) and then by my hon. Friend the Member for Workington (Mr. Campbell-Savours) to say whether the stories in today's Guardian and Times about looming major cuts in public expenditure and a major review of public spending were correct, not once but twice the Chief Secretary ducked the question.

We can read the signs, and the nation should be prepared for a statement this autumn which will lead to savage cuts in every major spending Department, apart from defence. Those cuts will affect the constituents of every Conservative Member elected on 9 June—I think I see the hon. Member for Loughborough (Mr. Dorrell) nodding in assent—as well as the constituents of every Opposition Member.

Mr. Stephen Dorrell (Loughborough)

I was not nodding in assent. I was smiling at what the hon. Gentleman was saying.

Mr. Straw

The excuse which the Chancellor offered yesterday in a television interview was that the country could not afford its present level of spending and that, however painful or damaging, cuts there must be and cuts there would be.

It is clear that nothing will be sacred, except of course the living standards of those who are already extremely well off. It is here that we come to the obscenity of the Bill and the utter hypocrisy of the Government in introducing it. They cannot find £200 million to give the pensioners a fair increase in line with prices and they cannot permit democratically elected local authorities to spend £280 million on maintaining desperately needed services to the poorest and most vulnerable in society. They cannot find £400 million to protect the Health Service from further cuts and collapse, but through clause 1 they can find £280 million to give those, and only those, earning at least £17,000 a year—£350 a week—a most substantial and staggering tax reduction.

It is important for the Government to understand the scale of relief that the Bill gives to those earning over £350 a week and to compare that with the meanness and stinginess of the relief that is offered to the poorest in our society who are on benefits. According to the Treasury's press notice, under clause 1, a single person on £20,000 a year will receive a tax handout of £384 a year and a single person on £40,000 a year tax handout of £957 a year—£19 a week. Compare that with a single person's retirement pension, which will be increased by £1.20 a week or £65 a year. A married couple earning over £20,000 a year will benefit by £443 a year—£9 a week —and a married couple on £40,000 a year will benefit by £1,035 a year.

We can compare that with the amount by which a married unemployed couple or couple entitled to receive retirement pension will benefit. The retirement pensioners will receive an increase of £100, and the man or wife on unemployment benefit an increase of £140 a year.

There is a stark contrast between the way that the Government treat the already very rich and their treatment of the desperately poor. There is not just a contrast between the absolute amounts which the Government are giving away ; there is also a major contrast between the ways in which the Government use methods of indexation to justify these increases. Up-to-date indexation, and more, are used for the rich. In April it was possible for the Government to say that inflation had increased by 8 per cent., and that they would add that to a shortfall and increase higher rate thresholds by 14 per cent. However, it is not possible for the Government to say, "We know that inflation will increase by 6 per cent. in November," and increase the pension by that amount. Pensioners face not just a much smaller absolute increase in benefit, but a much more adverse calculation in terms of indexation of their benefits.

What makes the proposal in clause 1 even more craven and hypocritical is that this small group which is to benefit —the 5 per cent. of the population earning over £17,000 a year—is self-evidently the group best able to carry the largest tax burden. Even before the 1983 Budget, it was the only group which had received major reductions in its tax burden over the previous four years of Conservative Government. Every other group, especially those on average and below average incomes, had suffered a marked increase in its tax burden.

The Chief Secretary spoke about the need for the Government to honour pledges. I wish that during the previous four years they had followed the Chief Secretary's advice, because in 1979 the Government—as all of us well remember—pledged to cut taxation at all levels of income. They met that pledge with reductions in direct taxation only for those on the highest tax rates.

Mr. Ridley

Rubbish.

Mr. Straw

It is not rubbish. Those figures were given by the Financial Secretary in answers to me contained in the Library—

Mr. Ridley

The hon. Gentleman has got them wrong.

Mr. Straw

No, I have the answers, which I used exactly as the right hon. Gentleman gave them. They are in the Library's brief No. 114. It is no good the Chief Secretary or other Treasury Ministers trying to wriggle out of their record by suggesting that we should ignore national insurance contributions as part of the overall burden of direct tax, because the Chancellor of the Exchequer in his Budget speech on 12 June 1979 said—I can put it in no better words: 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.] It was the Government, not the Opposition, who said that national insurance contributions should be seen as part of direct taxation when it came to the calculations of the tax burden. By their own definition must they be judged.

The only moral justification the Government have ever proffered for their consistent policy of taking from the poor and the average paid and giving to the rich is that major taxation reductions for the highest paid have been needed to provide the essential monetary incentives to business men to regenerate industry and the economy. If there ever was a theory which has been so thoroughly disproved and compounded by events, this must surely be it. Increases in the post-tax income of managers, business men and others of the high paid have coincided with the worst relative and absolute decline of the British economy this century. It is worse even than that of 1929–31.

The incentive theory has been killed stone dead by the Government's policies and practices. With it goes any vestige of moral justification for what the Government propose to do.

Last evening, the Chancellor, in an interview on the BBC television programme "People and Power", said that the Government's fiscal priority was to raise real tax thresholds for the low paid if we can possibly afford it". Given the 50 per cent. increase in the burden of direct taxation on the lowest paid since the Government took office, it is a priority that we should all share. However, the Government have to choose. The Government could, if they wished, choose today to spend that £280 million on tax relief for the lowest paid and they could afford to do so, even within their own Budget, if they cut these tax handouts to the rich. We all know that they will not make that choice. The Government's priority lies in the practice of the politics of greed—giving to those who already have and taking from those who have not.

In those circumstances, for the Chancellor to suggest that the low paid have any priority under the Government is the cruellest deception of all.

Mr. Ridley

We must get this straight. How does the hon. Gentleman explain the fact that real take-home pay increased by between 5 per cent. and 6 per cent. for all levels of taxpayers under the last Government although it decreased under his Government? How does he square that with the sort of things that he has been saying?

Mr. Straw

The right hon. Gentleman has his facts wrong. If he looked at the figures given by the Institute for Fiscal Studies and published in The Sunday Times on 20 March, he would have seen that real take-home pay—people's standard of living — has varied enormously under this Government according to their housing tenure and level of income. A company director earning £44,700 a year has gained £119 a week while a couple on pension have lost 91p a week and a semi-skilled worker living in a council house has lost £8.05 a week in real terms.

The Government's success is that they have been the first Government for 50 years to make the nation poorer. Real personal disposable income per head, as the right hon. Gentleman knows, rose by 12 per cent. between 1974 and 1979 under the Labour Government and fell under this Government by 4 per cent. What makes the Government's record even more abject is that the whole of the loss of national income has been borne by those people who are out of work while those who are already well off have enjoyed a substantial increase in their standard of living.

Mr. Ridley

Will the hon. Gentleman stop flannelling and acknowledge that under the last Government real take-home pay—disposable income—after tax and national insurance contributions, increased by between 5 per cent. and 6 per cent. for all sections of the population in work?

Mr. Straw

I am not flannelling in the least. I am giving the Financial Secretary the facts.

Mr. Ridley

The hon. Gentleman is not.

Mr. Straw

If the right hon. Gentleman wants to use averages when he talks about the standard of living he should choose the index which is published in his own Economic Trends—not the one about which he is talking —which gives real personal disposable income per head and shows incontrovertibly an increase in such income per head of 12 per cent. between 1974 and 1979 and a decrease of 4 per cent. under this Government, corresponding broadly to the decline in gross national product under this Government.

As I said, it is not true that everyone's living standards have gone up under this Government. That is an untruth. They have gone up for those who were already well off. If the right hon. Gentleman wishes to look at the details from the Institute for Fiscal Studies, he is welcome to do so. Living standards have gone down for the poor and collapsed for those forced out of work.

The Financial Secretary cannot avoid this second point. The Government pledged themselves to reducing the burden of taxation in 1979 and again in 1983. There is no doubt from the figures that he has given me so assiduously over the past three years that the burden of direct taxation for all on one and a half times average income or below has increased under the Government to well above what it was in 1978–79.

The second major and controversial change in the Bill concerns the decision announced in the Budget to increase the mortgage tax relief to £30,000 from the present limit of £25,000. The proposal was discussed in detail just two days before the last Parliament was dissolved and will be discussed again in Committee. It is important to comment here and now on the principle raised by the proposal.

As a party, we have not only favoured the idea of owner-occupation but have done more to transform and improve the housing condition of the nation and extend home ownership in the private sector than the Conservative party has ever done. We introduced the option mortgage scheme. It was my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) who protected authorities' housebuilding schemes in housing stress areas and gave real, tangible assistance to first-time home buyers through the grants and loans scheme introduced in 1978. My right hon. Friend also conducted and published the most thorough and comprehensive study of housing finance and policy ever undertaken. One conclusion that emerged from that study was that indiscriminate housing subsidies—mortgage tax relief is one such—tended to help those already housed rather than those in need of housing.

There was evidence that over time the additional purchasing power that tax relief gave resulted principally in an increase in the price of housing rather than in the quantity of housing. That led to a view that was and still is widely shared across the House, that, while the existing tax relief should not be reduced, in a period of public expenditure stringency any additional cash for housing could be used more effectively in other ways. That was and still is a view held most strongly not just by Treasury officials but by Treasury Ministers. It was they who resisted all calls from their own Back Benchers in 1979, 1980, 1981 and 1982 for any increase of the £25,000 limit, who fought so fiercely this year against proposals from No. 10 for a major increase in the ceiling and who finally compromised at £30,000 against the clear wishes of the Prime Minister.

We are faced with priorities and choices. If there is £60 million to be spent on improving the housing condition of the nation, the question for Conservative Members as well as for the Opposition is whether it could be used far better in expenditure on local authority or housing association schemes, in direct help to the construction industry or in helping the Conservatives to fulfil their manifesto commitment in 1979 to provide direct help for first-time house buyers. We remember, even if Conservative Members do not, that that was their pledge. We also remember that when they were pressed twice in the previous Parliament to extend the grants and loans scheme, which was introduced by my right hon. Friend the Member for Bethnal Green and Stepney, the then Secretary of State for the Environment said: My hon. Friend will remember that we referred to the desirability of such a scheme in our manifesto, but we made it absolutely clear that it had to follow improvements in the overall economic climate".—[Official Report, 30 January 1980; Vol. 977, c. 1337.] There is now £60 million to be spent on housing and Conservative Members must see the sense in what I say. If one wants to help people to buy their houses, one does so directly with assistance to first-time buyers rather than give it away with such a benefit, which will inevitably lead simply to an increase in house prices and to a capitalisation of the tax allowance increase in house prices rather than to any overall benefit to most house purchasers.

Over time, that increase will do virtually nothing to help even those in the south-east who have to take out large mortgages to get even a half-decent home. We have already seen since last March—the proposal to increase the ceiling has contributed to it—a sharp rise in house prices, a mortgage famine and above all a steep rise in mortgage interest as a direct result of Government policy. For those with a £30,000 mortgage, the full-year benefit of raising the ceiling to £30,000—£165.40 a year—has already been wiped out twice over by the increase in interest rates, which added £300.70 to the mortgagor's bill. What the Government have given with one hand their economic policies have taken away with the other.

The third proposition in the Bill that cannot pass without comment on its Second Reading is clause 8, baldly and accurately entitled "Capital transfer tax" and "Reduction of tax". As my hon. Friend the Member for Livingston so eloquently said when we debated the proposal on 25 April, over the past four years the Government have chipped away at capital transfer tax with such success that it is now the only tax the yield of which this year, in constant prices, will be below the 1979 yield. With other often highly technical changes, the Government have transformed capital transfer tax from an effective method of redistributing wealth to a near-voluntary tax with more loopholes than the estate duty it replaced.

The reductions in the Bill will cost £40 million next year and £50 million in a full year. There is no greater testament to the practice of the politics of greed by the Government than that they can find £50 million to give away to those who inherit substantial sums upon the death of their wealthy relatives, but they cannot find £50 million to increase the death grant to £90 to help the least well off, with the costs—and the dignity—of a decent burial.

In a memorable speech exactly a week ago the right hon. Member for Cambridgeshire, South-East, the former Foreign Secretary, said: We must see to it that this country never has to make the choice between being divided but rich, or united but poor. It is our duty to ensure that such a choice never has to be made." —[Official Report, 29 June 1983; Vol. 44, c. 606.] Those words and the speech as a whole were rightly acclaimed by both sides of the House. The right hon. Gentleman represents the lost soul of the real Disraeli Tory party. It is his historic task to bring back some soul and heart to the 19th century Liberals who run the Government and masquerade as the 20th century Conservative party.

I have informed the right hon. Gentleman what I am about to say. He said that he was sorry, but for unavoidable reasons he could not be present. Words, however eloquent and well spoken, are not enough. People have to be judged by their deeds. The problem with the Tory wets in the last Parliament is that they were wet not only by name but by nature. In Pope's words, they were Willing to wound, and yet afraid to strike". It was worse than that. In the end, after all their hand wringing, conscience searching and fine speeches, the Tory wets succoured and sustained the Government in the disastrous course that they have set for the economy and our people.

Today the House is faced with precisely the choice that the right hon. Gentleman said should never be made. It is faced with decisions involving spending £403 million on the most well off in our society, when the least well off are suffering cuts in their living standards and prospects that will further divide the nation. If the House passes these immoral measures, a major part of the responsibility for the way that they will further divide the nation will rest upon the right hon. Gentleman and all Conservative Members who cheered him to the echo last week. They could by a vote—or even by an abstention— tonight give the greatest possible warning to the Government not to proceed with such divisive and unjustified measures. If they fail to do so, they will be rightly treated with the contempt they deserve.

Men must be judged by what they do. We shall know tonight what judgment to make on those who claim to bear the torch of compassion and national unity within the Tory party.

4.30 pm

Mr. David Howell (Guildford)

The House may have had the opportunity of discussing a Finance Bill in an earlier part of the year, but, for various reasons, I did not, so I am grateful now to have the opportunity of joining in the cut and thrust of discussion on financial matters.

I join my right hon. and learned Friend the Chief Secretary and the hon. Member for Blackburn (Mr. Straw) in paying a tribute to the former right hon. Member for Heywood and Royton, Mr. Joel Barnett. He and I spent many long happy and unhappy hours, as did the Chief Secretary, dealing with the miserable and ill-starred capital transfer tax, which was, and remains, a job-killing tax. Of all the measures put on the statute book in the last decade, far from being a great instrument of social justice, it has probably done more to deny jobs to the younger generation of school leavers and to prevent the emergence of new business than any other new measure of the previous Labour Government. We wrestled with it day and night in the 1970s. I am delighted that my right hon. and hon. Friends in the previous Conservative Government —I hope that the good work will be continued —succeeded in removing some of the appallingly anti-social and anti-job effects of that tax.

The former right hon. Member for Heywood and Royton also wrote an excellent book, which was a gold mine for those seeking to destroy the already flimsy intellectual case of the previous Labour Government, so we have many reasons for being grateful to him and for missing him now in this House.

I shall not comment at length on the speech of the hon. Member for Blackburn, except to say that his speeches seem to be a shade less uncongenial and wild than those of the right hon. Member for Bethnal Green and Stepney (Mr. Shore). The hon. Member used the word "obscene" only twice, showing great moderation. Nevertheless, his speeches are equally wrongheaded and muddled, as I shall seek to show.

This Finance Bill, like the one introduced earlier in the year by the then Chief Secretary to the Treasury, my right hon. and learned Friend the Member for Richmond, Yorks (Mr. Brittan), is, as was explained to the House, designed to increase incentives and competitiveness and thus, presumably, to help in the search for those expansionary forces which are clearly needed to help along the very welcome but patchy and fragile economic recovery which is now beginning to emerge. If that is its aini—I am sure it is—the Bill is right, as are the Government in their policy, to rule out straight away any tax measures which would lead to a larger Budget deficit than planned, and to rule out any tax measures which would accelerate inflation.

Nowadays, a higher Budget deficit is a contractionary force in the economy. It is not — as it was, or was alleged to be, in the post-war years— a stimulus, but almost certainly a contractionary force. Therefore, when Opposition spokesmen propose measures which would lead to a higher Budget deficit, they are once again proposing measures which would lead not to greater economic activity and more jobs but to lower levels of activity and fewer jobs. The Finance Bill is right to eschew any approach of that kind, and the Government are right to rule out measures which might have an adverse effect on inflation because, as we know, that too is the great job destroyer, the killer of jobs and opportunities, which has done so much damage to Britain and its people in the past.

The House will not hear advocated from this seat or this Member anything in our financial debates which leads to higher deficits and borrowing, which leads tc higher inflation, which leads to raising taxes and rates against business, or which weakens financial confidence and therefore investment in new enterprises. Those four measures are the ones which we know from experience will lead to higher, not lower, unemployment and destroy, not create, jobs. They are the four horsemen of the unemployment apocalypse, and one can hear them clattering by every time speeches are made from the Opposition Front Bench on what we should do about the economy and unemployment. Nevertheless, having said that, I believe that there are things—

Dr. Jeremy Bray (Motherwell, South)

At what stage would the right hon. Gentleman expect the evidence to begin to appear, if his argument is correct? Would he not expect that by now there should be some evidence that the reductions in the higher rates of income tax, the virtual abolition of the capital transfer tax, and so on, were having some effect on the creation of jobs?

Mr. Howell

The rate of inflation has only recently come down to the kind of low level that we need, but, of course, looking back over the last decade, we can see devastatingly clear evidence of inflation, a passion for high public spending, high interest rates and subsequent disasters on the budgetary side, leading to loss of competitiveness and the vanishing of whole markets in Britain, a surge of imports and immense damage to job opportunities. The evidence is there and it is clear. We are dedicated to reversing that process, because it was wholly wrongheaded. To repeat it, as the Labour party seems to want to do, is a perverse approach. Nevertheles, I believe that, within the constraints that I have described, there are some things that it would be right to explore and develop in order to help the expansionary forces which are now developing in the economy.

I had the opportunity a week ago to tell the House that I believe that there will be room for more Government capital investment. Of course, the plans have to be laid and they take time to develop. I doubt whether any acceleration now in Government capital investment would have any effect for two years—that is an argument for getting on with it now—but I believe that, if it were done, it could have a nil effect on the Government deficit. Indeed, I argued last week, and would argue again, that if the Government were prepared to present their public expenditure proposals with a greater divorce between capital account and current account, that might have a beneficial effect on funding and, at a given level of interest rates, enable more money to be raised without any inflationary or overall effect on the deficit. I know that it lies somewhat outside the details of the Bill, but it is one area in which, within the constraints that I have described, it would be possible to move forward.

It should also be possible to move forward in the area of tax incentives. There are tax incentives—some of them are touched on in the Bill, but there are many others — which could be brought in which would revive enterprise and create more jobs without revenue cost. Therefore, given the constraint that I set down, which I believe is essential, and to which the Government are right to adhere—that there must in no case be tax measures which enlarge the deficit—some tax incentives could now be brought forward which would revive enterprise without a net effect on the deficit.

Some may say—and they may be on the Government Benches—that that is getting near to supply side heresy. Some may say that they are the sort of ideas that were put forward two or three years ago for taking risks by cutting taxes, in the belief that they will produce higher revenue in due course. Nevertheless, I believe that those suggestions should be examined. I realise that they are not consistent with that particular kind of mechanical monetarism, if I may call it that, which lays down—this can be seen in the proposals of some financial analysts — that there is a specific public sector borrowing requirement that we aim for on day one, leading to specific interest rates being delivered, and even a specific inflation rate. What I am saying is not consistent with that. That is an over-mechanistic approach. It is an example of what is called the fallacy of aggregates, which is a fallacy also to be found among the old school of demand managers which still has adherents on the Opposition Front Bench. It is the belief that the global aggregates of the economy can be engineered and manoeuvred in precise ways, which will deliver up certain precise results. In real life, that is not so. Quantities are rough, not precise, and the business of monetary management is an art, not a science. It is a cliché that the PSBR is the difference between two very large figures, and that the room for error between them is also very large.

The business of monetary management is an important art, and let there be no doubt in the mind of the House on that. It is essential that it achieves its role of lower deficits and lower inflation, but the art also permits, even demands, some expansionary tax cuts and Government investment measures. If I were asked to point to a particular expansionary tax cut, by which I mean a tax cut that could have a nil effect in a short time on the deficit and revenues, but would lead to more business enterprise and more jobs—it is from new enterprise that jobs for the present and next generation will come, not from large, established manufacturing enterprises—I would point to the investment income surcharge. Although in the Bill there is a welcome change on the ceiling, it is still ridiculously low, and I should like to see it much higher.

In short—I shall try to stick to Mr. Speaker's rule of brevity for all and the utmost brevity for Privy Councillors — some expansionary steps can now be taken. Their effect will be slow. I am not sure that there is much else that could or should be done that is within the Chancellor's power to do within the next year or so. However, the steps must not be those that would enlarge the deficit or restart inflation, because both those consequences would be not a stimulus, but would be contractionary, weaken the economy and undermine jobs.

Mr. David Winnick (Walsall, North)

As a former Cabinet Minister, does the right hon. Gentleman believe that it would be right in any public expenditure cut for unemployment benefit and short-term supplementary benefit to be reduced in real value? What is his view, bearing in mind the reductions in income tax that quite rich people will receive as a result of the Bill?

Mr. Howell

If such proposals are to come before the House, we shall have an opportunity to debate them. My understanding is that no such proposals have been formulated to come before the House.

As to the hon. Gentleman's second point, he misunderstands, as does the hon. Member for Blackburn. If he is interested—perhaps he is not—in seeing new businesses start up, there must be an incentive for people to invest and make the necessary sacrifices to build up and accumulate capital. Taxes, such as the capital transfer tax that the previous Labour Government brought in, do much damage. Those policies prevented the coming into being of jobs that should but do not exist for his constituents. I do not understand the hon. Gentleman's attitude, or the morality behind it.

Mr. Straw

How can the right hon. Gentleman assert that given what has happened over the past four years when there has been a dramatic improvement in incentives through tax reductions for the higher paid, coinciding with the greatest collapse seen in our economy in the past 50 years?

Mr. Howell

The hon. Gentleman has been studying these matters for a fairly long time, but perhaps not for as long as his right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) who is experienced enough to understand the pace of cause and effect. The poisonous seeds of inflation, anti-business legislation and restrictive practices planted in the 1970s took time to grow into a harvest. We have seen that harvest, and it has been bitter and nasty. In the last Government, we sought—and I hope that we shall continue to seek—to plant a new harvest that will bear better fruit than the efforts of the Labour Government in the 1970s which did terrible damage to our economy.

An expansion of the Government's deficit and higher public spending would be a contractionary course and would destroy, not create, jobs. I know that some hon. Members on both sides of the House think otherwise and say that there is a balance to be struck between inflation and unemployment, as though, if we had a little more of one, we might get a little less of the other. But I believe that such hon. Members are using the wrong pair of scales. The reality is that the path to high and stable employment —the goals of the 1944 White Paper which all hon. Members must share—lie via lower inflation. That is the necessary means to the end of higher employment, and the two are inseparable. That is an essential understanding that has not penetrated the mind of every Labour Member, but it is the path that we should follow.

There are expansionary steps on both tax and investment that can be taken now without straying from that path of sound money, which is the vital one to follow. The Chancellor recently said that the defeat of inflation was a necessary but not sufficient condition for economic recovery. I agree with that, but I also believe that tax cuts are a necessary precondition for, not a consequence of, economic recovery.

I welcome the Bill, but with a lively sense of anticipation that it is the precursor of better things to come and a lower level of taxation in this country.

4.46 pm

Mr. Richard Wainwright (Colne Valley)

I am glad to associate the Liberals with what has been so rightly said about the presence of the Chief Secretary and the lamentable absence of Mr. Joel Barnett.

The right hon. Member for Guildford (Mr. Howell) made an interesting speech, and I hope that we shall hear much more from him about the lamentable neglect of capital expenditure by the previous Government and the lack of any recognition by the new Ministers of the damage done by that Government. I also welcome what he said about the fallacy of aggregates. I hope that the right hon. Gentleman will follow up his sound views on that fallacy when it comes to voting on the tyrannical behaviour of the Secretary of State for the Environment, who is virtually suppressing local government in Britain. That course of action is an indulgence in the fallacy of aggregates. I hope that the right hon. Gentleman agrees that the logical outcome of what he said is that the fiscal effects of £1 million spent in Newcastle are different from those of £1 million spent in Guildford or any part of the south-east. I hope that that line of thinking will be developed by the right hon. Gentleman throughout this Parliament.

A different picture from that presented by the right hon. Gentleman was given by the Chief Secretary. One of the many reasons why the Conservative party lost support at the last general election and has come back to this Parliament representing a smaller fraction of the electorate than it did before is its lamentable record on tax. It was distressing that on this first occasion, with a Government newly returned to power, with a new occupant of the position of Chief Secretary, we had such a dreary speech, with no sign of a fresh outlook on taxation, no hint that we might be learning something from the experience of other industrial countries that are far outstripping us in economic performance, and no commentary on tax reform. I hope that the new Chancellor of the Exchequer will not rival his immediate predecessor in so disappointing the expectations that have been aroused by a reputation for tax reform, which never materialised when it came to putting changes into practice.

I hope that it was made clear in debates last week that Liberal Members are opposed to what is almost threefold indexation. That is distinct from the view of the Labour segment of the Opposition. We are not strongly opposed to a 5½ per cent. indexation. There is much to be said for sticking to the principle of indexation unless there are strong reasons not to, but a 14 per cent. indexation is unjustifiable. That is the main reason why I shall recommend my right hon. and hon. Friends to vote against the Bill.

