§ [Relevant 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.]3.53 pm
§ Mr. Peter Shore (Stepney and Poplar)
Yesterday, we listened to, or rather had to endure, the fifth and mercifully the final Budget of the right hon. and learned Gentleman the Chancellor of the Exchequer. It was his last chance to do something to assist the British economy, to reduce unemployment and to deal more fairly with his fellow citizens—and, of course, he missed it. Instead, he has both robbed and deceived some 9 million retirement pensioners, and half as many again whose income derives from the social wage. He has made as certain as he can that the swollen army of the unemployed will not be reduced, but will actually rise in the year ahead. He has thrown an old bone to the CBI and a few crumbs to small business; for the taxpayer, he has barely restored the value of the personal allowances that he deliberately took away in his Budget two years ago.
As I said, this is the Chancellor's fifth Budget. It is useful to place it in context, to recall how we have fared 243 since he first rose to address the House as Chancellor, in June 1979. Then, when he spoke, there were 1,300,000 unemployed. When the right hon. and learned Gentleman delivered his second Budget in April 1980, the number of unemployed was 1.5 million. When he rose in March 1981, the unemployment total was more than 2.5 million. Last year, it had reached the 3 million mark. Today, when the figures of his right hon. Friend the Secretary of State for Employment are adjusted, as they should be, on the old basis, unemployment stands at 3.4 million. That is a record.
When we consider industrial production, the story of decline is very much the same. The index stood at 116 per cent. in June 1979, when the right hon. and learned Gentleman began. It was down to 109 per cent. in March 1980; it was just over 100 per cent. in March 1981 and stood at about that level in March 1982. Today, thanks to the jump of yesterday's figures, it is 102.4 per cent. That shows a decline of no less than 12 per cent. in industrial output over the period of the right hon. and learned Gentleman's stewardship.
It is worth recalling as a backcloth that in 1979 the North sea was yielding output worth £5.7 billion per annum. In 1980 it had risen to £8.8 billion, in 1981 to more than £12 billion and last year to no less than £14.4 billion per annum. Again as background, in 1979 investment in our manufacturing industry, which is surely very important, was up 7.3 per cent., reflecting the general policies of expansion which were then coming through from the Labour Government. In 1980, investment in manufacturing industry was minus 6.4 per cent. In 1981, it stood at minus 13.5 per cent. and in 1982 minus 7.5 per cent. The forecast for this year is again for a minus, of more than 3 per cent.
The proportion of our national income taken in taxation was 36 per cent. when the right hon. and learned Gentleman arrived at No. 11. It went up to 37 per cent. in 1980 and to 40.5 per cent. in 1981. It was still 40 per cent. last year and, as a result of yesterday's Budget, it will be down, if all goes well, to 39 per cent. That represents a 3 per cent. increase in overall taxation from 36 per cent. to 39 per cent. since the right hon. and learned Gentleman took office.
Those figures are a record of failure without parallel, certainly in post-war British history, and at least equal to the worst times of the inter-war period as well. The great bonus of North sea oil, which now accounts for 5 per cent. of gross domestic product and which, properly used, should have augmented the wealth of the nation, has been squandered. The Chancellor has managed over the past five years to make us a poorer nation—5 per cent. poorer in GDP—than we were when he took over.
It is a truly awe-inspiring record. The only thing that inspires more awe is the right hon. and learned Gentleman's failure to grasp, or even to begin to comprehend, the damage that he has done. Early in yesterday's Budget speech, the right hon. and learned Gentleman had this to say:In 1979 it was clear that the long-term decline of Britain's relative position in the world economy called for a fresh start, for a radical new beginning.He has certainly stopped thelong-term decline of Britain's relative position".He has, instead, produced an absolute decline greater in extent than that experienced by any other industrial country.
244 That is the background against which we must weigh and judge the measures in yesterday's Budget—a Budget which was, as we were told in the final sentence of the Chancellor's speech,a Budget for the family, a Budget for enterprise—and, most of all, a Budget for Britain's continuing recovery.Before I examine those claims about the Budget, I want first to deal with the fraud and deceit perpetrated yesterday on 9 million retirement pensioners—the disguised clawback, from next November, of £1 per week for all retirement pensioner couples. The House will recall that the Chancellor told us in his autumn statement that in his view he had overpaid the pensioners in their uprating of November 1982 and that it was his intention to claw back the 2 per cent. to 2.7 per cent. overpayment when the next uprating occurred this November. That intention was specifically reiterated in the public expenditure White Paper that was published last month. The White Paper accounts were duly "adjusted" to subtract £180 million in 1983–84 and a further £500 million in 1984–85.
As the Chancellor became increasingly aware., in the months following his November announcement, that his decision was fiercely resented by pensioners and was subject to strong and continuing criticism in the House, it appears that some rethinking took place. What was the right hon. and learned Gentleman to do? With £2¼ billion to give back in various forms of tax relief, which is the sum that he had yesterday, it should not have been a very difficult decision for the Chancellor. But the right hon. and learned Gentleman does not accept that pensioners deserve any priority when it comes to concessions. The problem was either to stick to his original and disgraceful decision or to give way to a group that he does not think deserves any special treatment.
Yesterday the right hon. and learned Gentleman decided to solve the problem by altering the rules of the game. On his own admission, inflation is likely to rise. It is assumed that it will run at 6 per cent. from the second quarter of 1983 to the second quarter of 1984, which would clearly justify a 6 per cent. uprating. The right hon. and learned Gentleman has decided to apply a new method of calculating next November's uprating. Instead of a judgment about inflation a year ahead, he has decided to base his judgment on the 12 months of inflation up to May 1983. He does not yet know with certainty what the rate will be for the 12 months ending May 1983, but he has a shrewd idea. As he told us yesterday, it is likely to be 4 per cent. That will almost certainly be the lowest level of inflation that we shall experience, as his own forecast for 1983–84 demonstrates.
But 4 per cent. is a convenient figure. If it is applied to the pension uprating in November 1983, it will meet the right hon. and learned Gentleman's requirement almost exactly. He will have clawed 2 per cent. back from retirement pensioners. How does he justify this? First, he gives us the reassuring news thatThere will be no question of asking pensioners to return any of the pension money they have already received.That means that he will not take back retrospectively from pensioners. No doubt that news will be greeted with some relief by our senior citizens. The right hon. and learned Gentleman then had the effrontery to say that pensioners would be better off getting a 4 per cent. increase in November becauseif we had retained the old system, and taken full account of last year's 2.7 per cent. overpayment, the increase in benefits would have been significantly smaller than is now proposed.245 Lucky pensioners! Instead of getting 6 per cent. docked by 2.7 per cent. for overpayment, leaving them with 3.3 per cent., our Chancellor has, with typical generosity, decided to give them 4 per cent. No doubt Conservative Members had that in mind when they waved their Order Papers in approval as the right hon. and learned Gentleman resumed his place at 5 o'clock yesterday.
It is not only the pensioners who will be caught by the new clawback. It will extend to all social security beneficiaries, including those receiving sickness and invalidity payments and, of course, the 3.5 million unemployed. From November those who are still within their first year of unemployment will have the 5 per cent. which was so disgracefully taken from their predecessors' payments two years ago, but their uprating will be docked just like that for national insurance retirement pensioners.
That is not the end of the matter. There are public service pensioners, including retired service men, policemen, teachers, civil servants, local government employees and others, whose uprating is linked to that of the national insurance retirement pensioners. Yesterday the Chancellor told us:Linked public service pensions will be raised in November by the same percentage as benefits."—[Official Report, 15 March 1983; Vol. 39, cc. 134, 157, 143.]That is clear enough. Thus, he stated his intention to apply to them the same 4 per cent. uprating in November and to dock the same 2 per cent. clawback from the 6 per cent. that the uprating might otherwise have been.
But what do we find? Last night, after the right hon. and learned Gentleman had delivered his Budget speech, the detailed Supply Estimates became available in the Vote Office. The relevant passage reads:allowance has been made … for a pensions increase from November 1983 of 5 per cent. offset by a 2.5 per cent. abatement to allow for the fact that the provision in the November 1982 uprating for the rise in prices since November 1981 exceeded the actual rise.Then, to make the matter crystal clear:the net pensions increase allowed forfor this wide group of pensioners:is therefore 2.5 per cent.Either the Chancellor wittingly or unwittingly misled the House yesterday—his words were in direct contradiction to the statement that I have quoted—or this is yet another example of crass bureaucratic error arising from last-minute changed decisions by the Treasury.
§ The Chief Secretary to the Treasury (Mr. Leon Brittan)
It might be for the convenience of the House if I explain now that the Estimates will be corrected. Those referred to by the right hon. Gentleman were prepared before the Budget statement, and the corrected Estimates were referred to by my right hon. and learned Friend.
§ Mr. Shore
The House is grateful to the Chief Secretary for making his immediate explanation. We now understand that the problem was as I suggested it might well be—crass bureaucratic error arising from last-minute changed decisions by the Treasury. The figures that have now been withdrawn reveal the full extent of the clawback that the Government had in mind originally before they thought up at the last moment the wheeze of a new method of calculating the uprating. They were clearly envisaging a 5 per cent. uprating in November that would be reduced to 2.5 per cent. as a result of clawback.
§ Mr. Ioan Evans (Aberdare)
The Chief Secretary intervened to say that a correction would be made but he did not say what the correction would be. Will the right hon. and learned Gentleman give us more details?
§ Mr. Brittan
I made it clear that the uprating will be in line with the method announced by my right hon. and learned Friend the Chancellor of the Exchequer.
§ Mr. Brittan
As the House will have heard clearly when my right hon. and learned Friend spoke yesterday, the exact figure will not be known until 17 June, when the inflation figure for May is announced.
§ Mr. David Ennals (Norwich, North)
Surely there is a further sinister aspect to the last-minute decision that was taken by the Chancellor of the Exchequer after his papers had been prepared. That is that he considers that inflation will increase at a faster rate than he had anticipated.
§ Mr. Shore
My right hon. Friend is correct. Ministers have made two adjustments. They have changed their decision about the clawback and uprating at a very late stage, too late to correct the Supplementary Estimate. Further, at a late stage they have revised their estimate of the level of inflation from 5 per cent. to 6 per cent. in the year ahead.
I return to the main themes of the Budget:a Budget for the family, a Budget for enterprise—and … aBudget for Britain's continuing recovery."—[Official Report, 15 March 1983; Vol. 39, c. 157.]As for the family, of course, there are pensioner families, but perhaps we have said enough about them already. When the Chancellor speaks of the family, I suspect he has mainly in mind those people with children. He has increased child benefit by 65p per week per child, an increase of 11 per cent. He claims that this is a higher real value for child benefit than at any time since he took office. That is an odd way of putting it, because, among the first decisions he took in June 1979, one was to cancel the previously announced 50p increase, proposed by his Labour predecessor to take effect in November 1979. The new level of £6.50 per week per child would be just 4p less than it would have been had the November 1979 increase not been cancelled and had the increase simply been
Then there is the uprating of the personal allowance. The 14 per cent. increase in the allowance for the single and the married man substantially restores what the Chancellor wrongly took away in the 1981 Budget. But no one should imagine that the burden of direct taxation is back to what it was when the Chancellor took over four years ago. Within the income tax system, he has carried through, and still sustains, a substantial redistribution of income tax in favour of the better-off and adverse to those on low incomes. That has been brought about at the top end by the reduction of the tax rates and the extension of the higher rate bands, and at the lower levels of income 247 by the abolition of the 25 per cent. lower rate band, which means that people with modest income levels come straight into the 30 per cent. tax band.
