HC Deb 15 March 1983 vol 39 cc158-82

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

  1. (a) any amendment with respect to value added tax so as to provide—
    1. (i) for zero-rating or exempting any supply;
    2. (ii) for refunding any amount of tax, otherwise than by a provision relating to supplies to, and importation by, a government department, within the meaning of section 19 of the Finance Act 1972:
    3. (iii) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
    4. (iv) for any relief other than relief applying to goods of whatever description or services of whatever description; or
  2. (b) any amendment relating to the surcharge imposed by the National Insurance Surcharge Act 1976 and applying to some only of the persons by or in respect of whom the surcharge is payable, other than—
    1. (i) an amendment providing for a different rate of surcharge to be paid by the bodies specified in section 143(4) of the Finance Act 1982; and
    2. (ii) an amendment relating to the Commission to be established under the Act resulting from the National Heritage Bill [Lords].—[Sir Geoffrey Howe.]

[Relevant documents: European Community Documents Nos. 10337/82, Annual Economic Report 1982–83, together with the final version as adopted by the Council, and 10480/82, Annual Economic Review 1982–83, together with paragraph 7 of the Fourth Report from the Select Committee on European Legislation, House of Commons Paper No. 34-iv of Session 1982–83, and paragraph 4 of the Eleventh Report from the Committee, House of Commons Paper No. 34-xi of Session 1982–83.]

5.2 pm

Mr. Michael Foot (Ebbw Vale)

It is part of the ritual of Budget day that the first speaker from this side of the House congratulates the Chancellor of the Exchequer on his performance. I certainly do not wish to depart from that tradition, at least for the first few minutes of my speech. I naturally accord him congratulations of the kind that previous Chancellors of the Exchequer have been accorded on the way in which they have presented the Budget to the House. I congratulate the right hon. and learned Gentleman on that basis.

Those of us who have been in the House for some time with the right hon. and learned Gentleman know that he has a great capacity for being clear when he wants to be and that when he is obscure it is also intentional. We must take that into account, particularly when examining the right hon. and learned Gentleman's proposals for dealing with pensioners. It appears that the right hon. and learned Gentleman may have received some assistance from the Secretary of State for Employment on these matters, and if that is so we must examine them all the more carefully. We shall do so with great care during our Budget debates and I shall return to that shortly.

The Chancellor of the Exchequer recalled some previous Chancellors of the Exchequer, such as Mr. Gladstone and Mr. Disraeli. In my judgment, he was not quite as witty as Mr. Disraeli or quite as wise as Mr. Gladstone. Indeed, he reminded me more of another 19th century Conservative Chancellor of the Exchequer, particularly when he approached the more agreeable parts of his speech. I refer to Sir Robert Peel, of whom it was said that his smile was like a silver plate on a coffin. The right hon. and learned Gentleman approached the issue somewhat in that spirit. He announced his measures with a certain grisly bonhomie, and we must give him credit for that.

If I may say so without any disrespect, perhaps the wisest words that have been uttered today were those said by Mr. Deputy Speaker just as the Chancellor of the Exchequer began his speech. He said that the Chancellor should start again, and that is no doubt what the right hon. and learned Gentleman should have done. Both we and the country wish that we could return to that day four years ago when the right hon. and learned Gentleman presented the first of his Budgets. I remind the House, and particularly those who cheered a few minutes ago, that it was Mr. lain Macleod who, I think, suggested that the Budgets that received the loudest cheers were those that brought disillusion the quickest. When the words of the Chancellor of the Exchequer are examined, disillusion often follows very quickly.

That will be true of this Budget, mainly because the Chancellor of the Exchequer has made no real effort to deal with the fundamental industrial and economic situation facing Britain. This Budget, this Chancellor of the Exchequer and this Cabinet are squalidly inadequate to deal with the problems of industrial decay and mass unemployment that face the nation. The overriding factor in the world in which we live is hyper-unemployment. That is the major problem that faces the nation. The Government claim that they have not in any way caused that hyper-unemployment. Indeed, they say that they can do nothing about it. The right hon. and learned Gentleman says that unemployment is intractably high. Of course it is appallingly high, but the right hon. and learned Gentleman uses the word intractable to suggest that nothing can be done about it. The Government have sought to preach that to the country over the weeks and months.

The Government say that the situation is worse in other countries, that our unemployment is just part of the world slump, that nothing can be done about it or that there is no alternative. We must show the country how this Budget merely extends that interlocking network of falsehoods and does nothing to deal with the problems.

The Chancellor of the Exchequer referred with some pride to his 1981 Budget, but that Budget is one of the reasons for the record unemployment in this country today. The clearest and starkest failure has been the destruction of jobs. The Government have destroyed jobs on a scale unknown since 1945. In three and a half years, one in 10 jobs in this country has been destroyed. This Government will be the first since the war to have destroyed jobs. For 35 years after the war jobs were created, but in three short years this Government have reversed all that. In few other countries have jobs been destroyed at all, and where they have been, the scale of destruction has been negligible compared with that in Britain.

Job destruction in manufacturing has been even more spectacular. More than one fifth of manufacturing jobs have been lost in Britain. Again, that is on a scale unmatched in any previous period of British history or by any other country in the present period. Although the Government have recently cited one or two other countries—I think that the Chancellor of the Exchequer mentioned them again today—such as the Netherlands or Germany, where the rise in unemployment is similar to our own, they are the exceptions and in neither case is the scale of job loss anything like as great as it is here. That is the result of the collapse in output. Nothing that the right hon. and learned Gentleman said will restore the situation.

None of this is surprising if we look at what has happened to production. The fall in output under this Government far outstrips anything suffered by any other country for which figures exist. With the exception of Canada, no other industrial country has suffered a loss of output during the period for which the Chancellor has presided over our economic affairs.

The right hon. and learned Gentleman has predicted recovery once again today, although his predictions are a great deal more tentative than they were a few years ago. This time he plumped for a figure of 2 per cent. as the likely increase. Up till now output has fallen by 5 per cent. from the first half of 1979, so a huge increase is called for and there is a huge backlog to be made up. Even with the increase predicted by the Chancellor, manufacturing will be 18 per cent. down from the second quarter of 1979, and the construction industry will be 10 per cent. down. Of all the trivial measures in this trivial Budget, nothing was more trivial than that offered to the construction industry. The measures offered to it were pitiful.

The Budget fails to deal with the real world. I went the other day to the Shildon works, which is part of the real world. The threatened closures there will add to the heavy unemployment figures. They will destroy a whole community and help to spread the industrial disease to many other parts of the country, because the coal and the steel used at the Shildon works will no longer be required, and that will have its reverberations.

The Government do not seem to understand the interlocking industrial measures between these great industries. They hit one industry and do not understand how that hits the others. What do they think will happen in the years to come? Are we not to want any of the wagons made at Shildon? In two or three years' time, once the Government have destroyed the industry, scattered the community and destroyed the capacity and the skill to produce these wagons in Britain, we shall have to import them. What is happening at Shildon is what has happened up and down the country. One can multiply it on a huge scale. It is only an example of the catastrophe wrought by this Government.

Why does not the Prime Minister listen to her favourite industrialist on this subject? The Government appear to deride spending and the Chancellor almost repeated the creed that spending is a dirty word. However, Mr. MacGregor said a few months ago: Greater spending on major projects, like roads, bridges and sewers, is called for … It was tragic that the Prime Minister was having to tell local authorities to avoid spending money on capital projects. This would be costing jobs in the British Steel Corporation. One can multiply that up and down the country. That is why we have a steel crisis.

If the right hon. Lady and the Chancellor do not understand that, they had better ask Mr. MacGregor whether he agrees with us. The collapse of the market in steel and the injury to the market in coal are reverberating from one major industry to another, but they may not understand these things in Finchley or Surbiton, where they do not produce the real wealth of the nation.