A 14 per cent. indexation for taxpayers who already benefit more than anyone else from personal allowances is intolerable. The calculations are understood in the House, but perhaps not in the country. The personal reliefs are applicable to the highest rates of tax that a taxpayer suffers, and therefore, by the simple act of extending the single person's allowance and the married man' s relief, people on the highest incomes receive the highest benefit. To pile extra relief on that is unjust when people start paying direct taxation at the world record rate of 39 per cent. Liberals believe that it is indefensible for people whose incomes reach the level at which they become liable for direct taxation to be clobbered by direct taxation at the highest starting rate in the world. The Government's priority should have been to reduce the tax rate for incomes at the level at which they first incur direct taxation.

The Government have not recognised that much of the background for their Budget judgment in the middle of March has been proved wrong. It is a poor Government, especially when they have just been refreshed by a general election, who are not prepared to admit that they have sometimes been wrong. The central point of their fiscal approach has been proved wrong. The Budget was based on a PSBR outcome for 1982–83 of £7½ billion, but it has turned out to be £9 billion. Surely even in Conservative minds that should have caused a little unease that perhaps they were wrong in March, should own up and come back with something better in July. That has not happened.

I have nothing but contempt for the Chief Secretary's justification that the Government pledged that policy during the general election campaign. The Chief Secretary is a learned lawyer. He knows that it is no defence for a young burglar to go before a court and say, "I promised my dad that I would do it." The pledges should not have been made and the Bill should have been different.

I do not intend to weary the House with a repetition of what I said last week about mortgage relief. We have not had a Government Front Bench justification for singling out home ownership for tax relief on the interest on borrowing. Why should home ownership alone justify interest relief?

May we have an explanation of why a business man's Government, who pride themselves on knowing about such matters and apply their understanding of financial matters in practice, should deny relief on the interest directly incurred by having a larger taxable income? I shall give an obvious example. Someone, imbued with the Prime Minister's spirit of risk-taking and venturing, may lay out borrowed money to buy an asset that increases his taxable income. He may incur an annual interest charge of £100, but increase his taxable income by £200. What justification can there be for taxing the whole of the £200 without giving any relief on the £100 which was an essential part of the transaction and without which the £200 would not be there to tax?

Mr. Ridley

In the last two Budgets we included measures, which I thought were welcomed by the Liberal party, to enable people to borrow and invest in their own companies, with tax relief. That was extended this year to enable employees to buy out companies, with tax relief. That is an example of what the hon. Gentleman is calling for.

Mr. Wainwright

It is the only example, and therefore it is doubtful whether it is an example at all. It is an isolated incident— a poor spar of wood to which the Financial Secretary can cling in otherwise murky waters. Will the Minister explain why a Conservative Government fly in the face of ordinary financial equity in the treatment of interest for taxation?

Mr. John Townend (Bridlington)

rose—

Mr. Wainwright

I am glad that someone is coming to the Government's assistance.

Mr. Townend

Can the hon. Gentleman confirm that his proposals would include tax relief on interest paid on overdrafts used to buy stocks and shares on the Stock Exchange, as was allowed before a Labour Government changed the system?

Mr. Wainwright

I am saying that if a Government relieve any kind of interest for taxation, and even increase relief on house purchase interest, should they not allow tax relief on interest paid to improve taxable income? The Minister should address himself to that problem, because it is fundamental.

Liberals find another measure objectionable. I refer to the lamentable approach to the taxation of capital wealth. I agree with the right hon. Member for Guildford that capital transfer tax was misconceived. The Liberal party has always said that. It is a tax on the donor. The late Winston Churchill said that it was foolish to tax people who had already left this world when the people who should be taxed were the recipients of the wealth. There can be no defence for wrecking the tax on capital transfers without putting something in its place. I hope that the Government will explain why they adamantly refuse to consider a sensible tax on the recipients of wealth. If they did that, the level of tax would depend upon the size of the gift received by the taxpayer.

A contemporary example involves the well-known manufacturing firm that produces the Baxi fire, which has been referred to recently in the House as a shining light for capitalism and which is prepared to give away its enterprise to the workers. If there were a tax on the recipients there would be almost no tax to pay on the whole of the Baxi enterprise. It employs 900 people, is worth many millions of pounds and could be distributed into 900 fractions. For that public-spirited act there would be no serious tax to pay.

That is what would happen in a sensible system of an accessions tax on the recipient of the gift. If the proprietors of Baxi decided to keep the business in the family and give it to the young Mr. Baxi, the tax that he would have to pay on being given a multi-million pound enterprise would, and should, be enormous. Such a tax is applied in the Republic of Ireland and in many other civilised countries, yet the Government consistently refuse to consider it or even to admit the justice of the principle. For those and other lesser reasons, with which I need not burden the House this afternoon, my right hon. and hon. Friends will vote against the Bill tonight.

5 pm

Mr. Michael Stern (Bristol, North-West)

The trembling in my frame at the moment is, I am sure, remembered by many hon. Members and their predecessors from the first occasion on which they rose to address the House. Surprisingly, the knowledge of that fact does not seem to alter the feeling in any way.

It has been my fortune to inherit a constituency which was ably represented in the previous Parliament by two present and one former hon. Members who served with great distinction for many years. Before I pay tribute to their efforts on behalf of my constituents, I want to go back a little further in time and put on record my gratitude to a former Member for Bristol, North-West whose standards of honesty and dedication to the service of his constituents still stand as a beacon to all who succeed him. I refer to the late Martin McLaren, whose memory is still honoured with respect and affection by all those whom he once represented.

I am grateful for the energy and far-sightedness on behalf of my constituents which has been shown by my hon. Friends the Members for Romsey and Waterside (Mr. Colvin), and for Northavon (Mr. Cope), and by the former hon. Member for Bristol, North-East, Mr. Arthur Palmer. Their work over many years has made my path a great deal easier.

My forebears fled across Europe to escape from a series of persecutions and settled in Britain. Their sights were always set westward towards peace, security and the ability to live their lives in the way that they wished. Therefore, it is peculiarly fitting that I should come to the House to represent a part of the city of Bristol which has always looked westward for its trade and prosperity.

Five hundred years ago John Cabot set sail from Bristol with a crew largely consisting of Bristol mariners. They went forth with nothing but their faith and they returned with a continent. The city of Bristol has learnt from that time, that faith and that success. It is a city which has been built on commerce in all its forms and on the invention, industry and courage in new ventures of all its inhabitants, although I cannot help feeling that those qualities have sometimes been aided by the fact that they often speak a version of English which no one else can understand.

Bristol is not just a city of trade and industry, despite the great traditions and the future prospects of its port, and despite the depth of its involvement in high technology on which rest the hope and employment of so many of its people. It is also a city of great beauty and friendliness. In so many parts of my constituency every corner brings a new vista of charm and character and a new group of people anxious to show off their pride in their city and the country of which it forms so distinguished a part.

I regret that the Finance Bill continues an unfortunate trend which has gathered pace in recent years. Taxation law has become too voluminous and too unintelligible. I have a standard textbook on the law of taxation which sets out, without commentary, all the current statute law on income tax, corporation tax and capital gains tax. In 1978 the book contained 1,017 pages. The current edition contains 1,266 pages — an increase of nearly 25 per cent. in five years. The companion volume, which deals with capital transfer tax, development land tax, stamp duty and VAT, has increased by 84 pages, or 13 per cent., in the same period.

Is it any wonder that the law of taxation has become so esoteric that its study and understanding are now limited to an ever-decreasing body of professionals and that the average business man has to think at least twice before embarking on any new venture because of the high professional fees that he will have to pay to avoid the many pitfalls and snares that have been put in his way?

Let no one think that the Government are alone in their record in complicating the tax system. In 1965, the then Labour Government turned the whole basis of taxation upside down and created such meaningless confusion that the system had to be changed again by 1971. The only effect of the change appears to have been that the legal and accountancy professions earned the unenviable reputation of containing the highest number of suicides and nervous breakdowns in any one year.

The Bill, short as it is, contains, I regret to say, some of the same failings. Clause 4 contains 59 lines of new anti-avoidance legislation and clauses 5 and 6 and the first schedule contain 125 lines of necessary amendments to legislation that has been passed by the House within the past year. In other words, more than one third of the Bill provides either new traps for the unwary or should never have been necessary in the first place. We are promised a further dose of technical tax legislation in the spring.

It is about time that we tried to stop this ever-onward march of greater complexity in tax legislation and instead looked for a way to simplify it. Britain once had a tax system which was the envy of the world in its clarity and overall justice. We have departed from those principles, always for good reasons, but I wonder whether we have gone too far. If we can start to move back towards a simpler tax system, we shall earn the gratitude of our constituents and we shall greatly increase respect for the House.

5.9 pm

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

It is a delight and a pleasure to follow the gracious and charming speech of the hon. Member for Bristol, North-West (Mr. Stern). I come from the west country and I know Bristol to be a magnificent city—indeed, I once captained the Turk's Head hotel, Exeter, against the Byron house in Bristol at rugby, but I regret to say that we lost.

I was glad that the hon. Gentleman was both incisive and controversial in his maiden speech, although that is not my style. He said at one stage that some of his constituents spoke a language that some people in our country find difficult to understand. I say to him, "Us be always willin to yer from ee, my dear."

The economic prospects facing our country are so excruciating that some Opposition Members may wish to stop the world and get off. Fortunately or unfortunately, laws of motion and gravity make that a senseless exercise even to attempt. Opposition Members must come to terms with the concomitants that flow from the size of the Conservative majority, the cruel ideological bent of the Prime Minister and her Chancellor and the mood of the nation that is, alas, for the moment, docile, cowed, beaten, puritan, without reason, without hope and without pride. The tempo and temper of the general election showed just how much the character of our society has changed during the past four years. It revealed the existence in our country of a body of opinion, probably larger than in most other countries, that is insensitive and uncaring on such subjects as personal liberty, freedom of speech and meeting, tolerance and democracy. It is insensitive to and uncaring of what, broadly, we might call fair play and the guarantees for it.

The Opposition must accept that the Government have a mandate to dismantle such parts of our libertarian state that exist in favour of the authoritarian state, which is so much part of their dream. That does not mean that we must sit silent and frustrated, peeved and hurt, while the Prime Minister and her Chancellor systematically and deliberately mislead the House on economic matters. I listened to their speeches during the debate on the Gracious Speech — at first with interest, then with incredulity and finally in disbelief as they both moved from false premises to false conclusions via a logic that was characterised only by its defects.

I shall put aside for a moment the speech of the Chancellor and concentrate on that of the Prime Minister. The right hon. Lady is in charge—she is the Queen of Hearts for whom the Chancellor acts as the Mad Hatter, performs ludicrous deeds and makes silly and inconsequential statements from the Dispatch Box.

There was a time when Prime Ministers came to the House armed with facts, but on Wednesday 22 June 1983 she came to the House bringing with her only a mouthful of spit and a handful of dirt. It was not very pleasant. Early in her speech the right hon. Lady gave us her usual lecture on the evils of borrowing. In the four years from April 1979 to April 1983, the Conservative Government borrowed no less than £40.837 billion. That was the size of the public sector borrowing requirement. No Government in our history in a comparable period of peace have ever borrowed so much money. But the position is worse than that. In the last year of the Labour Government —financial year 1978–79—the public sector borrowing requirement was £9 billion. In the first full year of the Conservative Government, 1980–81, the public sector borrowing requirement was £13 billion. That clearly was the Prime Minister's annus mirabilis.

Before I came to the House today I looked back through a thousand years of economic history and discovered that no British Government in time of peace have come anywhere near to borrowing £13 billion in one year. Therefore, I think that we are entitled to ask how this Prime Minister, of all Prime Ministers, can dare to lecture the people of our country on the probity of balanced budgets and then go on to back up her arguments with ludicrous analogies drawn from family income and expenditure patterns that exist nowhere. It is rather like an alcoholic lecturing a teetotaller on the virtues of abstinence.

If that is not enough, the Prime Minister, with her grasp of economic matters, constantly tells the people of our country that they must be prudent and that as a nation we must reduce the size of the general Government deficit. Implicit in her arguments, which we heard before the election and during the election and have heard since the election, is the notion that, if only our country could bring down the size of its general Government deficit to that of the more prosperous countries of the Western world, we, too, could be prosperous.

In 1982—the last year for which figures are available — the general Government deficit in the United Kingdom was 2 per cent. of nominal GDP. The figures for the more prosperous countries of the world are as follows: in Germany, the general Government deficit was 4.1 per cent. of nominal GDP; in the United States of America the figure was 3.7 per cent.; in Japan it was 3.3 per cent.; and in France it was 2.9 per cent. For every country of the Western world that is more prosperous than the United Kingdom, the general Government deficit, as a proportion of nominal GDP, was higher than in this country. In other words, the truth is the reverse of what the Prime Minister says.

Translating that fact into economic terms demonstrates that the policies advocated by the Labour party in its alternative economic strategy at the general election are those adopted by all the prosperous countries of the Western world. The policies advocated by the Labour party then are those advocated by the more prosperous countries, but the British Conservative Prime Minister told the British electorate that they were impossible to achieve.

The Prime Minister in her speech of 22 June, showing all her extraordinary misunderstanding of economic indices, went on to say that she would not print money. I suppose that for economic cognoscenti on the Conservative Benches the term "print money" is not a term of art. Let us give the Prime Minister the benefit of the doubt and assume that she knew what she was talking about when she used that phrase. Let us assume that she was talking about some measure of control of the money supply, possibly sterling M3.

In 1979, sterling M3 increased by 8.1 per cent. In 1980, it increased by an astonishing, staggering, unbelievable, incredible 19.1 per cent. In 1981, it increased by 13.2 per cent. In 1982, it increased by 9.7 per cent. According to figures published by the Bank of England yesterday, it is increasing now on an annualised rate by 16 per cent. That shows the printing of money on such a scale that I sometimes wonder whether our Prime Minister would recognise the truth if one were to spray it on her eyeballs. Having thrice made a fool of herself on an examination of economic indices, one would think that the Prime Minister would want to sit down and shut up—but not a bit of it.

In reply to the Gracious Speech, the right hon. Lady went on to say that the Government would introduce legislation to cap the rates in order to bring down local government expenditure, which she said had enormously increased. The phrase "had enormously increased" could only have been written for her by Humpty Dumpty: 'When I use a phrase,' said Humpty Dumpty with rather a scornful frown 'it means what I say it means—Neither more nor less.' As a percentage of GDP at market prices, local government expenditure in the United Kingdom was 12.9 per cent. in 1979. In 1980 it was 13.4 per cent.—it had risen marginally. In 1981, it was back to 12.9 per cent. In 1982, it was down to 12.3 per cent. Those figures show that local government expenditure, whatever else has happened to it, has not increased enormously. One can only wonder whether the expenditure of £20 million by the Conservative party during the general election campaign, that being expended to tart up the Prime Minister's image, has taken the right hon. Lady away from reality altogether and driven her into the perverse world of mirrors beyond the looking glass.

Does it matter that our Prime Minister is an infertile economic illiterate? I believe that it does. She is the one who is entrusted with the government of our country. Despite her philosophy, it is within her power to make the people better or worse off. I believe that it matters, because without understanding there cannot be wisdom. Thus it is that the majority of the intellectual, thinking and academic world can give evidence to the Select Committee on the Treasury and Civil Service criticising the Prime Minister for monetary policies that are too restrictive, interest rates that are too high and a pound that is hopelessly overvalued. She is driven on by her demonic belief in the nostrums of monetarism, which can only be characterised as an 18th century curse brought back to haunt the 20th century. She still impels our country towards oblivion.

Sir Hector Monro (Dumfries)

Rubbish.

Mr. Sedgemore

The hon. Gentleman looks up from his book to say "Rubbish". I invite him to survey the industrial landscape. It reminds one of Dresden on the morning after Churchill's bombers had flattened it to the ground and fireballs had scorched the earth. It is apparent from our great industrial cities that Britain is becoming a backward and fractious island off the coast of north-west Europe with a culture that is in irreversible decline.

If the Government's policies are continued, within a short and measurable time—less than 20 years—Britain will become an extremely poor country. Only fools and knaves would disregard the warnings of that distinguished Cambridge economist, Wynne Godley, who has told us that import penetration could become so serious when North sea oil begins to run out in the 1990s that we may have to face hitherto unimagined levels of unemployment of 10 million plus as the balance of payments deficit becomes again the main constraint in our economic life.

If we are to deal with those major economic problems, we must consider our relationships with EFTA and the European Community. We must consider the rules that govern the GATT and the structure of the IMF. We shall have to consider the fundamental basis of the international monetary system. At the very time when that system is creating an illusion of stability through floating exchange rates, free trade and deflation, it is preventing the countries of the Western world from returning towards full employment. There is no sign that the Prime Minister and the Chancellor of the Exchequer are prepared to deal with those problems.

For about two minutes I shall leave the indulgences and absurdities of the Government's economic policies to comment on my constituency. I have two images of the constituency. The first was encapsulated in a profile presented by BBC television. The first shot showed some children playing on burnt-out cars. The second shot showed boarded empty houses. That is the Hackney that is suffering from 25 per cent. unemployment and where 1,052 youngsters are chasing 45 jobs. Vast areas are dying and the signs are there for all to see. On the day that film was shown I walked to Victoria park, which is mainly in Tower Hamlets and only partly in south Hackney. The deer, majestic and resplendent, were basking in the unconscious realisation of effortless superiority. The sun was glinting on the pond and the carnival atmosphere challenged the BBC's images. The truth is that at leisure the people of Hackney are caring, quick witted and good humoured. They are a delight to be with and a pleasure to live among.

The tragedy is that the two images, both true and both false, are expressions of the contradictions of a society steeped in culture that is yet being destroyed by its own barbarity. In part that barbarity is caused by the philosophy, the politics and the economics of the Government.

Sir William Clark (Croydon, South)

Oh, come on.

Mr. Sedgemore

It is for that reason that I return to the House not in triumph, but with humility, knowing that, like most of my right hon. and hon. Friends, I am powerless to do very much to alter the present course. I am on the verge of tears. I have one message for my constituents and for the British people generally. If they believe that they are threatened by forces darker than death or night, it is important that they should realise that those forces are conscious forces. They are the forces that have been willed upon us by the Government. They are precisely the forces that gave rise to the Queen's Speech and to this scrofulous Bill. At a time of crisis, they failed the nation. In so doing, they have shrivelled and diminished us all, and for that they should be rejected.

5.26 pm

Mr. Michael Hirst (Strathkelvin and Bearsden)

I thank you, Mr. Deputy Speaker, for calling me to make my maiden speech in this historic Chamber. I am proud and privileged to represent Strathkelvin and Bearsden, a new seat formed from parts of the constituencies of Lanarkshire, North, Dunbartonshire, East and West Stirlingshire. By a welcome piece of political alchemy, parts of those former Labour seats returned a Conservative Member. I am probably in a unique position in that my three predecessors are still Members of this place. They are sitting on the Labour Benches. Therefore, my tribute to them need not he especially reverential.

The right hon. and learned Member for Monklands, East (Mr. Smith) served my electors in Bishopbriggs for 13 years with great distinction. Both before and during the general election campaign I was made aware by the people of Bishopbriggs of the high regard in which they held him. I have known the right hon. and learned Gentleman for many years. He was my mercantile law tutor more years ago than I can remember. I was very much aware of his loyalties and attributes when I was a student and I am glad to know that in the meantime the House has further recognised him.

The hon. Member for Falkirk, West (Mr. Canavan) formerly represented the electors of Lennoxtown, Torrance and Baldernock. I know that he was well regarded as a hard-working and hard-hitting constituency Member.

The hon. Member for Cumbernauld and Kilsyth (Mr. Hogg) formidably represented the electors of Bearsden, Kirkintilloch and North Lenzie, which now forms a major part of Strathkelvin and Bearsden. The hon. Gentleman prevented me from getting into the House in 1979 but I bear him no malice for he has always been unfailingly courteous and helpful. He is one of the Members who welcomed me to the House three weeks ago.

I am frequently asked "Where is the constituency of Strathkelvin and Bearsden?" I can confirm to the House that it is north of Watford. For the sake of simplicity, I could describe it as a cluster of suburbs to the north and north-east of Glasgow. However, I fear that that description would do it a monumental injustice. In the north of the constituency there are areas of great natural beauty extending to the campsie fells. It is an area steeped in historical interest. The Antonine wall was built in 142 AD to contain the unruly northern tribes. The wall passes through the southern part of my constituency. Many forts were built along it. The three principal areas of population —Bearsden, Bishopbriggs and Kirkintilloch—were forts on the Antonine wall. The constituency is blessed with remarkable archaeological evidence for posterity.

The name Kirkintilloch, which many have difficulty in pronouncing, is a derivation of the old Celtic words "caer pen tullich", meaning "the fort on the ridge". Kirkintilloch has produced an amazing number of industrial firsts. In 1773, the Forth and Clyde canal made it Scotland' s first inland port. In 1826, the Monkland and Kirkintilloch railway made it the first town in Scotland to be at the end of a railway line. The coalmining and iron foundry industries followed and the railway enabled Kirkintilloch's famous foundries to export their products throughout the world. Sadly, too few of Kirkintilloch's traditional industries remain. As with many other towns dependent on traditional industries, the shadow of unemployment has fallen over Kirkintilloch.

Bearsden and Bishopbriggs are pleasant suburbs without the long history of Kirkintilloch. In all the towns in my constituency there has been substantial expansion since the war, brought about by the building of new private housing estates. According to the 1981 census, Strathkelvin and Bearsden have the second highest level of owner-occupation in Scotland. I confidently look forward to that high level continuing as many more families take advantage of the right to buy their council homes.

A further fact of housing life in my constituency, however, is the high price of owner-occupation. Quite apart from the high rates, for the reform of which I shall work unremittingly, house prices in Glasgow are the highest in Britain outside the London area and oil-dominated Aberdeen. I am painfully aware of the high cost of housing. A parliamentary answer by the Chancellor in April showed that the average cost of tax relief per mortgagor was and consistently had been higher in Scotland than in the United Kingdom, in England or in Wales. Such are the general amenities and desirability of my constituency, however, that when people move home they tend to move within the same area and find themselves obliged to take on a sizeable mortgage for a house that suits their needs. A well-known building society has produced statistics showing that the average new loan in parts of my constituency this year is £28,300.

Members will not be surprised that I unreservedly welcome clause 3 of the Finance Bill. The threshold for mortgage interest relief was set at £25,000 in 1974 by a Labour Government. If the threshold had been adjusted in the meantime according to the index of new building costs, it would now be about £65,000. That shows the extent to which the £30,000 threshold proposed in the Bill has failed to keep pace with the effects of inflation on new building costs.

Ten years ago, £25,000 would have bought a desirable residence in most parts of my constituency. Now, sadly, £25,000 or even £30,000 hardly covers the cost of a new home for a first-time buyer. Many families in my constituency—standard rate taxpayers, not the rich to whom the Opposition constantly refer—have had to take on mortgages the interest on part of which is not subject to tax relief. I trust that my right hon. Friend the Chancellor will bear that in mind in establishing his priorities for the 1984 Budget.

An upward revision of the threshold for mortgage interest relief is not just desirable but essential for first-time buyers in my part of the world. I accept that such a proposal entails a cost and that the Opposition may say that it would favour higher rate taxpayers. I venture to suggest a possible solution. If the threshold is increased by a reasonable amount, a concomitant would be to restrict the tax relief to the standard rate. In that way, mortgage interest would be treated on the same basis as life assurance premiums. That would seem reasonable to the country at large and probably to both sides of the House.

I make a further plea to the Chancellor about the cost of houses for first-time buyers in my constituency. Stamp duty is the sting in the tail of house purchase and is greatly resented by those who have to bear it. I hope that we shall work progressively to abolish it. I trust that in the meantime we shall review the threshold so that stamp duty does not become a disincentive to home ownership. Conservative Members are fond of stressing the commitment to a property-owning democracy — a commitment of which I am proud and an ideal which I share. Historically, our legislation has encouraged home ownership. We have given rights to council tenants. The Housing and Building Control Bill is further proof of our determination to help as many families as possible to put their foot on the first rung of the home ownership ladder. There should be equal encouragement to people to climb that ladder if they wish or need to do so.

I look forward to raising many matters affecting my constituents in the next five years and beyond. I thank right hon. and hon. Members for their politeness in hearing me today. I wish to place on record, too, my gratitude to the officials of the House. In the past three weeks, they have been unfailingly courteous and helpful to new Members such as myself, thus enabling us to settle in and feel at home in this, the mother of Parliaments.

5.37 pm

Mr. Frank Field (Birkenhead)

It is a pleasure to congratulate the hon. Member for Strathkelvin and Bearsden (Mr. Hirst) on his maiden speech. It is not all that long since I made my own maiden speech and I well recall my feelings on that occasion. No doubt the hon. Gentleman had similar feelings today. He spoke with wit and lucidity and his arguments about the clawing back of some of the advantages of raising the mortgage interest relief threshold were especially appreciated. We look forward to hearing further contributions from the hon. Gentleman. I salute the way in which he accomplished his difficult task today.