What the Chancellor has totally failed to take account of, let alone to correct, has been the effect of his deliberate policy of further increasing direct personal taxation through his annual increases in the national insurance contribution. This is imposed on people earning as little as £30 per week and remains at the 8.75 per cent. rate for those earning up to one and a half times average earnings. This increase in direct taxation has imposed an extra burden of nearly £3,000 million per annum on those at work. Of course, national insurance contributions go up by another 0.25 per cent. this year.
Before we can properly assess the effect of all this on family incomes and budgets, we have also to take account of the other matters that relate to their cost of living—the guideline increase in council rents of 85p per week, the estimated—by the Chartered Institute of Public Finance and Accountancy two days ago—increase in rates nationally of some 7 per cent., the increase in school meals charges, the increase in Health Service charges, and the range of increases in the prices of nationalised industries, most notably electricity and gas. What is certain is that, with the halving of the provision for transport subsidies, bus and train fares will all rise again. Of course, the prices of beer, spirits, petrol, the vehicle excise licence and cigarettes are up again from the moment of the Budget resolution.
Not surprisingly, families at the top end of the income range will do well. They will get more tax relief; there is no national insurance charge on the greater part of their income; they will have additional mortgage relief, now that the limit has been raised to £30,000.
I shall not spend long on the claim that this is a Budget for enterprise. Encouragement to small firms is in principle welcome to us. We are particularly pleased to see the small engineering firms investment scheme reopened; after all, we introduced it. Equally, we welcome the specific measures for encouraging the introduction of new technology.
Even the Chancellor, in spite of the inordinate space which he devoted yesterday to describing the minutiae of these measures, must understand that their effect on the economy will be no more than marginal. Of the four principal schemes, small engineering will cost £39 million; the enterprise allowance, £17 million; business start-up, £25 million; and reduced corporation tax, £40 million.
§ Mr. Shore
We are not even sure of that. Those four schemes amount to a total stimulus of £121 million. It would be interesting to know how many jobs the Chancellor thinks that those measures in aggregate will create. Similarly, the tiny package of measures designed to assist the construction industry—the conversions to small industrial workshops, the extension of stock relief to house builders, the extension of the industrial buildings allowance and the development land tax concession on developments for the owners' own use—are trivial; indeed, most are scored in the Red Book as negligible in terms of expenditure during 1983–84.
The stark reality, as opposed to all the rhetoric about assisting small firms, is contained in the figures for 248 company liquidations. Last year, after three similar packages of assistance for small businesses, the number of company liquidations reached 12,000, the highest figure recorded since the war.
The Budget representations of the Confederation of British Industry, designed to make Britain more competitive, as it puts it, have been largely spurned. The 0.5 per cent. reduction in national insurance surcharge and the small engineering firms investment scheme are all the CBI got. I doubt whether those concessions would even show up on any percentage measure of United Kingdom industrial competitiveness.
That brings me to the main claim of the Budget: that it ismost of all, a Budget for Britain's continuing recovery."—[Official Report, 15 March 1983; Vol. 39, c.157.].Taking account of all the tax changes that the Chancellor has announced, as the Red Book shows, the relaxation of taxation, over and above indexing, is £1,670 million in 1983–84 and £2,235 million in a full year. With national income now totalling just on £300 billion, this amounts to a stimulus of 0.6 per cent to 0. per cent.
A stimulus of this size will certainly not bring recovery; equally certainly, it will not reduce unemployment. Indeed, as we all know, the public expenditure White Paper forecasts a further rise in the number of unemployed of 280,000 in 1983–84. The only effect of the Budget on unemployment that I can see will be the statistical effect of those changes on counting, which the Chancellor announced yesterday. They will mean that 90,000 men between the ages of 60 and 65 who now register at unemployment benefit offices, to protect their pension rights when they reach 65, will be relieved of that obligation. They will therefore disappear from the unemployment count. The 42,000 men over 60 who are registered as unemployed and on supplementary benefit, while waiting to qualify for the higher long-term rate benefit, will also disappear the moment they come on to supplementary benefit.
Last November the Secretary of State for Employment at a stroke reduced the number of registered unemployed by some 240,000 by changing the basis of calculation from those registering at jobcentres to those actually claiming benefit. That is one way of reducing unemployment and no doubt giving evidence of recovery. But it is not our way, and the people will not be deceived for a moment.
As for the prospects of recovery, we all recall last year's Budget, then described as a Budget for industry, a Budget for people and a Budget for jobs. Since then unemployment has risen by a further 300,000 and the growth of output, far from reaching the 1.5 per cent. predicted in the Red Book, rose by just 0.5 per cent. last year. What reason have we for being any less sceptical about the forecast this year? Certainly it is not because of any measures taken by the Chancellor himself. He has stubbornly stuck to his last public sector borrowing requirement target of £8 billion, 2.75 per cent. of gross domestic product. Britain has, and will continue to have, as the Organisation for Economic Co-operation and Development pointed out in its December 1982 economic outlook, the tightest fiscal stance of any of the seven major industrial countries.
We not only finance our current expenditure, but we finance out of taxation a substantial part of our capital expenditure. We are doing that in the middle of the worst recession for half a century. The Red Book optimistically 249 forecasts an increase in GDP of 2 per cent. in 1983 over 1982 and as much as 2.5 per cent. in the first half of 1984 over the first half of 1983.
Much of that is contingent upon the Chancellor's expectations of improvement in the world economy. There are signs of recovery in the United States, which, ironically, began precisely when the United States authorities suspended their M2 money supply targets. Further, the $5 reduction in oil prices, if the OPEC agreement holds, will also assist most non-oil countries. As the Chancellor reluctantly confirmed in his Budget speech yesterday,The lower exchange rate gives industry an opportunity to improve its competitiveness".—[Official Report, 15 March 1983; Vol. 39, c. 140.]The right hon. and learned Gentleman can say that again. Indeed, the devaluation of 18 per cent. against the dollar and of about 13 per cent. against the basket of currencies is the only reason why exports are now predicted to rise by 5 per cent. in the first half of 1984 over the first half of 1983 while imports remain at the same 5 per cent. level.
But even if, contrary to all expectations, the economy did grow by 2 per cent. this coming year, such growth is well below the productive potential of the British economy. That means that unemployment, on the most favourable assumptions, will continue to rise and that we shall continue to suffer from vast underuse of our industrial capacity.
What is needed now is not a tinkering Budget but a major change of economic policy, one that makes the creation of wealth and the reduction of unemployment the central goals. Last week I outlined the shape and order of magnitude that a first recovery Budget would need: a substantial increase—not a decrease—in public expenditure, particularly on capital projects, housing and industrial investment, a substantial reduction in taxation and a sharp cut in interest rates—a stimulus to the economy equal and amounting to about 3 per cent. of GDP.
That is the order of magnitude with which we have to begin to address the size of our economic and industrial problems. However, the Budget is almost irrelevant to these, the real problems of our economy. Our great problems remain lact of demand, lack of competitiveness and the failure to modernise and invest in new and old industries alike. The waste of our resources, human and material, is truly appalling. The cost to the Exchequer of 3.5 million unemployed is now well over £15 billion per annum. The capacity of our manufacturing industry remains terribly underutilised. The estimate that was made in 1981 put the figure at 27 per cent. underutilisation and the latest National Institute of Economic and Social Research update in February 1983 puts it higher still, at about 30 per cent.
This is a know-nothing, learn-nothing Government. We can say that with real evidence and conviction after the fifth in this terrible series of Budgets. It is in our view essential for the national interest that the Government be swept away long before they have another chance of inflicting further injury on our people and our country.
§ The Chief Secretary to the Treasury (Mr. Leon Brittan)
The right hon. Member for Stepney and Poplar 250 (Mr. Shore) decries the Budget as a tinkering Budget. Usually, on the customary occasions when such allegations are made, the right hon. Gentleman puts forward detailed proposals as an alternative. It is true that on this occasion he urged a more dramatic and grandiose approach, but I am not surprised that he declined to go into any details. The central difference between the right hon. Gentleman's approach and ours is our belief that to achieve the objectives of recovery it is necessary to defeat inflation and inflationary expectations. Therefore, any attempt to stimulate recovery on the basis of reviving inflation, which is what plainly lies behind the right hon. Gentleman's proposals elsewhere, if not today, is doomed to end in tears. That is why the centre of our strategy has been a determination to bring down inflation and interest rates. The Budget maintains that strategy. That continuity itself is important.
Combined with the maintenance of that general strategy, the Budget contains specific measures to encourage recovery more directly—tax cuts for people to help incentives and reduce the tax burden and tax cuts for business to help reduce costs and improve competitiveness. There is also a wide range of other carefully directed measures, some specifically focused on the unemployed, others on particular sections of the economy and others designed to further recovery across the board.
In adhering to the medium-term financial strategy in putting forward our proposals, what we are doing is deciding not to finance lower taxes by higher borrowing. The tax cuts announced yesterday have been earned by our success in controlling expenditure. That is why this is not an election Budget. It is a recovery Budget.
The restraint on borrowing is by no means draconian. It is in line with the level of borrowing that we had in the 1950s and 1960s. As a result of our prudent fiscal and monetary policies inflation has come down dramatically and, as we saw again yesterday, those policies have permitted interest rates to fall.
When I last addressed the House in a general economic debate on 19 January, I noted that when interest rarer rose in the autumn of 1981 we were able to overcome the setback by sticking to the fundamentals of our policies. I said that we would overcome the rise in interest rates in January in the same way. So, indeed, it is proving to be. Market rates have eased; permitting the clearing banks to cut their base rates yesterday.
In challenging the claim that this was a Budget for recovery the right hon. Gentleman asked how many jobs would be provided by it. It is not possible to say with certainty that X thousand new jobs will be created. I shall tell those who ask exactly why. The calculation for which Opposition Members are asking is appropriate for those who try to buy jobs by extra spending. However, such calculations are illusory. Sustainable growth and jobs are not in the gift of this or any other Government. They are a product of the energy and enterprise of individuals.
The Government's job is to secure the financial stability and set the framework within which efficiency brings its own reward and business and individuals have the confidence to invest for the future. As inflation comes down, consumers spend more, and wage settlements become more realistic as people pay attention to real gains in efficiency and stop concentrating on forecasting future inflation rates. Lower interest rates also boost consumer spending. The 5 per cent. fall in mortgage interest rates 251 since November 1981 is the equivalent of a pay rise of around 10 per cent. for the average family on a new mortgage but on a non-inflationary basis.
§ Mr. Brittan
I should like to proceed a little further, if the hon. Gentleman will allow me.
Lower interest rates boost company cash flow. Each 1 per cent. fall in interest rates means £300 million for companies in a full year.
The signs of gradual resumption of growth deriving from following that approach are apparent. It is not the Treasury, but outside commentators, including the CBI February trends inquiry, who have pointed out the growth in consumer expenditure, the increase in industrial output, which even the right hon. Gentleman felt obliged to comment upon, and the improvement in the construction industry output. Those are what we must build on if we are not to abandon the financial stability that has now been established. It is right to operate within the proper restraints of a prudent fiscal framework, but within that fiscal framework the thrust of the Budget measures is, and rightly is, to help industry and thereby promote employment.