The right hon. and learned Gentleman had the nerve to speak of small businesses and what he was proposing to do for them. He spoke of his start-up scheme for small businesses. What about his close-down scheme for smallbusinesses? The Prime Minister and the Chancellor have been responsible for closing more small businesses than any other Government in British history. Bankruptcies have been running at an all-time record of 30 a day during recent months. That is what is happening to the small businesses of this country. Under this Government company liquidations have been 50 per cent. higher than under the previous Government. In 1982 the number of liquidations was twice as great as in any year before 1979. The Government should have a little diffidence in approaching the problem of how they are to help small businesses. There is a long queue of small business men whom they have driven to the wall.

All this is partly due to the policies and the theories to which the Prime Minister and the Chancellor are wedded. They are wedded to the course outlined by the right hon. and learned Gentleman today. The most menacing phrase that he used was that he was determined to continue along the same course. The course is one of impoverishment for the industry and people of this country.

That was the indictment by someone who is as expert on these matters as any of the monetarist theorists who advise the Government. It would be a poor compliment to him to mention him in the same breath as the Government's advisers. Perhaps hon. Members have read the article that appeared in The Observer a few weeks ago by Sir Alec Cairncross on the obligations of Governments to those who become unemployed and on employment policy. He said, and this is very much concerned with what is not in the Budget: The most remarkable thing about the depression into which the world has plunged is that Governments seem determined to wash their hands of it as if it were none of their business". We had another exhibition of that nature today.

Sir Alec went on to say: Employment policy, born in 1944, is officially dead. Yet it has been Governments that have brought about the depression and their policies that are continuing to drive up unemployment and put the world at risk. There is no mystery about the world slump. The prime cause has been the efforts of Governments to try to get on top of inflation by tight monetary and fiscal policies. These have reduced purchasing power and effective demand well below the potential of which their economies are capable. That is what is happening in this country and in so many other countries where similar policies are applied. It applies also to the right hon. and learned Gentleman's boasts about bringing down inflation. Of course, in a world slump prices go down. One can cure inflation by the methods of the world slump. In the 19th century, Cavour said that any fool can govern by martial law and any fool can cure inflation by massive slumps. The necessity is to try to deal with the problem without forcing us into a recession.

That is what Sir Alec Cairncross said in the article in which he gave his warning a few months ago, before the inflation rate started to go up again. He said: Inflation has not been 'cured'. The fact that it is lower now than it was last year, or the year before, provides no insurance that prices will not increase faster once employment at last begins to rise again". While we are cursed by a Government who are determined to make none of the efforts necessary to escape the slump of a recession in which we are fixed, that will always be true.

Some of the measures that the right hon. and learned Gentleman has proposed deal with taxation. I understand that some Conservative Members do not like to discuss the real world outside before we come to these problems, but this is real enough for those who are queuing on the dole queues, on a scale that the country has not known for generations. The taxation policies of the Conservative party, and in particular the taxation policies introduced by the right hon. and learned Gentleman in his first l3udget, have been a major contribution to the recession arid are a breach of the election pledges on which the Government were elected. Far from reducing income tax at every level, the Government reduced it at only one level, the very rich level. Today's measures do not make up for the heavier taxation imposed over the past year—nothing like it.

Only one tiny bit of the £9 billion taken away by the Government has been restored. Nothing like the 9p mentioned by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore), which would have been required to restore what has been taken away, has been proposed. Nothing has been done about the increase in VAT introduced by the Chancellor of the Exchequer in his first Budget, contrary to his election pledges. The increase in VAT from 8 to 15 per cent. in 1979 is still taking £5 billion out of the economy. It is all part of the Government's determined, persistent deflationary policy. There is a list of people who have had huge sums taken from them by the Government's taxation policies and have not had them restored by what the Government have done today.

Today's Financial Times article on the background to taxation was not by Labour party propagandists but by a brokers Laing and Cruickshank, who say: The United Kingdom tax burden in 1982 represented 32.5 per cent. of total national income. This has risen steadily during the period of the present Government from 28.4 per cent. in 1979. That is the background against which these taxes are proposed. Some of the huge increases and burdens imposed upon different sections of the community have been partially restored. We are glad to see child benefit increased, although we believe that it should be increased further. We introduced child benefit and it was one of the major social reforms of the period. We want to see it built up, and although we welcome the increase we believe that it should have been a £2 increase.

We are glad that the mean, miserable and utterly indefensible 5 per cent. cut for unemployed people has been restored. However, the mass of unemployed people who have been thrown out of their jobs through no fault of their own have considerably lower incomes than would have been the case if the Government had sustained the forms of employment insurance and benefit that they inherited from us.

The right hon. and learned Gentleman attempted to claim that the 5 per cent. pension increase—if we accept his figure—was a tremendous advance. We shall examine with the utmost care how he is proposing to deal with pensions, how he is proposing to change from the present system and the percentage inflation figure to be applied. Even so, pensions do not come within miles of the form and rates of advantage to pensioners that were provided by the Labour Government.

During the period—[Interruption.]—from 1974 to 1979 the value of the pension was increased by between 20 and 25 per cent. The right hon. and learned Gentleman is proposing and boasting today about an increase which in real terms is less than 5 per cent. The increase during the Government's term of office is far smaller than that sustained by the Labour Government. The right hon. and learned Gentleman should at least return to the rates for pensions that we established, and he should restore the link between earnings and pensions introduced by our legislation.

We welcome any relief that will assist in bringing people out of tax. If the Chancellor had taken the advice that we offered two or three years ago many people would not have been in tax throughout the period and taxation would have been considerably lighter, and in that case many more people would have been in employment.

That brings us back to the major reason why we say that the Budget, the Cabinet and the Government are utterly incapable of dealing with our problems. I quote again what Sir Alec Cairncross said on this subject—[Interruption.] —I know that Conservative Members are determined not to listen to what he said about how we might be able to restore some employment, but none the less, they have to listen. He said: We cannot escape from the present depression without a large increase in demand and there is no likelihood of such an increase without an initiative on the part of Governments. It is pure fantasy to suppose that output is bound to recover by itself;"— which is the Chancellor's theory— that, amid the scenes of industrial collapse, new businesses will be founded and flourish in the number required while old businesses take heart as never before. That is what the right hon. and learned Gentleman said in his peroration would happen, but the exact opposite has happened.

The Chancellor says that the Government will not change course. We are determined that the country shall have the opportunity to change course. The loss that the country has suffered during the industrial collapse of the past three years is of historic proportions. It has been greater perhaps in terms of wealth than even the 1930s, although the comparisons are not so easy to make. Keynes said: There is the far greater loss to the unemployed themselves, represented by the difference between the dole and a full working wage, and by the loss of strength and morale. There is a loss in profits to employers and in taxation to the Chancellor of the Exchequer. There is the incalculable loss of retarding for a decade, the economic progress of the whole country. During the Chancellor's tenure of office he has held back this country's advance by something like a decade. We are now told that the same course will be persisted in. These measures certainly will not change it.

There is to be a continued trail of human misery for the poorest in the community—the increasing number of people who have to rely upon supplementary benefit to keep families together. A huge mountain of waste for the nation is involved in these figures. There are deep divisions in our society between rich and poor, north and south and between those who want to secure our escape from this position and those who are denied the right to do so by the Government's policy.

The Budget offers no prospect of recovery to the real world outside even though it received a few ephemeral cheers in the House today. The country needs an entirely new course, and the sooner the Government get out and allow us to put it into operation, the better.

5.27 pm
Mr. David Atkinson (Bournemouth, East)

I congratulate my right hon. and learned Friend on another first-class, sound and responsible Budget statement. What a contrast this Budget statement has been with those that we have had at the end of the fourth year in office of every previous Government during the past 18 years.