My hon. Friend the Member for Blackburn (Mr. Shaw), who opened for the Opposition, painted his picture with a broad brush. I shall take a narrower canvas. My starting point is the result of the general election, which throws up a challenge for both Conservative and Opposition Members. Early in this Parliament, the right hon. Member for Daventry (Mr. Prentice) said that, in view of the size of the Government's majority, it was the duty of Conservative Back Benchers to be more critical of their Front Bench than they otherwise might be. I hope that Conservative Back Benchers will follow that advice and cast a critical eye on three aspects of the Bill, but especially the mortgage interest relief provision. Specifically, I ask them to apply the ideas, beliefs and rhetoric used by the Conservative party in the election campaign to the arguments on the Bill. If they do that, I believe that they will find it difficult to support the Government when we come to consider the detailed provisions of the Bill.

It is proposed that the subsidy for those who are buying their own homes be increased. That constitutes nothing less than a rigging of the market. Conservative Members, who preach their belief in the workings of a free market, know that if, in the short run, one increases the amount of money that people can spend on something its price will rise. The hon. Member for Strathkelvin and Bearsden is mistaken to believe that this proposal will bring much, if any, relief to his constituents. Indeed, in the short run the real price of housing will increase. That has also been the long-term effect. Although the right hon. Member for Guildford (Mr. Howell) preached about the supply side today, the market has not responded to the increased subsidies for house buyers which we have seen over the past few decades. If it had, the real price of housing would not have risen as it has.

This part of the Bill should also be rejected on the ground that it is paternalistic. The Government are helping people only if they behave as the Government want them to behave. It is a far cry from the rhetoric about people being given money and allowed to make a free choice. If that were the case, the Government would be proposing quite different measures. But just as the Bill throws out a challenge to the Conservative party, it throws out a challenge to Opposition Members.

I should like to ask my hon. Friend the Member for Livingston (Mr. Cook) three questions.

Mr. Nicholas Baker (Dorset, North)

Does the hon. Gentleman agree that the proposed alteration in mortgage interest relief distorts the market and that that is not desirable for several reasons? If so, does he further agree that it is partly the product of high taxation and that, if we could reduce income tax, that type of distortion would also disappear?

Mr. Field

That is a valuable point, but it is the problem of the chicken and the egg.

That brings me to the first question that I want to ask my hon. Friend the Member for Livingston. If we are to have revenue that can finance the level of public services that the Opposition require, enable us to reduce the rate of taxation and take people out of tax, the Opposition must advance more radical proposals than hitherto for changing the tax system.

The objective of the hon. Member for Dorset, North (Mr. Baker) could be achieved if more income was brought into tax. One reason for the high level of taxation is that every Chancellor of the Exchequer knows that, as he begins to draft his Budget, more than 50 per cent. of personal income is exempted from tax by one or more of at least 100 tax benefits. We are discussing just one of them today. The more generous the tax benefits, the narrower the tax base becomes. The result is that the starting point of tax is low and the marginal rates are made higher. I wonder whether my hon. Friend the Member for Livingston has had a chance since the election to consider how the Opposition will approach the problem of raising enough revenue to finance the welfare state and its development while cutting the rate of tax and raising the threshold at which tax becomes payable.

I hope that the House clearly understands that we support the principle of indexation to all tax and benefit levels. What is unacceptable is that the 1979 Budget gave such major tax concessons to the very wealthy. Despite increases in the rates of tax which all taxpayers have had to pay since then, only the wealthy have enjoyed a reduction in their tax burden. Moreover, the Government have calculated the rate of indexation for the highest rate taxpayers differently from the increase in benefit levels for the poorest people which will come into effect later this year.

I do not need to remind my hon. Friend that, while surtax payers have benefited by about £200 million, each of our constituents receiving benefits, such as an old age pension, will lose the equivalent of one week's benefit this year as a result of the way in which the Government have calculated indexation for welfare beneficiaries. I hope that when we divide on this issue the Opposition will be going on record as voting against not the principle of indexation, but the unfair way in which indexation has been applied to different groups of the population during the previous Parliament, and now at the start of this one.

As my hon. Friend the Member for Blackburn said, the previous Government dismantled capital taxation. The final act in that tragedy is being played out today. As there will be no effective capital taxation when the next Labour Government take office, it is appropriate to discuss the form that capital taxation should then take. Will we push for the re-establishment of the old system which took from the wealthy and gave to the Exchequer, or will we use the opportunity to create capital taxation that takes from the wealthy and spreads the money around? Bacon said: Money is like muck, not good except be spread. The scale of Labour's election defeat throws up a challenge to Conservative Members about the extent to which, in the early stages of this Parliament, they will form part of the Opposition. If they believe half of the rhetoric that they employed during the general election campaign about the need to encourage the free market system and to be non-paternalistic, the Government will have great difficulty in getting through their proposal to raise mortgage interest relief.

The scale of Labour's defeat also throws up crucial questions for the Labour party. I have posed three to our Front Bench. I shall summarise them. First, what tax reforms will we propose if we form the next Government? Will we be able to keep all the balls in the air — increasing provison for the welfare state, cutting taxation and raising the threshold at which tax becomes payable? The only way to achieve that is to tax all incomes. Will we be so radical? Secondly, what will be done about indexation? Thirdly, how will a Labour Government spread wealth effectively?

5.49 pm

Mr. Stephen Dorrell (Loughborough)

The hon. Member for Birkenhead (Mr. Field) can always be relied upon to pose interesting questions to the House. Although we enjoyed his speech, I suspect that the hon. Member for Livingston (Mr. Cook) enjoyed it less in anticipation of having to explain at 9 o'clock tonight how one squares high starting points of tax with low rates of tax and high public expenditure. That question, together with the two others posed by the hon. Gentleman, was interesting, and the House will listen carefully to the answers of the hon. Member for Livingston.

The House will agree that my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) made an enormously distinguished maiden speech. He discussed the impact of Government taxation measures on housing finance in his constituency, which has been repeated in the constituencies of many hon. Members, and we listened with considerable interest to his important points. We look forward to listening to many more speeches of equal distinction in the near future.

The boundary commissioners are men of extraordinary influence, because in this Parliament many unlikely people can claim to be maidens now. Even those with scant claim to maidenly status have some maidenly duties to perform in their first speeches in this Parliament, and my duty could not be more pleasant. This is the first time that I address the House as the Member for the new Loughborough constituency, which no longer extends from the town of Loughborough into the Leicestershire coalfields but extends from the town of Loughborough to the city of Leicester and to Charnwood forest. I have inherited many villages that used to be in the constituency of my hon. Friend the Member for Rutland and Melton (Mr. Latham). All hon. Members know of his reputation as an effective and regular exponent of his constituents' interests, and I am grateful for the opportunity to put on record my appreciation of his work in the area that I now have the privilege of representing. During the general election campaign, I saw clearly that his former constituents also appreciated his efforts.

As my right hon. and learned Friend the Chief Secretary said, this Finance Bill contains the leftovers from the 1983 Budget for which the Opposition refused to allow the Government to legislate in the dying days of the previous Parliament. As my right hon. and learned Friend said, it is inevitable that we should be dominated by a sense of deja vu when discussing the issues contained in the Bill. However, perhaps Second Reading of the second half of the Finance Bill 1983 is an opportune moment to review the progress of the Government's economic strategy. I suggested during the Budget debate earlier this year that the measures set out in the Budget should be not only supported by the House but subject to regular review by the House to ensure that the strategies of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), the previous Chancellor of the Exchequer, achieved their targets.

Since the Budget was delivered on 15 March there has been good news, but some dangers have become clearer, and there is much to consider in this debate. The good news is that the beginning of a modest and, as my right hon. Friend the Prime Minister said, patchy recovery in March has continued and strengthened, so that my right hon. Friend the new Chancellor of the Exchequer could say last week that he was upgrading his estimates of the growth in GDP this year. Our domestic recovery has continued, and, if anything, the pace of recovery has marginally increased.

The other good news, of which the House should take due cognisance, is that the recovery in the United States and in continental Europe, which was also apparent at the time of the Budget, has continued, and growth projections for those areas are also being upgraded. The news of a slow, patchy, but clear recovery in economic activity has been confirmed by the experience of a further four months, and the House must recognise that when it discusses the economy.

However, some dangers have become clearer during the past four months. The first danger is that, although the recovery has continued and is welcome, most analysts agree that there is precious little sign of the recovery broadening out from being simply a recovery based on the decline in the savings ratio and an end to destocking. There is little evidence that it has taken root as a firmly based recover, including investment, and my right hon. Friend the Chancellor would be the first to say that a key objective of his economic strategy must be to ensure that the economic recovery is encouraged and becomes more broadly based.

The second danger, upon which all economic commentators are agreed, is that we still do not have a long-term solution to the international debt problems that have overhung the entire recovery and been the background against which economic policy has been made for 12 months, and where there has been continued uncertainty. I hope that my right hon. Friend the Financial Secretary to the Treasury, who is to reply to the debate, and my right hon. Friend the Chancellor will take those matters into account.

The third danger, which Opposition Members may prefer to ignore, is a fact with which the Government must live and deal during the coming months.

Mr. Campbell-Savours

We enjoyed several interventions by the hon. Gentleman during the previous Parliament. From the day of his election in 1979, he persisted in drawing attention to the inadequacies of the Government's economic strategy. Instead of making those contributions on the Floor of the House during this Parliament, will the hon. Gentleman put his vote where his mouth is and vote with the Opposition?

Mr. Dorrell

If voting with the hon. Gentleman implies endorsement of economic lunacy, such as we heard from the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore), you may be confident, Mr. Deputy Speaker, that nothing could drag me into the Division Lobby with the hon. Gentleman.

Mr. Robin Cook

Before the hon. Gentleman leaves on the record the assertion that my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) was advocating economic lunacy, perhaps he will place on the record a single statistic that my hon. Friend got wrong.

Mr. Dorrell

The hon. Member for Hackney, South and Shoreditch, who did not use many statistics in his speech, asserted that we need a massive expansion, such as was advanced by the Labour party during the election campaign and which was decisively rejected by the electorate.

The hon. Member for Workington (Mr. Campbell-Savours) said that I advocated massive expansion. If he reads what I said in the Budget debate four months ago, he will see that I endorsed the Budget judgment of my right hon. and learned Friend the then Chancellor of the Exchequer, because it represented a balanced economic package that was likely to bring Britain out of the recession and into economic recovery in a responsible manner. Our experience since March suggests that that analysis was right, and that is the case that I shall develop.

The third danger that Opposition Members may prefer to ignore is renewed signs of nervousness in the financial markets about the balance of the March budget. The Bank of England has had to support sterling's foreign exchange rate, and there has been much talk about the gilts market being weak and of an upward pressure on interest rates. It has been said that the reason for those signs is that the public sector borrowing requirement is slightly ahead of the projections that were published at the same time as the Budget, and that the money supply is ahead of the Government's target.

That has been the official explanation for the renewed signs of nervousness. While those factors are not unimportant, one of the things that is leading to nervousness in the financial markets is the fragility of the recovery about which I have been talking. If we can strengthen the recovery, our Government deficit will fall, due to the fact that increased revenue will come in as the recovery takes its course, but if we now respond to financial nervousness by deserting the Budget judgments of four months ago we shall be contributing to rather than curing that nervousness.

Mr. Straw

Do we ordinary mortals understand the hon. Gentleman to be warning the Government not to cut public spending even more? Is that really his message?

Mr. Dorrell

The hon. Gentleman will have his question answered if he listens to my next passage.

Britain is now well placed to continue on the course that Conservatives supported when it was set out by the then Chancellor in his Budget earlier this year. I welcome his refusal, and the refusal of his successor in office, to be panicked into early decisions to reverse policies on the basis of one or two months' figures.

Labour Members have whipped up paper tigers on the basis of preliminary discussions about what may happen in the public expenditure review. That review will take its course, but it has become almost traditional at this time of year to spend much time arguing in defence of policies that the Government have not adopted. In general, not many analysts would disagree with the view that the deficit that we now face is not wildly out of line with the expectations that existed at the time the Budget was introduced. I supported the Budget judgment in March. I believe that it was right, and I now believe that to desert that judgment would exacerbate rather than reduce the financial nervousness that has occurred in markets in recent days.

That nervousness underlines the widely recognised need to continue with the two things that the Government have already made clear they wish to do. The first is that they wish to continue the work started by the previous Chancellor of the Exchequer to deal with the problems of international debt. My right hon. and learned Friend the Foreign Secretary undertook some important work as chairman of the interim committee of the IMF to try to produce a solution to some of the difficult problems confronting some of the debtor nations. He understood —and I am sure that his successor does—that it is not in the interests of any western country to provoke one of the big debtors into default, because, beyond any doubt, that could kill the recovery that is now taking place in the western world.

The comments made during the election campaign by the former Labour Chancellor, the right hon. Member for Leeds, East (Mr. Healey), demonstrated a quite extraordinary willingness to gamble with the economic well-being of the west by needlessly provoking Latin American countries into defaulting on their debts. I hope that the present Chancellor will continue the work of his predecessor to find an orderly way out of the undoubted problems of international indebtedness that we now face.

The second thing, which I very much welcome, is the review that the new Chancellor initiated when he came to office of the basis of the Government's monetary policy. In the pre-election period, our monetary policy was shifted away from a reliance purely on the monetary aggregates as the meter by which that policy was measured. There was a move to measure it by reference to monetary aggregates, the foreign exchange rate for sterling and asset prices in general. I very much hope that that process will continue and that the result of the monetary policy review will be to confirm the Government's commitment to sound money, without which there can be no economic expansion and recovery. I also hope that that commitment to sound money is based on a broad analysis of the monetary forces working in the economy and that it does not resort purely to a mechanistic reliance on a single indicator of monetary conditions.

Lord Butler once said that popular Budgets tend to produce unpopular summers and that unpopular Budgets tend to produce popular summers. We all know what he meant—that a short-term Budget can lay up long-term problems. The Budget introduced in March was right. I said so then, and, although some hon. Members may not find that the words come easily from my lips, I hope that the Government will not now indulge in U-turns.

6.5 pm

Mr. Tony Blair (Sedgefield)

I thank you, Mr. Speaker, for allowing me this opportunity to make my maiden speech, especially on such an important Bill, as the new Member of Parliament for Sedgefield. I only hope that I can acquit myself as well as the hon. Members who have preceded me in this difficult task.

Sedgefield is in county Durham, and having lived there for almost 20 years it was an especial honour for me to be chosen by the Labour party to contest the seat. Given the Labour party traditions of county Durham, my subsequent election with a good majority was hardly surprising, but it was no less pleasing to me for that.

The constituency is remarkable for its variety and contrast. In the north-west is the large modern conurbation of Spennymoor, flanked by old mining villages, such as Chilton and Ferryhill. Turning east, one travels through more villages such as West Cornforth, Bishop Middleham, Trimdon Village, Trimdon Colliery and Fishburn, and still further east there are the villages of Wingate, Thornley, Wheatley Hill, Deaf Hill and Station Town. Although most of those villages share the common history of mining, they also have their own distinctive and separate character.

Sedgefield town itself is at the crux of the constituency. It contains some new industry, the important hospital of Winterton and also has its prosperous residential parts. Travelling south from Sedgefield, one enters a different world altogether. One can tell that it is different because it is the place where the Social Democratic party ceases telling the people that it represents the Labour party of Attlee and Gaitskell and begins saying that it represents the Tory party of Butler and Macmillan. Its towns include Hurworth, Middleton St. George, Whessoe and Heighington. It is sometimes suggested by the fainthearted that Labour support is less than solid here, but I have great faith in the good sense of the people.

This new Sedgefield constituency is made up of parts of several other constituencies, and I pay tribute to the hon. Members from those parts—my right hon. Friend the Member for Durham, North-West (Mr. Armstrong) and my hon. Friends the Members for Easington (Mr. Dormand), for Bishop Auckland (Mr. Foster) and for City of Durham (Mr. Hughes). I am grateful that they are all here as colleagues in this Parliament.

Though new in 1983, Sedgefield as a constituency has in a sense only been in hibernation, as it existed as a constituency until 1974. Distinguished predecessors have represented Sedgefield, the last three being John Leslie from 1935 to 1950, Joe Slater from 1950 to 1970 and David Reed from 1970 to 1974. Their maiden speeches provide an interesting synopsis of south-west Durham's history.

In the 1930s, John Leslie spoke of the poverty of his constituents, particularly the mines. However, in 1950, Joe Slater, himself a miner, described a better world where under public ownership the views of the miner are respected, and even acted upon, and that is how it ought to be". — [Official Report, 29 March 1950; Vol. 473, c. 489.] That was a speech of optimism. David Reed, who like me had the distinction of being the youngest member of the parliamentary Labour party, also spoke with some optimism. He pointed out that the mining pits had largely closed but said: The influx of new industry into my constituency has shown a remarkable increase during the last five years".—[Official Report, 7 July 1970; Vol. 803, c. 530.] In my maiden speech, I would have hoped to continue the theme of progress and optimism, but it is with the profoundest regret and not a little anger that I must say frankly that I cannot do so.

The speech most appropriate to my constituency now is not the speech made in 1970 or even the speech made in 1950, but the speech that John Leslie made in the 1930s. In that speech, he said: Everyone will agree that it is nothing short of a tragedy that thousands of children are thrown on to the labour market every year with no possible propect of continuous employment, with the result that thousands drift into blind alley jobs and drift out again. They have no proper training, they feel that they are not wanted and the future seems hopeless."—[Official Report, 4 December 1935; Vol. 307, c. 213.] That is tragically true for my constituency today. In the area of the Wingate employment exchange, which covers a very large part of the constituency, unemployment now stands at over 40 per cent. A large proportion of the unemployed are under 25 years of age. It is said with bitter irony that the only growth area in the constituency is the unemployment office. Those young people are not merely faced with a temporary inability to find work. For many, the dole queue is their first experience of adult life. For some, it will be their most significant experience. Without work, they do not merely suffer the indignity of enforced idleness — they wonder how they can afford to get married, to start a family, and to have access to all the benefits of society that they should be able to take for granted. Leisure is not something that they enjoy, but something that imprisons them.

The Bill offers no comfort at all either to those people or to the vast majority of those of my constituents who are fortunate enough to be in work. Indeed. it adds the insult of inequality to the injury of poverty. It gives a further clutch of tax concessions to those who are already well off. Some 200,000 people are taken out of the higher rate bands, whereas only 10,000 come out of the poverty trap. That is a good illustration of the sense of priority shown in the Bill.

When I say "well off" I mean very well off. It is not those who earn the average wage who have benefited from the Government's fiscal policy, or even those who earn double the average. The only beneficiaries are those who earn more than three times the average. It is to that tiny and rarefied constituency that the Conservatives address themselves. The provisions of the Bill contradict in practical terms the myth that the Conservative party is the party of lower taxation for the people. In reality, lower taxation under the Conservative Administration has been confined to an exclusive club of the very privileged.

You may wonder, Mr. Speaker, why, contrary to tradition, some maiden speeches have been controversial. Perhaps it is pertinent to ask in what sense they can be controversial, since the deprivation and unhappiness that afflict our constituencies seem beyond argument. What impels us to speak our minds is the sense of urgency. As I said, in the Wingate area, unemployment is over 40 per cent. A Government who are complacent or uncaring about a level of unemployment of over 40 per cent. are a Government who have abdicated their responsibility to govern. A Government who refuse to govern are unworthy of the name of Government.

Yet, despite the 40 per cent. unemployment, NSF, a subsidiary of the National Coal Board, announced in February this year a proposal to close the Fishburn coke works. If implemented, that proposal would push unemployment in the Wingate employment exchange area to over 50 per cent. The coke works is the major employer in Fishburn. It is not ailing. It is a highly efficient plant which produces some of the best domestic coke in the world. It provides work indirectly for many other people in the area, such as road hauliers and dockers.

In case anyone is unmoved by the loss of jobs, I can add that even in economic terms the closure is questionable. We are told that the recession is ending. I entirely agree with the hon. Member for Loughborough (Mr. Dorrell) that we need a broad-based economic recovery. My constituents are not interested in promises about economic recovery; they are interested in performance. In the recession, NSF loses money. However, the direct cost of closure in terms of redundancy payments, lost taxes and other related costs amounts to £3 million in the first year and £1 million in the following years. To close Fishburn is an act of economic madness multiplied by social disregard on an unbelievable scale. Its only true justification is a blind allegiance to dogma.

Fishburn is significant not just in itself but as an example of the peril facing the north-east — a peril exemplified in the Bill. Fishburn is a real community. The constituency of Sedgefield is made up of such communities. The local Labour party grows out of, and is part of, local life. That is its strength. That is why my constituents are singularly unimpressed when told that the Labour party is extreme. They see extremism more as an import from outside that is destroying their livelihoods than as a characteristic of the party that is defending those livelihoods.

There is not a pit left in my constituency. In the 1960s and the early 1970s, new industry came to the constituency, but it often lacked strong roots. When the recession began to bite, many companies—particularly the multinationals — saw their northern outlets as the ones to be cut. Some still remain, including Thorns and Black and Decker, although both have suffered cutbacks. Carreras Rothman, also in Spennymoor, is one area of growth, but in general terms the picture is bleak. It should not be so, because any discerning observer can see the advantages that the area offers. There is a capable and willing work force. There are massive amounts of factory space let at low rents by a district council that, unlike central Government, is eager to assist economic growth. There is ready access by road, rail and air, and some of the most beautiful countryside in Britain.

What Sedgefield and the north-east desperately need is a Government committed to marrying together the resources of the area—a Government committed to the north. Over the last few years the level of investment in manufacturing industry in the north has dropped not merely in absolute terms but relative to other parts of the country. That situation must be reversed. In practical terms, the Government must pledge themselves to a massive investment in the region and must plan that investment.

I and others will continue to press for a northern development agency to perform for the north the task that the Scottish Development Agency performs for Scotland. That is not a request for fresh bureaucracy but a realistic assessment of need. Experience of the present Government may teach caution in hoping for such a commitment, but a refusal does not make the case for such a body any less strong. The aim would be to harness the considerable resources of the constituency and the region and to let them work to create a better standard of living for the people. After all, that is the essence of Socialism.

I am a Socialist not through reading a textbook that has caught my intellectual fancy, nor through unthinking tradition, but because I believe that, at its best, Socialism corresponds most closely to an existence that is both rational and moral. It stands for co-operation, not confrontation; for fellowship, not fear. It stands for equality, not because it wants people to be the same but because only through equality in our economic circumstances can our individuality develop properly. British democracy rests ultimately on the shared perception by all the people that they participate in the benefits of the common weal. This Bill, with its celebration of inequality, is destructive of that perception. It is because of a fear that the Government seem indifferent to such considerations that I and my colleagues oppose the Bill and will continue to oppose it.

6.19 pm

Mr. David Evennett (Erith and Crayford)

It is an honour and privilege for me, Mr. Speaker, to make my maiden speech on the important subject of finance. The Second Reading of any Bill is important, but the Second Reading of the Finance Bill is even more so.

I should like to compliment the hon. Member for Sedgefield (Mr. Blair) on his excellent, interesting and controversial maiden speech. I look forward to opposing him in debate during this Parliament. I am sure that, like me, he was somewhat apprehensive on this memorable occasion, but he coped magnificently. I shall try to do the same.

Having graduated in economics from the London School of Economics, I am deeply interested in the subject and in the management of the economy. We are all aware that financial measures enacted here affect the life of every citizen in one way or another. However, we must never forget that our economy depends heavily on the health of the world economy and cannot be dealt with in isolation. I am personally concerned about several key economic factors — the level of unemployment, the level of investment in British industry, Britain's export performance and, of course, the level of Government expenditure.

If we have learned anything in the last few years it must be that spending more will not by itself solve Britain's economic problems. The levels of Government expenditure and borrowing were major issues in the recent election campaign. The electorate were offered widely differing financial and economic policies. They made their choice and because of that choice I am privileged to be here representing the people of Erith and Crayford.

For the benefit of hon. Members who are not aware, may I say that until 9 June Erith and Crayford, which formed part of the London borough of Bexley, had not been represented by a Conservative Member for the best part of a lifetime. The last Conservative elected for the constituency was in 1935. I am therefore in the unique position of being the first non-Socialist elected to serve Erith and Crayford since the war.

I pay tribute to my predecessor, Mr. James Wellbeloved, for his 18 years of service in Parliament. He was undoubtedly a hardworking and capable hon. Member who gave tremendous service to the House and his constituents. Although elected as a Socialist, including in the 1979 election, he repented of his Socialist views in the last two years of his representation of the constituency. I wish to place on record my good wishes to him in his retirement from the active political scene.

I shall endeavour to continue the good constituency work of my predecessor and emulate his long term in the House. I do not of course share his political views, not even those he acquired after seeing the light in 1981. I shall be putting my weight and voice behind the private enterprise approach to the financial and economic problems of the nation and my constituency.

Erith and Crayford, in common with the majority of parliamentary constituencies, was subject to a considerable boundary change. Two wards in the previous constituency of Erith and Crayford — Barnehurst and Barnehurst, North—were transferred to the neighbouring Bexleyheath constituency and aided my good friend, the hon. Member for Bexleyheath (Mr. Townsend), to be returned with an even larger majority. We were delighted with his result.

The present Erith and Crayford constituency is fortunate in having several natural advantages which, together with realistic Government economic policies and the utilisation of those advantages, could transform this part of Greater London into a thriving and prosperous community. I shall do all I can to help to achieve that goal.

For investors, Erith and Crayford has many advantages. It has a good location, being close to London, and a large local market. It is situated on the River Thames and has good road and rail links with all parts of London, the home counties and the southern ports. It has a considerable, varied and talented work force. The people of the area possess a wide variety of skills and the local population comprise young and old, skilled and unskilled, office and factory workers. The people of Erith and Crayford are good, hard-working and able, ready to rise to new challenges and to take on the jobs of tomorrow.