§ Dr. Bray
The Chief Secretary to the Treasury says that it is a prudent, fiscal framework. The borrowing requirement is as forecast in the 1980 medium-term financial strategy. That strategy said that the borrowing requirement would have to be corrected for cyclical variations. Since then the Government have complained constantly about a recession. If there has been such a recession, why are the Government keeping to the borrowing requirement that they planned in 1980?
§ Mr. Brittan
The hon. Gentleman is mistaken. There have been corrections in the medium-term financial strategy. I am surprised that, as an assiduous student of these affairs, he has not noticed them.
If one looks at the Budget, one sees a variety of measures designed to assist recovery and provide the opportunity for growth in employment. Some measures apply across the board and others help small businesses specifically. I cannot help feeling that when hon. Gentlemen noticed the extent to which those measures assisted small businesses they felt obliged to change tack and complain that big businesses were not helped enough.
§ Mr. Brittan
Hon. Gentlemen are mistaken, because while some measures help small business, others affect businesses which cannot possibly be called small—the North sea oil industry, some construction industries and so on. The measures are broadly based. If I were asked which apply across the board and are directly focused on cutting costs and improving employment prospects as a result, I should refer first to the national insurance surcharge reduction.
§ Mr. Brittan
I must make some progress. I shall give way to the right hon. Gentleman a little later. Across the board, the national insurance surcharge reduction—
§ Mr. Brittan
I understand why the right hon. Gentleman does not want to hear this. His Government 252 introduced the national insurance surcharge. They then nearly doubled it to 3.5 per cent. In hardly more than 12 months it has been reduced from 3.5 to 1 per cent. and is now barely a quarter of what it was.
The right hon. Gentleman also does not want to hear, but he is going to, about the measures to boost small firms and the fact that we have cut the small companies rate of corporation tax from 40 to 38 per cent. If the right hon. Gentleman were as interested in promoting employment opportunities as he pretends, he and his right hon. and hon. Friends would welcome that and the fact that there is another major measure to encourage employment prospects—the boost to the business start-up scheme, the change to the business expansion scheme which provides uniquely large incentives to invest in unquoted companies, both new and expanding. From April the scheme——
§ Mr. Brittan
—will apply not just to new companies but to any existing unquoted companies. The relief available to individuals putting their money into equity investment will be increased greatly. The right hon. Member for Stepney and Poplar referred in carping terms to the small engineering firms investment scheme, but people in the west midlands and other parts of the country who heard the news did not react in similarly carping terms, because they recognise that this measure will plainly assist industry to re-equip and improve employment prospects.
§ Mr. Sheldon
I am grateful to the right hon. and learned Gentleman for giving way, because he has said throughout the Government's life that once inflation had been reduced employment prospects would increase and unemployment would be reduced. However, we know from the Red Book, and from what was said yesterday, that inflation will increase from 4 to 6 per cent. When will we achieve a reduction in unemployment?
§ Mr. Brittan
As the right hon. Gentleman was a member of a Government who saw inflation rise to 27 per cent. and set in train developments that led to an increase of 22 per cent. in inflation, and as we have reduced inflation from 22 to 5 per cent., the right hon. Gentleman should derive small comfort from the fact that an increase in inflation from 5 to 6 per cent. is predicted. The Government have brought about circumstances in which low inflation is the order of the day. The right hon. Gentleman may be jealous and may deplore that that has been done, but he cannot take away the achievement.
Of course the right hon. Gentleman does not wish to hear about the measures which, within that prudent fiscal and financial context, will further employment. He does not want to hear me talk about the package of measures designed to boost investment in industry, including additional assistance to computer software advisory services and a new scheme to plug the gap between development and commercial production.
Hon. Gentlemen talk sometimes about the real economy. That is the real economy. If they were as concerned about economic development and growth and employment prospects as they pretend, they would welcome with open arms the fact that we have taken 253 measures with regard to the taxation of the North sea oil industry that will help the development of North sea oilfields, which will mean extra work for the offshore supply industry.
§ Mr. Brittan
I assure the hon. Gentleman that I shall give way to him later. The measures that we have introduced are not designed solely to tinker and deal with small businesses. They are concerned with one of Great Britain's most important industries and are designed to safeguard its future.
Special attention has been paid to the housing and construction industries precisely because of the considerable employment consequences. The measures that my right hon. and learned Friend the Chancellor announced in relation to those industries are of immense significance—the increased expense limits for home improvement grants, additional capital spending allocations for enveloping schemes—and those who are concerned about our inner cities will know the profound implications, far beyond the sums of money involved, involved in upgrading the external fabric of whole streets of terraces of rundown houses on behalf of, but at no cost to, the owners.
§ Mr. Brittan
These schemes usually cover 100 to 200 houses. We are therefore talking not about the smallest construction firms but about medium-sized ones.
§ Mr. Cook
The right hon. and learned Gentleman knows that the expenditure to which he has referred will come out of the contingency reserve and will not increase public expenditure. If we are to believe that these figures will increase employment, will the right hon. and learned Gentleman tell the House by how much he thinks the Government Actuary should revise his planning assumption that unemployment will increase by 300,000 during the next financial year?
§ Mr. Brittan
The hon. Gentleman is under a complete misapprehension. I am not boasting that these schemes will increase public expenditure. I say that they will improve employment prospects, and I explained earlier why it was not possible to gauge that by a financial calculation saying that £X will produce X jobs.
The schemes are important, and some direct measures are designed specifically to assist unemployment. The hon. Gentleman would do well to heed the fact that we are extending the enterprise allowance scheme, which helps unemployed people to set up in business, from five pilot areas to the whole country. Those who purport to speak for the unemployed may shake their heads because they do not like the unemployed going into business on their own account and being assisted in that way, but there has been a most encouraging response to the pilot schemes, with 2,000 or so successful applications. Those who laugh at that laugh at unemployed people seeking to help themselves by creating new jobs for themselves. There is evidence that new businesses are creating additional employment, quite apart from the other employment measures that we have introduced.
In addition to introducing the wide variety of measures to which I have referred affecting businesses large and 254 small, as well as particular and important sectors, the Budget also contains tax cuts and social security improvements which together add up to considerable focus of attention to and support for the family. Tax cuts also help business by increasing incentives, and all business men would agree on the importance of motivation. They also promote lower pay settlements and increase opportunities for business products.
The tax cuts stand on their own merits. There is no reason to apologise for them. There is a need to improve incentives at all levels. I readily accept the point repeatedly made by Opposition spokesmen that the tax burden is higher than it ought to be, but the House would do better to ask why that is so rather than to trade statistics in a barren way. Taxes are higher than we would like because of the need to bring down public sector borrowing at a time of continuing upward pressure on public expenditure. Secondly, it is worth pointing out that the cost of national insurance contributions—a crucial element in the tax calculations made by the Labour party—has been necessary to finance social security.
It is right to ask those in work to make sacrifices to help those less well off. For example, it is significant that the national insurance retirement pension will be about three per cent. higher in real terms in November 1983 than it was in November 1978. I do not believe that that is deplored by the Labour party, but that 3 per cent. alone costs nearly £500 million—equivalent to 0.5p off the basic rate of income tax. Those who criticise the increase in the burden of taxes would do well to explain what expenditure they would like to reduce if they do not like that increase.
§ Mr. Brittan
I shall not give way at the moment. The House ought to pay attention to a third reason why we have not been able—and I readily admit it—to make the progress——
§ Mr. Brittan
The hon. Gentleman will see whether I am frightened. There is a third reason why the Government have not been able to make the progress that they would like to reduce personal taxation. When, within the prudent fiscal and monetary framework that is essential for recovery, it was possible to begin to reduce the burden of taxation, we decided to start by reducing the burden of taxation on industry. At a time of world recession, that was the right priority. We started by reducing the national insurance surcharge to a quarter of its level under the Labour Government. That cost nearly £2 billion. In addition, we improved the stock relief scheme, which cost nearly £500,000. Those were priorities for industry, and they were the right priorities.
§ Mr. Skinner
Has the Chief Secretary made an estimate of the amount of tax that will be lost as a result of the loans by British banks to many rescheduling countries? Has he taken into account the revelation in most of the City columns of the newspapers that the Inland Revenue will allow tax relief on bad debts? Has he taken into account the massive amount of bad debts that were set aside in the announcements of the four clearing banks in the last three weeks? What is the right hon. and learned Gentleman's total calculation, in view of the recent 255 estimate of a loss of more than £100 million to the Exchequer as a result? Would not our widows and pensioners like to get their hands on that £100 million?
§ Mr. Brittan
My right hon. Friend the Financial Secretary informs me that the basis of the hon. Gentleman's statement about Inland Revenue treatment is not correct.
§ Mr. Brittan
I am sorry, but I must proceed. As I have said, the reasons why it has not been possible to make the progress in reducing personal taxation that we would wish have been genuine and reputable, but at last the moment has come when we can make substantial progress in assisting personal taxation.
The 14 per cent. increase in allowances introduced by the Chancellor yesterday equals two-and-a-half times what was necessary to adjust allowances in line with inflation. If one takes particular account, which one is entitled to, of the age allowance—people who on the whole are not paying national insurance contributions—one is talking about an increase to £3,755 for a married person and £2,360 for a single person. Those are real improvements.
It is also worth pointing out that, taking the position cumulatively since 1978–79, real take-home pay is higher at all earnings levels than corresponding earnings in 1978–79.
§ Mr. Straw
Have not the so-called tax cuts announced by the Chancellor yesterday merely restored the burden of taxation to its pre-1981 Budget level? In other words, the Chancellor gave back to the British people that which he took away in 1981. Is it not also true that at all income levels up to £300 a week the proportion of direct taxation, including national insurance contributions, is still much higher than it was when Labour left office? That is the reality and the Chief Secretary cannot escape from it.
§ Mr. Brittan
It was about 1 per cent. higher, but if the hon. Gentleman heard me he would know that I was not trying to pretend anything to the contrary. I was explaining exactly why we had not made the progress we would have wished and why we had been able to make progress this year. Instead of welcoming the progress that we have made this year, the hon. Gentleman decries the position as a whole. As I have said, estimated real take-home pay in 1983–84 will be higher at all earnings levels than corresponding earnings in 1978–79.
Social security has occupied the attention of the House and was referred to by the right hon. Member for Stepney and Poplar. My right hon. Friend the Secretary of State for Social Services hopes to catch Mr. Speaker's eye tomorrow to give further details of our proposals. However, some points should be made now. They must be taken together with the tax proposals and looked at in the context of what we are doing for the family as a whole.
I refer above all to child benefit. After the increase that my right hon. and learned Friend announced yesterday, child benefit will be at its highest ever level in real terms. That is a major achievement. It is particularly important to low-income working families and will help them avoid the unemployment trap. As it happens, it was I who before the Budget saw the all-party parliamentary group for 256 children. I vividly recall that the figure that it asked for was exactly the figure that we have now introduced. That is an important and significant achievement.
§ Mr. Brittan
The uprating method also exercised the right hon. Member for Stepney and Poplar. He castigated the Government for the change that we have announced. However, he does not do so in good faith, because his allegations of fraud and worse do not come well from him, given the record of the Labour Government. The Government are pledged to maintain the value of the pension, but they have done more than that. The pension today is higher in real terms than when the Conservative party came into office and it will still be after the changes announced by my right hon. and learned Friend the Chancellor of the Exchequer. There is no doubt about the realities of the position.