The House will recall that by this stage in the life of every Government since 1964, every Chancellor has reversed the economic strategy upon which his Government had been elected. Chancellors have either been compelled to reduce public expenditure when they would have increased it, or increased public expenditure when pledged to reduce it. Each one introduced wage or price controls when he had pledged not to. The result was that in almost every case inflation and, consequently, unemployment were higher at the end of each term in office than at the start. Each Government subsequently, and many would say deservedly, lost office as a result.

The great hope for the unemployed today lies in the fact that my right hon. and learned Friend has at least clearly taken control of public expenditure. Inflation and interest rates have fallen as a result, and this must mean new jobs in due course. I am, of course, disappointed that my right hon. and learned Friend has not yet reduced public expenditure in real terms. If he had, he would, by this year, and certainly today, have been able to cut the basic rate of income tax beyond what it is at the moment. I believe that this is what he set out to do in 1979. I appreciate fully the reasons why he has not yet been able to achieve this aim.

No party anticipated at the last election the depth of the recession following the rise in the price of oil that took place within weeks of that election. Without the cost of today's unemployment and the massive support that the British taxpayer still gives British industry, we would now be enjoying much lower personal taxation. The aim of my right hon. and learned Friend or his successor must be to reduce the basic rate of income tax. At least no other party in this country aims to spend less of the nation's income and wealth than do this Government. I hope that the country will bear that in mind when the next election comes.

I congratulate my right hon. and learned Friend for keeping his cool over the past four years and for sticking resolutely to his medium-term financial strategy. His refusal to panic means that Britain is today better placed than other countries to prosper from the upturn that more and more evidence suggests is now occurring on the other side of the Atlantic and will, in due course, come to Europe. A feature of every one of my right hon. and learned Friend's Budget statements has always been his enterprise packages for industry in general and small businesses in particular. He has not let us down this time. I welcome particularly the further reduction in Labour's tax on jobs, the national insurance surcharge. Abolition of the remaining 1 per cent. must surely be a manifesto commitment for the next election if my right hon. and learned Friend has not been able to achieve it before then.

I welcome particularly the further reduction in small companies' rates of corporation tax, the measures to help the building industry, the measures to encourage greater share ownership in companies and especially the expansion of the enterprise allowance to help unemployed people to create new businesses. One of the most encouraging statistics published recently has been the increase in the number of self-employed people to its highest ever level at over 2 million. I know from my experience that there is nothing better for those so inclined than to accept personal responsibility for working for oneself, running one's own business and enjoying the job satisfaction that is to be gained from the service that one gives others. Our continuing aim must surely be the removal of all unnecessary obstacles to and restrictions on enterprise including, where possible, any avoidable burdens placed on small businesses by the imposition of value added tax.

Here I come to my first complaint about today's statement. I believe that an opportunity has been missed. My right hon. and learned Friend announced that he has increased the value added taxable turnover threshold to £18,000. I welcome this as the greatest value of the registration limit since value added tax was introduced. If my right hon. and learned Friend had announced that he was raising the value added taxable turnover threshold to £30,000 a year, no less than 300,000 small businesses would be freed of the burdensome commitment of charging and administering VAT. The gross loss of revenue to the Exchequer would be £65 million which works out at £217 a business. Since the average cost of collecting VAT per business is £105, the net loss of such a move of revenue to the Exchequer in removing these 300,000 small businesses from VAT liability would be £32 million. That represents £112 per business which, I suggest, will be made up in no time from the corporation tax that will be generated by the activity resulting from being freed of such constraints.

We will be told that such a move is contrary to article 24(2)(c) of the European Community directive on VAT. The logic of my argument surely applies to every similar sized business throughout the European Community. As this year is the European Parliament's year of small and medium-sized businesses, designed to focus on the role and needs of the smaller business in Europe, it would be an appropriate year for Britain to urge on the Community that it can make a major contribution towards improving the climate for enterprise by raising the real level of VAT threshold and freeing many small businesses from this commitment—

Mr. John Evans (Newton)

Does the hon. Gentleman not agree that the greatest opportunity missed today was the Chancellor's failure to reduce VAT back to 8 per cent., its level when the Tory Government took office, which would have affected millions of people?

Mr. Atkinson

We have always made it clear that we prefer to encourage incentive in the economy by reducing direct taxes instead of indirect taxes. I believe that that is right. I hope that my right hon. and learned Friend will consider that such an initiative would earn the gratitude of every small business in this country and in Europe.

There are two other disappointments that I should like to express about VAT that are directly relevant to businesses in my constituency. I appreciate that they may be regarded by some hon. Members as significant. They are, however, significant to the industries and businesses concerned. I am sorry that my right hon. and learned Friend has not responded to the representations from the industry to remove VAT from—no less—ice cream. Far more ice cream is eaten today as a food than as a confectionery. Food is VAT-free. Ice cream is not. That anomaly, I regret, has not been corrected. I hope that the Government will introduce an appropriate amendment in Committee.

My next complaint concerns the continued imposition of VAT on language schools, of which there are many in my constituency. The teaching of English as a foreign language is education. As hon. Members know, education is zero-rated for VAT. The schools, however, are not zero-rated because they are regarded as businesses. Yet language schools are everywhere classified as schools of further education. They are also an export business. They have long been a source of earnings to this country, competing strongly against teaching organisations and schools that do not suffer from the imposition of VAT in other countries. I hope that further thought will be given to eliminating this anomaly.

My retired constituents—there are many of them—will be delighted by my right hon. and learned Friend's announcement that he has been able to abandon his proposed clawback of last year's award because he had underestimated his success in reducing inflation. If it had been the other way round, there would have been instant demands to make up the shortfall. I had thought at this stage that I would be saying that a better system could surely be found than that under which pensioners have to wait half a year before receiving their announced increase, by which time they believe that it has been eroded by inflation. Instead, I can congratulate my right hon. and learned Friend on his plans to return to the old system based on the actual rise in prices. This will put an end to much cynicism among pensioners.

One disappointment that pensioners, like all those who have accepted a greater responsibility for their health needs, will feel is about my right hon. and learned Friend's failure to use his statement to introduce tax reliefs for individual and family subscribers to private health insurance schemes. These people, by and large, do not use the National Health Service extensively. However, they still pay for it and, in my view, they deserve tax relief. This is just as important as the raising of the mortgage tax relief threshold for young couples buying their first home.

I shall nitpick no more. The Chancellor of the Exchequer has again presented a first-class Budget. It may well be his last. I believe that this country will have cause to thank my right hon. and learned Friend for the foundations that he has laid for the prosperity that has been brought closer by his statement today.

5.39 pm
Mr. Roy Hughes (Newport)

The Budget is the occasion when the Chancellor of the Exchequer presents his progress report to the nation. He tells us what additional revenue is required and what concessions, if any, can be made to the taxpayer. He is the manager of the nation's economic affairs. It could be said of the present incumbent of that important office that he is a record-breaker in a unique way. He has brought about record unemployment, a record fall in output, together with minimal investment in our manufacturing industry, which is vital for the future of our country. It is apparent that manufacturing industry has been brought to its knees, as the director general of the CBI, Sir Terence Beckett, points out from time to time.

The verdict on the Chancellor's management of our economic affairs is borne out by the length of the dole queues. So the whole purpose of my intervention, which will be very brief, is to pose the fundamental question: will the Budget reverse the upward trend in unemployment? The answer must be a categorical no.

Let me deal with the specific proposals in the Budget. There is to be a massive intervention in pay-as-you-earn. There is to be £2 per week for a married man paying the standard rate of income tax. That is a monumental proposal in view of the present economic state of the country. I do not doubt that it is a step in the right direction, but it is minimal, to say the least.