There is also in the constituency considerable available space. That includes space for new housing developments, new investment in factories and even the exciting possibility of reclaiming and developing local marshland. The old industries have died but the derelict sites left behind could be utilised by the industries of the future.

We are also unfortunate in being part of the London borough of Bexley, which has a reputation for efficient and effective local government. Not for Bexley borough the vast rate increases or the extravagant and wasteful expenditure of some local councils. Not for Bexley the destruction of jobs because of vast rate bills.

The people of my area welcome the Government's commitment to abolish the Greater London Council. The only message from my constituents is, "Please make it sooner. Do not delay. Do it quickly, before any more damage is done to our part of the world." We cannot afford to delay in implementing this policy. We must do it now. My constituents also welcome the Government's determination to legislate to curb spendthrift councils which increase rates excessively and destroy local communities by killing industries and cutting jobs.

The problems of Erith and Crayford parallel those of the nation: factory closures, industrial decline, lack of competitiveness, lack of investment in new ventures, high taxes, lower productivity, and an increasing number of jobless and a high level of Government and public expenditure in the past which has milked the wealth of the nation and channelled it into the non-productive, non-wealth creating sectors. But things are definitely changing and in the last few years we have had an Administration who have been determined to reverse those trends.

Mr. Austin Mitchell

Killing manufacturing industry, too.

Mr. Evennett

I applaud the Government's financial policies and the measures contained in the Bill. The only way forward for the nation, especially for constituencies like mine, must centre on the firm control of public expenditure, with a sound money policy and lower public borrowing. This approach is realistic and credible—

Mr. Austin Mitchell

Oh, dear.

Mr. Evennett

—and, despite groans from the Opposition, it was endorsed by the electorate last month. The people want economic and financial realism from the Government, and the results of the financial policies pursued in recent years are beginning to show through. The economic situation is rosier than it has been for a long time, with recovery coming at an accelerating pace. Some confidence is returning to industry and the mood of business men has changed to that of cautious optimism. Order books are getting larger and stocks are being rebuilt, aided by Government policies and a cheaper pound. If recovery is to be sustained, the next move to growth in the economy must come from higher exports and greater private investment.

We hope, now that the election is over and the Conservatives are safely re-elected, that foreign investment will flow into British firms and that there will be more domestic investment in private industry. Hopes for growth in British exports depend to a large extent on a revival in world trade. They also depend heavily on our export competitiveness, so that policies for increased investment and higher exports must remain top Government priorities.

The financial policy as outlined in the Bill is designed to achieve those objectives. Economic recovery will be encouraged and sustained by the measures outlined by the Chief Secretary today. The financial strategy expressed in the Finance Act 1983 was based on a continuation of the policies of the last few years. The Bill is part of that strategy and is designed to promote further progress towards a sound economy. In this quest, the continuation of anti-inflationary policies remains crucial.

The Conservatives have brought public expenditure under control at a realistic level. We have given substantial aid to small businesses, those which will create the wealth of the future, the wealth for our national economy which we so desire. The Government have given tax cuts to people to improve incentive and, contrary to what we heard earlier, such cuts definitely improve incentive.

The Government must reduce the tax burden further because it is far too high in Britain. They have cut taxes on business, which will help to cut costs and increase competitiveness. This is the way to export, this is the way to the future. Most important of all, the Government have rightly ignored those voices urging a tremendous boost to the economy by pumping in more and more public money for possible short-term gain. Such a policy would destroy the financial and economic gains of the past few years. In the long term, such an inflationary public spending spree would not only destroy jobs but put the British economy into irreversible decline.

Everyone would like to spend more money, whether an individual, a Government, or a company. We would all like to spend money on those services in which we personally and passionately believe. When the economy is prosperous and expanding and when wealth is being created, we can do that. When the Government's financial policy has turned the economy round and we can make progress once more, I am sure that we shall be able to spend money in that way, on such desirable projects. Until then, the Government must not deviate from their set course. They have achieved so much so far. We are not at the end of the tunnel but we are well on the way. I welcome the Bill as another stage in the Government's programme for making the country economically and financially prosperous again.

6.32 pm

Mr. Ian Wrigglesworth (Stockton, South)

It is a great pleasure to follow two maiden speeches, from the hon. Member for Sedgefield (Mr. Blair) and the hon. Member for Erith and Crayford (Mr. Evennett). They were two capable and interesting maiden speeches which, I am sure, bode well for our debates. The hon. Member for Sedgefield was articulate and confident. I am sure that he will play a major part in our debates, particularly in defending the interests of the northern region, which he now represents. We followed the mini-election that took place in Sedgefield during the course of the general election campaign with great interest, watching while the decision was taken about who would represent the Labour party in that seat. We wondered whether it would be Mr. Huckfield or Mr. Weighell. We are pleased that, on the basis of his speech this afternoon, it is the hon. Member who is with us today. We look forward to further contributions from him.

The hon. Member for Erith and Crayford paid tribute to my former colleague, Mr. Wellbeloved, who represented that constituency. I am grateful on behalf of the SDP for his kind words. We shall be looking forward to hearing from him. The hon. Member mentioned that he had been involved in the study of economic affairs, and we look forward to hearing his views. If he can be half as forthright as my former colleague, I am sure that he will make a major impact on this place. We wish him well.

Mr. Robin Cook

He will not defect.

Mr. Wrigglesworth

I want to make some reference to the Bill, but basically I support the criticism made by Opposition Members of its priorities. The Bill certainly illustrates the broad difference of approach between the two sides to economic and fiscal affairs and to industry and the economy. I would not want to challenge what the Chief Secretary said about the Government's consistency in relation to specific measures contained in the Bill. Of course, the Government have been consistent in bringing back to the House proposals they had put to it earlier. However, the Chief Secretary spoke about honouring commitments honourably given. The Government have not been consistent in pursuing some of the points made during the election campaign by the Prime Minister and other members of the Government about unemployment. They have not been consistent in following up manifesto promises.

In the introduction to the Conservative manifesto the Prime Minister said: The universal problem of our time, and the most intractable, is unemployment … We have a duty to protect the most vulnerable members of our society". The manifesto stated: This Government has an impressive record in helping the unemployed who, usually through no fault of their own, are paying the price of these past errors. The manifesto claimed that it was through no fault of their own and that the Government feel compassion for the unemployed, but the first Bill presented to the House does virtually nothing to help the still growing number of people who are living on reduced unemployment benefit as a result of the Government's economic policies. The Bill gives no hope that the commitment to help the unemployed and get people back to work made by Ministers during the course of the election campaign and in debates in the House since we returned will be carried out.

The Government will not succeed in honouring those commitments by presenting Bills of this sort to the House. As hon. Members on both sides have pointed out, priorities are matters of judgment for Ministers and in our view the Government have decided upon the wrong priorities. Out of the total of £460 million in revenue being forgone under the Bill, £390 million is going to people who, under current circumstances, do not need it. When times are as difficult as they are for broad sections of the community, any taxation relief should go to those people who are the hardest hit. The Government should be pursuing the old principle that those with the broadest backs should bear the greatest burdens.

Mr. Ridley

To get the record straight, the cost of the Bill in 1983–84 is about £150 million. The hon. Gentleman's figures are miles too high.

Mr. Wrigglesworth

If the Financial Secretary looks, he will find that I am giving the figure for the full year.

Mr. Robin Cook

I do not know whether the Financial Secretary was present when the Chief Secretary introduced the Bill. He said distinctly that the cost of the Bill in the current year would be £263 million and in a full year would be £403 million. As we are considering the Bill late in the financial year, it seems perfectly proper for the House to have regard to the full-year cost.

Mr. Wrigglesworth

I am grateful for the intervention by the hon. Member for Livingston (Mr. Cook). I was referring to the full-year cost. I had worked it out from the Red Book published at the time of the Budget. I accept that I may have slightly overestimated the figure given at that time in those tables. I am not referring to the part cost to which the Financial Secretary referred

Mr. Ridley

I was giving the cost for 1983–84, which is when the rates will apply, of the reliefs over indexation. That is what would be necessary if the law were not changed. We would have indexation. That is the increase over indexation.

Mr. Wrigglesworth

The point that the Minister makes does not bear upon the main burden of what I am saying, because the main burden of my argument, and that put forward by other Opposition Members, is that a substantial amount of tax relief is being given—money from the Exchequer has been forgone — not to create jobs, more profitable industry or to help the poorest section of the community which is bearing the greatest burden, but to help substantially those who have the greatest means within our community.

We believe that that is the wrong approach. If the Exchequer can afford some reliefs, and can afford to give up funds in that way, they should be given to the most deserving sections of the community.

I agree with what was said by the hon. Member for Erith and Crayford. If we want to have an industrial recovery and to spend money on social services, education and all the other things that we want to spend money on, tax relief should be given to businesses, particularly small businesses, to stimulate growth and create jobs and wealth. My party and I would have preferred the Government to introduce a much greater extension of the business start-up scheme or of the loan guarantee scheme or a zero rating of VAT on the repairs to commercial premises, which would help to stimulate the construction industry and would help businesses considerably. Already that rate is given to building. It seems nonsense that repairs to commercial enterprises should not be zero rated in the same way.

Those reliefs would give rise to the creation of wealth and jobs. The relief scheme for mortgages on the higher rate band in the Finance Bill is misdirected and will not help growth in the economy or the improvement in employment that everyone in the House wants.

I refer briefly now to the overall pattern of the Government's economic policy. I very much disagree with remarks made by the hon. Member for Erith and Crayford. The Government's whole philosophy over the past three years, during the election campaign and since, is the idea that it is wicked and immoral to borrow money to get through a difficult period and to stimulate growth That philosophy is nonsense. We need to tackle that argument, which most British people and most families, when they stop to think about it, realise is nonsense. There is not one family which, when it is on hard times, will not borrow —not beyond its means—and there is not one business which, when it sees prospects of growth ahead and can borrow within its means so that it can grow, will not do so. Few Conservative Members who have been involved in business will not, during their business life, have borrowed money to launch their businesses and allow them to grow and prosper, giving rise to greater profits and wealth.

Therefore, it should not be necessary for my colleagues and I and other hon. Members to urge the Government to borrow, not beyond the country's means, but more than they are prepared to at present, and to increase public spending to get the growth in the economy that is now so vital. We are not suggesting and have never suggested that we should throw money around and have a confetti money expansion of the economy. That would give rise to inflation and the brakes would have to be slammed on. It would damage the growth that we seek to achieve. That is not the way ahead. However, now that the Government have a prospect of four or five years in office, one hopes that over that period they will pursue an economic strategy that gives rise to steady growth in the economy and a steady expansion of public expenditure that would not make inflation roar up again but would allow the growth in employment and wealth that everyone wants.

I appeal to Treasury Ministers to stop pursuing the argument that they have a moral crusade to carry out against borrowing. There is no reason why they should not expand public expenditure modestly to bring about the growth that industry after industry is capable of and very much wants. The capacity is there in those industries and in every region. The facilities are there in the service sector of British industry to support growth.

It is a criminal act against the people to keep the economy squeezed down as it is now and not to allow it to expand. I hope that the Government will think again now that they are settling into a new term of office and allow some expansion so that the millions of people who have no prospect of employment, if the present policies are to continue, are given some hope for the future.

6.45 pm

Mr. Alan Howarth (Stratford-on Avon)

I am grateful to you for calling me, Mr. Speaker. In this, my maiden speech, I shall first pay tribute to my predecessor who represented Stratford-on-Avon, Sir Angus Maude. En not one but two generations, Sir Angus was one of the leaders of the intellectual life of the Tory party. After the war he was a founder of the One Nation group and joint author with distinguished Members, past and present, of the pamphlet entitled "One Nation", which is one of the great Conservative texts. In 1975 he became chairman of the Conservative research department, to play once again a critical part, which was entirely consistent with his earlier career, during a major period of philosophical reappraisal and policy development in his party. Having had the privilege of being the director of the Conservative research department, I regard Sir Angus as one of my principal teachers in politics, and it is therefore a special delight for me to follow him as the Member for Stratford-on-Avon.

Sir Angus's political career offers the encouraging demonstration that someone whose continuing independence and originality of mind have been such as to cause the brows of those on high from time to time to furrow rather deeply can yet make a central contribution to the life of his party and hold high office. At the time of Suez, Sir Angus found himself profoundly at odds with the leadership of his party and had the courage to act on that conviction, yet in the fullness of time he served, like Edmund Burke, as Paymaster General. Although he has now left the House, Sir Angus's political journalism remains required reading. I hope that he will have many platforms from which to instruct and interest us for years to come.

Sir Angus was for 20 years a devoted servant of his constituents in Stratford-on-Avon. The town of Stratford, together with the 120 villages, the farms and countryside of south Warwickshire make up the heart of England. My constituency is not only singularly beautiful but combines depth of national tradition with a great range of modern life. I am fortunate to represent such a constituency, and I shall do my best to do so worthily.

I am fortunate, too, to have the opportunity to make my maiden speech on the Second Reading of the Finance Bill because this occasion is at the heart of parliamentary government. The right of the House of Commons to determine the nature and level of taxation is the key to our constitutional liberties. Fortunately, too, the Finance Bill, in conjunction with the Finance Act earlier this year, marks an alleviation of the burden of taxation, which was earned and justified by the financial discipline of the previous Conservative Government. On 9 June, the British people emphatically expressed their continuing support for policies of realism in our national finances, as in our national defences.

I hope that you will not think it controversial or mere rhetorical indulgence, Mr. Speaker, if, as the hon. Member for Stratford-on-Avon, I quote from Shakespeare, from Henry VI, Part II. The policies put forward by the leader of the Labour party at the general election were no different from the policies of Jack Cade in Henry VI: There shall be in England, seven halfpenny loaves sold for a penny … all the realm shall be in common … And, when I am king, (as king I will be) … all shall eat and drink on my score; and I will apparel them all in one livery, that they may agree like brothers". The right hon. Gentleman, who is a literary man, will recognise the quotation.

The Liberal and Social Democratic parties also live in a world of make-believe. It is only the presentation of the alliance parties that has changed; their policies are unreconstructed. They are a latter-day expression of the 1960s notion that by well-meaning Government meddling here, there and everywhere, and always spending just a little more money than we can afford, our problems will be dealt with.

The Conservative party has a different approach and the Finance Bill takes its place as part of the medium-term financial strategy that has achieved a reduction in inflation that the country profoundly values. But inflation, even at 3.7 per cent., means prices doubling in 19 years, and I have no doubt whatever that the country will wish to see the effort maintained to reduce inflation further.

I hope that it will be generally acknowledged that in all parties we are intensely and sincerely concerned to find remedies for the grave problem of unemployment. There are right hon. and hon. Members who still suggest, however, that we should make a choice between policies to deal with inflation and policies to alleviate unemployment. The truth surely is that by destroying the real profitability of firms and eroding their capacity to reinvest, and more generally by undermining business confidence, inflation is the arch destroyer of jobs.

Let us look for a moment at the parallel, and intimately related, upward marches of inflation and unemployment in Britain. Between 1951 and 1964 — they were good years—the average inflation each year was 3.5 per cent. and unemployment on average was 330,000. Between 1964 and 1970, average inflation was 4.75 per cent. and average unemployment 500,000. Between 1970 and 1974, inflation ran at 9.5 per cent. on average and unemployment at 750,000. From 1974 to 1979, inflation ran at 15 per cent. on average and unemployment at 1.25 million. That was our inheritance in 1979, and the further distressing increase in unemployment that has followed has been in large part the consequence of the inflation that had so debilitated our economy over many years.

Possibly in the short term a sharp boost to the economy, which the Opposition parties advocate in varying degrees, would generate a few new jobs, but that reflation would at the same time precipitate inflation. The various devices that it is claimed might prevent that being so — a national economic assessment, incomes policies, statutory, flexible or whatever—are not remotely convincing, and renewed inflation would very quickly destroy not just the few new jobs but very many others too.

The Government are right to keep the defeat of inflation at the centre of their policies. Inflation is the most profoundly divisive and destructive force. Inflation characteristically hits hardest those who are least able to take care of themselves. Notoriously, for example, it destroys the savings of pensioners. By provoking aggressive pay demands, inflation sets people against one another — workers against management, unionised workers against non-unionised workers, the employed against the unemployed, the working generations against the school leaver and the pensioner generations.

Money, after language, is our most basic means of exchange. When people can no longer trust something as fundamental as money, they become insecure, and insecurity breeds aggression. It was when prices had doubled in five years that we reached the winter of discontent and the brink of social disintegration. As we hauled ourselves back from that abyss, we resolved as a country that we must conquer inflation.

Inflation is fairly and squarely the responsibility of Governments. Inflation sets in when Governments contract the habit of spending more than they dare raise in taxes. Once they are any distance down that road, Governments resort to monetising their debts and inflating their way out of burdens that otherwise become insupportable.

Therefore, it is my hope that, as he unfolds the medium term financial strategy beyond its present horizon, my right hon. Friend the Chancellor of the Exchequer will in due course bring us to a balanced Budget. By balancing the Budget I mean that the Government should progressively reduce their financial deficit to the point that public expenditure—other than capital investment by the nationalised industries — is fully matched by taxation over the course of the business cycle.

The benefits of a balanced Budget would be very great. It would be a better beacon to financial markets and wage bargainers than the obscurities of the medium term financial strategy. It would make good sense politically, reinforcing the themes of honest money and good housekeeping. A commitment to a balanced Budget would be the safest guarantee against inflation.

Our objective has to be zero inflation. It is perfectly feasible to achieve broadly static prices in Britain, and we should see zero inflation not as a zero option but as a necessity. There will, of course, be all the familiar difficulties in the way of reaching that highly desirable state of affairs. The recent money supply figures and the expected rise in prices over the corning year vividly illustrate both the difficulty of the task and its necessity.

Public expenditure will never be easy to control, although round after round of belt tightening or reductions in social security benefits — if such were to be contemplated—are not the most imaginative approach to public expenditure. Why should we not look more positively at ways to encourage people to opt away from dependence on public provision? As it is, Government Departments seem to have embarked on a spree at the end of the last financial year, and the newspapers are thick with the usual seasonal rumours that spending Departments will be trying to extract an extra £5 billion out of the Exchequer in the coming year. There is a pressing need for the local authorities, as well as the nationalised industries, to spend more on capital investment.

More worryingly, the recovery in the United States' economy, while vigorous at the moment, is of doubtful staying power. The combination of monetary relaxation since last summer, and the failure of the Administration and the Congress between them to grapple effectively with excessive public expenditure, could well result in a return to stagflation. If the American recovery is abortive, prospects for growth in our own economy, and for buoyant tax revenues to float us off some of the more awkward public expenditure rocks, will deteriorate.

Dwarfing even those problems is the gigantic problem of world debt. There is a fairly persuasive view that sustained growth in the OECD countries in the 1980s of about 3 per cent. a year will be necessary to avert financial catastrophe precipitated by major default. The pressure to achieve such growth may drive other OECD countries—as it has already driven the United States of America—to take large risks in an inflationary direction. Therefore, I draw encouragement from the commitment in the Queen's Speech to our Government promoting international recovery on a non-inflationary basis.

We have become so punch-drunk with the inflationary experience of the 1970s that it seems to many people too good to be true that there should be non-inflationary growth. Admittedly, non-inflationary growth presupposes a degree of self-discipline that democracies since the war have not found it easy to muster, but non-inflationary growth was the normal pattern for hundreds of years between the development of modern capitalism and the moment in the 20th century when politicians got hold of the idea that deficit financing could be a short cut to a good society.

The dynamics of non-inflationary growth are human aspiration and the profit motive, the improvement of markets, and the growth of productive capacity—capital accumulation, technical innovation, education and training, and productivity. The task of Government is to clear away the obstacles to growth, not to inject inflationary boosts to demand. It is open to us, if we will, to return to non-inflationary growth and the enlargement of social possibilities that goes with it. In the meantime, the provisions of the new Finance Bill are a valid component of the financial strategy that will lead us in the right direction.

6.59 pm

Mr. David Lambie (Cunninghame. South)

I congratulate the hon. Member for Stratford-on-Avon (Mr. Howarth) on a thoughtful speech, which well becomes a former member of the Conservative party research department, who follows in the traditions of his famous predecessor, Sir Angus Maude. We shall listen to him often on similar themes, because we know from experience that he comes from an area that always sends Conservative Members to the House.

Representing a constituency in which one man in three is unemployed, I look upon Stratford-on-Avon as a heaven on earth where there are no problems, beautiful scenery and long traditions of culture, and where the only difficulty is how to spend one's money and live well. I hope that the hon. Member for Stratford-on-Avon, as well as reading and quoting Shakespeare, will read the person whom we in Scotland always quote—especially those of us from Ayrshire—Robert Burns. If he does so, he will realise that those of us who represent Scottish constituencies are more worried about man's inhumanity to man than about the pomp and circumstance of Shakespeare and all that he stands for. However, I congratulate the hon. Member and hope to listen to him often in the House.

My speech will be about one of the items that has been omitted from this Finance Bill, but which we were told would be inserted in the previous Finance Bill. In the Budget statement earlier this year the then Chancellor of the Exchequer said: On 3 March I informed the House about the publication of the report of the working party on free ports, under the chairmanship of my hon. Friend the Economic Secretary to the Treasury. I can now tell the House that the Government accept the report and will implement its recommendations. Legislation will therefore be introduced in the Finance Bill to enable selected free port sites to be designated."—[Official Report, 15 March 1983; Vol. 39, c. 154.] Unfortunately, when the Finance Bill appeared it did not contain a free port clause, but we were informed that the Government intended to introduce an amendment in Committee.

I was disappointed today, when listening to the Financial Secretary, to hear no mention of the Government's intention to introduce an amendment in this Finance Bill, as promised on the previous Bill. dealing with the principle of free ports. In answer to a question from the hon. Member for Banff and Buchan (Mr. McQuarrie), the Minister of State, Treasury said: The Government remain committed to the establishment of free ports in the United Kingdom on an experimental basis. Guidelines will be issued shortly setting out the criteria by which applications for free port designation will be judged. All bids received will be fully and carefully considered." — [Official Report, 27 June 1983; Vol. 44, c. 32.] The recent press statement listing the items that will not be in the Bill simply included free ports without comment. Various lobby correspondents have suggested that a provision will be included in the Finance Bill that follows the Budget in the spring of next year. That delay will cause great concern to those hon. Members who, in the previous Parliament, campaigned actively for the principle of free ports.

I was Chairman of the Select Committee on Scottish Affairs in the previous Parliament and we inquired into the future of Prestwick airport and came out with a unanimous decision that the future of the airport could be safeguarded by introducing a free port on the land owned by the British Airports Authority and Kyle and Carrick district council. We sent a report to the Secretary of State for Scotland who accepted its principal recommendation on free ports. That is understandable because he is also the right hon. Member for Ayr and the airport at Prestwick is in his constituency.

We also sent a copy of the report to the Department of Trade and convinced Ministers there that they should accept the principle of free ports and campaign against the Treasury opposition to that principle. Lord Cockfield was the Secretary of State for Trade and Mr. lain Sproat, a former colleague in the House, was the Under-Secretary with special responsibility for the future of airports in the United Kingdom. Thanks to pressure by Lord Cockfield and lain Sproat against the opposition of the Treasury, the Government set up a working party under the chairmanship of Mr. Jock Bruce-Gardyne, who unfortunately is no longer in the House. Although he was the chairman of the working party, he told me—I am sure that he will not object to my saying this—that free ports would be introduced into the United Kingdom over his dead body. That must have been his political dead body as he is no longer here. In spite of his statement, the working party came out with a unanimous report in favour of the principle of free ports, and that was accepted by the Government.

I have been an hon. Member for some time and I have seen parties move from the Opposition to the Government side of the House and back. I have seen Treasury Ministers and Chancellors of the Exchequer move from the Government Front Bench to the Opposition Front Bench. but I sometimes wonder whether it makes any difference which party sits on which side of the House, and which Chancellor sits on the Treasury Bench. At the end of the day, the longer one remains an hon. Member the more one realises that the only people who consistently win are the mandarins at the Treasury.

When the Select Committee on Scottish Affairs carried out its inquiry into Prestwick airport, the first paper we received was "Portcullis", the departmental paper of the Customs and Excise. It had a big leading article, which reminded me of The Sun newspaper, with a headline about four inches deep saying that free ports were a non-starter. That was before we started our investigation. The Customs and Excise view was that free ports were not on.

Mr. Bill Walker (North Tayside)

I hope that the hon. Gentleman will agree that that did not deter the Committee, but gave the Committee the incentive to finish the job.

Mr. Lambie

I accept that. One thing about Scots is that, although we might fight among ourselves, whenever we see an enemy on the horizon we unite against that enemy. All the members of the Select Committee, whether Tory or Labour, realised that our enemy was the Customs and Excise and the Treasury.

I am proud to say that, despite that headline, we won the battle and the Treasury "non-starter" took off. We congratulated ourselves on the fact that we had managed to defeat the mandarins at the Treasury. However, we forgot that, although we had won that battle, we could still lose the war. We won the battle and the Chancellor committed himself to the principle of free ports. We waited for the publication of the criteria that the various areas bidding for the free port status would have to satisfy, and waited also to be told this month that Prestwick airport and various other places were to be designated as free ports.