The late Brian O'Malley said:I believe that I have demonstrated to the hon. Gentleman that the historic method is, in the end, the fairest method "— [Official Report, Standing Committee B, 12 December 1974; c. 191.]That was the view of Mr. O'Malley, because it was right. Those who were receiving benefits knew that what they were getting was based upon reality and not upon a forecast. If the House wishes to discuss deceit and fraud it might listen to the weasel words of Mrs. Barbara Castle when she introduced the change to the forecast method:It is clear that if we had this time adopted the historic method, an additional burden would have been put on the worker and the wage earner of £500 million for this uprating, and it would have had inevitable consequences in due course on the contribution rate."—[Official Report, 7 April 1976; Vol. 909, c. 431.]When the right hon. Lady spoke about the burdens on the worker and on the wage earner, she meant that if she had not changed the system to that to which the Government are now returning, the taxpayer would have had to pay £500 million. She was making that change to save that £500 million. What is more——
§ Mr. Brittan
Furthermore, the equivalent of £500 million in those days is nearly £1 billion today. Therefore, the Opposition would do well to avoid such allegations.
§ Mr. Brittan
That does not answer the question about the method. It is a case of the right hon. Gentleman not liking what he has heard and raising other facts. The explanation given by Mrs. Castle was as plain as a pikestaff. That change was introduced to save the equivalent of £1 billion today.
My predecessor, the former Chief Secretary to the Treasury, knows what was done and why it was done. There is no reason for my hon. Friends to feel defensive on the issue. There is even less need for my hon. Friends to feel defensive about social security when hon. Members take into account the other changes announced by my right hon. and learned Friend in the Budget: the restoration of the 5 per cent. abatement of unemployment benefit, the extension of the long-term supplementary benefit to the unemployed, sick and disabled over 60, and the important removal of the invalidity trap. The extension of the 257 widows' bereavement allowance for a second year was welcomed by those speaking on behalf of widows. Widows' organisations have been asking for that for some time and I am proud to defend and explain that extension at the Dispatch Box. All the improvements, as well as the increase in supplementary benefit disregards and the real increase in the amount that the sick and disabled can earn before losing their benefits, are real advantages that the Government have introduced.
It is true that the achievements that I have referred to are more than matched by the promises of the Opposition. However, it is always easy to match real achievements with spurious promises. The Opposition parties seem intent on developing something like a common economic programme. The right hon. Member for Stepney and Poplar has rapidly been losing his enthusiasm for announcing major devaluations. The SDP-Liberal alliance has suddenly become far more attracted to massive reflation. Why is it more reticent about pay restraint than it was?
Some hon. Members may ascribe that change of heart to sensible second thoughts by the right hon. Member for Stepney and Poplar about the folly of his previous proposals. Some hon. Members might imagine that the alliance has realistically decided that statutory pay restraint was unworkable. But those optimists would be wrong.
The real reason why the Labour party has changed its tune is that it has learnt that its previous policy was profoundly unpopular. The alliance, for all the boasting by the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) about his prudence as Chancellor, now thinks that Socialist economics is the way to win the Socialist vote from Labour.
The programmes that the Opposition parties offer are fatally flawed. The right hon. Member for Stepney and Poplar is a master of instant Budget-making. It is much easier in opposition and I wish him the joy of making many more such instant Budgets. His latest attempt proposed £11 billion in extra spending or tax cuts. It is not surprising that he shied away from unveiling that in the House today. At least he need no longer feel alone, because the SDP-Liberal alliance now speaks the same language. The effect of all such programmes, now as in the past, would not be more jobs but higher inflation or higher interest rates, or probably both.
The right hon. Member for Stepney and Poplar and his hon. Friends and the right hon. Member for Hillhead and his hon. Friends claim, of course, to have proved the soundness of their policies on the Treasury model. Not only the Government but outside commentators as well have repeatedly stressed that neither the Treasury's model nor that of anyone else can give more accurate results than the assumptions and information fed into it.
The Labour party has no credible policy for incomes. Its so-called national economic assessment is only a social contract by another name. The Government are not dependent upon it in the way that the Labour party is. It is a social contract to be agreed with the unions, whose power and privileges the right hon. Member for Stepney and Poplar and the Labour party would strengthen further. That is the same social contract under which price inflation rose to a peak of 27 per cent. and wage inflation to nearly 30 per cent. The present leader of the Labour party, who 258 is not in the Chamber today, has described that social contract as a "success". God preserve us from any further such successes. Neither the Labour party nor the alliance seems to grasp the importance of confidence. Just to announce less control on monetary growth and a huge increase in borrowing would have a devastating effect on markets.
The House knows that the Government have kept to the path of monetary and fiscal responsibility. We have avoided, more than any previous Government, the temptation to go for election bribes. However, the Government have provided a further credible and balanced instalment of policies designed to lead, as they will, to a sustainable recovery of growth and jobs.
§ Mr. Richard Wainwright (Colne Valley)
The Chief Secretary to the Treasury regaled hon. Members with his routine speech of glib abdication of responsibility for stimulating the economy, to which he has added some wholly ill-founded suggestions that the alliance is going soft on incomes policies. At the end of our debate I trust that some hint of evidence will be dredged up from somewhere to back up that fact, but there is no substance whatever in it.
The Chief Secretary fell back on routine abuse by saying that the policies of the alliance would destroy confidence. It is time that the Chief Secretary realised that, although the confidence of financial markets is important, an important source of confidence is those who manage and work for our great industries. Their confidence has been destroyed during recent years by attacks on them by a Cabinet in which our traditional industrial areas are thinly represented.
The less appropriate the Government's financial strategy becomes, and the less relevant their policies, the more doggedly the Chancellor pursues them. In a world economy which the Chancellor said yesterday was full of inconsistencies, he proudly boasts of his four-year consistency—like that which Emerson rightly calledthe hobgoblin of little minds".No wonder the Chancellor of the Exchequer's Budget speech wholly failed to explain why this strategy—which the Government parade as an alibi for their behaviour, and which was devised four years ago in a climate of rocketing oil prices, rampant world inflation and low productivity—is perversely held to be still relevant today. The Chancellor of the Exchequer attempts to make a virtue out of slavish obedience to what was planned in the quite different economic circumstances of four years ago.
With productivity rising and inflation still falling—at least at the moment—a substantial stimulus could have been included in the Budget to create more jobs without any risk. The case of the Liberal/Social Democratic alliance is that it should have been provided. Instead, the Budget aims only at a very modest growth in output, which Ministers admit will not be sufficient to stem the continuing rise in unemployment during the next 12 months. We say that total abolition now of the national insurance surcharge and a major programme of capital projects should have been the minimum response to the plight of the unemployed and of so much of industry today.
In our view, the British people have been, and are still being, extraordinarily patient and long-suffering in the face of this growing waste of human and economics 259 resources alongside important public needs which are left to grow worse. The alliance strenuously opposes such a narrow-minded Budget, which is wholly divorced from the reality of rising unemployment and the ever-rising number of business bankruptcies. Neither the Budget speech nor the Red Book does anything to reveal the Government's policy for the sterling rate of exchange. It is very odd that a Government who continually claim that their duty is limited to creating a proper environment for industrial recovery should not take the House into their confidence on the central issue of the exchange value of sterling and their policy for it. As far as one can tell, last year and into January this year, the Government were manifestly using interest rates to defend the pound. Whatever they said about leaving the pound to market forces, they were clearly manipulating the exchange rate to defend what we believed, and said at the time, was an artificially high pound. Perhaps the Government have now abandoned that policy, but the Budget is strangely silent on that point. If this debate is to be meaningful, the Treasury Bench must tell us what its policy now is on the exchange rate of sterling.
The £8 billion limit on the public sector borrowing requirement is based on mere dogma and it ill becomes the Treasury Bench to rebuke this side of the House for political and economic dogma when the figures in its Budget strategy are the products of its own particular dogma. I have heard nothing yet by way of carefully argued evidence to support that figure of £8 billion. It seems to be a matter either of convenience or of compromise. Again, if the debate is to be meaningful, the Treasury Bench should tell us the virtues of that figure, which we consider to be manifestly too small.
The Government claim—again, without evidence—that a higher figure would carry the severe risk of higher interest rates, but they should explain how they have been able to borrow over the past two years far more than they have needed without provoking rises in interest rates on that account. It ill becomes a Government who have been going into the markets to borrow more than was required for their needs at the time to say that the public sector requirement must be limited to £8 billion because to increase it would hike up interest rates. The Government have much more explaining to do on all those issues, and during the next few days this House is the place in which to do it. We look for a response from the Treasury Bench on those central matters.
On a more specific point, we are glad to welcome the rise in child benefit, which the Chancellor of the Exchequer was correct to describe as one of the most soundly based social security benefits in our system. We also, naturally, welcome the rise in the limits for employee shareholding tax concessions. For a long time we have argued that that limit should be automatically raised with the increase in salaries and so on. I am glad that our argument has been heeded and that that welcome change has been made.
The business expansion scheme seems to be well based. There has been a good deal of discontent during the past few months because so many of those concessions were limited to new businesses, thus leaving out in the cold those who had succeeded in starting small businesses some years ago, before all the new concessions were available. Likewise, we welcome the extension of the loan guarantee scheme and the lower rate of corporation tax on small 260 businesses. In particular, we welcome the spread of the enterprise allowance throughout the country, which will certainly be a boon to the genuinely self-employed.
I say "in particular", because there is a suspicion that some of these other so-called small business reliefs are in fact aimed much more at businesses that could be firmly described as medium-sized and on the way to being large. When we offer concessions, quite rightly, to the medium-sized business that is on its way up, we must not forget the genuinely self-employed who are running one-man businesses or small businesses staffed by their families. They need considerably more help than they will receive in this Budget or have had in the past.
At the top of the blacklist is the diddling of our pensioners and those who rely on benefits that are uprated every November. I hope that someone from these Benches will be called to speak in tomorrow's debate, which relates more specifically to social security matters. However, in registering our contempt for this manoeuvre, I should like to make two points. First, if there is any merit in changing the basis of uprating to the actual inflation rate, rather than the expected inflation rate, this year is certainly the wrong time to do it. To do it at a time of rising inflation is quite unjustified.
§ Mr. John Browne (Winchester)
The hon. Gentleman says that there has been diddling on the pensions, but does he deny that during this Government's period of office prices have increased by 70 per cent. while pensions have increased by 75 per cent., and have therefore been more than protected in net terms?
§ Mr. Wainwright
The hon. Gentleman vies with his Chancellor of the Exchequer in having no sympathetic understanding of what it is like to be a pensioner without other means. Many of the pensioners he talks about who benefited from small real upratings in previous years are now dead. However, I am in part talking about those who are just entering retirement. It is no good telling them that their predecessors—some of whom are now in the cemetery—saw a slight improvement in the early years of this Government.
That same lack of understanding and sensitivity was betrayed yesterday by the Chancellor of the Exchequer. He is so remote from the financial realities of being a pensioner that he actually said:There will be no question of asking pensioners to return any of the pension money they have already received".—[Official Report, 15 March 1983; Vol. 39, c. 79.]One could hardly conceive of a senior Minister who could be so remote in his Surrey fastness from the conditions of life for ordinary pensioners who do not have other means as to suggest that there could be even the remotest possibility of asking them to return money that was properly paid to them.
I must make it clear—even though people tend to speak with forked tongues on this issue—that we deplore the new lease of life that has been given to the unjustified mortgage interest relief. It is a relic of an ancient taxation system which we hoped was withering on the vine. We do not suggest that it should be totally abolished at a stroke, because we realise that people have entered into commitments expecting it to have a permanent place in our tax system. That relief should have withered on the vine.