In the proposals that were put forward a week or so ago by my right hon. Friend the Member for Stepney and Poplar (Mr. Shore), the shadow Chancellor, he suggested that those on or below £250 a week would pay less taxation and those above that figure would pay more. It is not difficult to see the egalitarian nature of those proposals. My right hon. Friend's suggestions on tax allowances would take 1 million people out of tax. The Chancellor's proposals are pretty puny by comparison. The same applies to the increases in child benefit. We proposed an increase of £2 a week. Compared with that, the Chancellor's measure is inadequate.

Then there is the need to help those who are in the unfortunate position of being unemployed, particularly as a result of the slump, which is essentially Government-created. Again, the help for those people is inadequate, to say the least. At one time my constituency of Newport was a booming industrial town, but now it has almost 20 per cent. male unemployment. A group of social workers carried out in certain districts a study in my constituency into the effects of unemployment. It vividly illustrated the poverty, despair and mental illness caused by unemployment. I should have thought that the Chancellor's prime duty today was to try to combat the massive unemployment that has swept our country.

The Chancellor of the Exchequer could have helped by a massive increase in social spending, and not only for the younger elements in our society. One cannot help but admire the way in which the pensioners put their case. A range of options was open to the Chancellor today to help pensioners. The Christmas bonus could have been doubled to £20. That would have been most welcome. The Chancellor could have introduced free television licences, at a pretty low cost. I, and no doubt many other hon. Members, have received many representations about an increase in the death grant, but the Chancellor chose to do nothing about that.

Pensioners need a better deal on heating arrangements. Many of the ailments and complaints of old people can be attributed to that source. Then, too, the Chancellor could have done something about a national concessionary scheme for fares on public transport, to keep old people mobile and interested in affairs, and to enable them to visit relatives, go shopping and visit places of interest which they were unable to do during the course of their hard working lives. In particular, he could have helped pensioners who have a little capital—those who have saved a little money during their working lives. The supplementary benefit scheme should be modified on a sliding scale to ensure that those people are not unduly penalised for their small amount of capital.

The upper ceiling of national insurance contributions of £220 could have been abolished, with no hardship to the people in that income bracket. The 45 per cent. tax band could have been lowered. The change in the mortgage relief limit from £25,000 to £30,000 is again a gift to the better-off section of the community and is most unfair when one thinks how council house tenants have been hammered with increased rents.

There is the usual taxation of motorists. This year it has been made more plausible in that it is alleged that it is merely keeping in line with inflation. That does not alter the fact that the motorist is always caned, year after year. What is more, the money is not going back into our roads.

The Labour party has put forward proposals to help the poor and the needy. Such proposals are met with cynicism. We are asked how they will be paid for by the same people who readily vote £10 million for the Trident project. The steelworks at Llanwern is fighting for a concast plant to preserve jobs. I understand that the cost will be about £100 million. I compare that with the £800 million that is to be spent on a runway at Port Stanley airport in the Falklands.

Perhaps the greatest scandal of all is the £15 billion that is paid annually to people in the dole queues. Above all else, we must put those people back to work so that they can do something useful and produce new wealth. I agree that the Chancellor has moved a little this afternoon, but what he has done is a mere pinprick compared with what is needed to answer Britain's problems. The position is essentially one of despair, when our people need hope.

The media, in support of the Conservative Party, have not focused on the real issues of unemployment at all. They have merely been involved in the character assassination of some Labour leaders, whether it be my right hon. Friend the Member for Bristol, South-East (Mr. Benn), Mr. Scargill, Mr. Livingstone or Mr. Tatchell. Some people are being fooled by that, but all the people cannot be fooled all the time. I forecast that after the general election we shall see a Labour Chancellor steering Britain once again on the road to recovery.

5.51 pm
Mr. John Lee (Nelson and Colne)

That my right hon. and learned Friend the Chancellor of the Exchequer had a fairly pleasant task in the drawing of his Budget was because of the courage and steadfastness that he has shown in his earlier Budgets, despite criticisms from Back Benchers—including, from time to time, me. However, overall the Budget is excellent. It is prudent and humane yet enterprising. It strikes a fair balance between benefits to industry and help to the individual and the family.

The further reduction in the national insurance surcharge will be most welcome to industry. The reintroduction of the small engineering firms investment scheme will be much appreciated by many engineering firms in Britain—those in north-east Lancashire as well as those in the west midlands to which my right hon. and learned Friend referred. In addition, the reduction in interest rates during the past 12 months and again today will be welcome.

For the family and for individuals there is the restoration of the 5 per cent. abatement in unemployment benefit for which several of my hon. Friends have campaigned, and all credit to them for doing so. A further 1.25 million people are being taken out of tax by the increase in personal allowances. The pension increases are welcome. Between 1979 and 1983 they have increased by 75 per cent. compared with a 70 per cent. increase in prices. There is also a welcome increase in child benefits, help for bereaved widows, the removal of the invalidity trap, as it was described by my right hon. and learned Friend this afternoon, and the capital threshold for the provision of supplementary benefit has been raised to £3,000.

A series of measures have been announced this afternoon to help and encourage the establishment of new businesses. The business start-up scheme has been improved, the loan guarnatee scheme has been extended and free ports have been announced. I particularly praise the decision to go national on the enterprise allowance scheme. I have perhaps spoken more on the enterprise allowance scheme than any other Back Bencher. I have seen the scheme work successfully in one of the pilot areas in my constituency in north-east Lancashire. We have led the field nationally in the application of that scheme. It has been operational for just over a year and more than 1,000 people have applied to start business under it.

In my local authority of Pendle 200 people started up in business because of the enterprise allowance scheme and the vast majority are extremely successful. They cover a range of business activities—service industries, retail businesses and small manufacturing operations. Having monitored and promoted the scheme in north-east Lancashire, my experience has been that many of the businesses that were set up under the scheme would probably have been set up anyway. That was one criticism of the amount of money that has been spent on the scheme. However, I am convinced that the fact that there was £40 a week available for small businesses for 12 months has finally pushed some of those who were hovering on the brink to start up in business on their own. It has provided them with that extra guaranteed liquidity and income in the vital first 12 months when a business is most at risk. It was an excellent innovation. In addition, it has helped to bring some small businesses out of the black economy.

I am delighted that the Chancellor announced a £25 million national cash limit for that scheme for 1983–84 which is designed to provide about 25,000 new small business opportunities for applicants under the scheme. I encourage all hon. Members to do everything possible in their constituencies to promote the enterprise allowance scheme. It is a first-class scheme, as I have seen from its operation.

I made my maiden speech in the Budget debate of June 1979 in praise of the Budget presented then by my right hon. and learned Friend. I am happy this afternoon to make what will probably be one of my last speeches in this Parliament, in support of my right hon. and learned Friend's 1983 Budget.

5.57 pm
Mr. Jim Craigen (Glasgow, Maryhill)

Everyone expected that this would be a good Budget. After four years of this Administration, we deserved at least one good Budget. There seemed little doubt of that, because the Chancellor has two forthcoming by-elections on his mind. Frankly, I think that Budget day is a somewhat overrated occasion. With the complexity of present-day issues I wonder whether it is the best way to manage the nation's economy.

The Chancellor missed an ideal opportunity to make amends for the adverse measures that he imposed on the low-paid in Britain when he abandoned the 25 per cent. lower band rate. After spending some time this afternoon talking about the problems of those on low incomes he more or less dismissed the opportunity to put right that error. It is not good enough to suggest that to restructure tax would take more than a Parliament. After all, he has had a longer term than most Chancellors in which to do something in that area. The Government have cheated the low-paid, because there is little incentive in the Budget for those families that are in difficult financial circumstances. Those who made the sacrifices in 1981 will not necessarily be the beneficiaries of the 1983 Budget.

One is pleased that the pledge to restore the abatement of unemployment benefit is being redeemed on this occasion, but what a struggle it was to convince the Government that that should be done. What anguish there was on the Government Back Benches on the various occasions when abatement was debated. A good many Government Back Benchers were sorely tried on those occasions. Some of them had the courage to vote against their Government on the issue and others abstained.