Unfortunately, we had the general election. We still have the same Government in power, but they seem to have departed from the principle of free ports. If that is not correct, I should like a statement to the contrary in the winding-up speech. I also want an assurance that an amendment will be made to this Finance Bill, as was promised for the previous Finance Bill, giving us the right to set up free ports in the United Kingdom.

Mr. Albert McQuarrie (Banff and Buchan)

I was also a member of the Select Committee that discussed this important issue. The lack of a Government commitment to free ports is doing irreparable damage to certain areas. That affects not only Prestwick, but Aberdeen, which has one of the three airports designated by the former Under-Secretary, Mr. lain Sproat. Unless the Bill is amended as suggested, certain areas will suffer severe unemployment problems.

Mr. Lambie

I accept that. If we do not get an assurance from the Minister, I hope that the hon. Gentleman will use his traditional independence and vote with us against the Bill's Second Reading. Most members of the Select Committee on Scottish Affairs believe that if the Bill is not amended the mandarins at the Treasury will win and that by the time that next year's Budget is introduced we shall be back to square one and the principle will be lost.

I hope that we shall have an assurance from the Government, because it will make a tremendous difference to plans for the future of Prestwick airport. I speak on behalf of all hon. Members representing Ayrshire constituencies when I say that the unemployment rate in the area is one of the highest in the United Kingdom. In my constituency every third male is unemployed. Despite what we have heard from maiden speakers representing the rich areas of the south-east of England, I hear nothing from factories in my area but reports of ever more redundancies and closures.

Ayrshire needs a shot in the arm. It needs an impulse to get the economy going again. The only way to achieve that within the Government's economic policies is to establish free ports, not only at Prestwick, but in any area that can justify its case to the Government. I hope that we shall have the necessary assurances.

7.13 pm

Mr. John Townend (Bridlington)

I add my tribute to my hon. Friend the Member for Erith and Crayford (Mr. Evennett) who made a robust and optimistic maiden speech. I am sure that we shall hear many contributions from him in future.

I also congratulate my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) who made a lucid and thoughtful speech and impressed the House. My hon. Friends appreciated his kind remarks about Sir Angus Maude who was much loved. It is clear from the calibre of my hon. Friend's contribution that he will be a worthy successor to that great parliamentarian. We look forward to further thoughtful and robust contributions.

Like my hon. Friend the Member for Loughborough (Mr. Dorrell), I speak for the first time as the representative of a reorganised constituency. The market town of Driffield and surrounding villages are now part of my constituency. Driffield is known as the capital of the Yorkshire wolds. It is a delightful town with friendly people. It is prosperous and contains a number of successful local and family-controlled companies.

I am sorry that the hon. Member for Stockton, South (Mr. Wrigglesworth) has left the Chamber, because I want to refer to his speech. When advocating increases in capital expenditure the hon. Gentleman said that, as business men, we should compare borrowing for our businesses with state borrowing for capital expenditure. There is a distinct difference between the two. When borrowing for our businesses, we borrow for a return on the capital invested. It is dangerous to think that revenue expenditure should be restricted and that capital expenditure by Government is automatically good. In many examples of large-scale capital expenditure in the last few years the public have not had an adequate return. I think of the millions of pounds poured into De Lorean; the building of the Humber bridge, the deficit of which approaches £150 million; the building of Concorde; the investment in steel plants to produce steel for which there will never he a market; the investment in the Bedford-St. Pancras line, where several million pounds of stock remained idle for many months because of restrictive practices by the unions.

Mr. Campbell-Savours

Which capital projects in his constituency would the hon. Gentleman like to have cut?

Mr. Townend

There are no large-scale public sector capital projects in my constituency, but with a number of my colleagues I am opposing a large-scale capital project by the Humberside county council costing £5.5 million —an ice rink for Hull which will be paid for not by the ratepayers of Hull but by the ratepayers in the rest of Humberside.

The hon. Member for Colne Valley (Mr. Wainwright) said that if one has to pay tax on interest received it is just and equitable that tax relief should be available on all interest paid. I agree with him 100 per cent. The hon. Gentleman is a chartered accountant, and I am a member of the same profession. All chartered accountants accept that view. It was the law up to 20 years ago, but the law was changed by a Labour Government and it would be interesting to know how the Liberals voted at that time. The hon. Gentleman made a relevant point which I commend to my Front Bench.

In general I welcome the Bill, but I am a little disappointed that it does not deal with the taxation of holiday flats. That problem is important in my constituency and to all holiday or tourist resorts. The problem arises because in the last year or 18 months in certain parts of the country the Inland Revenue has changed from taxing that income under schedule D, case 1, as a trade to taxing it under schedule D, case 6, as investment income. That means that some holiday fiat investors are subject to investment income surcharge. More important, owners have not been able to claim capital gains retirement relief and relief for the replacement of business assets.

My hon. and learned Friend the Member for Fylde (Sir E. Gardner) endeavoured to put that right when he tabled a new clause to the Finance Bill which was abridged because of the general election. My learned Friend withdrew the new clause after undertakings from the Financial Secretary, who said: We have decided, as a result of the strong and persuasive representations by my hon. Friends, to change the law in the way that they want. At a suitable opportunity we intend to bring forward proposals to change the law so that those carrying on a business of furnished holiday lettings will, in general, be able to claim capital gains tax retirement relief and relief on replacement of business assets, and to have their income from such a business treated as earned income, whether or not they are carrying on a trade. I regret that it is not possible to bring the new clause into effect in the Bill, but the Committee will know the reason why that is so. The Bill's life is not likely to be as long as it should be before it becomes an Act, when the necessary complicated, technical drafting could be done."—[Official Report, 11 May 1983; Vol. 42, c. 841.] I should have thought that the Bill provided a suitable opportunity for the Government to honour that commitment, but I am told that the Treasury draftsmen have not had sufficient time to deal with the matter. I have a sneaking feeling that the Inland Revenue is putting up a strong fight to prevent such a clause becoming law. However, I accept the Minister's point that one reason for not including such a clause was that the Government did not want Parliament to sit through August. If that is the case, I am prepared to accept it. However, I hope that my right hon. Friend, when he replies, will give a firm commitment to include such a clause in the Finance Act 1984 and that the operator's income for the current year will not be affected.

I welcome the Bill, which would not have been necessary were it not for the Opposition's vindictiveness in not allowing certain clauses in the previous Bill to go through. In particular, I was surprised at their refusal to accept the lifting of the tax limit on mortgage relief to £30,000. It showed once more the Labour party's innate opposition to the expansion of home ownership.

Mr. Austin Mitchell

Rubbish.

Mr. Townend

The hon. Gentleman said on television that one reason why the Labour party had gone into decline was that it had missed the boat on home ownership and allowed the Tories to steal its clothes.

Mr. Mitchell

I did not say that.

Mr. Townend

The Opposition also refused to allow the lifting of the band for higher rates of tax which affects middle and upper middle management in industry on whom our future industrial recovery so much depends. That was particularly resented in a year when the same people were for the first time having to pay tax on the petrol they use in their cars. That was felt strongly and was mentioned on numerous occasions during the election campaign.

In their first Budget after the 1979 electoral victory the Government showed great courage in dealing with the problem of excessive taxation at higher levels where the British were taxed at a higher rate than anywhere else in the world—75 per cent. on earnings and no less than 98 per cent. on unearned income.

Mr. Winnick

Is there not some inconsistency in what the hon. Gentleman is saying, bearing in mind his ceaseless campaigning against the wages councils, obviously with the intention of reducing the income of those on the lowest possible wage? I would use a word other than "inconsistency" were I allowed to do so. Does the hon. Gentleman agree that if the Government decided not to increase unemployment benefit to return it to its real value he would not go into the Lobby against that decision?

Mr. Townend

I see no inconsistency at all. Taxation at 98 per cent. is tantamount to confiscation, driving capital and people out of the country. I am advocating the ending of wages councils in order to create jobs. They are reducing jobs, particularly those for young people.

I had hoped that after the Government were returned to office, with an even greater majority, their first Finance Bill would be as courageous as that after 1979 and bring in some radical reforms and simplifications in taxes. In particular, I looked forward to seeing the abolition of the investment income surcharge, because that would be an important move towards simplification. I have never understood the principle behind that tax. I could never see any justification in taxing the income from savings at a higher rate than earnings. As there is no logical reason for it, it has resulted in much discrimination and many problems and anomalies, not least of which is the nonsense whereby, if a man and wife have a reasonable investment income, they can save tax by having a divorce and then living together. It also works against people who decide that they want to invest privately for their old age in the Stock Exchange as opposed to a pension scheme.

Landowners who let their land to tenant farmers are adversely affected compared with those who farm the land themselves. That is one of the most important reasons for the drying up of farm tenancies for young farmers. Indeed, many people in private business avoid paying the investment income surcharge altogether by paying excessive directors' fees or salaries. On occasions, that adversely affects minority shareholders whose only income from such companies is from dividends.

I understand that the yield from this tax is only about £250 million a year. I could spend half an hour suggesting where that money could come from, which might please the Whips, but I am sure that it would not please you, Mr. Deputy Speaker. In the context of our total budget, it is a small amount. Despite their large majority, the Government have not seen a way to include it in the Bill, but it would provide an important step in the simplification of our tax structure and reduce many anomalies to which people object so strongly. Therefore, I ask my right hon. Friend to press the Chancellor to include this in the next Finance Bill.

It is pleasant to speak in support of a Bill with which one agrees 100 per cent. That may be because it is a short Bill, but it provides many benefits in many ways and I commend it to the House.

7.28 pm

Dr. Jeremy Bray (Motherwell, South)

This has been a particularly interesting Second Reading debate because of the many maiden speeches that have added a new dimension. I made my maiden speech on a Finance Bill on Report, of all things. The great advantage is that an hon. Member receives far more attention from the Front Bench than he would in a more popular debate.

We heard a distinguished speech from my hon. Friend the Member for Sedgefield (Mr. Blair) who I am sure will add greatly to the advocacy on behalf of a part of the world where I used to represent a neighbouring constituency.

We also had a thoughtful speech from the hon. Member for Stratford-on-Avon (Mr. Howarth) who I hope will contribute not only to debates in the House but to work in Committee. Perhaps he will look rather more closely at what he said. He advocated a balanced Budget excluding capital expenditure at a zero rate of inflation. To achieve the equivalent in the present Budget would require the Government to reflate by about £5 billion. I am entirely in favour of the Government doing that.

I welcome the hon. Member for Strathkelvin and Bearsden (Mr. Hirst) to the House. It is nice to have a Scot on the Conservative Benches who ventures into the deep waters of the Finance Bill and swims confidently. I hope that the hon. Gentleman will continue his advocacy of increasing the threshold for mortgage interest relief but dispensing with relief on higher rates of tax. I am not sure that he will find much support for that from his hon. Friends but I wish him every success. I think that my hon. Friend the Member for Birkenhead (Mr. Field) was more to the point in wanting to abolish mortgage interest relief altogether, but I am sure that he would trade that in for an increase in housing benefit, paid irrespective of whether the recipient is a council house tenant, a private tenant or an owner-occupier.

The Bill is usefully concentrated on higher rates of tax and mortgage interest relief, points on which, because of their origin, the greatest difference exists between the two sides of the House. That difference has been clearly brought out in the debate. The problem with our tax system is that we pay too high a rate of tax at the bottom end. The initial rate of tax is effectively 39 per cent. No other comparable country has an initial rate of tax at anything like that level. In France the figure is 11 per cent. and in Germany it is 18 per cent. — those rates starting at a much higher threshold than in this country. So, when Conservative Members march up and down the country telling people that tax rates are too high, of course they get a tremendous response from low earners.

The other gross anomaly in our tax system is the upper earnings limit on national insurance contributions. For that to be pitched at no more than about twice average earnings and thereafter to disappear altogether means that, as earnings rise through that level, one experiences a no doubt welcome but anomalous cut in one's marginal rate of tax. At the lower earnings limit on national insurance contributions the marginal rate of tax not only increases by 9 per cent. but one has to pay a lump sum because the tax is levied on the whole income starting at zero and not just on income above the threshold. In fact the marginal rate of income tax and national insurance contributions falls as one goes through that lower limit. That produces anomalous effects throughout the tax structure.

The position is different for higher rates of tax on higher incomes. The top rate of tax at 60 per cent. is below that of France, where it is 66 per cent., and only a little above that of Germany. In the United States varies, depending upon which state one lives in, but it is about comparable with the United Kingdom. Conservative Members say we are too heavily taxed. That is not true for those on the highest incomes but it is true for those on the lowest incomes.

Mr. John Townend

Does the hon. Gentleman agree that, before the 1979 Budget, those on medium and upper incomes were too heavily taxed compared with their counterparts in countries that arc our industrial competitors?

Dr. Bray

I shall come to that point later when I deal with what the tax structure should look like if we are to remove the anomalies to which I have referred.

The curve of the average tax rate against income at the highest levels is more or less comparable with the United States, France and Germany but at the lowest levels of income there is a tremendous hump. This hump, starting at the lowest taxable incomes of around £50 a week and continuing at well above twice the average rate of tax of other countries — to about £150 a week — is a gross anomaly with which we must deal. The extreme case—I accept it is the extreme case — in the hump in the average rates of tax at the lower levels is the poverty trap. A married man with two children who earns between £50 and £90 a week, taking into account all the benefits, many of which are means-tested — benefits in kind, such as school meals as well as cash benefits—loses virtually all increases of his income in tax. I refer hon. Members to the tables in the recent report of the Treasury and Civil Service Committee on the structure of personal income tax and income support.

As the problem concerns not just the poverty trap, with people paying marginal rates of tax of about 100 per cent., but those who pay marginal rates of tax of 50 per cent. and above who are still on low incomes, we must consider quite fundamental changes in the tax structure. This Bill is addressed to only 3 per cent. of taxpayers who pay tax above the standard rate. It does nothing for the 97 per cent. of taxpayers who are the bulk of the population. The Bill has reduced from 4 per cent. to 3 per cent. the number of people on higher rates of tax. The Bill deals with only a tiny minority of the population.

By reducing the rate of tax at the top end of the scale, one effectively increases the rate of tax at the bottom end. Any Chancellor must design his tax structure to produce the required tax yield. The Bill further skews the distribution of income tax so that the great majority of people end up paying higher rates of tax. [Interruption.] If Conservative Members disagree with me I hope that they will rise to correct me. The Select Committee report spells this out in great detail.

The tax system is really a see-saw, but it is a great deal more complicated than a two-dimensional see-saw. The tax system is a multidimensional creature because it deals not only with levels of income but with family, age, employment or non-employment, earned income and unearned income. The combination of these different considerations makes tax reform such a complicated problem.

The Sub-Committee of the Treasury and Civil Service Committee, under the chairmanship of my hon. Friend the Member for Oldham, West (Mr. Meacher), did an outstanding job in producing a report that was built on a vast amount of evidence from the Treasury, the Inland Revenue and the Department of Health and Social Security. The purpose of the report was to ascertain what changes in the levels of taxation, allowances and rate bands would be needed to correct some of the anomalies, while accepting the discipline of the same tax yields at the end of the day. To constrain the complexity of the problem, the present structure of social security benefits was similarly accepted. Within these constraints the Sub-Committee produced a number of combinations and considered four in detail. It considered the impact of these measures on a large statistical sample of actual Taxpayers and not just on the basis of sample cases such as the married man with two children.

Taxpayers are not neatly packaged concepts. There are combinations of age, income and family status, which are uneven. For example, not many people claiming age relief have four children. Not many taxpayers on high levels of income have a large number of children. The combinations in which the large numbers of taxpayers fall should be the principal preoccupation of the Chancellor of the Exchequer and the Treasury in making a Budget, but it seems that they do not adopt that approach. In the tables which appear at the back of the press releases and the accompanying Budget statements, we never see set out the impact of the Government's proposals in terms of the number of taxpayers affected by them. It is never stated that 10 per cent. of the population will gain and that 90 per cent. will lose or that one particular combination will benefit a tiny proportion of the population and damage a large proportion.

The Sub-Committee came to some interesting and significant conclusions in examining the impact of the present tax structure on a statistical sample of taxpayers, and considering possible changes in the structure. More's the pity that the end of the Parliament prevented proper consideration of the recommendations. I hope that a Sub-Committee will return to the task in this Parliament and that the Government will study closely the arguments that are produced. In the circumstances, the Sub-Committee's consideration of these issues was considerably mangled in Committee. That comment can be applied to the tax distribution that Conservative Members would like, as well as to that which Labour Members would prefer.

It is not the 3 per cent. of the population who are affected by clause 1 who matter. It is not the higher rate taxpayers who really matter. We should be concerned primarily with the 97 per cent. of taxpayers who pay the lower levels of tax and who go straight on to the standard rate as soon as they start paying income tax.

The package considered by the Sub-Committee which highlighted the problem most sharply was the one which integrated national insurance contributions and the income tax system. The anomalies lie in the different thresholds. Once someone starts paying the contributions, his payments are based on the whole of his income, because there are no allowances. However, he will stop, in effect, at a relatively low ceiling of only one and a half or two times average earnings. It would be logical wholly to integrate national insurance contributions with the income tax structure.

The second assumption — it is one to which the House will have to give a great deal more attention—is the justification for the married man's allowance I invite hon. Members to read the argument in detail. I merely say that it seems that the most sensible course would be to abolish the allowance and to increase child benefit. If we abolish the allowance and increase child benefit to £20 a week, there will be a major impact on the types of family and the stages in life that constitute the greatest need for tax relief and produce the greatest social problems.

The Sub-Committee felt that there was a need to introduce a graduated system of tax so that people would not be faced immediately with a marginal rate of 39 per cent. They could come in, for example, at 15 per cent.

If we are to produce the same tax yield by means of this package—I think that many Conservative Members will consider that reasonable in terms of its objectives—it will be necessary to levy the highest rate of 60 per cent. on those who are in receipt of over one and a quarter times average earnings. That would produce a tax structure that would be a great deal more just than the present one.

The direction in which the injustice is most starkly visible is the high initial rate of tax which hammers those on the average and lower rates of income. The second direction is the treatment of children compared with the treatment of the childless couple. Also to be considered is whether the married man's allowance should be based on an assumption that the typical family is the man and non-earning wife or whether the individual should be regarded as the basic unit, which would lead to men and women being taxed on an equal basis. Provision for the family would be made through the much increased allowances for the children.

I was not a member of the Sub-Committee that considered these matters but I applaud its work. I recognise that my hon. Friend the Member for Great Grimsby (Mr. Mitchell) was an active and fertile member of the Sub-Committee, which was under the chairmanship of my hon. Friend the Member for Oldham, West. However, I consider that the restructuring they proposed of income tax and the national insurance system points the way ahead. We shall not get anywhere merely by fiddling around with tax rates and allowances within the present system. Equally, we shall not solve the problem by thinking that we can abolish income tax or greatly change the total amount of revenue that we need to raise from income tax. I hope that the opportunity will be taken in Committee to examine these issues in rather more detail and to direct ourselves to a fundamental restructuring of the tax system.

7.49 pm

Mr. David Heathcoat-Amory (Wells)

It is an honour to address the House for the first time on behalf of my constituents. The new constituency boundaries take in parts of four old constituencies. By far the largest part of the constituency was previously represented by my hon. Friend the Member for Somerton and Frome (Mr. Boscawen). I inherit from him a tradition of great service to the constituency. He has also shown great personal kindness to me, and I thank him for that. As he now represents the constituency next door, he is not lost to me. As he is my area Whip, I doubt whether I shall be lost to him.

My constituency is an area of unparalleled natural beauty, from the Somerset levels, which are below sea level, to the Mendip hills with heights of 1,000 feet and more. It is an area steeped in the legends of King Arthur and the knights of the round table. They seem to have been the first visitors to come and stay. Today, their place is taken by the many thousands of visitors who come to Wells and to other resorts such as Glastonbury, Burnham on Sea and Cheddar Gorge. Tourists create traffic problems, but they are very welcome and tourism is an indispensable element in the local economy.

Our first industry is agriculture. I hope during this Parliament to play a part in making more tenancies available to young farmers. As with any industry, the long-term health of agriculture depends on the quality of its new recruits. New tenancies are required so that farming can maintain its enviable record of innovation and success. That conflicts, of course, with the desire of farm tenants for security. I believe, however, that the two interests—security and change—can be reconciled to give tenants reasonable security, but not perpetual rights. I am glad that legislation is planned for later this year. Its passage will be keenly watched by many farmers and aspiring farmers in my constituency.

My constituency has other important industries —some traditional, such as shoes, leather and cider-making, and some new, such as electronics and computer science. It is perhaps a sign of things to come that Wells has these important industries without the traditional marks of industrialisation. All are reacting to the challenge of world trade in the only way possible—by modernising plant, reforming work practices and ensuring that high-quality British design is not let down by high production costs.

I have noticed a tendency in the House and, indeed, in this debate to concentrate on overall figures and economic totals, but the real economy consists of individual companies and partnerships. That is where the real battles are to be won on cost, quality, reliability and productivity. What can the Government do to help? They can help by keeping inflation and taxes down. That is an indispensable element in any sustained recovery, and I welcome the Bill as a valuable contribution in that direction.

The Government have a further role to play. Government and industry are linked in many ways —through public purchasing, regional aid, investment grants and the funding of research and development. Defence expenditure, for instance, has profound industrial consequences. Several firms in my constituency depend heavily on defence contracts and the direction of their development programmes is set mainly by departmental specifications.

Government ownership of industry should certainly be reduced, but even if more nationalised industries pass into the private sector, as I hope that they will, the Government will remain closely involved in the workings of industry. That is in the nature of all modern industrial states. Other countries, including those more successful than ours, recognise that, and work to create a constructive relationship. The industrial activities of Government are co-ordinated in pursuit of certain strategic goals. In particular, they speed up the shift from old industries to new.

The task of identifying those goals and giving form and content to such a policy is, perhaps, not the best subject for a maiden speech. It requires changes in the selection and training of civil servants. It may even require a new breed of commercial civil servant. It requires Government Departments to co-ordinate their activities that affect industry and especially the new technologies. It does not require more money, which should commend such a policy to my right hon. and hon. Friends. Indeed, making Government aid more selective and specific will save money. Nor has such a policy anything to do with the tired old formula of nationalisation and state control that we still hear from the Opposition. That is the exact opposite of what is required. By meddling in company affairs and failing to achieve any overall sense of direction, such policies have actually retarded industrial change.

I am pleased at the content of the Finance Bill—its tax cuts, its sense of responsibility and its brevity. It is part of a strategy to create conditions for a more sustained recovery in the private sector. In addition, however, I urge that the authority and resources of Government be better directed towards helping our economy to face the industrial challenges of the years ahead.

7.57 pm

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

It falls to me to congratulate the hon. Member for Wells (Mr. Heathcoat-Amory) on a notable contribution to the debate. He fulfils well the tradition set by his uncle who was Chancellor of the Exchequer from 1958 to 1960. I am sure that many Conservative Members—perhaps a minority now, but ultimately and inevitably a majority—will join him and express very similar views in the coming years as conditions deteriorate.

I also congratulate my hon. Friend the Member for Sedgefield (Mr. Blair) on his illuminating contribution. Labour Members in the region are proud that he has joined the northern group of Labour Members to which he will undoubtedly make a substantial contribution.

The Bill is very nasty, for just one reason. It further entrenches the social and economic divisions in our society. We have grown used to such legislation in recent years. It is a two-nation Bill, introduced by a two-nation party which believes in division and seeks in every way to perpetuate the deep divisions in society. It comes after a general election campaign which failed to face the issues that should have been put before the British people—the great economic issues of our time. Debate was allowed to concentrate on defence, especially Polaris, which was used by the Conservatives as a side issue to deflect attention from the real issues. In so doing, they managed to destroy what might otherwise have been a campaign based on informed debate. The issues were not discussed. That was the case with capital transfer tax which today, as in the past few years, is being reduced. It divides society and ensures that a small minority are able to enjoy even greater rewards.

Would the Minister care to interpret the intention behind clause 12 before next week's Committee stage? Does it really mean what it appears 1:o mean—that the Government are arranging measures to ensure that some people who live in the Isle of Man but who formerly lived in the United Kingdom will be relieved of a tax liability that would otherwise have been due to .the Government? I hope that the Minister will make a point of answering that question in his winding-up speech.

During the general election campaign, there was no discussion of the tax reliefs for the higher paid that were shelved before the general election but have since been reintroduced. Although the Conservative party mentioned housing policy briefly, there was little debate in our region about the implications of raising mortgage interest relief from £25,000 to £30,000.

As the writ for the by-election at Penrith and The Border was moved today, the debate gives me an opportunity to draw the attention my constituents and the people of Cumbria, especially those in the Penrith and The Border constituency, to the Liberal party's performance on mortgage interest relief. It appears that, although Liberal Members interrupted several speeches during the debate of 30 June, they opposed raising the threshold of mortgage interest relief from £25,000 to £30,000 in the Division Lobbies. They are perfectly entitled to do that—I joined them in the Lobbies—but they are not entitled to go around Penrith and The Border, Cumbria and the rest of the United Kingdom before a general election telling people that the threshold for mortgage interest relief should be raised to £30,000 and, as soon as they are returned to the House, vote against that proposal while maintaining that they are consistent. That issue should be debated openly during the Penrith and The Border by-election.

The Labour party's stance will be clear. We oppose the raising of the threshold and believe that the resources should be spent in other forms of mortgage subsidy and, perhaps, in other areas of housing. The Liberal party must come clean. It must explain why Liberal Members oppose raising the threshold, whereas Liberal candidates support the increase. The electorate in Penrith and The Border will demand consistency from candidates who seek election to the House.