We have always been strong supporters of home ownership. The proper course for the Government was to relieve the stamp duty on house purchase. That would have 261 been much fairer, it would not have distorted the tax system, and it would have removed a block on the free exchange of houses. Moreover, it would have been a real benefit to first-time house buyers. Here again, the southeastern base of the Cabinet is clearly revealed. How many first-time buyers outside the south-east of England are likely to spend £30,000 on a house? Here, I do not rely on my own authority. In today's Financial Times, over the signature of no less than Mr. Sam Brittan, we read words which deal the Government a double blow, because he attacks their foolish interest rate fears as well. He says, speaking of the extension to £30,000 of the mortgage relief:this is the type of distortion which does more to raise interest rates than a quite substantial increase in the Budget deficit would do.That is perfectly true. House prices will rise. There is a risk of interest rates rising because of that concession to a particularly narrow class of citizens who have no claim on priority at such a difficult time.
§ The Financial Secretary to the Treasury (Mr. Nicholas Ridley)
The hon. Gentleman says that a slight increase in lending on mortgages might cause interest rates to rise.
§ Mr. Ridley
The hon. Gentleman assented to the proposition—whereas a few minutes ago he said that another £4 billion or £5 billion on the PSBR would not cause interest rates to rise. Will he explain that dichotomy?
§ Mr. Wainwright
I hoped that that would be apparent to a Treasury Minister. The credit of one of the few industrial countries that is more than self-sufficient in energy has a far higher rating than houses. I rely on Mr. Brittan's experience of financial markets to justify what he says.
§ Mr. Straw
Does the hon. Gentleman agree that another way of ensuring that interest rates did not rise, if there was an increase in public borrowing, would be to reintroduce exchange controls and to ensure that the £1,000 million a month of British people's savings at present being forced abroad was kept in this country? That would have a beneficial impact on the exchange rate. Does the hon. Gentleman's party accept that we cannot have sensible reflation without an increase in interest rates, unless there is a reintroduction of exchange controls?
§ Mr. Wainwright
I am grateful to the hon. Member for giving me a first-class opportunity to show how hollow the Chief Secretary's foolish claim was just now that the alliance had become part of a Socialist opposition. In no way do I agree with anything that the hon. Member for Blackburn (Mr. Straw) has just said.
The sad fact is that, although we in this House did not expect the Government to change course, many people outside hoped against hope that their jobs would come back again, their companies would be rescued, and their prospects would be improved as a result of a change of heart in the Budget. That has not happened. There is no engine of recovery here. There is just a rather timid bid for votes.
§ Sir Hugh Fraser (Stafford and Stone)
We have heard an interesting speech from the hon. Member for Colne Valley (Mr. Wainwright). I am not sure whether he is speaking for the mass of the alliance or as the shadow Chancellor, because I do not know his position in his party's hierarchy. We have heard two shadow Chancellors addressing the House this afternoon, one a pale shadow of the other, although they denounce any mutual connection.
This debate should be viewed against the general condition of the world economic situation. I am sure that the Conservative Front Bench paid attention to the speech that was made yesterday by my hon. Friend the Member for Bath (Mr. Patten). It is against that general consideration of the world situation that the Budget has to be judged in large measure.
I know that the hon. Member for Colne Valley has something in common with the other shadow Chancellor. They both believe that immensely more should have been pumped into the economy. In my view it would be extremely rash to do that. My right hon. and learned Friend the Chancellor was attacked by the Leader of the Opposition and wrongly compared—as far as the analogy went—to Disraeli's attack on Peel. It is better to see my right hon. and learned Friend as well-spread stuff—muck is always best well spread—almost like Zeus descending on Danae in a shower of golden rain—perhaps so spread as not totally to impregnate any sectors, but nevertheless as one who was able, within the limits, to do a great deal for many people and many industries. For that reason we should welcome the Budget.
Later in my speech I shall mention the construction industry, where it is probably easiest to make injections of private or public capital to decrease unemployment. I agree with one thing that the Leader of the Opposition said yesterday, and that is that the world is suffering from hyper-unemployment, and certainly the construction industry is one area where something can be done in that respect.
I have read the Red Book, and in my view the Treasury forecasts for this year on world trade are optimistic. Naturally I hope that they are right. Certainly it is commendable that last year, for a variety of reasons, this country did not drop back in its proportion of world trade. That was a considerable achievement, to which the Government and the lower value of the pound contributed equally. Nevertheless, it was an achievement.
I have a grave fear that even the American recovery could be something of a flash in the pan. In the past three years Ministers here and in the United States and elsewhere have said again and again that they see a pickup in activity. Of course there is a pick-up in activity when the world has been destocking for three years. There is a cyclical pick-up, which is bound to occur at certain points. However, it would be ludicrous to suggest that this country could be the engine, efficient though it may be, to drag the world out of recession.
The Chancellor has sought to ensure that the economy remains sound. With a sound economy it will be possible for our Prime Minister and the other Ministers who are involved to go to the Williamsburg conference to deal with the great problems of world debt, world interest rates, growing protectionism and massive and continuing currency instability. Until steps are taken to deal with those matters, our internal problems are a battle that 263 cannot be won here or on Wigan pier or on the playing fields of Eton. Measures must now be taken by the leading world powers to make the system wearable and bearable. I have great hopes for what my right hon. and learned Friend can achieve at the conference, but it will not be easy.
In spite of my right hon. and learned Friend's achievement, the International Monetary Fund's wider provisions have still to he ratified by Congress. Therefore, my right hon. and learned Friend is right to back a sound economy in Britain, and the Prime Minister's hand will be strengthened in the difficult days to come.
My right hon. and learned Friend has shown what might be called a microeconomic approach. For the construction industry the Budget is generally good. I know that the hon. Member for Colne Valley does not agree with the help that has been given on mortgages, although I do not know whether he says that to his electors. Repair grants have been increased by 20 per cent.—a process known by the particularly ugly word "enveloping". Towns such as Stoke-on-Trent will benefit considerably from that. It will encourage considerable growth in the private and public construction of homes.
In addition, the new tax regime for the development of smaller fields in the North sea will be a real and important benefit to the construction industry. There will be a reduction of about £800 million in tax over the next four years. As long as oil prices remain stable, that will be a great benefit to the construction industry, especially in Scotland.
My right hon. and learned Friend proposes to increase expenditure on construction by 10 per cent. In my view, more could have been pushed into this year's road programme. In addition, there are two further matters which would help the construction industry to which I wish to draw my right hon. and learned Friend's attention and for which I hope to attract the Government's support. First, there is the need for the Government to back a major construction project supported by private finance. There have been many such schemes floating around.
With hindsight it can be seen that it was a mistake for the Government not to back the North sea gas-gathering pipeline. If national and international banks had been encouraged to spend money on that it would have been a far better investment than to invest money in parts of the world where it is wholly ineffective and inappropriate and is partly responsible for causing distress in the world banking system. I hope that the Government will look carefully at any new proposals that are put forward.
I hope that the House will have been circulated with the proposals for a cross-channel link for road and rail—the Euro-link—which could be privately financed and of which the redoubtable Mr. MacGregor and Sir John Howard and Partners are sponsors. Just as it was a great error that the Government failed to support the gas pipeline, so it would be a great error if they did not consider such a programme seriously. It would create 50,000 jobs in France and 50,000 jobs in Britain. Its need does not so much arise from the Common Market as from the inevitable and current growth of transport requirements between Britain and the continent. I hope that when the scheme is put forward the Government will give it full consideration.
A matter which may seem trivial to some is the development land tax. It is positively holding back development. It is a hangover from the Labour 264 Government's Community Land Act of 1975, which proved to be inoperable and inefficient. But we are still left with this tax, although my right hon. and learned Friend has gone some way towards reducing it. It remains at a high level, despite having been reduced from 80 to 60 per cent., with certain helpful exceptions. It brings in only about £20 million a year. I can assure my right hon. and hon. Friends on the Front Bench that, limited though my experience in business is, that is holding up a considerable amount of development and therefore construction. That is particularly true for older factories in the broad constituency of the Birmingham area. Some old factories there are almost valueless at the moment in terms of what is called "relevant base value" and would be heavily taxed if they were to be developed. There should be a tax, but not at this level, because in addition, an element of capital gains tax also has to be paid.
I do not say that there should not be a tax on unearned increments, but the matter could be better dealt with by a straight capital gains tax of 30 per cent. or by such profits being charged to corporation tax. That would create a different climate in many areas. I declare an interest, because there are two companies with which I am involved and which, because of the huge loss in tax, are hesitant to sell such property, which, on their books, is still of considerable value. An adjustment of this tax would lead to a much quicker reorganisation of British assets.
In a period of industrial decline we should set that in motion as quickly as possible. It would lead to the swifter reconstruction of companies and the redeployment of assets and would push more money into the Treasury at a lower rate of tax. It would also undoubtedly create employment in the construction industry. Many developments are being held up by this rather trivial tax. It is a heavy burden, not perhaps for the nation, but for many of our smaller companies. Above all, it would free more assets for gainful use. Therefore, I hope that the Government will give it their consideration and switch the tax on unearned increments into either capital gains or ordinary corporation tax. That would make a considerable difference. To quote my own experience, were this impediment and tax to be removed new development would provide employment on two sites for at least 400 people in the construction industry. I suggest that for a small sum a considerable step forward could be taken.
In its broader aspects the Budget can be generally welcomed. However, I remind my right hon. and learned Friend and his colleagues on the Front Bench that the real test does not lie in a sensible and reasonable Budget, but in the resolution of the world economic problems in the year to come.
§ Dr. Jeremy Bray (Motherwell and Wishaw)
I hope that the Chief Secretary will listen to and act upon the urgings of the right hon. Member for Stafford and Stone (Sir H. Fraser), especially on the international cooperation now needed and in the undertaking of capital projects for which there is not only a great need but a yawning gap in the construction and capital goods industries which can supply them.
This is the last Budget debate before the general election, so it is proper to review the strategy and achievements of the Government and the alternative choices for the future. Some Conservative Members and their supporters in the press argue that the Government 265 have achieved their goals. They say that inflation will reach the pensioner's low of 4 per cent. in the retail price index figure to be published in June. Was that reduction in inflation to be achieved without regard to unemployment and the loss of output? That was certainly not the intention in the original statement of the medium-term financial strategy in 1980.
That statement warned of some initial losses in output, the size and duration of which would depend on how quickly behaviour—especially in pay bargaining—took account of the new monetary environment. The Government's commitment to a progressive reduction in money supply growth was intended to provide a firm basis for expectations of falling inflation. The 1980 statement said that the Government intended to set a target range consistent with the annual growth of the money supply being reduced to about 6 per cent. in 1983–84. It insisted that there would be no question of departing from the money supply policy. All that was necessary to lay the firm foundation for expectations.
What has happened? The mid-point of the target ranges would have increased sterling M3 by 29 per cent. from February 1980 to February 1983. The actual increase has been 51 per cent. and prices have increased by 33 per cent. Therefore, there have been structural changes in the monetary system. The pressure gauge that the Government chose to guide them through dangerous waters has broken down. The Government have not known how hard they have been squeezing. By 1982, the monetary policy was taking into account a range of indicators, including the exchange rate, but with no rationale for how hard to squeeze. As shown by cost competitiveness, real interest rates and interest rate differentials with other countries, monetary policy has been and remains far too tight.