It appeared to me that as the Chancellor was unfolding the four special measures to deal with the problem of the long-term unemployed he relied even more than he did last year on measures such as job splitting and part-time employment. In effect, three of the schemes are designed to take people off the unemployment register in circumstances where it is felt that there would be no other way of removing them from it. This hardly seems an inspiring approach at a time when the Manpower Services Commission is warning that by the end of this year 1.25 million people will be in the long-term unemployed category, although I believe that the figure is more likely to be 1.5 million.

In addition, a dangerously large number of people have been unemployed for more than six months hut just under 12 months. For the time being it appears that we will have to rely totally on the rather inadequate community programme, which proposes only 130,000 jobs, some of which will be full-time and some of which will be part-time. This, in effect, is the mismatch between the level of long-term unemployment and the provision which the Government feel it necessary to make.

One always welcomes measures to help the construction industry, because, by and large, it is a cost-effective means of introducing employment opportunities into the community. The Chancellor mentioned the special problems of inner city areas. I know something about such areas and one of the greatest difficulties facing many of our inner city areas is that, by constant retrenchment on the rate support grant and on the availability of Government support for local authorities around the country, those with responsibility for inner city areas are having to cut back on the level of services.

Maintenance and repair budgets are invariably a prime target for local authority economies. The maintenance and repair budget under the various departmental headings is usually quite substantial. It is easy to make what appears to be a saving today but which, in a few year's time, becomes a false economy. When the Chancellor is trying to juggle types of assistance that might be made available to inner city areas he should bear in mind that the level of assistance available to local authorities largely determines the quality of services in those areas.

My hon. Friend the Member for Newport (Mr. Hughes) referred to public transport. Many of our constituents depend upon public transport. There is little in the Budget to suggest that the Government recognise the need to assist the bus industry and the travelling public. This involves not only pensioners travelling about but people travelling to their work or the unemployed, who find it rather difficult to bear the travelling costs of job search.

We like to see measures designed to assist the development of small businesses, although my experience from talking to business men is that problems arise not in starting up a small business but in keeping it going. Here the level of demand is the great determining factor in how successful many of these small businesses will be. If a careers adviser were suggesting new growth areas for would-be applicants in the foreseeable future, work as a liquidator or a receiver would be good suggestions. There has been an unhappy buoyancy in that corner of the market.

With regard to inflation, which has become central to this Government's economic policy—in so far as one can discern an economic policy—the retail prices index has now taken on an importance in the management of economic affairs which it does not deserve. We should examine more closely the way in which the retail prices index is compiled and the shift that has taken place in the weights attached to the measurement of the retail prices index. It means different things to different people in different parts of the country. There is little doubt, especially on a day on which the Chancellor has announced an increase to £30,000 for interest relief on mortgages, that many folk could not consider a £30,000 mortgage, far less get hold of one.

While I am in favour of measures to assist home ownership, the number of people now in the home buying category who are benefiting from the reduction in interest rates is influencing the measurement of the retail prices index. If we consider this more closely, we see that those who pay rent are disadvantaged because there has been a sizeable jacking up, as a result of Government policies, in the level of rents. That trend has been accentuated by measures such as mortgage interest relief at source. Such a measure may not help the building societies cash flow, but it helps the cash flow of those paying mortgages. It therefore widens the gulf between the north and the south, in that the preponderance in the south is of home ownership, whereas the preponderance in the north is largely of rented accommodation. I earnestly suggest that the way in which the retail prices index is made up should be examined. There are all sorts of implications for wage bargaining, as the Chancellor pointed out this afternoon, for the allocation of Government resources to the rate support grant and indeed, for the general conduct of economic management in this country.

There is an absence from the Budget of adequate measures to deal with unemployment. What is happening on the unemployment front should worry Members of Parliament. A teacher told me the other day that he had asked his class of 16-year-olds how many expected to get a job when they left school. Not one hand out of 24 went up. When he asked how many of them expected to get a job by the time they were 21, only three hands went up. That is depressing. The enterprise allowances will not overcome that brick wall, which, unfortunately, faces too many young people when they leave school.

This country needs a sense of direction. There is no doubt that more people are ceasing to be kidded by the fiscal measures every March or April in the Budget. There is a lot more cynicism and sophistication about those matters than politicians will openly admit.

When the Chancellor was unfolding the contents of his Budget I wondered where the money that was being handed out was coming from for many of those small and, at the end of the day, relatively unimportant little schemes or projects that he mentioned to stimulate activity here and there. It was interesting that he paid special attention to the west midlands. That area has felt the full blast of the Government's economic mismanagement. I should have liked to hear a little more about special measures to help areas such as Scotland, which have equally lost out due to the Government's economic policies.

We have now had five budgets from the present Chancellor. I suspect that he is still keeping his options open in case there is a sixth Budget, because the election could be in 1984. However, I hope that for the sake of the economy we are spared a sixth Budget from him.

6.12 pm
Mr. Chris Patten (Bath)

As the hon. Member for Glasgow, Maryhill (Mr. Craigen) said, the Budget is one of the great ceremonial moments in our political and economic calendar. Taken with the public expenditure White Paper, which we debated in an even more crowded Chamber last week, it represents a distillation of the Government's economic strategy and political philosophy. It is in that sense that I shall talk about the Budget.

I should first, however, like to make one or two microjudgments about the Budget. I am extremely pleased that the Chancellor increased tax thresholds as he did. It is the best way of helping the poorer-paid workers and undoes some of the problems that resulted from the Budget in 1981. The Chancellor believes that his decision that year was unshakeably right. It is part of the Chancellor's admirable consistency and charm that he believes that most of the decisions that he has taken about the economy have been unshakeably right. We are all entitled to our opinions. At least on this occasion I agree with what he has done about the thresholds. I also agree with what he has done on child benefits. I am pleased about the restoration of the 5 per cent. abatement in unemployment benefit, on which some of us have made speeches and done other things in the past. I am also delighted that he has not clawed back the pension as at one time he seemed to be threatening to do. I did not think that that was likely as there will be an election in the next 12 months, and even Treasury Ministers—we hope all of them—have elections to fight.

I was also pleased that the Chancellor made a further cut in the national insurance surcharge, albeit only a small 0.5 per cent. cut in that iniquitous tax on jobs. That is that, as far as the Budget is concerned. There are one or two measures to help small businesses. I do not think that it is unfair to say that the impact of those measures is unlikely to exceed by a substantial margin the magnitude of their cost.

I refer now to the overall impact of the Budget. I do not want to sound too excitable. It is sometimes said about those of us who believe that the present levels of unemployment are too high, which at one time we were told would be a passing phenomenon as inflation was abated, but which are now more permanent, that we are underestimating the robust spirit and independent-mindedness of those who are out of work for six, nine, 12 or 18 months. It is also said that we underestimate the political cynicism of the 87 per cent. of the population who have jobs.

That might all be true. Perhaps that is what the world is like. Perhaps we can be reasonably relaxed about so many young people spending so much of their lives on the dole, even after they have done a training scheme. Perhaps we shall not have to pay the consequences in terms of the alienation of that generation from society, although I would not have thought that that was necessarily the lesson that one would take from Northern Ireland. Perhaps our industrial democracies can withstand the strain on our social fabric and institutions of continuing high unemployment. Perhaps The Times was right in the staggeringly insensitive and intellectually Neanderthal leading articles on the economy recently that made Montagu Norman sound like a cross between William Beveridge and John Maynard Keynes. Perhaps The Times was right to argue that numbers do not matter when one is talking about unemployment, whether it is five, 50, 500, 5,000, 50,000, 500,000 or 500 million. Perhaps that is right, but I do not believe it for a moment. People who suggest that that is so are taking a terrible risk and are almost literally playing with fire.