Perhaps one of the main reasons why these issues were not discussed during the election campaign is the fact that only 4 per cent, of the population are affected by them. Conservative Members should equip themselves to deal with the accusation that their constituents will level at them — that they have stuck out to protect only the better-off minority. Moreover, we must ask ourelves how it is possible for a Chancellor to present a Bill which affects so few people when 96 per cent. of the population will suffer from the reduced public expenditure proposed by the Treasury in the House and on television.

In the past few days, we have repeatedly heard statements that there will be more reductions in public expenditure. The Chancellor said so a week last Sunday on television and yet a Bill that will cost the British people £400 million is being pushed through by Conservative Whips who are determined to secure better returns for a small minority.

Yesterday, the Government announced another £300 million of penalties on local authorities. That is equivalent to the value of the Bill's concessions to the high paid. There is an inconsistency there. We are giving parliamentary approval to the Government's taking from local councils the precious money that they need to provide eduction, housing and services for the handicapped and giving it to a small minority of people. When people in Cumbria ask their local authority why the council has to close rural schools and services and the local authority says that it is being required to do that so that the Government have the money in the kitty, the people should also be told that the money that is being retained will find its way through the system to pay for the major concessions to the higher paid.

As my hon. Friend the Member for Blackburn (Mr. Straw) said in a notable speech, a married couple earning £20,000 a year will be £9 a week better off as a result of the new income tax arrangements and a married couple earning £40,000 a year will be £21 a week better off. There are not many people in my part of the world who are so fortunate. Moreover, those concessions will not benefit people in my county as they will tend to go to the south where people are often better off.

When we ask the Government why they persist with that strategy, they say that it is all to do with generating the necessary incentives to achieve industrial renewal. That is not true and we all know it. There is no evidence to suggest that income tax cuts for the better off are feeding a new industrial revolution. We know that, in 1982, 12,000 companies went bankrupt, mainly because of the Government's deflationary strategy. Perhaps many of those who are fortunate enough to listen to our speeches tonight, and to listen to future debates on the economy, will fall under the blunt knife of a Government who are clearly unable to introduce policies that will benefit the wider British public.

The only way to increase incentives in such conditions is to boost demand. The opportunity of increased business is the real incentive needed by industrialists, and the Government know it. However, to protect the ideological routing of the monetarist strategy, they persist in deflecting that fact, which they know to be true. Yet at the same time they are worried about the expansion of the money supply and a general expansion of financial resources, because, through painful experience since 1979, they have seen a massive outflow of funds from the United Kingdom, which now totals £34 billion. In 1982 alone, the grand total of £10 billion was dispatched from our shores to be invested in industry abroad. The Government know that such capital outflow cannot be defended in public, and the expansion of demand worries them because of its implications in increasing the sums of money to which I referred.

I hope that the review of monetary policy that is continuing in the Treasury will lead, in sanity, to the reintroduction of exchange controls, which many people, including, many Conservatives, know is necessary if we are to prevent the massive outflow of funds.

The Bill was born in a Treasury controlled by a Government who are committed to two nations — a nation that has, and one that has not. One day, we shall have the opportunity to remove them from power. I hope that the next time that the British people are presented with the challenge of ending this monstrous arrangement they will take the opportunity to elect a Government who understand that one nation is the priority of all Governments.

8.12 pm

Mr. Bill Walker (Tayside, North)

I congratulate my hon. Friend the Member for Wells (Mr. HeathcoatAmory) on his informative and interesting maiden speech. My hon. Friend is a constituent of mine, and it is no surprise to me that he speaks with such authority about farming. His comments on industrial change were also informative, and I look forward to his elaborating on some of the thoughts that he put forward. One cannot go into great detail in a maiden speech, but his was tantalising and we look forward to hearing much more from him. I am sure that he will make a tremendous contribution to our debates.

The hon. Member for Workington (Mr. Campbell-Savours) made some interesting comments—

Mr. Campbell-Savours

I am glad that the hon. Gentleman agrees.

Mr. Walker

—and there is no doubt that he spoke with some passion about the haves and the have-nots. I suppose that, in terms of world categories, he comes from the haves and I come from the have-nots. It is always fascinating to hear people constantly remind me of the problems of poverty, but who may not believe that I have had first-hand experience of what poverty means. I do not doubt the sincerity of his comments, but he should be a little more selective in putting forward his points.

It was interesting that the hon. Gentleman believed that during the election campaign the real matters that worried the British people were not debated. He said that was because Polaris and defence were the main issues. However, I remind the hon. Gentleman that the Conservative party did not make them issues. They became issues because the Labour party manifesto said that a Labour Government would break the tradition of eight successive Governments. A party that decides to break from something that has been common policy for many decades is bound to attract interest—at least from the media. Once the media become interested in a topic, they keep kicking it around because it helps to sell newspapers or magazines. If the nation spent much of its time talking about defence, it was because the Labour party manifesto mentioned it. The fact that most of us believed that the proposals were bonkers and irrelevant to the real world was reflected in the election results.

I was surprised to hear the hon. Gentleman say, because I know his area well, that not many people who move there because of their jobs take out mortgages in excess of £25,000. I almost moved there some years ago, but I could not afford a property. One must always try to recruit people of the highest calibre to run companies in an area where there is great need to stimulate more interest in business. We can stimulate interest only if there are the right people in top management. We cannot bring about change at the bottom. A company must bring into the area people who are carving a progressive career, but they are usually hard up. If one is climbing the ladder, one must live in a house that is in keeping with the job, which normally needs a fairly large mortgage. That has been my experience, and I am sure that it is the experience of everyone who has attempted to climb the slippery ladder of promotion in the business jungle. Therefore, it is right to grant some benefits to those who may need a mortgage of up to £30,000.

It is sad that the Labour party has not realised that those who need such mortgages are articulate managers who talk to their workers. Every time they move home, they take a risk. If they are unsuccessful, they fall flat on their faces and no one cares too much. It is important to move into the sort of property in which one's workpeople expect one to live in order to provide them with the leadership that they seek. The workers more than anyone make the assessments, and they expect their managers to look and play the part. That is vital if one is to provide leadership.

If we are to retain top management, our tax structure should provide the rewards so that the best people are kept in Britain to do the vital and important jobs. The shortage of managers affected many businesses, not just the likes of ICI. In the main, Britain's industrial problems were caused by two simple factors. First, we did not have the right people managing, and, secondly, we had ghastly industrial relations due to the attitude of the trade unions in wanting to keep things as they were. 10, 20, 30 or 40 years ago.

We need good, effective and capable management to bring about changes in work attitudes. That is management's job and responsibility, but we were losing such people. They went to other parts of the world where the rewards for such risk-taking were more commensurate. To bring about change, these individuals must be risk-takers. If they are not, change will not be brought about. Instead, they will play safe, do nothing, maintain the status quo, and eventually, like the dinosaur, our industry will die.

My hon. Friend the Member for Wells made an oblique reference to the need for change in the Civil Service. The lesson is that if civil servants are ever to change, they must also learn that that means risk-taking in Government service. If the civil servants play safe and stick only with the status quo, there will not be change.

The hon. Member for Cunninghame, South (Mr. Lambie) mentioned the Select Committee on Scottish Affairs inquiry into free ports. He was concerned that the mandarins in the Civil Service and the Treasury were determined to kill this off because they had been against it from the outset. I hope that is not true. Although I had considerable reservations about free ports, I and other hon. Members substantially changed our position as a result of the inquiry. We looked at free ports abroad, particularly in the United States, which is a modern, developed country, and found that the free ports there had much to offer. That could not always be measured in financial terms, because much of it was packaging and marketing in management, which had a great deal to do with the drive that brought about additional business.

I hope that my right hon. and hon. Friends on the Treasury Bench, when looking at free ports, will look beyond the financial considerations to what can be done, because image is important. Image is not what one thinks of oneself—it is what others think. Too often—this is certainly true of politicians — we begin to believe the image that we project. That is dangerous, because it is what others think that really matters. That is equally true of business. The image of the free ports in the United States was brought home to me. I went there not exactly sold on the idea. In fact, I was somewhat cool about it.

I have already referred to the increase in the mortgage ceiling from £25,000 to £30,000. I have shown that that links to the changes that we shall make in the tax bands. I have always recognised that in those two measures we were not helping the majority of people directly. I have accepted that from the outset, but I also acknowledge that unless we help those who create wealth and jobs through incentives and encouragement, we shall never be able to help those further down the ladder. We must always start with those who make things happen — the risk-takers, the organisers, and managers.

I hope that is only a beginning. It should not end there. I should like to see the policy continued so that there are considerable improvements in the tax bands.

As to the poverty trap, we must all be concerned about individuals who in many instances find that they are better off not working. They work for their pay, but, after the deductions are made, they find that they are no better off than those who are on the dole. If that happens, there is no incentive to work. I find that very disturbing.

I have never felt that the answer was to penalise those who were out of work. I believe that the answer lies in dealing with those who are in work. There are many more people in work than out of work. Therefore, one has to acknowledge that it is more difficult to do something meaningful and positive for those who are in work than for those who are out of work.

At one time, we considered changing the tax system to ensure that those in work would always be guaranteed a minimum wage. Different terminologies have been used. The idea was that the Exchequer should so balance its books that those who were working should be given a guarantee that their income would not fall below a certain level. It does not matter whether the aim is achieved by means of tax credits or in some other way. I hope that the Government will consider that possibility again, although I do not expect miracles at a time when the world is suffering from a great economic depression.

I make no apology for drawing attention again to the tourist industry, which is one of the largest employers in Scotland and vital to the Scottish economy. The tourist industry in Scotland employs 92,000 people. More people work in that industry than in industries, such as mining, about which we hear a great deal more. I should like to remind my right hon. and hon. Friends on the Front Bench that one can encourage people to visit tourist areas only by providing incentives. Scotland has beautiful scenery and marvellous facilities, but we cannot guarantee the weather in Scotland any more than in London. We must make the best use of our assets. The Government should carefully consider how, in future, we should tax the income derived from holiday cottages and other tourist facilities, which are often the only means of generating cash flow in the highlands.

We should also consider how we tax petroleum products, particularly petrol, because petrol duty is regressive for those who live in rural areas. The further one travels from the main centres of population— and my constituency is about as far away from them as one can get — the fewer petrol pumps there are and the more expensive petrol becomes. However, local people have no choice, because there is no public transport. Originally, cars were a luxury for the few. Because petrol was cheap in the days before the OPEC countries hiked the price up, cars gradually became available to the many. People were forced into acquiring cars at the time when costs were low. Costs are now high, and wages in the highland rural areas are very low because the bulk of the work is in agriculture, in small businesses, such as garages, and in hotels. I advise my right hon. and hon. Friends on the Front Bench to remember for many people in my constituency the car is not a luxury but a necessity. They need cars in order to get to work.

I do not want my right hon. and hon. Friends to think that I do not consider this to be a good Finance Bill. I think that it is a satisfactory Bill. It will be a small contribution to the change in emphasis that we called for in 1979 and have been working towards ever since. I welcome the Bill, and it will be well received in my constituency. Unlike the hon. Member for Workington, I hear many people talk about the mortgage provisions and the tax bands. That is because the small firms in my constituency hope that in future they will be managed by people who can afford to live in that part of the world.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. I remind hon. Members that the Front Bench speeches will begin at approximately 9 o'clock.

8.30 pm

Mr. David Winnick (Walsall, North)

Having won the election, the Government almost immediately get down to their first priority, which is to make sure that the richest 3 per cent. of taxpayers are given as much relief as possible. We are told by Conservative Members that the tax relief is necessary to galvanise the managers and others into action. That is a familiar old argument, going back to 1979, and it reminds me of what happens when it is suggested that private rents should go up and rent control should be abolished. Then the plight of widows is brought into play by Conservative Members.

I find it disturbing, though not surprising, that Government supporters are quick to make speeches and ask questions about wage increases if the people concerned happen to be the low paid in the public sector. But when it comes to giving further tax relief to the richest people in the community, they make speeches about why that is necessary, and the hon. Member for Tayside, North (Mr. Walker) did just that.

The hon. Member for Bridlington (Mr. Townend) argued, as one would of course expect, in favour of the Bill, yet he has been waging a ceaseless campaign against the decisions of wages councils, which are concerned with the wages of some of the lowest paid in the community.

There have been constant leaks in the press in recent days about forthcoming cuts in public expenditure, and there is little doubt that such cuts will occur. Presumably such reports have been leaked to the press from 10 or 11 Downing street, or both, to get people used to the fact that there will be cuts in housing, education and the social services, though not in defence. It is against that background that we are debating this Bill.

We must be concerned about the possibility — the Prime Minister did not really deny it yesterday when questioned by some of my hon. Friends—that after the increases in unemployment benefit in November, it is likely that the following increase in benefit, if there is one, will not be in line with inflation. It is possible that the same will apply to short-term supplementary benefit.

I particularly resent the lying propaganda put across in the press that a number of the unemployed do not want to work. That is being used as an excuse to ensure that unemployment benefit is not increased in real terms. That is part of the argument which Ministers are now trying to get across to the country. We are told that some people — from the way in which the argument is being adduced, one gathers quite a number—are in the dole queues because they do not want to work. That is a lie. Consider the position in the black country and the west midlands generally. People who have been made redundant there in the last few years find it virtually impossible to find other jobs, especially if they are in their late forties or fifties. Indeed, the tragedy is that many of our fellow citizens who are on the dole and unable to find work are faced with the prospect of never being able to work again unless there is a change in economic policy. Are the Government really concerned about that? Are they really interested in policies to bring down unemployment?

It seems that the Government's first wish is to try to get across the propaganda that a good number of the unemployed do not want to work so as to justify not raising unemployment and short-term benefits. It is interesting to note that, due to changes in taxation of unemployment benefit, 5 per cent. was taken off the unemployment benefit increase three years ago. That will not be made up until November this year. In fact, the unemployed who pay tax on their benefit are at the moment subject to double taxation. I wonder how many Conservative Members have been protesting about that. One or two of those who are called the Tory wets protested. They did not do much about it, but they made their protests.

Many of the speeches today came from those right hon. and hon. Gentlemen who never protested in the House, or outside, about the fact that 5 per cent. was taken away from the unemployed and was not restored when unemployment benefit was no longer subject to taxation.

Mr. Bill Walker

Does the hon. Gentleman realise that at the time that the 5 per cent. reduction took place there were many people in work who had not had wage increases for some time and that at that time some airline pilots even took a cut?

Mr. Winnick

The hon. Gentleman is trying simply to condone something that was totally without justification. I believe that the House will consider his remarks as being rather appropriate for him.

About 3 per cent. of the richest taxpayers will now receive further benefits from the Government. The majority of people though who pay tax are paying more in income tax and insurance contributions than they were when the Labour party was in office. In 1978–79, a married couple on 75 per cent. of average earnings would have been paying 14.5 per cent. of those wages on income tax and national insurance contributions whereas in 1983–84 they are paying 18.5 per cent. Someone on average earnings who was paying about 20 per cent. of his wages in income tax and national insurance contributions during the last financial year that Labour was in office is now paying 22 per cent. We know that most people are paying more, not less, as a result of the Government's fiscal policies.

We should be particularly concerned that—my hon. Friend the Member for Motherwell, South (Dr. Bray) was absolutely right — people on low incomes have been brought into the income tax bands when they should not have been. People with very limited incomes are paying income tax. My sympathies are with those people. I have had understandable and justifiable complaints from constituents who have written to me or seen me at my surgeries—some of them are retired—asking why they must pay income tax.

Mr. Bill Walker

indicated assent.

Mr. Winnick

I see the hon. Member nodding his head. If the Government were really concerned about such people we would have a Finance Bill that tried to ensure that those people did not have to pay tax. That should be the first priority of the Government, if they had any concern or compassion for those in need. We know that the Bill does not do anything of the kind. It deals with the people to whom I referred when I began my remarks. My hon. Friend the Member for Motherwell, South referred to the Sub-Committee of the Treasury and Civil Service Committee. What is required is a change in the structure of income tax to ensure that there is more justice.

As for the tax relief on mortgages up to £30,000, it is totally untrue to say that the Labour party is opposed to owner-occupation. It has always been in favour of people having the opportunity to own their own homes. A Labour Government introduced the option mortgage scheme which gave many people who would otherwise have been unable to get a mortgage the opportunity to do so. I am not in favour of raising tax relief. As some of my hon. Friends have said, it is a step which, apart from anything else, will increase the price of houses and, by so doing, make it more difficult for some people to obtain a mortgage.

We must compare what is being proposed in the Bill with the phasing out of subsidies for public sector tenants. Many council tenants are paying far more rent because subsidies are being reduced and phased out by the Government. In contrast, the cost of tax relief on mortgages is constantly increasing.

One of the questions that we must ask ourselves is, "Should the subsidy to owner-occupier; be open-ended?" I tend to believe that there is some justification for tax relief on mortgages. I believe that it is right and proper and I have argued that point within my party. On balance, there is a strong case, for housing and other reasons, for that form of subsidy to continue. However, I am not in favour of its being increased to £30,000, and nor do I believe that the subsidy should be open-ended. There may be a case for saying—I throw this out for the sake of argument—that some people should receive tax relief on a mortgage for a period of perhaps 25 years. That is what I mean by trying to close the gap on an open-ended subsidy.

If we are to provide money from the public purse—and that is what we are doing—it should go to the people in the greatest housing need. The money being provided under the Bill will not go to those on the lowest incomes or in the greatest housing need.

I do not deny that in some parts of the country, such as London, house prices are such that it may be difficult to find properties under £35,000 or £40,000. That is not necessarily the case in many other parts of the country. When one recognises the amount of housing hardship and misery, it is difficult to justify what the Government are proposing. The economy is sick and the signs are that unemployment will continue to grow. There must be few Conservative Members who believe that unemployment will be lower by the end of this Parliament. The signs are that the opposite will be true. The growth rate of the economy will be low and we shall have large cuts in public expenditure. We are debating the Bill against that background. There is no doubt that, as my hon. Friends have said, this is a bad Bill which contains no justice. We shall therefore be justified in voting against it.

8.43 pm

Mr. Albert McQuarrie (Banff and Buchan)

I welcome the maiden speeches made by my hon. Friends the Members for Wells (Mr. Heathcoat-Amory) and for Strathkelvin and Bearsden (Mr. Hirst) and other hon. Members today. There are so many new Members that we have the pleasure of enjoying many maiden speeches. It is encouraging that so many of them have taken the opportunity of the debate on the Finance Bill to make their maiden speeches.

I welcome the Bill. Clause 10 raises relief for business and agricultural property from 20 per cent. to 30 per cent. under capital transfer tax. It will be of considerable benefit because it does something that we have been endeavouring to do for a long time in Scotland — it encourages landlords to let land. There have been too few opportunities for young farmers to develop land under a tenancy agreement. I hope that this clause will encourage landlords to give young farmers who want their own tenant farms the opportunity to go into business without having to borrow too much cash.

The hon. Member for Cunninghame, South (Mr. Lambie) mentioned free ports. I am disappointed that they are not specifically mentioned in the Bill. I shall refer to the report of the working party under the chairmanship of the previous Economic Secretary to the Treasury, which was set up to discuss free ports. As the hon. Member said, the Select Committee on Scottish Affairs studied in great detail the advisability of having free ports in Great Britain. We discovered that it would be of considerable advantage to Britain if we had free ports. One of the places that we visited when we investigated this subject was Hamburg, where there are 60,000 employees, turning over £590 million. There are 1,000 different firms and only 70 or 80 are manufacturing firms. The rest export and process. That is an example of what we want to see in Britain. There are 70 zones in the United States. Also, 8,000 employees work at Shannon.

The working party went into great depth, having looked at the Select Committee's report. The Secretary of State for Scotland accepted that free ports were feasible. I thought that in the Finance Bill due cognisance would have been taken of that support. Page 33, paragraph 9.8, of the working party's report stated: Having considered all the evidence, it is the conclusion of the Working Party that there would, on balance, be merit in opening the way to the establishment of such free ports in the United Kingdom. We therefore recommend that amending legislation should be introduced forthwith to make this possible. Such legislation should be drawn so as to permit all forms of activity —transhipment, warehousing, processing and related services—allowable under the EC free zones Directive to be undertaken. I am particularly interested in the comments on transhipment. In my constituency we have a fine port that could be used as a free port and a sea port, from which goods could be transhipped. At present there is high unemployment there. An organisation run by the Grampian regional council, called the North East of Scotland development authority, has clearly stated that Aberdeen could be suitable for a free port. Of course, I claim that my constituency is the most suitable part of the Aberdeenshire area for such a free port because there are facilities not only in Peterhead but in Fraserburgh. In both ports there are deep water facilities that would enable the transhipments to be made.

It is interesting that NESDA, in its report to the working party, referred to the cost savings from the simplification of procedures for inward processing relief or warehousing". It also suggested: A free port could include an international exhibition centre for equipment. When we visited Miami, we saw an exhibition centre which had over 1,000 different warehouses operating in showrooms, covering the whole of south America. The number of employees was incalculable, because it was continuing to increase day by day. The concept of the free port in Miami had caught on to such an extent that the amount of ground available was being overtaken, and consideration was being given to the acquisition of additional areas.

A further point made by NESDA was that a free port would generate employment and airport traffic, as well as offering a marketing advantage for the area in which it is established. North sea oil and gas come ashore on the mainland in my constituency at St. Fergus and Cruden Bay. In Peterhead there are many oil-related industries that could process the items that I have mentioned, forming part of a free port.

I hope that the Government, in their wisdom, will give due consideration to paragraph 9.8 of the working party report, because it is clear that there is considerable scope in the United Kingdom for the reduction of unemployment by the creation of new business in free ports. If free ports have been successful in other parts of the world, we should get them started as quickly as possible in the United Kingdom. Legislation should be introduced as early as possible. The Government should take cognisance of the report and ensure that action is taken along the lines suggested to create employment. We have the expertise, the skills and the materials. In my constituency the necessary facilities, including customs, are already there, and I hope that the Minister will give the House some assurance tonight that the Government will give serious consideration, before the Bill completes its Committee stage, to the recommendations of the working party.

As the hon. Member for Cunninghame, South said, Prestwick is an area that needs a great deal of support. It was at one time a famous international airport. It has degenerated into a place with high unemployment. His call for a free port at Prestwick should not go unheeded by the Government. The Government should recognise the need for free ports in various parts of the United Kingdom, and act accordingly.

I hope that the Minister will take due cognisance not of the derogatory parts of the working party's report but of the more positive parts, which suggest that there is scope within the United Kingdom — and in particular in Prestwick and in my own constituency—for the creation of employment where there is now high unemployment, and for the creation of new outlets for the goods and services that we can provide in Britain.

8.54 pm

Mr. Mark Fisher (Stoke-on-Trent, Central)

People expect this Finance Bill to address one fundamental question: how do we create the financial and economic circumstances that will get us out of this desperate recession and back to work? There is nothing in the Bill that addresses that problem, as there was nothing in what the Chief Secretary said or in the speeches of Conservative Members. From all those things, I would not know that outside the Chamber there was a recession.

This is a smug Bill. I would not know from it that the country was in crisis, particularly north of Birmingham, in my constituency and the north of England. There industry is devastated, plant is standing unused, skills are being lost every week and month and the Government have the impertinence to call this devastation slimming. We are meant, at the end of the process, to be a fitter industrial country. This is not industrial slimming; it is industrial anorexia, and anorexia destroys. The Government, with their blindness to everything except inflation, do not recognise the extent of the crisis.

The right hon. Member for Guildford (Mr. Howell) talked about economic management being an art and made it sound like a decorative skill such as painting miniatures —a nice interest suitable for gentlemen like himself. I have a different view of art. It has a strong social responsibility to address itself to the problems of human beings as they live on this planet. If the right hon. Gentleman is serious in addressing his art of financial management, its subject is a grim one. He is looking at a grim landscape both industrially and socially.

Manufacturing output is plummeting and even the CBI, the great friend of the Conservative party, says that investment will fall by another 5 per cent. this year. For the first time in our history, we are importing more manufactured goods than we are exporting. What a disgraceful record for the Government. Conservative Members, many of whom run and own small businesses, are surprised that there is no growth in small firms, but that is because there is no activity in the economy. The Government do not seem to recognise that they have a responsibility to shape and determine the real world of industry. In failing to address that problem in the Finance Bill, they are failing to address their responsibilities.

The only matter of substance in the Bill is help for the rich in the form of income tax cuts, capital transfer tax cuts and mortgage interest tax relief—what a disgrace. If that is how the Government confront the problems of the economy and industry, they do not understand what is going on outside. How can it help this country that a man on £44,000 a year will be £6,188 a year better off because of the Bill? How will that help the economy?

The Government say that help for the rich encourages incentives. They fail to explain how making managers richer makes them work harder. That is an insult to our industrial managers, many of whom are highly skilled and hard working. They work harder not because they are paid more, but because of the problems that confront their industry and their sense of responsiblity to the future of those industries.

What is more, hard work because of greater tax incentives does not create what industry needs. It needs investment, trading, better plant and machinery, apprenticeships, research, sales and industrial planning. Those are the things for which we should be looking and the incentives that we should be giving to industry. We should not be giving handouts to managers who are already well paid. There is no justification for the incentive argument. Tax cuts are merely personal rewards. They have no effect on the economy.