The 1980 statement acknowledged that the borrowing requirement was affected by the economic cycle, but no adjustment was made to the path of the public sector borrowing requirement to allow for the greater than expected depression. The fiscal balance has been fiercely deflationary. The effect of the medium-term financial strategy was to produce a misguidedly savage bout of deflation. Gross domestic product has fallen by 6 per cent. and manufacturing output by 19 per cent. since the Government took office. Unemployment has risen from 5–4 per cent. to an appalling record of 13 per cent. It is no wonder that inflation fell simply as a consequence of deflation, whatever monetary policy might be.
Far from Britain's depression having been caused by world recession, the Government have led the world into depression. As OECD studies have shown, the greater part of the depression is due to policy, not to the second oil shock. The squeeze as measured by the cyclically adjusted Budget change during the four years 1980–83 has totalled 6 per cent. of GDP, which is £16 billion, compared with an average of 1 per cent. in OECD as a whole. Japan is the next highest country at only 3.4 per cent. The Government squeezed twice as hard as the next highest country, and six times as hard as the OECD average, and the British squeeze started first.
For those still in work, the Government claimed a remarkable increase in productivity—but productivity in manufacturing industry has increased by only 4·7 per cent. since the Government took office—and that involved the closure of much of the less efficient capacity, with no 266 efficient capacity to replace it. Investment by manufacturing industry has fallen by 33 per cent. in real terms and training in industry and research and development—the seed corn for future growth and productivity—have been cut sharply throughout industry. The profits of the non-North sea oil companies have fallen by 31 per cent. in real terms, and the North sea oil companies will now follow
In the latest financial statement, the Government expect national productivity to increase by no more than 2 per cent. to 2.5 per cent.—as it did for 18 years before the Government took office and before they set about laying what they call their foundation for growth. Has the nation suffered all that loss of output and unemployment simply to return to where we were in 1979?
With such an appalling record, how have the Government managed to retain support? It cannot all be put down to the behaviour of the Labour party, the Falklands factor, or the mild winter. The Government have ensured that the majority of those who remain at work have not seen their standard of living suffer significantly. Real personal disposable incomes have fallen by only 3.2 per cent. and real consumer expenditure by 0.5 per cent. By protecting the personal spending of the majority, and increasing the income of the highly paid opinion-forming elites, while depressing the unemployed and cutting back on all sorts of investment for the future, the Government have bought short-term political support in the most contemptible and destructive way.
Yet it is incredible that at the same time the Government have succeeded in a claim to virtue. They propagate an economic theory whose failure, they argue, only confirms the decrepitude of the British economy, thus undermining the self-respect as well as the performance of British industry. The theory has broken down, but it can be laid to rest only by being replaced by a better theory. Political debate in a democracy cannot tolerate a theoretical vacuum. The claim to moral virtue can be shown as an evil fraud only by being contrasted with true morality.
The Government's mistake has been to treat the intermediate target of the money supply as a replacement for, instead of a supplement to, the final objectives of stable prices, full employment and growth. Under Bretton Woods, the exchange rate and the current balance were useful, if much abused, intermediate targets. They were never regarded as substitutes for the final objectives.
If we had perfect control of the economy, we could forget about the intermediate targets and concentrate on the final objectives, but because our understanding of the economy is so uncertain and our models are changing and far from perfect, it is useful to have indicators—the exchange rate, the current balance and even the money supply—to warn us of impending trouble. They are useful tools like the oil warning light, the battery charge indicator and the fuel gauge—but whoever heard of a driver driving on the oil warning light alone? That is what the Government have been trying to do.
The apparatus to pursue a balanced combination of final objectives and intermediate targets has been demonstrated. I sent the specification to the Treasury in 1972 when many people were working on it and long before all this monetarist nonsense gripped the minds of half-educated policy-makers and pundits. But it was ignored by the Treasury under the Heath Government and the Labour Government who followed it. Now it has been demonstrated on all the United Kingdom models. There is 267 much practical work to be done, but on 25 February Treasury officials demonstrated their first work on those lines on the Treasury model, in the Treasury, to the Treasury academic panel and attested to its usefulness. The Treasury and Civil Service Select Committee will publish further work using the more relevant exchange rate and intermediate target in its report in April or May on international monetary arrangements.
In practical application, these new policy optimisation methods will be quite conventional in their public presentation. The Government will say "In pursuit of our priorities, these are our spending, taxation and interest rate plans, and this is what we think is most likely to happen. Things are bound to depart from this course, and, as they do, this is how we shall respond, depending on the nature of the departure." On the exchange rate, for example, the Government will say "This is what we think will happen to prices and the exchange rate and their combination, which is the real exchange rate. We shall not die in the defence of that as a target, but as it departs up or down so we shall lower or raise interest rates."
A stable market needs such guidance on expectations. To give the Government credit, that is what they attempted to do in the medium-term financial strategy, but in a halfwitted way, with the wrong target and by the wrong methods. So much for the theory. It learns from the limitations of Keynesian demand management and monetarist targetry and it is capable of expressing widely differing political priorities. It is needed to guide the implementation of Labour's strategy, just as it can demonstrate the failures that could have been expected from monetarism before it was ever tried.
Such macro-economic policy-making, though necessary, is not sufficient on its own. If one takes the return to full employment, it emerges that of the 3 million-plus new jobs that we now need to reduce unemployment to under 1 million, only plus or minus 500,000 will come in manufacturing. As output recovers, employment in manufacturing could continue to decline. We shall need 2 million new jobs in private services and 1 million in public services. If we convert those figures into the numbers required in parliamentary constituencies, where we have a greater feel for what is happening on the ground, we shall need 3,000 new jobs in private services and 1,500 new jobs in public services in each constituency. That is the conclusion which emerges, whether one looks at the social preferences of workers, past trends of employment in different occupations and industries, the economies of new technology, the economic models, or the pattern of employment that already exists in a richer country such as the United States.
I can see how 3,000 private service jobs may appear in Carshalton or Reading, but it is not so easy to envisage them appearing in Motherwell or Middlesbrough where the manufacturing jobs have been lost. It can be done, but it will need quite different industry, employment and training policies.
When it comes to wage bargaining, Governments are like rabbits and this Government are no exception. They are hypnotised by the glare of oncoming norm-setting incomes policies, instead of figuring out what the objectives of wage bargaining are. By all means let us have a national economic assessment by which Governments arrive at the priorities and plans that I have mentioned, but let us also think about the round of negotiations on wage 268 relativities between employers and the unions in their separate bargaining groups that could usefully precede such a national assessment.
If one asks wage bargainers what they are really worried about, whether it is by how much prices have increased, by how much the employer's profits have increased, or how big an increase other workers down the road have been given, 90 per cent. of the wage bargainers will say, 90 per cent. of the time, that they are motivated by how much others got down the road.
The preliminary round can properly concentrate on relativities. After the national assessment, we must be realistic about the ratification round in separate bargaining groups which must follow and in which Governments can give incentives for ratification, such as guarantees or partial guarantees of achieving agreed differentials. It is by looking in detail at the process of collective bargaining and the objectives of unions and employers—the mechanics of wage bargaining—that we can feel our way towards a system of free collective bargaining which avoids inflation without the appalling present cost in unemployment.
I said earlier that the Government have got away with a claim to moral virtue. That is probably at the root of the problem. The moral outrage of the Government's policy is that they have chosen a course which has been deliberately calculated to enrich the rich and enfeeble the poor. A deeper depravity in their claim that there is no alternative and that this is the nature of the economic behaviour. It is not.
I had hoped, Mr. Deputy Speaker, that, much though we like to see you in the Chair, Mr. Speaker would have been in the Chair, because he understands what I am about to say as he has a background of Nonconformity. Nevertheless, I am sure that you, Mr. Deputy Speaker, are no less knowledgeable.
Both the Prime Minister and the Chancellor lay claim to the childhood influences of Nonconformity. It is a tradition in which I, too, was brought up—not in the Grantham corner shop or in the Port Talbot town clerk's department but in the manse where, as in all manses, the grace of our Lord was sorely needed to tolerate and wean the brethren away from so many perversions of religiosity.
The misunderstanding that rules in Downing street was common enough. It is the self-righteous obsession with the law. In Downing street, it is laws of all types—the money supply, competition, the market, of property and possession, moral duty and any code by which one can ensure one's own righteousness. They behave like the unconverted St. Paul, persecuting the brethren who have seen a better way, and they believe themselves justified by works codified and dead.
If neither principalities nor powers can separate us from the love of God, what chance has the money supply, inflation or the public sector borrowing requirement?Seek ye first the kingdom of God …and these things shall be added unto you.What that means is that if there is a problem, for Christ's sake tackle it. That problem today is unemployment.
We do not have a monopoly of spiritual wisdom on this side of the House. There are many past and present Conservative Members at whose feet I would cheerfully sit, but the distress that the nation is suffering and the intellectual squalor in which its economic policy is now made is rooted in a moral inadequacy, a mistake, what 269 used to be called a sin, which can be forgiven if they seek it—that is for them—but which must not be left to corrupt and destroy this nation.
§ Mr. John Browne (Winchester)
My right hon. and learned Friend the Chancellor of the Exchequer has, in my opinion, presented a responsible Budget in which he has resisted the temptation of electioneering gimmicks that have been practised by Governments of both major parties and because of which we—especially the unemployed—are now suffering. The old policies of eyewash, gimmicks and con tricks, with which Governments have purchased the votes of the public, not with their own money but with other people's money and with inflation, are finished. We are now seeing a new style of Government—a Government who are prepared to face reality, have integrity and put national interests before sectional interests.
As my right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) said, the world economic position is worse than many people realise. It is extremely uncertain. The recession is not only very deep, but few people seem to have yet realised its full depth and implications. The international lending crisis is far from over. The price of oil—a key world commodity—is uncertain, as are international exchange and interest rates. The outlook for the key American interest rates is uncertain, because, with a declared deficit of $200 billion this year that will probably exceed $300 billion by the end of the year, with a money supply, on an M2 basis, now expanding annually by 25 per cent., and with the drying up of the petro dollar recycling from the Gulf into American banks and the American economy, there is now a real chance that, far from falling, American interest rates could increase substantially.
If ever there was time and a need for responsible budgets in the western world generally, it is now. An imprudent rush for the synthetic recovery that is urged upon us, especially by Labour Members but also by other right hon. and hon. Members, may win votes and be highly popular, but it would result in another spiral of inflation and throw all our painful efforts of the past four years to the wind.
In our many different ways we have all sweated like mad during the past four years to control and to reduce inflation. Although the battle is not yet won, there is now room to receive some of the benefits of our success. My right hon. and learned Friend has balanced those benefits between two sectors by providing incentives for national enterprise and showing compassion for those most in need—the poor.
I am especially glad to see my right hon. and learned friend concentrate on raising allowances rather than lowering the standard rate of tax. This benefits most the poor. I am especially pleased to see his illustration that, by holding the nominal increases in allowances to the same level as last year, which gave a real increase of 2 per cent., we can all share in the battle against inflation, because this year the real increase in those allowances is 8.5 per cent.