I am not claiming that we can tackle the problem of unemployment and the recession alone. In that sense the Budget is to some extent irrelevant. It does no harm. It is conceivable that it may have done a little good. However, even within the constraints in the international sphere that stop us doing much more on our own, we could have done more to hurry recovery along and make sure that it is not anaemic and shortlived.

I have disagreed with the Treasury for a long time about the level of the public sector borrowing requirement. It is too low, it is restrictive and has a contractionary effect on the economy. I accept that it is true that the markets believe what the Chancellor tells them about the central importance of the PSBR as a yardstick of fiscal rectitude, but let it be said that it is a yardstick that no other country like us would dream of using. If that is so, it is time to educate the markets as well as the Treasury. We should remind them that by any economically literate criterion, the country is in a surplus on its accounts. That is what the Institute for International Economics in Washington said before Christmas last year. It is true, as the stockbrokers Lang and Cruikshank said recently, if one adjusts the figures for inflation. It is interesting that only Treasury Ministers nowadays, when looking at their own sums, suffer from the money illusion. It is true, as the stockbrokers, Simon and Coates said, if one adjusts for unemployment.

As Helmut Schmidt, whom we used to quote a great deal as our favourite Social Democrat, said in an article in The Economist a few weeks ago, the British fiscal stance is too contractionary and we could and should be a great deal more expansive in the next few weeks and months. We should read that article to the markets and explain to them that it is a little odd to expect the American economy by being more expansionary in fiscal policy to pull us out of the recession, when we seem to be unwilling to try to escape by being a little more expansionary at home. I accept that even with a slightly larger PSBR and even if we had been able to scrap, as we should have done, the national insurance surcharge, we could not have made a great deal of difference.

My main criticism of the Government in that sense is that we have not always done even that little which we could effectively do. But for substantial results we shall have to look forward to the Williamsburg summit and to the agreements reached there. I hope that there will be an agreement on stabilising exchange rates; I hope that there will be an agreement that the OECD countries should do a little more to concert the expansion of our economies. In other times we might have used the word "reflation".

There are one or two comforting signs. We saw Mr. Volcker giving evidence to Congress the other day and saying: We cannot build a successful policy against inflation on continued recession. Then we heard Mr. Shultz speaking to Congress and saying: the only lasting solution to the income-earning problem of the less developed countries, as well as the serious problems of the industrialised countries, is sustained economic growth". I am sure that that is absolutely true.

What we need is not the discovery of a new plan, a new theory, but a display of old-fashioned political will to make the international decisions to concert an economic recovery. It is time the visible hand of politicians rather than the invisible hand of the market took a part in the proceedings. Only if we do that will we stand the remotest chance of restoring our prosperity, of saving welfare capitalism—I am serious in making that point—and thus safeguarding our democracies. I believe that the threat of this recession is much more profound than any of the leaders of our democracies have been prepared to accept.

6.22 pm
Mr. Tom Clarke (Coatbridge and Airdrie)

The hon. Member for Bath (Mr. Patten) made, in the circumstances, a most gracious and thoughtful speech. I thought during the Chancellor's speech—the right hon. and learned Gentleman paid more attention to the pipe which is used by the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) than to other matters—that he might have been more grateful for the contribution of the hon. Member for Bath in persuading not just the Chancellor himself but the Government and their supporters to take the view that the decision on the 5 per cent., which has led to at least two Divisions since I came to the House., was a mean-minded decision. It is one which I am sure we are all very grateful is being reversed. I therefore think that the hon. Member for Bath deserves the thanks of the House, if not of the Chancellor, for his contribution to that change of mind.

The Budget presented this afternoon seemed to me to be a very dull Budget presented in a very dull mariner. It offers very little hope to my constituents and will lead to great disappointment in Scotland, and indeed in many other parts of the United Kingdom. It cannot be divorced from the problems that we face as a nation—economic and industrial problems and problems of the social fabric of our society, problems which the Chancellor and the Budget failed to address.

We are discussing this Budget at a time when unemployment stands in real terms at about 4 million. In my constituency over the last few days even more redundancies have been announced in the steel industry. At the Imperial plant in Airdrie and the Calder plant at Coatbridge—tube manufacturing plants which have a very proud record and which have provided tubes for oil and for the North sea—redundancies were announced by the British Steel Corporation even ahead of the decision of OPEC. Those of my constituents and their families who have had to face these decisions and deal with the realities of them will find very little, if any, comfort, in the measures that we have heard about this afternoon.

The Chancellor has addressed himself to a number of issues which have led to a great deal of debate, discussion and speculation not just in the press over the past few weeks but over the past four years. I believe that as a nation we were entitled to expect more from the Chancellor in view of the sacrifices that we as a nation have made since the 1979 election. This is a pathetic little mouse of a Budget which will lead to very little improvement in our economy and our industry or the rightful aspirations of our people.

That might have been forgiven if as a nation we were poorer in resources than we are, but this Budget has been presented by the Chancellor at a time when we have oil revenues, and other great resources which are being squandered in a way that not only is intolerable to our people but would, I believe, have been rejected by such people as Ian Macleod, who would not have been proud to present the kind of Budget that the House has heard today.

There is a need for the House to address itself to the prospects for real job creation. In my constituency more than 10,000 people are unemployed. Like my hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen), I find that young people are disenchanted. There are simply no job opportunities available. What we expected to hear about in our debate last week on the Government's White Paper on public expenditure and in today's debate was measures which left open to local authorities, public agencies and others the prospect not just of improving services but of ensuring that more jobs became available. That simply has not happened.

The Chancellor referred to local government and to the Civil Service. I should like to refer to them too.

First, in recent months the Government have apparently taken the view that capital has been provided and that there is evidence of underspending in local government. This evidence, incidentally, does not apply to Scotland and it might be helpful if Ministers pointed that out from time to time. Even in England and Wales, however, it is not good enough for the Government, having criticised local authorities for three and a half years for alleged overspending, now to remind local authorities that capital is available, if only because the local authorities have to address themselves to the real problems which they face.

One of the problems is that local authorities, in drawing up their budgets for capital expenditure, have to bear in mind the revenue consequences of that commitment. If the rate support grant is not to reflect the real level of wages Settlements, inflation and the rest the local authorities are not being helped by the Government's reminding them that capital is available without taking revenue into account.

We have continually heard in recent weeks references to the reductions in the Civil Service. It would be helpful if Ministers from time to time, acting as enlightened employers—although I agree that that would be an unusual role for this Government—would recognise that civil servants have made a remarkable contribution to that achievement. If there is a reduction to the extent that we have heard about this afternoon, the burden on the civil servants, particularly in Departments such as the DHSS and others dealing with the public and the increasing public demands, ought to be recognised. They are making a greater contribution to bringing about these reductions than any Minister has acknowledged. The Government should not go too far in that direction, and they should remember that morale in the Civil Service is not high.

The Government still owe an answer to the British people whom they promised reductions in taxes at the last general election. There was no substantial attempt to meet that commitment in today's Budget. VAT has still not been reduced to the level at which it stood when the Labour Government fell, and no account has been taken of the increased fuel charges that people now have to pay.

In my constituency, 80 per cent. of the electorate live in council houses. Although I welcome the very modest improvement for owner-occupiers, such measures offer no help or hope to people living in council houses. We need a sign that the Government appreciate the need to invigorate our industry, to give hope to manufacturing industry and to examine the imports that are being allowed almost to wreck the economies of some parts of the United Kingdom. The Budget provides no such sign and will be a great disappointment to many people, especially those in Scotland.

Finally, when the Prime Minister took office she quoted St. Francis of Assisi. I remind the right hon. Lady and her colleagues that St. Francis also said that we should seek not just to be understood but to understand. Nothing in the Budget suggests that the Government understand the enormous problems facing our country. I only hope that the many people, especially young people, who will be profoundly disappointed by the Budget will not cease in their campaign for a more responsible Government and a new society, which I believe can be offered only by the Labour Government that I believe will follow the general election.