There is no credibility in what the right hon. Member for Guildford said about tax cuts helping to stimulate investment in industry. Where does the increased investment or wealth go? It does not go to British jobs. Some £37 billion went out of the country because the Government took off exchange controls, and even if there has been an inward investment of £16 billion, that is still a £21 billion net loss—£10,000 capital investment per job. The House can work out how many millions of jobs have been lost because the investment that the Bill is supposed to stimulate is going abroad.

The Bill does nothing for the real needs of industry or the country. It does nothing for the real needs of investment, reflated demand or higher education, particularly in applied science. It does not address the real need for work for people. The Bill will not do. It is an inadequate response economically and inadequate as a plan for a caring society.

Ours is a caring society and soon the electorate will say clearly that such a policy and such a Bill will not do. Many Conservative Members know that it will not do, because they know that nothing in the Bill has the spirit of social justice or industrial growth. It is a shabby Finance Bill. The country needs a Finance Bill that will put its industrial skills, its industrial imagination and brilliance back to work. This Bill is definitely not it.

9 pm

Mr. Robin Cook (Livingston)

My practice is to respond to debates on tax by saying that we have had a good debate. I am happy that on this occasion I say that with greater enthusiasm than I have on some occasions. We have heard an excellent and distinguished debate to which eight maiden speakers contributed.

From the Government Benches we heard five skilled maiden speeches. The Financial Secretary will mention individually each of his hon. Friends who made their maiden speeches today. I shall single out only a couple of Government maiden speeches. I offer a word of friendly warning to the hon. Member for Bristol, North-West (Mr. Stern) because I suspect that the Financial Secretary will omit to do so. If the hon. Gentleman continues to show such technical mastery of tax law, it is a sure recipe for being confined each summer to the Finance Bill Committee. That is the nearest that the House gets to exercising its prerogative to impose imprisonment.

I am grateful to the hon. Member for Stratford-on-Avon (Mr. Howarth). The House owes him a debt since he advised us at the outset of his speech that formerly he was the director of the research department at Conservative Central Office. The hon. Gentleman gave us a revealing insight into the work, ethics and values of that office. We can now see clearly that all the talk of Victorian values that we have noticed in the newspapers in the last few months is firmly rooted in the appreciation of Victorian economic theory in the research department at Smith square.

The hon. Member referred in glowing terms to his predecessor, Sir Angus Maude. The hon. Gentleman defeated a former Member, Mr. Frank. Hooley. I recall the work that Frank Hooley did in the House. He was one of my close friends and he taught me how the House can be used to raise issues of concern to the conscientious Member. He combined punctilious service to the residents of Sheffield with dedicated campaigning for the poor and dispossessed of the Third world. If the hon. Member for Stratford-on-Avon succeeds in making the same contribution to the House as the man whom he defeated he will achieve a level which few Members attain.

Two of my hon. Friends made their maiden speeches today. The first was from my hon. Friend the Member for Sedgefield (Mr. Blair) who spoke ably and movingly about unemployment in his constituency. I last met my hon. Friend when he was a candidate in Beaconsfield in very different circumstances from those in Sedgefield. I congratulate him on having found territory which is more politically congenial than Beaconfield, although with very different social conditions and economic problems. I advise my hon. Friend that those of us who, like himself, come from north of the privet hedge territory around the south-east cannot too often remind the House that our constituencies contain pockets of unemployment of over 40 per cent. One reason why we repudiate the Conservatives' economic strategy and policy is that it is we who represent the areas of mass unemployment which are the victims of the policy pursued by the Treasury Bench.

Another maiden speech was made by my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) in his characteristically fiery style. I particularly relish the irony of welcoming his maiden speech in the House in a week following a reference to me in his entertaining column in the New Statesman. It was, if I may say so, entirely unprovoked. I assure my hon. Friend that his command of language and invective sounds much better when it is being applied, as it was tonight, against Conservative Members than when it is being applied against his comrades.

My hon. Friend was right to point out that we live in a fool's paradise sustained with the black gold of North sea oil. My hon. Friend might not be present but he is a prodigious reader as well as a prodigious writer and is capable of reading what I say tomorrow. We can get a glimpse of Britain's shattering future, of which my hon. Friend warned, if we simply deduct from Britain's exports the contribution made by North sea oil—a contribution which from next year will start to decline. No hon. Member could do that calculation and fail to be concerned by the result. It will show that we are heading for a chronic constant structural deficit in our balance of trade.

The right hon. Member for Guildford (Mr. Howell) treated us tonight to his resignation speech. It was in marked contrast to the speech last week from the right hon. Member for Cambridgeshire, South-East (Mr. Pym) who left the House in no doubt how he came to be sacked from the Administration. Anybody who listened intently to the speech of the right hon. Member for Guildford would have had great difficulty working out why he had to be fired from the Administration when he has such modest differences with it.

I want to take up one point with the hon. Member for Colne Valley (Mr. Wainwright). He said that he would not object to a provision in the Bill to uprate the higher rate bands by 5.6 per cent. which would be mere indexation. What he objected to in the Bill was that the uprating exceeded what was necessary to meet indexation. The curious thing about that statement is that the hon. Gentleman, like all Liberal and Social Democratic candidates, stood for election on a manifesto which not only had no commitment to indexing the thresholds but had a specific commitment that a Liberal-Social Democratic Government would not fully index tax thresholds. That commitment was not highlighted in many election addresses, but there it was. The hon. Gentleman and all his colleagues stood on an explicit manifesto commitment to bring into tax even lower income groups than at present, which would deepen the poverty trap from which those groups suffer.

Mr. Wainwright

The hon. Gentleman is always scrupulously fair. Had I not interrupted him, I am sure that he would have finished the paragraph of our manifesto which made it quite clear that we would fail to index for a year only in return for a humane tax system which would release from tax a large number of the poor.

Mr. Cook

The hon. Gentleman will have to refer to his manifesto, which contains three separate items in that paragraph, all of which were addressed to the specific expenditure proposals of the early years of an alliance Government. It says: The additional spending which the new welfare system will involve will be paid… First, by the continued phasing out of the married man's extra tax allowance… Second, by not fully indexing personal tax allowances, and third, by a relatively small increase in public borrowing—around £600—£700 million over the final programme. That paragraph is put forward with precision and with specific commitment, so specific that it is specific to the last £100 million of the borrowing requirement. Given that, I do not think it will do for the hon. Gentleman to pretend that these were rather airy-fairy ideas for long-term examination. It was a specific and precise commitment from which he cannot now escape, however embarrassed he may have been to find that he was standing for election on it.

I return now to the gravamen of the themes which ran through the debate. Two major themes were explored—first, the absence of any clear sign of recovery in the economy and, secondly, the specific contribution of the Bill to increasing inequality in an already unequal society. What better place to start my examination of the theme of recovery than with the hon. Member for Loughborough (Mr. Dorrell) who, I am pleased to see, is now in his place.

I thought I detected a coded message to the hon. Gentleman from the Chief Secretary when the right hon. and learned Gentleman told the House that he had no intention of ever being dragged off a plane for an urgent meeting with Back Benchers. I noted that the hon. Gentleman has discovered strong enthusiasm for the Budget balance. I hope that I do not misinterpret the mood in which he addressed the House if I say that I detected a certain uneasiness on his part that that Budget balance might be disturbed by the zeal and commitment to monetarism of the new Chancellor of the Exchequer. I shall explore in a moment whether there are grounds for fearing that, but I should like to say first that I too share the hon. Gentleman's nervousness about recovery.

Many other people are also unconvinced that we are trembling on the brink of economic recovery. Only the other week, in its quarterly bulletin, the Bank of England said that we are likely to have a recovery that is below the average for the OECD nations. In other words, having had a worse recession than any of our partners in the OECD, we are now about to experience a worse recovery than any member of the OECD. The National Institute for Economic and Social Research was even bleaker last month when it explicity said that it does not expect the present scale of modest recovery of 1983 to continue to 1984. There are the blunter words of Sir Michael Edwardes, quoted in the financial pages of The Guardian last Friday. With scientific caution, he said I'm not saying there isn't a recovery… just that we're not seeing any". In his opening speech the Chief Secretary said that we had a major debate on the economy last Wednesday and that therefore there was no point in going over the same ground. I can understand why the Chief Secretary was anxious not to remark on anything that has happened since last Wednesday because every set of figures that has been released since then casts doubt on whether we do indeed tremble on the brink of that recovery. On Monday we had the new figures from the Department of Trade and Industry which pointed to a yawning gulf between our exported goods and our imported goods. It made the calculation that, in the first quarter of this year, we had a deficit on our trade and manufactures equivalent to an annual rate of £5 billion. That should remind us that a mere six years ago in 1977 we had a surplus in our trade and manufactures of £5 billion.

The dangers of trying to pluck comfort or trying to find a success story from this bleak set of figures was illustrated by the unfortunate fate of the CBI, which last week chose to highlight the chemical industries as a sterling case of advance and pointed out that the chemical industries had increased exports by 3 per cent. Unfortunately for the CBI, it was not aware that on the same day that it issued its press release telling us that the chemical industry had increased exports by 3 per cent. the Chemical Industries Association had issued a press statement expressing its concern about the penetration of the British market, and stating that over the same period imports of chemicals to Britain had increased by 10 per cent., more than three times the rate at which exports had increased. The association stressed that over the past two years investment in the chemical industry in Britain had fallen by 30 per cent. So much for Monday.

On Friday we had two sets of figures that updated our knowledge of the economy from the previous Wednesday. We learned that in the first half of 1983 15 per cent. more companies went bankrupt than in the first half of 1982. In the same period the increase in bankruptcies was 40 per cent. on the same period in 1981. The rate at which companies go bankrupt is greater than at any time since records began. That gives the lie to the claim of Conservative Members that they represent the party of small business. The fact is that small businesses are going out of business at a rate unparalleled in our history.

Bankruptcies are especially high in manufacturing industry. For the first half of the year, bankruptcies in the engineering sector were up 22 per cent. on the same period for the preceding year.

On Friday the Government also produced the unemployment figures, which showed an underlying upward trend. I grant that it is increasingly difficult to spot which way the trend is going, so heavily is it camouflaged by the various ways of tackling and rigging the figures that are revealed each month. However, if account is taken of everything that the Government have done that has a bearing on the figures, the conclusion cannot be avoided that last month there was an upward trend in unemployment that produced an additional 19,000 unemployed. Last month was the 43rd consecutive month in which unemployment increased under this Government. When the hon. Member for Stratford-upon-Avon, who has now arrived in the Chamber, tries to seek a correlation between rising inflation and rising unemployment, I invite him to reflect that, although inflation has been decreasing for the past 18 months—we never stop hearing about that from the Government—unemployment has persisted perversely in soaring.

The only good news that I have been able to find in the week since the previous debate on the economy took place is that Professor Sir Alan Walters, economic adviser to the Prime Minister, is finally departing to John Hopkins university on the other side of the Atlantic. Even that welcome news is qualified by the caveat that he is committed himself to spending one quarter of his time in Britain exercising his malign influence on the econonmic destiny of our nation.

Although Professor Sir Alan Walters has not done so, some of the economists responsible for visiting upon us the folly of monetarism are now making their excuses. My favourite excuse of the month appears in this morning's edition of The Guardian, which carries an article by Walter Eltis of Exeter college, Oxford. Many right hon. and hon. Members will know that he pushed the Government in the direction of their present economic policies. Mr. Eltis has a wonderful way of talking his way out of the collapse of the export figures. He wrote: Recent figures may be more dismal than the reality. Our exports may be falling because we are taking extra holidays". No industrialist in my constituency has complained to me that too many extra holidays are being taken by his workers. Industrialists may complain of many things, but none has yet complained to me about the impact on exports of additional holidays. I acquit the Chancellor of the Exchequer of trying to seek any such flimsy pretext for the failure of his policies.

I now take up the other ground for uneasiness of the hon. Member for Loughborough. He is quite right to suspect that we may about to witness another U-turn back to the full vigour of monetarism of 1981.

The Chancellor is the arch theorist of monetarism. It is curious that the money supply came under control only after he left the Treasury to go to the Department of Energy and as soon as he returned to the Treasury it started to spiral out of control again. Whatever the truth of his management of the money supply, the Chancellor has a reputation to protect in his commitment to the theory. His speech last week showed that he did not resile one jot or tittle from his full commitment to this arcane theory. It showed that he was further diverging from reality rather than converging on it. It is clear from his extra-parliamentary pronouncements since then that he can see only one cure for the ailments of the British economy—public expenditure cuts. If the economy is ailing, his automatic response is to reach for the medieval remedy and try to strengthen it by bleeding the public sector. I confidently predict — here I echc many similar statements by Opposition Members today—that that will make the problem worse rather than better. I say that with some feeling as there is a clear illustration in my own back yard.

The hon. Member for Loughborough has said that, thanks to the Boundary Commission, we are all maidens in some part. I shall not pursue that curious biological concept. In the ways of the House I am something of a middle-aged roué, but as I am making my first speech as a Member for an entirely new constituency I shall give one illustration from my own area.

One of the heaviest programmes to take the largest cuts in public expenditure under the Goverment has been overseas aid. The cuts not only affect the Third world countries grappling with the problems of hunger, disease and degradation. They have a serious impact on British industry which, although it is in deficit with the rest of the world, is still in surplus with the Third world.

On the border of my constituency and that of the hon. Member for Linlithgow (Mr. Dalyell), whom I am pleased to see in his place, is the major British Leyland truck plant. When the Conservatives came to power four years ago, that plant employed 6,000 men. It now employs 1,800. The truck assembly line depends entirely on orders from African nations, mostly members of the Commonwealth. Last week a further 450 redundancies were announced due to a decline in orders from the Third world. That reflects no lack of need for the product and no lack of competitiveness of the plant but solely the fact that the countries which want and need the trucks cannot now afford to purchase them. One could not hope for a more compelling illustration of the extent to which the future of British industry is tied up with the debt and development crisis of the Third world which the Government helped to create and are doing nothing to resolve.

I do not accuse the Chancellor of not understanding the consequences of his policy. He understands only too well the consequences of the public expenditure cuts that he is preparing. There will be further unemployment and further casualties, as he is pleased to term them, in the war against inflation. We must judge the Bill against that backgorund. There is something surreal about that task. We are dealing with pre-election bribes offered to the House after the election is over.

That surreal offer is the more grotesque in that we are being invited to give away £400 million to the better-off sections of the community at a time when Whitehall is full of the noise of sharpening knives for a barbecue of public expenditure in the autumn. If the Government cannot afford the present level of public expenditure, the overseas aid programme or the present level of unemployment benefit, it follows that they cannot afford to find £400 million for the top 4 per cent. of the population.

Since we last debated this subject, the House has been privileged to receive the report of the Treasury and Civil Service Select Committee about the structure of personal income taxation. I shall refer to it as the Meacher report. My hon. Friend the Member for Motherwell, South (Dr. Bray) has already referred to it. It clearly proves the extent to which our income tax structure is the product of accident and has entirely arbitrary effects. Its central conclusion is that, across the great mass of British taxpayers, the system is not at all progressive. The only corner where one can detect progressiveness is among the top 4 per cent. —precisely the area where the Bill invites us to make the progression less marked. That might not concern us too much were it not for the fact that the report shows beyond doubt that there are major pools of abject poverty. A mirror image of those sections of the community that pay the higher rate of tax is to be found among the lowest income groups who pay a rate of taxation at the margins that is even higher than that borne by the higher income groups earning more than £20,000 a year.

A family paid family income supplement and liable to tax—there are now 50,000 such households in Britain—will lose 30 per cent. in income tax, 9 per cent. in national insurance contributions and 50 per cent. in family income supplement on every extra £1 earned. The extra taxation amounts to 89 per cent. That is a higher rate of marginal tax than the top rate of 83 per cent. which the Government began by abolishing in 1979 on grounds that 83 per cent. taxation was unacceptable. The most appalling figures to emerge from the report show that there are more households at the bottom of the income scale paying those high rates of tax than there are at the top. The Select Committee concludes that there are now 700,000 poor households that, as a result of the interaction of means-tested benefits and the tax scale, pay a marginal rate of tax of more than 50 per cent. That compares with only 270,000 households which pay a marginal rate of tax of more than 50 per cent. at the top of the income scale. There are 500,000 households which have a marginal rate of tax of more than 60 per cent. at the bottom of the income scale as compared with only 70,000 households that pay a marginal rate of tax of more than 60 per cent. at the top of the income scale.

If the House is worried about unfair marginal rates of taxation and their disincentive effects, it should be much more concerned when those excessive marginal rates of taxation and the disincentive fall on the poorest paid households rather than on the highest paid.

I should like to pick out one glaring contrast between the Bill and the Government's proposals for the future of this Parliament. It is now clear from statements that have been made outside the House that the Government are actively considering reducing unemployment benefits in 1984. The theory is that unemployment benefit is too high to price people into jobs and that if it is cut, mysteriously and by some unknown process of osmosis, the unemployed will find jobs into which they will have been priced by the cut of their benefits. That theory is double Dutch to my constituents. I immediately think of one whom I met during the election campaign. He has been out of work for a year since leaving school. When I met him he had just received his 138th job refusal. I also think of another constituent who is a joiner and, aged 46, finds that when he applies for a job he is told that he is too old.

To those people it is an insult to argue that if we cut their unemployment and supplementary benefit they will go out and find themselves a job. They are the casualties of the Government's war against inflation about which the Chancellor talks, but one does not treat casualties by kicking their crutches from under them. I warn the Government of the despair and anger of the unemployed who cannot make ends meet on their present benefits, and I warn them about the additional anger and outrage of the unemployed when they see the stark contrast between the Government's statement that they cannot afford to increase unemployment benefit and the provision in this Bill not merely to increase the higher rates but to increase them by even more than is required by indexation.

That is a terrifying glimpse into the social priorities of a Government who are trying to grasp back with one hand even that which the poorest have, while the other hand is flinging with casual generosity even more money to those who are among the wealthiest 4 per cent. Tonight the Opposition will vote against those double standards, not just because we reject this mean little Bill, but because we reject the rotten, corrupt social division that gave birth to it, and the hypocrisy of an Administration who reward the rich for being rich, while they plot to penalise the poor, who are poor because they cannot find work in Tory Britain.

9.31 pm

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

The hon. Member for Livingston (Mr. Cook) talked about double standards. In his speech he suggested that the Government should spend more on overseas aid but cut private investment by the reimposition of exchange controls and impose controls on imports. That would damage the under-developed nations more certainly than any other way.

Today we heard a galaxy of maidens and of talent. The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) is a little tarnished as a maiden, but we missed him greatly in the previous Parliament. I congratulate him on getting into one speech an entire Parliament's worth of bile, as he did this afternoon. He said that when he thought of his constituents in Hackney, he was on the verge of tears. I am sure that the feeling is mutual.

The hon. Member for Sedgefield (Mr. Blair) was most eloquent. I gather that he is the Benjamin of the Labour party. If he survives, like the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan), to become the Father of the House, he will have what Mr. Aneurin Bevan called very many years of endless tedium in the House. He spoke eloquently about the industrial difficulties in his constituency, which I know well, and the terrible problems of unemployment that many constituencies suffer.

Many of my hon. Friends spoke about unemployment. I congratulate my hon. Friends the Members for Erith and Crayford (Mr. Evennett), for Stratford-on-Avon (Mr. Howarth) and for Wells (Mr. Heathcoat-Amory) on their outstanding maiden speeches this afternoon. I must tell the hon. Member for Sedgefield that they are all equally aware of the problems caused by unemployment and of the difficulties presented by the great industrial revolution through which we are passing. They all realised that the maintenance of sound money, the destruction of inflation and the readiness with which we accept industrial change are the ways in which the remedy lies. All three made excellent speeches. I congratulate them and we look forward to hearing from them again.

My hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) made an excellent historical survey. I did not know where his constituency was. He told us most accurately, and I am grateful. He talked about housing policy, and I shall have more to say on that later. I would only tell him now that stamp duty was raised by a considerable amount last year. It was thought that, as that had priority last year, it was right to give mortgage interest relief priority this year. We could not afford to do both.

My hon. Friend the Member for Bristol, North-West (Mr. Stern) spoke in moving terms of the city of Bristol. He complained that there was too much legislation, and held up that dreadful yellow book that might easily be called the "Butterworth mountain". I visited him during the election. He was a most remarkable candidate. He ran from house to house—

Mr. Winnick

He was running from the right hon. Gentleman.

Mr. Ridley

He tried to visit as many constituents as possible. He tried to help everyone.

It is because we have tried to help everyone in tax legislation over so many years that we have such a complicated tax structure. Indeed, in this debate there have been strong requests from four of my hon. Friends to restore reliefs that were included in the original Finance Bill for which, alas, there was no room in this Bill and which the Opposition did not agree to include in that part of the original Bill which became an Act.

My right hon. and learned Friend the Chief Secretary referred to the retirement relief from capital gains tax, which, after consultation, will be remodelled. We shall bring forward proposals in due course.

My hon. Friend the Member for Gosport (Mr. Viggers) referred to the proposed stock relief for houses taken in part exchange. That will also he proposed in next year's Finance Bill, and my right hon. Friend is considering the date from which the relief should run.

The hon. Member for Cunninghame, South (Mr. Lambie) and my hon. Friends the Members for Banff and Buchan (Mr. McQuarrie) and for Tayside, North (Mr. Walker) asked about free ports and the clause that was to be in the original Bill. I assure the House that there is no change whatever in the policy announced by my right hon. and learned Friend the Foreign Secretary in the previous Budget. A question on the procedure will be answered tomorrow, but in brief now is the time to announce the criteria upon which applications will be decided and to invite applications from those who believe that their location would make a suitable free port. That can go ahead, and there will be no delay to the eventual establishment of free ports. The necessary legislation will be included in a future Bill.

I repeat. there is no change in either the timing or the Government's programme.

Mr. Lambie

Will the first free ports be designated by September?

Mr. Ridley

I cannot give that undertaking.

Mr. Lambie

Why not?

Mr. Ridley

Because I do not think that they will be. My hon. Friends the Members for Bridlington (Mr. Townend) and Tayside, North asked about the future tax treatment of holiday lettings—

Mr. Robert Hughes (Aberdeen, North)

Will the Minister give way?

Mr. Ridley

Not at the moment.

On 11 May, I said: At a suitable opportunity we intend to bring forward proposals to change the law so that those carrying on a business of furnished holiday lettings will, in general, be able to claim capital gains tax retirement relief and relief on replacement of business assets, and to have their incomes from such a business treated as earned income, whether or not they are carrying on a trade,"—[Official Report, 11 May 1983; Vol. 42, c. 841.] I have to tell my hon. Friends that this involves long and complex legislation and that there was insufficient time to prepare it for inclusion in the Bill. There may even he a need for consultation. However, I assure the House that the legislation will appear in the 1984 Finance Bill and that it will become active from April 1983 as was originally announced. The Revenue will have regard to the statement that I have just made when considering cases in the current financial year. However, cases in the years before April 1983 will have to be considered in the light of the present law.

The original 1983 Finance Bill contained provisions designed to nullify the tax advantages that some United Kingdom companies gain by accumulating surplus cash balances in overseas tax havens. Those provisions—clauses 44 to 52 and schedule 7 to 9 of the original Bill — were the product of three rounds of wide-ranging consultations with the international business community. They would have enabled a charge to corporation tax to be imposed on certain companies resident in the United Kingdom with interests in companies under United Kingdom control in low tax areas. We intend to return to this problem in the 1984 Finance Bill, although we remain open to further consultation on the details of the provisions. To that end, we shall publish revised draft legislation in the summer or the autumn. The draft legislation will incorporate the various changes which were announced by the present Chief Whip on 30 March but which had not been tabled at the time the election was called.

The five main provisions of the Bill are the 14 per cent. increase in the thresholds for the higher rates, the investment income surcharge threshold increase, the increase in mortgage interest relief, the provisions relating to capital transfer tax bands and small changes to CTT, and the corporation tax small profits rate bands. I cannot quite see why the Opposition objected to the final two provisions. I suppose they thought that to do so fitted in with the former Chief Secretary's definition of "mean, vindictive and petty", but I do not know why the Opposition objected to the corporation tax small profits bands. The effect of raising the lower limit from £90,000 to £100,000 and the upper limit from £225,000 to £500,000 is to reduce the marginal rate between the upper and lower limits to 55.5 per cent. In 1978 it was 67 per cent.; last year it was 60 per cent. Without the clause it would be 61 per cent.; with the clause it is 55.5 per cent. That meets a case that has been made by many hon. Members—the hon. Member for Stockton, South (Mr. Wrigglesworth) is among those who have urged help for industry — that we should pay attention to the high marginal rate between the upper and lower levels. That is exactly what we have done.

The cost of the capital transfer tax provisions is only £5 million this year over straight indexation. The main increase is the increase from £58,000 to £60,000 in the threshold for paying the tax. That change is of the greatest benefit to the smallest estates, but the benefit is very small. An estate of £100,000 taxable value that would have paid £13,600 before the clause was enacted will now pay £13,000—a drop of only £600. An estate of £1 million that would have paid £549,650 will now pay £547,250 —a drop of £2,400. Those tiny figures have :0 be set beside the fact that, if we were to go back to the rates that the right hon. Member for Leeds, East (Mr. Healey) introduced in 1974, the tax would raise £75 million less. There is therefore no need for hon. Gentlemen to believe that we have been lax on this tax. Indeed, my hon. Friends could criticise the Government for having extracted more by higher rates than—

Mr. Campbell-Savours

rose—

Mr. Ridley

I am coming to the hon. Gentleman now. He questioned me about clause 12. It would not be right to treat the Channel Islands and the Isle of Man other than in accordance with their constitutional status. They are no different in constitutional status from any British colony or, for that matter, foreign country. It has been the cause of severe complaint from those islands that they are treated as if they were in some way semi-dependencies when they are no different from any other of Her Majesty's dependencies.