The Budget meets the promise made by the Conservative party before the general election fully to protect pensions. They have been more than fully protected. I am sorry that the hon. Member for Colne 270 Valley (Mr. Wainwright), whose views I respect, mentioned talking with forked tongues when I intervened in his speech. But to say that pensioners who are now dead have benefited, and that others do not, is untrue. Pensions were increased for everyone, and the new pensioner still benefits from the increases that were given even to pensioners who have sadly died. During this Government's term, prices have increased by 70 per cent. but the net increase in pensions is 75 per cent., so that pensioners are 5 per cent. better off now than they were when the Government came to office. That is good news, but we must remember the cost of such provisions. There are 600,000 more pensioners now than at this time last year, which is a significant structural cost in the national budget. It must be paid for somehow.
The Budget also provided that charities should be exempt from capital transfer tax and that covenant relief should be increased to £5,000. I especially liked the thrust in my right hon. and learned Friend's speech towards private initiatives to help charities and to boost charitable activities.
This thrust is again reflected in the measures on housing. The increase in mortgage rate relief will encourage more investment in housing, but even more important was my right hon. and learned Friend's encouragement to local authorities for what he calls "enveloping". It means that the local authority has responsibility for the outside of the house while the tenant is responsible for the inside of the house. This encourages the individual to invest in his house and to be proud of it. I heartily applaud individual action and responsibility.
On the business side of the balanced giving of benefits, I mention first the national insurance surcharge—the grotesque Socialist tax on jobs that was so strongly supported by the Liberal party. The Government have reduced the national insurance surcharge to 1 per cent. That, together with all the prior reductions made by the Government, will cost £2 billion. That money must be found from somewhere. I fought for the abolition of the surcharge. I am a small business man who speaks to many small business men in my constituency and professionally, and I believe that the remnant of the national insurance surcharge and the employer's contribution are a real disincentive to employment. Many small business men I know are scared to expand their businesses and do not wish to employ more people because of the inherent problems. We must consider with more determination, the reduction of the employer's contribution and the abolition of the surcharge.
My right hon. and learned Friend provided many incentives to enterprise, and concentrated in his Budget on high technology and new and small businesses. I heartily support all his excellent measures. However, I should mention several specific points.
We laud the loan guarantee scheme, which has been increased to £600 million, but it is expensive borrowing. It provides a possible source of money to new companies, but it is expensive. Most importantly, it represents loan capital, not equity, and to get business off the ground we need equity finance. Although we completely approve of the loan guarantee scheme, we must not be carried away, because there is still a serious equity shortfall.
My right hon. and learned Friend has given us some incentives for equity investment, and I support his moves on capital transfer and capital gains tax. I also heartily support the business expansion scheme, which will help 271 mature as well as new and small companies. However, the scheme still excludes insiders from benefiting. It may sound strange, Mr. Deputy Speaker, but if one of your friends is starting up a new company, surely those who know him best—probably his relations—are most likely to invest. They know him best. They will be willing to take the risks. Why not encourage them, as well as outsiders? We can argue that it is risky. However, I believe that if the Government are to encourage the entrepreneur to take risks, the Government must take risks, too. I press the Minister, when he replies, to tell us whether there is any chance of a re-think on this matter in Committee.
I support the Chancellor's moves on petroleum revenue tax and royalties, which will encourage the renewal of exploration and exploitation of the oilfields around this country, but there is an awesome difference between his treatment of the oil industry and of the banks. Here I declare an interest as adviser to one or two banks.
§ Mr. Browne
It appears that the jury has been out—the Treasury has thoroughly deliberated this matter for a long time—but that sentence on the banks has been suspended. That may seem very funny—the banks are often seen as a good target—but this has caused uncertainty, and uncertainty creates worry and speculation. I hope that the Minister will urge the Chancellor at least to let us know the results of those long and detailed deliberations at the Treasury. What options have been presented to my right hon. and learned Friend?
The Chancellor has helped to make our businesses more cost competitive and encouraged them to be more market competitive. Business men are now encouraged to concentrate more on product design, quality of production, prompt delivery and competitive after-sales service—all critical elements of the marketing mix in which we have obviously failed. We have only to look at the average car park in England to see that, although there is a demand for cars, less than half the cars bought are British. That is not because British cars are more expensive, but because they are so often the wrong products or designed for the wrong market. Price is only one aspect of market competitiveness. I am thrilled that the Chancellor has given incentives to business men to become more market competitive.
I support the Budget in general, but I believe that more should be done in certain areas. We need a bombshell of incentive from the Government to get more equity investment into new and small businesses. The action must be simple and on a large scale. It must make an impact. We do not need 76 different measures presenting complex legal and accounting difficulties. We need a simple bombshell, and I have called for one on a number of occasions over the years.
I realise, however, that if inflation is to be reduced and contained, we can have more incentives for recovery only if Government spending is checked and reduced, and that can happen only if we break the employment cartels. On one side there are massive closed shop unions which can make demands. On the other side, to my amazement, massive state monopolies are still in existence after four years of Conservative Government, and they can charge any price they like, even if it is totally out of line with the market. That results in a hidden double tax on the consumer. The consumer pays his taxes and then pays a 272 monopoly price for gas, electricity and so on. He has to pay, because he cannot go anywhere else. Until the employment cartels are broken and more freedom and enterprise are introduced, Government spending will continue to increase. It is economically vital that they are broken, and I hope that this will be done in the next Parliament.
Finally, in general I strongly support the Budget as caring, responsible and, in the long term, which is most important, totally in the national interest. I thank and congratulate my right hon. and learned Friend.
§ 6.4 pm
§ Mr. A. E. P. Duffy (Sheffield, Attercliffe)
It is interesting to note that the debate so far has produced sharply contrasting speeches from the two sides. I hope that it will continue that way.
I cannot resist taking up one point made by the hon. Member for Winchester (Mr. Browne) in his very provocative speech. He claimed, both at the outset and in conclusion, that the Chancellor's Budget was a responsible one. In his eyes, that was perhaps its major virtue. I ask him to reflect on the powerful speech of my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) who argued for a Budget relevant to the needs of the economy and its work force as well as to the various sectors and regions. Coming from the north—although not so far north as my hon. Friend—that appealed greatly to me, and I was very sympathetic to his reminder that we tend to see things rather differently in the north and that we are somewhat sceptical about the way in which our economy seems to be becoming biased in favour of the south.
I recognise at the outset the connected themes of the Chancellor's strategy. We all agree with his wish for lower inflation and recovery in demand and, through competitiveness, a recovery in output and jobs. Indeed, the Labour Government pursued the same strategy. We part company from the Chancellor, however, en the way in which he is pursuing that strategy and, once again, is pinning it to the size of the public sector borrowing requirement, as though that were sacred. We also part company with him on the manner and choice of his tax-cutting options and the way in which he has set about helping industry. I suspect that the Opposition, among others, will judge his performance on those criteria.
On the borrowing requirement, a large body of respectable opinion, including the London Business School, the National Institute of Economic and Social Research—I could mention others—believes that the Chancellor should have given away more than he has. Those bodies are agreed that the recession is so deep, the unused capacity in industry so great and the unemployment trend so persistently gloomy that the Chancellor must inject more demand into the economy to help to lift it out of the recession. Instead, however, he has opted for 2.75 per cent. of GDP for his borrowing requirement—the lowest ratio of Government borrowing to national income in the OECD area, which is perhaps a judgment in itself.
On tax-cutting options and the consequences for social justice, the Budget still leaves the average low-paid taxpayer with a heavier tax burden than when the Conservative Government came to power. Tax allowances are lower in real terms, and even child benefit is only marginally higher, as the Chief Secretary admitted. The Chancellor must cut a further 3p from the standard rate of 273 income tax before families pay the same proportion of their gross earnings in tax as they paid when the Government took office.
The better off, however, will be substantially better off, thanks to the regressive income tax regime that has been shaped by the Tory Government over the past four years. A BBC computer prediction has claimed that the family of an average unemployed worker would benefit from the Budget to the tune of £4 a week; the family of a manual worker by £5 a week; and that of a skilled worker by £2 a week. However, at the top level of earnings—for example, a stockbroker—the benefit would be £17 a week.
§ Mr. Duffy
As a further illustration for the benefit of the hon. Member for Gloucestershire, West (Mr. Marland) who has just called out "Rubbish", taxpayers will now enter the 60 per cent. tax bracket at incomes of £36,000 as against £31,500 at present. This is clearly a Budget for the better off. It is certainly not a Budget for the old and the unemployed.
The Chancellor told the House that it was only fair that concessions should now be given to those who accepted that sacrifices had to be made in 1981. But the handouts announced yesterday will primarily help those with jobs, whereas Britain's 3 million unemployed, who have made the supreme sacrifice at the altar of monetarism, will receive only derisory increases in welfare payments. My hon. Friend the Member for Penistone (Mr. McKay) and I, who represent areas in South Yorkshire where special steels are made—one of the brightest sectors of our economy until recently—are only too painfully aware that many of our best workers have recently lost their jobs through no fault of their own. We speak from that experience when we say that the unemployed are almost neglected by this Budget.
My third test of the Budget relates to industry. Practically no serious economist believes that personal tax cuts should take priority over aid to industry. After all, there is no shortage of consumer demand in the British economy. The Prime Minister almost said as much at Question Time yesterday afternoon. Therefore, I cannot see how the Chancellor's concessions can give the type of fillip to industry that is needed to reduce current unemployment in the Yorkshire and Humberside region, and in the city of Sheffield in particular.
The Yorkshire and Humberside region sinks into deeper and deeper trouble as the dole queues shoot up to a new high of 15 per cent. of the work force. In the inner areas of the major conurbations of south and west Yorkshire there exist the familiar city centre problems of substandard living conditions and poor public amenities, as well as lack of jobs. Yet the region is to receive only £37 million from the Government's new package to revitalise run-down industrial areas. Bradford, Hull and Wakefield will benefit, but there was no word or hint yesterday about Doncaster, Leeds, Barnsley and Sheffield. The Yorkshire and Humberside region is a good proving ground for 274 testing Britain's industrial prospects. It is an area in which a pick-up in the economy would soon manifest itself with the right policies and encouragement. But this is not a Budget for Yorkshire and Humberside.
By the time the Chancellor sat down",ran a piece in today's Sheffield Morning Telegraph,the conversation was desultory. It was as if he had wiped the assembled gathering of Sheffield business men with a luke-warm sponge.Those Sheffield business men had been invited to come together yesterday afternoon to a communal Budget watching afternoon. The article continued:Albert Winter, chairman of steel re-rollers Eaton and Booth, did some hurried calculations on a note pad … `It would appear that what we will save through the reduction in the national insurance surcharge will just about pay the extra cost of fuel to get our stuff to the customer or the docks,' he said.That summed up the effect of the Budget on 25 Sheffield business and commerce executives who accepted the invitation … The majority of the guests found little of cheer in Sir Geoffrey's annual prescription.'Pedestrian,' suggested one estate agent. 'Boring,' said the young man from a solicitor's office. `Not even amusing,' said another. Chamber of Commerce president-elect Alan Goodall was a little more polite, but equally disappointed. `There is not a lot in the Budget for the average local company,' he suggested.That shows that this is not a Budget for Sheffield. Unemployment in Sheffield grew last month to 42,000–14.5 per cent. of the work force. Yet there was no hint yesterday from the Chancellor about the Government's plans for extending or replacing the temporary short-time working subsidy.
The Government have spent a great deal of time and money cutting the capacity of Sheffield's steel works—slashing jobs from 43,000 to fewer than 20,000 since 1979. Why do not the Government recognise the area as a steel closure area for the purpose of obtaining EC and regional assistance?