6.32 pm
Mr. John Stokes (Halesowen and Stourbridge)

I am sorry that the Leader of the Opposition could not remain, as he made some rather ungracious remarks about my right hon. and learned Friend the Chancellor. The right hon. Gentleman referred to Disraeli, Gladstone and Peel. He then went on to Italian history with references to Cavour and so on. In all modesty, I should inform the House that the comment on Peel was made by Disraeli himself. He said that Peel's smile was like not the silver plate but the brass plate on a coffin. That was at a time when the Tory party was undergoing similar convulsions to those now afflicting the Labour party.

I listened with great attention and interest to my hon. Friend the Member for Bath (Mr. Patten). If he does not address the House very frequently, he certainly regales us with regular articles in The Times. Incidentally, I note that he criticised the editorship of The Times rather heavily. I do not always agree with what my hon. Friend says. Certainly, he must accept from me, as one whose constituency has probably twice as much unemployment as his, that I care every bit as much as he does about unemployment. I do not believe, however, as my hon. Friend appears to believe, that the Government can do a great deal about it. That is the difference between us.

My constituents—hardworking, honest decent, patriotic people who have never suffered hard times before—never complain to me. They do not blame me, the Prime Minister or the Government. They know that the troubles besetting us now are due partly to history, partly to the world slump and partly to the many mistakes made by management and unions in the past 30 years. To imagine that those problems can be solved by a Budget is absolutely puerile.

Mr. Chris Patten

Whatever my hon. Friend's constituents think about the recession and the slump, does he believe that the policies pursued by Governments in all the industrial democracies in the past few years have anything to do with the present level of demand in the world economy?

Mr. Stokes

My hon. Friend has anticipated my next comment. I agree entirely that more should be done on the international scene about all kinds of things.

What we want from the Budget is encouragement, hope and better morale. Morale is as important in peace as in war. I believe that my right hon. and learned Friend the Chancellor, despite his typically quiet tone, has given us both confidence and hope. Industry needs help to reduce its costs and my right hon. and learned Friend was right to concentrate on assisting our vital manufacturing base. Individuals, too, need help and hope, and the reductions in personal taxation will go some way towards that. My right hon. and learned Friend has presided over many Budgets. He has stuck to his principles and I believe that in time he will see his reward. The strict control of borrowing and spending has reduced inflation significantly. In time, that will have profound and beneficial effects on every aspect of commercial and industrial enterprise.

I welcome the cut in national insurance surcharge, although it is not great. I should have liked to see more help to reduce energy costs in industry. The burden of rates still bears very hard on industry, and some Labour-controlled councils seem not to realise the benefits that factories bring to their communities and the losses suffered if they are driven away.

Industry looks anxiously for a substantial reduction in interest rates. Today's 0.5 per cent. decrease is welcome, but, in view of the fall in inflation to 5 per cent., interest rates are still far too high and place too heavy a burden on the new and expanding industries so greatly needed in the midlands with its more traditional engineering and metal working base. Governments cannot do everything, of course, and I believe that the fall in the pound will now give exporters much that they need and expect to expand their overseas markets. I also believe that the fall in the price of oil will probably do more to increase production and the sale of products both here and elsewhere not just in the West but in the underdeveloped countries.

I am glad that my right hon. and learned Friend has not hit the motorists too hard as they always seem to have to bear a heavy burden. I accept the changes in taxation on tobacco and wines and spirits, which are roughly as I had guessed.

I also welcome the increase in defence expenditure. I believe that the proportion of our taxes devoted to defence will be borne cheerfully by all but a sullen minority who are prepared to see us overrun by the Soviets.

Above all, I welcome the help given in pensions, child benefit, widows benefits and all the other increases in social security benefits.

I also welcome the help given to small firms and to small business men starting up their own firms, an operation that is already going well in the midlands.

Health Service charges impose a huge burden on the economy. If they can be re-cast to give better value for money, only the most prejudiced will object.

I wish that regional aids could be abolished. They have done nothing but harm to the west midlands. It would be far better to get the economy right as a whole, throughout the United Kingdom, than to try to tinker with regions. Nevertheless, I accept gratefully the help given to small engineering firms as we have so many in my Part of the world.

The increase in the house mortgage allowance is to be welcomed. I hope that it will help the housing market and the building industry.

My right hon. and learned Friend has rightly reduced personal taxation although I am sorry he was unable to reduce the standard rate of income tax. Even now taxation on lower incomes is too high; there is still not enough difference between those receiving social security benefits and those in work but in receipt of low earnings. There must be every incentive to work.

I welcome the raising of the investment income surcharge threshold. Every effort must be made to encourage savings which can be channelled into profitable investment. Investment by itself may be useless. It must be profitable and must be used properly.

The Chancellor is not an excitable man. He has not given us an exciting Budget, but he has given us a sound and sensible Budget such as we would expect from him. It will be well received not only in this country but throughout the world. As l said earlier, Governments can do only so much. As a historic Tory, I believe in original sin, as I am sure my colleagues do too. Therefore, efforts must be made by all of us. We cannot expect the Government to pull all of our chestnuts out of the fire. It is up to all of us to put the past behind us and to make the most of the opportunities that the Chancellor has given us.

6.42 pm
Mr. Richard Page (Hertfordshire, South-West)

I congratulate my right hon. and learned Friend on his Budget. Perhaps he needs to be congratulated not so much on his Budget today as on those of the four previous years, by which he has been able to create the basis for this Budget without the consequent and attendant inflation and growth of the public sector borrowing requirement that might have resulted some time ago.

I welcome very much the increase in the tax thresholds. It will put a little more money into people's pockets. I make a fervent appeal: when people have that extra money in their pockets, for God's sake let them make sure that they buy British goods if the quality is the same, because the purpose is to create jobs in this country rather than in manufacturing industry abroad.

I shall resist the temptation to range long and far over the Budget and confine my remarks to two specific sectors, the small business sector and North sea oil. I am delighted that the Government have confirmed their commitment to the small business sector. The measures proposed by my right hon. and learned Friend today mean that over 100 new measures have been introduced to help smaller businesses. Those are in addition to the changes that have taken place because of the movement on inflation.

In a previous Budget my right hon. Friend—if I may call him that—the Member for Down, South (Mr. Powell) said that the solution to this country's problem lay with the people. I echo that sentiment. In the past there has been a widespread belief that Government can solve all our problems and that individuals do not have to do anything. That is a view that is apparently still held by Opposition Members. Within the country there is a growing belief that the solution lies in our own hands if only we are prepared to grasp it. The Government have helped to remove some of the barriers and the people, especially through the small business sector, will bring about improvements.

Whenever I have spoken in the past about the small business sector I have ended up, like Oliver Twist, asking for more. I shall try not to do that now, because my right hon. and learned Friend has removed more from my list of wants and my begging bowl is getting smaller.

A major reason why our industrial competitors and other nations abroad help their small business sector is that it gives political stability to the economy. The smaller business sector gives a broader economic base. We have only to look at the strike record, or rather the non-strike record, of the small business sector to see the validity of that point.

I welcome the improvements to the loan guarantee scheme. I know from personal experience that this has helped businesses to get started and has contributed to the battle to win back business which has been sliding abroad. More and more small firms are moving into the export market. It is only by exporting and turning aside import penetration that we will create new jobs.

I am delighted to see the improvements proposed to the business start-up scheme. I have been a critic of the scheme for some time. I hope that confidence will once more be generated in the accountancy profession and that more and more people will be able and prepared to put their money into this imaginative scheme.