Mr. Campbell-Savours

What about the Cayman Islands?

Mr. Ridley

They are no different from the Cayman Islands, the Falkland Islands or any other island which is still one of Her Majesty's dependencies, such as Hong Kong; and if we tried to legislate tax rates for Hong Kong we might find ourselves in some difficulty.

Mr. Straw

I am grateful to the Financial Secretary for the admission that the Channel Islands are no different from the Cayman Islands. Does he accept that the Channel Islands are used in the same way as the Cayman Islands —as a convenient tax avoidance haven for people who are in practice based in this country but who wish to avoid paying their dues to the British Government?

Mr. Ridley

We can debate that next week. All of Her Majesty's dependencies outside the United Kingdom are in exactly the same constitutional relationship, and that is the one that I have described.

Mr. Campbell-Savours

rose—

Mr. Ridley

I have answered the point raised by the hon. Gentleman.

Mr. Campbell-Savours

Does the right hon. Gentleman accept that at a time when the Chancellor of the Exchequer is demanding cuts from all Government Departments some people currently domiciled in the Isle of Man will pay less tax as a result of this Finance Bill?

Mr. Ridley

Yes; there will be a small loss of revenue. Some people who prefer to go to France will also pay less tax than if they stayed in this country.

Regarding the higher rates, the Opposition refused to allow those provisions to go through before the Dissolution for purely mean, petty and vindictive reasons. That is what it was all about.

I find some inconsistency in the Opposition's argument. We have had speeches from the hon. Members for Colne Valley (Mr. Wainwright), for Blackburn (Mr. Straw) and for Stockton, South in which they asked on macro grounds for a far greater amount of public borrowing. I shall not go into the macro economic scene because I want to debate the Bill. Their argument is that the Government should spend a great deal more. By means of this small Bill we are this year injecting about £150 million over indexation into the economy. It seems strange that the Opposition should speak with two voices: they want more money spent and they want to vote against the Bill. In a way, my hon. Friend the Member for Loughborough (Mr. Dorrell) was rather worried by that dilemma, too.

Having dealt with that inconsistency, one must consider how the money should be distributed. The hon. Member for Livingston may not have worked it out. If the current thresholds, before the Bill becomes law, for the higher rates—that is, the 1982–83 higher rate thresholds—were to remain in place for the 1983–84 tax year, they would be lower in real terms than the rates that the Labour Government enacted in 1978–79. Thus, what the Labour party thought was an adequate point at which higher rate taxes should start when they were in Government, it now denies and wants to screw down further. That removes the case that the Opposition have been making today.

In 1981–82 the Chancellor was not able to increase thresholds at all. The effect on those on higher rates was that all the severity to which the hon. Member for Colne Valley referred was reversed. When it is possible for the Government to put right the results of their holding down of the thresholds in 1981–82—as was inevitable —it must be right, and inevitable, that the benefit should be shared equally among all ranges of income.

Mr. Robin Cook

The Financial Secretary has sought to defend what the Government are doing by reference to the threshold and the higher rate bands introduced by the Labour Government. He will appreciate—I am sure that he would not seek to mislead the House—that if we are to debate where the threshold should be, it is necessary to bear in mind what has happened to rates. The Financial Secretary knows that even those earning up to 10 times national average earnings and who were formerly paying two thirds of their income in tax are now paying barely half their income in taxes because of the way in which he has cut the rates. Having cut the rates, it is entirely right that the threshold be brought down below the levels which existed when the rates were lower.

Mr. Ridley

At last we have the hon. Gentleman's admission that what I said is true. I want to come to those rates.

A married man earning £30,000, with two children, pays in income tax and national insurance contributions combined, expressed as a proportion of his total income, 22 per cent. in France, 29 per cent. in the United States, 32 per cent. in Germany — [Interruption.] Yes, including social security. In Italy he pays 36 per cent. and in the United Kingdom, if this Bill becomes law. 36 per cent. The only country over the top is the Labour party's beloved Sweden, at 63 per cent. That is the country that the Leader of the Opposition wants the United Kingdom to resemble. We are even now towards the top of the pack in terms of international comparisons.

I want to make a point about the higher rates. If the money involved in clause 1 and in the capital transfer tax provisions were to be used to raise all allowances, it would be possible to reduce the basic rate of income tax by one sixth of 1p, in this financial year, or one quarter of 1p in a full year. Using the same figures, it would produce an increase in child benefit of 25p in this financial year and 40p in a full year. That shows how vindictiveness does not pay. Has the Labour party learnt its lesson? Has it learnt that that sort of vindictiveness does not pay?

Mr. Straw

Before the Financial Secretary continues with his efforts to trivialise the expenditure of £280 million upon those in society who are already very wealthy, will he admit that if the Government chose, for example, to use this money to pay the pensioners the increase to which they are entitled, they could do so at a cost of £200 million and still have £80 million left to put into the Health Service? The Health Service is desperately in need of money. It is vindictive and mean-minded on the part of the Government to seek to deny the Health Service and pensioners £280 million which is being given away to the most wealthy.

Mr. Ridley

The hon. Gentleman seeks to spend money without regard to the effects. I have made it clear that it would not have any dramatic effect if it were to be spent elsewhere; nor would it have a dramatic effect on the people from whom he seeks to take it.

The hon. Member for Motherwell, South (Dr. Bray) asked about tax policy. I join the hon. Member for Livingston in querying the Liberal party policy in relation to tax at the lowest rates. This is an important point. The hon. Member for Colne Valley said that 39 per cent. was too high a starting rate and that the threshold was too low. It is extraordinary that he should say that when, in his manifesto, we read that he thinks that the threshold should be held for a year to pay for his proposed spending programme. He wants to lower the starting rate, but the Liberal party also put forward a scheme for tax credits. Even the Liberal party, in the shape of Mr. Vince, admitted that that would result in a marginal rate of 46 per cent. Treasury costings show that it would be more likely to be 48 per cent. There is a moral there for the hon. Gentleman and for the Labour party. I believe that the House will agree that we want to increase personal allowances and thresholds and, if possible, to reduce the basic rate of tax and national insurance contributions.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

Wind him up.

Mr. Ridley

If that is to be achieved. the first essential must be to spend less money because the only way to prevent having to increase taxation at that low level is to put more taxes on people who, I believe the House will agree, are already heavily taxed.

My right hon. Friend the Member for Guildford (Mr. Howell) was the only Member who referred to the investment income surcharge relief in clause 1. It is a modest relaxation. It costs £15 million to increase the threshold in line with indexation in the fu Li year. This year, 45,000 people will be exempted from paying tax and it will save nearly 50 staff. My right hon. Friend is pushing at an open door. Hon. Members will agree that many of their humblest and less well-off constituents are victims of that tax as well as its being an income disincentive. I am sure that the House listened to my right hon. Friend with interest and sympathy.

The total cost of mortgage interest relief is likely to be £2.75 billion for the rest of this financial year on the assumption that the mortgage rate remains at 11.;25 per cent. The increase from £25,000 to £30,000 will cost £50 million. I am sure that it is clear to the House that that is only a small proportion of £2.75 billion. I must part company with the hon. Members for Collie Valley and for Blackburn when they suggest that an increase of £50 million of tax relief on £2.75 billion is likely to affect the mortgage rate. The reasons why the mortgage rate went up are well known to all. I am certain that they are in no way connected with the Bill's provisions.

My hon. Friend the Member for Strathkelvin and Beardsden described his constituency as being north of Watford. It is certainly not a suburb of the affluent southeast. He said that the average price of a house in his constituency was £28,300. That seems to justify the rise from £25,000 to £30,000. If more proof were required, I tell the House that the increase that would be necessary since 1974, according to the RPI, would be to £80,000 and, according to the house prices index, £60,000. One has to ask why indexation is vital to so many taxes in the minds of the Liberal party, whereas it is against this indexation which is half that of the house prices index.

The proposals in the Bill fulfil the pledges that we gave before the election and, unlike some politicians, we are intent on redeeming those pledges now that we have been re-elected. The Bill contains justice for all classes as well as the implementation of those pledges. I commend it to the House and hope that it will receive its Second Reading tonight.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 361, Noes 208.

Division No. 10]	[10 pm
AYES
Adley,Robert	Douglas-Hamilton, Lord J.
Aitken Jonathan	Dover, Denshore
Alexander, Richard	du Cann, Rt Hon Edward
Alison, Rt Hon Michael	Dunn, Robert
Amery, Rt Hon Julian	Dykes, Hugh
Amess, David	Edwards, Rt Hon N. (P'broke)
Ancram, Michael	Eggar, Tim
Arnold, Tom	Emery, Sir Peter
Ashby, David	Evennett, David
Aspinwall, Jack	Eyre, Reginald
Atkins, Rt Hon H. (S'thorne)	Fairbairn, Nicholas
Atkins Robert (South Ribble)	Fallon, Michael
Atkinson, David (B'm'th E)	Farr, John
Baker, Kenneth (Mole Valley)	Favell, Anthony
Baker, Nicholas (Dorset N)	Fenner, Mrs. Peggy
Baldry, Anthony	Finsberg, Geoffrey
Banks, Robert (Harrogate)	Fletcher, Alexander
Batiste, Spencer	Fookes, Miss Janet
Beaumont-Dark, Anthony	Forman, Nigel
Bellingham, Henry	Forsyth, Michael (Stirling)
Bendall, Vivian	Forth, Eric
Bennett, Sir Frederic (T'bay)	Fowler, Rt Hon Norman
Benyon, William	Fox, Marcus
Berry, Hon Anthony	Franks, Cecil
Best, Keith	Fraser, Sir Hugh
Biffen, Rt Hon John	Fraser, Peter (Angus East)
Biggs-Davison, Sir John	Freeman, Roger
Blackburn, John	Fry, Peter
Blaker, Rt Hon Peter	Gale, Roger
Body, Richard	Galley, Roy
Bonsor, Sir Nicholas	Gardiner, George (Reigate)
Bottomley, Peter	Gardner, Sir Edward (Fylde)
Bowden, A. (Brighton K'ton)	Garel-Jones, Tristan
Bowden, Gerald (Dulwich)	Gilmour, Rt Hon Sir Ian
Boyson, Dr Rhodes	Glyn, Dr. Alan
Braine, Sir Bernard	Goodhart, Sir Philip
Brandon-Bravo, Martin	Goodlad, Alastair
Brinton, Tim	Gorst, John
Brittan, Rt Hon Leon	Gow, Ian
Brooke, Hon Peter	Gower, Sir Raymond
Brown, M. (Brigg & Cl'thpes)	Grant, Sir Anthony
Browne, John	Greenway, Harry
Bruinvels, Peter	Gregory, Conal
Bryan, Sir Paul	Griffiths, E. (B'y St Edm'ds)
Buchanan-Smith, Rt Hon A.	Griffiths, Peter (Portsm'th N)
Buck, Sir Antony	Grist, Ian
Budgen, Nick	Ground, Patrick
Bulmer, Esmond	Grylls, Michael
Burt, Alistair	Gummer, John Selwyn
Butcher, John	Hamilton, Hon A. (Epsom)
Butterfill, John	Hamilton, Neil (Tatton)
Carlisle, John (Luton N)	Hampson, Dr Keith
Carlisle, Kenneth (Lincoln)	Hanley, Jeremy
Carttiss, Michael	Hargreaves, Kenneth
Chalker, Mrs. Lynda	Harvey, Robert
Channon, Rt Hon Paul	Haselhurst, Alan
Chapman, Sydney	Hawkins, C. (High Peak)
Chope, Christopher	Hawkins, Sir Paul (N'folk.SW)
Churchill, W. S.	Hawksley, Warren
Clark, Hon A. (Plym'th S'n)	Hayes, J.
Clark, Michael (Rochford)	Hayhoe, Barney
Clark, Sir W. (Croydon S)	Hayward, Robert
Clarke Kenneth (Rushcliffe)	Heathcoat-Amory, David
Clegg, Sir Walter	Heddle, John
Cockeram, Eric	Henderson, Barry
Colvin, Michael	Heseltine, Rt Hon Michael
Conway, Derek	Hickmet, Richard
Coombs, Simon	Hicks, Robert
Cope, John	Higgins, Rt Hon Terence L.
Cormack, Patrick	Hind, Kenneth
Corrie, John	Hirst, Michael
Couchman, James	Hogg, Hon Douglas (Gr'th'm)
Cranborne, Viscount	Holland, Sir Philip (Gedling)
Critchley, Julian	Holt, Richard
Crouch, David	Hooson, Tom
Currie, Mrs. Edwina	Hordern, Peter
Dicks, T.	Howard, Michael
Dorrell, Stephen	Howarth, Alan (Stratf'd-on-A)

Howarth, Gerald (Cannock)	Needham, Richard
Howe, Rt Hon Sir Geoffrey	Nelson, Anthony
Howell, Rt Hon D. (G'ldford)	Neubert, Michael
Howell, Ralph (Norfolk N)	Newton, Tony
Hubbard-Miles, Peter	Nicholls, Patrick
Hunt, David (Wirral)	Norris, Steven
Hunt, John (Ravensbourne)	Onslow, Cranley
Hunter, Andrew	Oppenheim, Philip
Hurd, Rt Hon Douglas	Oppenheim, Rt Hon Mrs S.
Irving, Charles	Osbom, Sir John
Jenkin, Rt Hon Patrick	Ottaway, Richard
Jessel, Toby	Page, John (Harrow, W)
Johnson-Smith, Sir Geoffrey	Page, Richard (Herts, SW)
Jones, Gwilym (Cardiff N)	Parris, Matthew
Jones, Robert (Herts W)	Patten, Christopher (Bath)
Jopling, Rt Hon Michael	Patten, John (Oxford)
Joseph, Rt Hon Sir Keith	Percival, Rt Hon Sir Ian
Kershaw, Sir Anthony	Pink, R. Bonner
Key, Robert	Pollock, Alexander
King, Roger (B'ham N'field)	Powell, Rt Hon J. E. (Down S)
King, Rt Hon Tom	Powell, William (Corby)
Knight, Gregory (Derby N)	Powley, John
Knight, Mrs. Jill (Edgbaston)	Prentice, Rt Hon Reg
Knowles, Michael	Price, Sir David
Knox, David	Proctor, K. Harvey
Lamont, Norman	Pym, Rt Hon Francis
Lang, Ian	Raffan, Keith
Latham, Michael	Raison, Rt Hon Timothy
Lawler, Geoffrey	Rathbone, Tim
Lawrence, Ivan	Rees, Rt Hon Peter (Dover)
Lawson, Rt Hon Nigel	Renton, Tim
Lee, John (Pendle)	Rhodes James, Robert
Leigh, Edward (Gainsbor'gh)	Rhys Williams, Sir Brandon
Lennox-Boyd, Hon Mark	Ridley, Rt Hon Nicholas
Lester, Jim	Ridsdale, Sir Julian
Lewis, Sir Kenneth (Stamf'd)	Rifkind, Malcolm
Lightbown, David	Roberts, Wyn (Conway)
Lilley, Peter	Robinson, Mark (N'port W)
Lloyd, Ian (Havant)	Roe, Mrs Marion
Lloyd, Peter, (Fareham)	Ross, Wm. (Londonderry)
Lord, Michael	Rossi, Hugh
Luce, Richard	Rost, Peter
Lyell, Nicholas	Rowe, Andrew
McCurley, Mrs Anna	Rumbold, Mrs Angela
Macfarlane, Neil	Ryder, Richard
MacGregor, John	Sainsbury, Hon Timothy
MacKay, Andrew (Berkshire)	St. John-Stevas, Rt Hon N.
MacKay, John (Argyll & Bute)	Sayeed, Jonathan
Macmillan, Rt Hon M.	Shaw, Giles (Pudsey)
McNair-Wilson, M. (N'bury)	Shaw, Sir Michael (Scarb')
McNair-Wilson, P. (New F'st)	Shelton, William (Streatham)
McQuarrie, Albert	Shepherd, Colin (Hereford)
Madel, David	Shepherd, Richard (Aldridge)
Major, John	Shersby, Michael
Mallins, Humphrey	Silvester, Fred
Malone, Gerald	Sims, Roger
Maples, John	Skeet, T. H. H.
Marland, Paul	Smith, Sir Dudley (Warwick)
Marlow, Antony	Smith, Tim (Beaconsfield)
Marshall, Michael (Arundel)	Soames, Hon Nicholas
Mates, Michael	Speed, Keith
Maude, Francis	Speller, Tony
Mawhinney, Dr Brian	Spence, John
Maxwell-Hyslop, Robin	Spencer, D.
Merchant, Piers	Spicer, Michael (Worcs, S)
Meyer, Sir Anthony	Squire, Robin
Miller, Hal (B'grove)	Stanbrook, Ivor
Mills, Ian (Meridan)	Steen, Anthony
Miscampbell, Norman	Stern, Michael
Moate, Roger	Stevens, Lewis (Nuneaton)
Molyneaux, James	Stewart, Allan (Eastwood)
Monro, Sir Hector	Stewart, Andrew (Sherwood)
Montgomery, Fergus	Stewart, Ian (hertf'dshire, N)
Moore, John	Stokes, John
Morrison, Hon C. (Devizes)	Stradling Thomas, J.
Morrison, Hon P. (Chester)	Sumberg, David
Moynihan, Hon C.	Tapsell, Peter
Mudd, David	Taylor, Teddy (Send E)
Murphy, Christopher	Taylor, John (Solihull)
Neale, Gerrard	Tebbit, Rt Hon Norman

Temple-Morris, peter	Walters, Dennis
Terlezki, Stefan	Ward, John
Thatcher, Rt Hon Mrs M.	Wardle, C. (Bexhill)
Thomas, Rt Hon Peter	Warren, Kenneth
Thompson, Donald (Calder V)	Watson, John
Thompson, Patrick (N'ich, N)	Watts, John
Thorne, Neil (llford, S)	Wells, Bowen (Hertford)
Thornton, Malcolm	Wells, John (Maidstone)
Thurnham, Peter	Wheeler, John
Townend, John (Bridlington)	Whitfield, John
Townsend, Cyril D. (B'heath)	Whitney, Raymond
Tracey, Richard	Wilkinson, John
Trippier, David	Winterton, Mrs Ann
Twinn, Dr Ian	Winterton, Nicholas
van Straubenzee, Sir W.	Wolfson, Mark
Vaughan, Dr Gerard	Wood, Timothy
Viggers, Peter	Woodcock, Michael
Waddington, David	Yeo, Tim
Wakeham, Rt Hon John	Young, Sir George (Acton)
Waldegrave, Hon William	Younger, Rt Hon George
Walden, George
Walker, William (T'side N)	Tellers for the Ayes:
Walker, Rt Hon P. (W'cester)	Mr. Carol Mather and
Wall, Sir Patrick	Mr. Robert Boscawen.
Waller, Gary
NOES
Abse, Leo	Davies, Rt. Hon. Denzil (L'lli)
Adams, Allen (Paisley N)	Davies, Ronald (Caerphilly)
Alton, David	Davis, Terry (B'ham, H'ge H'I)
Anderson, Donald	Deakins, Eric
Archer, Rt Hon Peter	Dewar, Donald
Ashdown, Paddy	Dixon, Donald
Ashley, Rt Hon Jack	Dobson, Frank
Ashton, Joe	Dormand, Jack
Atkinson, N. (Tottenham)	Douglas, Dick
Bagier, Gordon A.T.	Dubs, Alfred
Banks, Tony (Newham NW)	Duffy, A. E. P.
Barnett, Guy	Dunwoody, Mrs. G.
Barron, Kevin	Eastham, Ken
Beckett, Mrs. Margaret	Edwards, R. (W'hampt'n SE)
Beith, A. J.	Evans, loan (Cynon Valley)
Bell, Stuart	Evans, John (St. Helens N)
Bennett, A. (Dent'n & Red'sh)	Ewing, Harry
Bermingham, Gerald	Fatchett, Derek
Bidwell, Sydney	Faulds, Andrew
Blair, Anthony	Field, Frank (Birkenhead)
Boothroyd, Miss Betty	Fields, T. (L'pool Broad Gn)
Boyes, Roland	Fisher, Mark
Bray, Dr Jeremy	Flannery, Martin
Brown, Gordon (D'f'mline E)	Foot, Rt Hon Michael
Brown, Hugh D. (Provan)	Forrester, John
Brown, N. (N'c'tle-u-Tyne E)	Foster, Derek
Brown, R. (N'c'tle-u-Tyne)	Foulkes, George
Brown, Ron (E'burgh, Leith)	Fraser, J. (Norwood)
Bruce, Malcolm	Freeson, Rt Hon Reginald
Caborn, Richard	Garrett, W. E.
Callaghan, Rt. Hon. J.	George, Bruce
Callaghan, Jim (Heyw'd & M)	Gilbert, Rt Hon Dr. John
Campbell, Ian	Godman, Norman
Campbell-Savours, Dale	Golding, John
Carlile, Alexander (Montg'y)	Gould, Bryan
Carter-Jones, Lewis	Gourlay, Harry
Cartwright, John	Hamilton, W. W. (Fife Central)
Clark, Dr David (S Shields)	Hardy, Peter
Clarke, Thomas	Harman, Ms Harriet
Clay, Robert	Harrison, Rt Hon Walter
Cocks, Rt Hon M. (Bristol S.)	Hart, Rt Hon Dame Judith
Cohen, Harry	Hattersley, Rt Hon Roy
Coleman, Donald	Healey, Rt Hon Denis
Conlan, Bernard	Heffer, Eric S.
Cook, Robin F. (Livingston)	Hogg, N. (C'nauld & Kilsyth)
Corbett, Robin	Holland, Stuart (Vauxhall)
Corbyn, Jeremy	Howell, Rt Hon D. (S'heath)
Cowans, Harry	Howells, Geraint
Cox, Thomas (Tooting)	Hoyle, Douglas
Craigen, J. M.	Hughes, Mark (Durham)
Crowther, Stan	Hughes, Robert (Aberdeen N)
Cunliffe, Lawrence	Hughes, Roy (Newport East)
Dalyell, Tam	Hughes, Sean (Knowsley S)

Hughes, Simon (Southwark)	Pavitt, Laurie
Hume, John	Pendry, Tom
Janner, Hon Greville	Penhaligon, David
John, Brynmor	Pike, Peter
Johnston, Russell	Powell, Raymond (Ogmore)
Jones, Barry (Alyn & Deeside)	Prescott, John
Kaufman, Rt Hon Gerald	Radice, Giles
Kennedy, Charles	Randall, Stuart
Kilroy-Silk, Robert	Redmond, M.
Kinnock, Neil	Richardson, Jo
Kirkwood, Archibald	Roberts, Allan (Bootle)
Lambie, David	Roberts, Ernest (Hackney N)
Lamond, James	Robertson, George
Leadbitter, Ted	Robinson, G. (Coventry NW)
Leighton, Ronald	Rooker, J. W.
Lewis, Ron (Carlisle)	Ross, Ernest (Dundee W)
Lewis, Terence (Worsley)	Ross, Stephen (Isle of Wight)
Litherland, Robert	Rowlands, Ted
Lloyd, Anthony (Stretford)	Ryman, John
Lofthouse, Geoffrey	Sedgemore, Brian
Loyden, Edward	Sheerman, Barry
McCartney, Hugh	Sheldon, Rt Hon R.
McDonald, Dr Oonagh	Shore, Rt Hon Peter
McKay, Allen (Penistone)	Short, Ms Clare (Ladywood)
McKelvey, William	Short, Mrs R.(W'hampt'n NE)
MacKenzie, Rt Hon Gregor	Silkin, Rt: Hon J.
Maclennan, Robert	Skinner, Dennis
McNamara, Kevin	Smith, C (Isl'ton S & F'bury)
McTaggart, Robert	Smith, Rt Hon J. (M'kl'ds E)
McWilliam, John	Soley, Clive
Madden, Max	Spearing, Nigel
Marshall, David (Shettleston)	Stewart, Rt Hon D. (W Isles)
Martin, Michael	Stott, Roger
Mason, Rt Hon Roy	Strang, Gavin
Maynard, Miss Joan	Straw, Jack
Meacher, Michael	Thomas, Dr R. (Carmarthen)
Meadowcroft, Michael	Thompson, J. (Wansbeck)
Michie, William	Thorne, Stan (Preston)
Mikardo, Ian	Tinn, James
Millan, Rt Hon Bruce	Varley, Rt Hon Eric G.
Miller, Dr M. S. (E. Kilbride)	Wainwright, R.
Mitchell, Austin (G't Grimsby)	Wallace, James
Morris, Rt Hon A. (W'shawe)	Warden, Gareth (Gower)
Morris, Rt Hon J. (Aberavon)	Wareing, Robert
Nellist, David	Williams, Rt Hon A.
Oakes, Rt Hon Gordon	Wilson, Gordon
O'Brien, William	Winnick, David
O'Neill, Martin	Wrigglesworth, Ian
Orme, Rt Hon Stanley	Young, David (Bolton SE)
Owen, Rt Hon Dr David
Park, George	Tellers for the Noes:
Parry Robert	Mr. James Hamilton and
Patchett, Terry	Mr. Frank Haynes.

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Committee of the whole House —[Mr. Goodlad.]

Committee tomorrow.