Time moves against me and I shall find it difficult to mention many parts of the Budget that I should have liked to mention. I must express appreciation of what is proposed about small firms corporation tax. I and colleagues in the small business sector have made continual representations about the inhibiting effect of the profits limits on development and growth. I am pleased that the rate of corporation tax for small companies is to be reduced from 40 to 38 per cent.

I also echo what was said by my hon. Friend the Member for Nelson and Colne (Mr. Lee) about the enterprise allowance being available throughout the whole country. No doubt more and more people will be prepared to take the plunge and start in business on their own.

On the North sea oil regime, in Committee on the Finance Bill for the last two years I and several of my hon. Friends have expressed our concern over the fact that the tax regime is having an inhibiting effect on the development of small fields. Unless we can find new, large fields in the North sea we shall have to rely on the smaller fields to provide oil for self-sufficiency. Our previous tax regime held us back from developing. What my right hon. and learned Friend has proposed will be a valuable step forward in ensuring self-sufficiency and profitable oil fields for the future.

It is a good Budget. It has been quietly produced and presented. It is an imaginative Budget which will help many areas of the economy. It will provide a basis for growth without inflation, and for real jobs. I very much welcome it.

6.49 pm
Mr. Peter Bottomley (Woolwich, West)

If my right hon. and learned Friend the Chancellor had not announced an increase in the old-age pension and in child benefit I would have made a major speech criticising him strongly. I have been criticised on occasions for trying to do so much for the elderly and for people with children. It would be right on another occasion to develop what the Chancellor has said. I would welcome it much more if we could be assured that he will follow this year's good deal for the retired and for those bringing up children with similar proposals in future years. We have a responsibility to look after those who cannot look after themselves—those are the two main groups.

Next year, the effects of the Budget on the economy will be far less than the effect of the levels of pay settlements. I ask everyone who wants the Chancellor to generate more effective demand to realise that they have the opportunity to do that for themselves. If the average level of pay settlements in the next two or three years is consistent with low inflation, Chancellors will be able to gear the economy towards more effective demand. That will continue to be more competitive, more jobs will be generated and there will be more surplus for schools, health, personal social services and all the other good things that we ask for.

The Government have done well. Conservative Members who have argued for better old-age pensions, better child benefit and the restoration of the 5 per cent. abatement in unemployment benefit have done both the Government and the country a service. I am glad that we have been successful and that my right hon. and hon. Friends on the Front Bench have listened to our arguments. I hope that we have made them courteously and I am glad that they have been effective. If people want the country to prosper, I hope that they will listen to us more and more, that we remain the Conservative Government so that we can have a good impact on the country's government, and that we can discharge effectively our functions as politicians.

6.51 pm
Mr. Austin Mitchell (Grimsby)

Like all of the present Chancellor's Budgets, this one has come in with a whimper rather than a bang and, as usual, at the whim of a banker. Moreover, the Budget statement was delivered with all the wit, repartee and lightness of touch of a reading of Kelly's directory for 1928. It has come in with a whimper because it has been so well trailed. It is clear that the lobby was called in on Saturday morning and effectively told the Budget's contents so that we could read them all in Sunday's papers. That was the type of thing that Dalton had to resign for in 1947. It is now the normal practice of the Government to hold back a few little goodies, which can be handed out at the last minute as a surprise gesture, once the public have been well prepared. That is now the technique of Budget preparation.

We have had a nice series from the Chancellor. In 1979, we had bludget when he bludgeoned the doubling of VAT out of the pockets of the people. Since then, we have had three budgets of fudge-it in which the Chancellor has moved furniture to distract attention from the depressing realities all around, and now we have been given grudge-it in which he has grudgingly given back some of the tax that he has been taking over the years.

It is an irrelevant Budget in which the Chancellor has turned a quick myopic gaze over the wreckage of industry that is strewn around the country and averted his eyes towards the election. This is a pre-election Budget from a Government who are so contemptuous of the people that they serve that they believe that they do not have to do much to win the election, but it is essentially an election offering.

The Budget is also irrelevant in terms of the promises that were held out in 1979. We were promised tax cuts, but taxes, even after this Budget, represent a bigger share of the average working man's earnings, and a bigger share of gross national product than before 1979. The Government promised to cut spending but have increased it. After this Budget, spending will be higher as a proportion of GNP than it was before 1979. The Government promised to make us competitive, yet they have crippled British industry's competitiveness.

Most important is the fact that the Budget is irrelevant to the real problem in Britain today—industrial decline on a scale that has never before been seen in Britain. The scale of our decline is unique in the advanced world, yet we were the world's first developed country. The decline has been precipitated by interest rates which remain high, even after the minimal 0.5 per cent. reduction that was announced today, because the Government are determined to keep them high to defend an over-valued pound. British industry must pay the price for the high exchange rate by being crippled by high interest rates. The depression has been engendered by the slump in demand and an overvalued pound. Despite its recent fall, the pound is still over-valued as compared with the currencies of our major EC competitors.

All of those policies, which are implicit in the monetarist approach, have led to the ruin of British industry. If we want a monument to the Chancellor's achievements, we have only to look around us at the state of British industry. Its condition will not be improved by today's Budget. Our depression is the worst of any advanced industrial country, our rate of unemployment is higher and our rate of production loss greater. Manufacturing production has fallen by about one fifth. One has to ask why that should be so when we have the best prospects as, for the first time, oil provides us with a chance to expand through the balance of payments problem which has bedevilled British industry and the economy since the second world war.

Oil not only makes us richer than most of our competitors, it gives us the opportunity to grow through depression and expand through the balance of payments problems. However, oil revenue is being thrown away because the effects of the balance of payments are being used to finance a flood of imports and destroy British jobs. Moreover oil tax revenues are being used to support those who have been made unemployed by the balance of payments effect. The oil revenues have been thrown away because the Government are obsessed with the piggy bank economics that were discredited in the 1920s, which have been irrelevant since Keynes, but which are still the Government's dominant approach.

What has been created by the depression that has been worse here than in any other advanced country and out of which it will be difficult to break? Not industrial success and a springboard for growth, but a graveyard. Today, the Chancellor has painted up the gravestones but left us locked in the graveyard, and the Prime Minister's sermons drift lightly and ecclesiastically over the scene. The only way out of the graveyard is by a massive boost to the economy and demand, combined with an improvement in the competitiveness of the pound by reducing interest rates. If we are to increase demand, we have to stop it washing overseas. The change in the hire purchase regulations last year simply financed a flood of imports and thus washed overseas.

The opportunity for a boost has never been greater because the scale of depression has never been greater. Such a boost would improve the circumstances of the less well-off and stimulate the economy by pumping money into it and the pockets of the people, especially those who contribute most to consumer demand. We could even use that increase in demand to cushion the inflationary consequences of the expansion that must occur. For the Chancellor to argue, obsessed with piggy bank economics as he is, that the only boost to demand that we can afford is minimal because the inflationary consequences would otherwise be so great, merely demonstrates the irrelevance of his attitude.

Simply putting unemployed people back to work would save £5,000 on each such person as £5,000 represents the revenue that is lost from someone not working and the cost of supporting that person.

We can borrow more. The Government are borrowing less, as a proportion of GNP, than any other advanced industrial country. That is clear from the most recent issue of Lloyds Bank Review. It is clear that our scale of counter-cyclical spending is less than that of any other country. If the worst came to the worst, we could print money. That is effectively what the Americans are doing. They are expanding the money supply to stimulate the economy and bring down interest rates.

It would help if we did not have such a supine business community which has accepted depression and all that has gone with it. Greater love hath no man than that he lay down his firm for his prejudices. That has been the CBI's attitude. It has been prepared to sacrifice firms to support the ruinous policies that the Government have pursued.

The Budget is irrevelant because it is a wasted opportunity. That is a national tragedy because as industry declines our competitiveness and our ability to survive are ruined.

Debate adjourned.—[Mr. Garel-Jones.]

Debate to be resumed tomorrow.