Furthermore, what assistance do the Government intend to give the new "streamlined" industry—that which will survive—first, to promote research and development, secondly, to train and retrain the existing and future work force and, thirdly, to offset high energy costs?
Sheffield is the first local authority in the United Kingdom—perhaps the first in Europe—to create an employment department. Its aims, among others, are to prevent job losses in the city, to alleviate the worst effects of unemployment and to stimulate new investment. One would expect any normal Government in present circumstances to welcome and assist such local initiative and enterprise. But not this Tory Government, who have cut Sheffield's spending and are also punishing Sheffield through the grant penalty system, despite its unemployment, its industrial wasteland and its inner city problems. Meanwhile, one child in every three taking school dinners in recession-hit Sheffield now receives free meals.
It is clearly morally wrong that the costs of the recession should be borne disproportionately by the weakest and most vulnerable groups in our society. They, above all, deserve to be treated generously before money is distributed in tax concessions to the better off. Contrary to the Chancellor's claim yesterday, this is neither a Budget for the family nor a Budget for enterprise.
§ Mr. John Loveridge (Upminster)
It is an honour to follow the hon. Member for Sheffield, Attercliffe (Mr. Duffy) because he is respected on both sides of the 275 House, although he will not, I know, expect me to agree with much of what he said this afternoon. None the less, he made a significant point in stressing the difference in the effects of the recession between the north of the country and the south.
There is one significant factor here on which he might like perhaps to reflect in the future. In the north, the ratio of large firms to small firms is greater than in the south. To that extent the Chancellor's aim in directing help to small firms may encourage the founding of them on a greater scale in the north than has been the case in the past. I hope that that will prove helpful.
The hon. Gentleman also spoke of the Chancellor being encouraged from various sources to "give away" money. I do not like that phrase. The Chancellor has no money of his own to give away. All he can do is his best for the country as a whole. In thinking, as the hon. Gentleman did, that the public sector borrowing requirement target of 2.75 per cent. of GDP was too low, we should reflect on the fact that the Chancellor inherited a high external debt in 1979, amounting to about $22 billion. That debt has now been reduced to $12 billion.
It seems to me that my right hon. and learned Friend's Budget has been prudent, purposeful and compassionate within the means that he had at his disposal. There had been the long-term growth of Britain's external debt when he took office. Speaking in the public expenditure debate in January 1974 I spoke ofthe growth of debt which we see ominously looming on the horizon—and not a very distant horizon. I believe that the longterm outlook for Britain is good, but the oil crisis"—the sharp increases in the price of oil had just occurred—has undoubtedly hit our country hard. Our debts abroad could grow to much more than £10,000 million"—and they did so grow. It was that heavy burden of debt that my right hon. and learned Friend faced in 1979, and I believe that he has been wise to take measures to reduce it.
In the same debate in 1974 I said:there is no stable base for world currencies. We may expect, therefore, to suffer more from volatile markets and from crises over our currency than we have done hitherto."—[Official Report, 29 January 1974; Vol. 868, c. 302.]My right hon. and learned Friend has been wise in those circumstances to reduce the heavy burden of foreign debt. That reduction has placed Britain in a much better position in the present dangerous world of heavy recession and heavy unemployment. He will be able to go to Williamsburg with a strong hand to try to gain an increase in world currency, perhaps an increase as great as that which came about after the second world war with the Bretton Woods system. Some such new system is badly needed and I believe that the reduction in our own levels of debt, above anything else, places my right hon. and learned Friend in a good position to encourage new currency reserves for the world.
So much for the prudence of the Budget and the background to it. It is that prudence which has enabled interest rates and inflation to be reduced.
I said that the Budget was purposeful, and that surely must he seen to be so because of the help that it provides, as did the previous Budget, for industry. We know that industry is in great difficulties, especially manufacturing industry. It is wise, therefore, to give every help possible to that aspect of the economy.
Thirdly, I said that the Budget could be seen to be compassionate. It brings improved tax thresholds, 276 improved child benefit and more help for the aged and for widows. It will produce a measure of true compassion for those who are in need. There are plans for record social service payments in 1983–84 of £34,394 million and health services payments of £14,608 million. These plans, which are contained in Cmnd. 8789, are a significant improvement on anything in the past. I do not understand how anyone can in all fairness accuse the Government of lacking compassion. I salute my right hon. and learned Friend on the prudence, purpose and compassion that is to be found in the Budget.
The consequences of the world recession, which have hit manufacturing sales and employment so hard, have to be met. Fortunately, service industries have been less affected by the recession, but the Chancellor has striven to help new enterprise and to provide the maximum chance for existing small and medium-sized firms to grow within the present world economic climate.
I am grateful to my right hon. and learned friend for the patience that he has shown over the years in listening to me and the officers of the Conservative Back Bench smaller businesses committee. I am grateful also for the way in which he has responded with measures that have been helpful to the small business sector, which we believe to be so important for Britain's recovery and for the creation of jobs. It is a tribute to the interaction between Back Benchers and the Government that so many measures have been introduced.
My own Small Firms Expansion (Inquiry) Bill of January 1981—comparatively early in the life of the Government—listed 50 areas in which Government action was needed. In all those areas some form of Government action has come about. It can be seen that this has been a listening Government led by a listening Prime Minister, Chancellor and other Ministers, many of whom have met the officers of the smaller businesses committee to hear the issues that we wanted to raise. It is not often that a Back Bencher expresses gratitude to members of a Government for listening. I have myself done the contrary, but on this occasion I wish to express appreciation.
More measures will be needed for small businesses, but even before this Budget the Government had taken nearly 100 individual steps helpful to the small firms sector. In January this year, together with my hon. Friends the Members for Luton, East (Mr. Bright), for Bristol, North-West (Mr. Colvin) and for Hertfordshire, South-West (Mr. Page), as well as Dr. Christopher Thompson, we published a policy book entitled "Moving Forward — Small Businesses and the Economy". In that book we proffered many fresh suggestions to the Government to help the small business sector. The response to a number of the suggestions is visible already in the Budget. That is prompt reaction by the Government and hon. Members on both sides of the House will be glad to know of the Government's response to Back Benchers' suggestions. In the preface of the book I wrote:Our economy is dominated by very large firms. So much so that nearly half of the 500 largest firms in the European Economic Community are British based. Large firms will increasingly turn to automation in the future and the workers in them will be replaced by machines. One of the best ways to find these people new jobs is by expanding the small business sector. This book sets out to show how this can be achieved. The Government has done much to stimulate the founding of new firms but more needs to be done, particularly to enable existing small firms to expand and develop new products. I do not think it an exaggeration to believe that small and medium firms can 277 provide at least one millon new jobs that could not otherwise be found. If I am right then it is worth the Government concentrating a great deal of effort on the expansion of this sector.The overall effect of all the measures so far taken for small firms must bring that hope nearer to reality. Of course we would like to see more done—who would not?—but I cannot accept the view of the right hon. Member for Stepney and Poplar (Mr. Shore) that the measures contained in the Budget are merely "trivial" in their effect. It is not the greater "spending" he wanted that matters. The factor that really matters is earning, not spending, and somehow we must try, those of us who believe that small and medium-sized business can greatly help the economy, to carry our conviction not only to Conservative Members but to Opposition Members as well. We believe that it is in the small business sector that new jobs are to be made. They will come from increasing earnings, not from excess government spending. The Government have taken steps to achieve that.
§ Mr. Orme
I have been following the hon. Gentleman's argument carefully. My hon. Friends and I are concerned that both small and large businesses prosper, because they are the basis of the economy. How does the hon. Gentleman account for the record number of closures that have taken place? Bankruptcies are running at about 35 a day. What does the hon. Gentleman say about that?
§ Mr. Loveridge
Of course it is sad that there should be a high level of bankruptcies and that the whole world economy should be in recession, with perhaps 30 million unemployed. With such a widespread recession it is inevitable that there must be some closures. The miracle is that there are not even more. But is it not a good thing for the Chancellor to address himself to the fact that we need to encourage the expansion of existing small firms and the founding of new ones? The establishment of new firms has been of substantial benefit to the nation. Many new firms will be founded and there will be much expansion by existing firms because of the measures that the Chancellor has announced in this Budget.
The exchange of ideas between Back Benchers and Government is important, not just in terms of a Conservative Government. The exchange of ideas across the Floor of the House is also to be encouraged. The loan guarantee scheme is an example. When I and the officers of the smaller businesses committee first put forward the view that this country should have a loan guarantee scheme similar to those abroad, we were met, both in official and in banking circles, with a courteous scepticism, but scepticism none the less. It is therefore a great satisfaction that the Government are raising the ceiling for this scheme to £600 million.
I should have liked to see a substantial increase in the amount available to individual firms as well, but the £600 million is no small addition to the loan capacity of our banking sector for small firms. I congratulate the Government on this bold response to our requests for such a scheme to help bridge the "equity gap". Care is needed to ensure that the lending is wise and that there are no unsustainable losses. The scheme helps comparatively small firms most.
We remain concerned that there is an equity gap for medium-sized firms. The small business expansion 278 scheme, under which an individual may put up to £40,000 a year into a single business, provides the opportunity to raise substantial fresh capital for medium-sized businesses. They will also be able to take advantage of the loan guarantee scheme and normal banking and institutional facilities.
The plight of the medium-sized manufacturing firm is serious. The census of production shows that in 1963, 4,100 firms in manufacturing industry had over 200 employees. By 1979 the number had fallen to 2,900. The future of the medium-sized manufacturing firm was clearly under threat then. Much needs to be done to revive these firms.
Older firms that had built up capital assets over the years were threatened with making forced sales of assets to pay capital transfer tax and other capital taxes on death. New firms found difficulties in raising capital without surrendering a large proportion of their equity. So the horizons for both old medium-sized forms and new fast-growing firms in manufacturing were limited. The newer firms were sometimes stuck because, although they knew how to expand, they could not safely raise the capital, while the older firms were frightened to expand because of the threat of forced sales on death.
The improvements in capital taxation which have been made by the Government, including additional indexed and other relief in the Budget, are therefore to be welcomed. More still needs to be done to remove the threat from a succeeding generation of owners. If there were a rolling provision for relief, it might be possible to avoid the risk of firms having to close, almost by accident because of a death.
The total additional lending and investment now available, over and above that normally to be found from banks and institutions, will do much to fill the gap that has been noted for so long. It was noted in 1931 by the Macmillan committee and again by the inquiries into small firms and financial institutions chaired by the right hon. Member for Huyton (Sir H. Wilson) in 1979 and 1980. The Government are to be congratulated on doing so much to bridge the gap.
The profit-sharing options, the small industrial workshop scheme, the small engineering firms investment scheme which is to be re-opened, the encouragement for employee buy-outs, enterprise zone, free ports and substantial cuts in the national insurance surcharge together provide a chance for the creative and enterprising that has not been equalled for decades. The recognition by the Government that the small business sector can play a large part in Britain's economic recovery is welcome.
I am glad too that the smallest firms have not been neglected. The earlier relief under 714 certificates and the enterprise allowance scheme give the man who is on his beam ends and who is stuck without a job the chance to enter into the main stream of purpose, on however small a scale. That surely is a joy for all of us.
I am sorry that the Government were not able to do more to bring in a graduated system of corporation tax. They have done much and what they have done is a great improvement. None the less, there is still a hump in the tax to be paid when a firm grows from small to medium to large. Because of the way the relief works, there is still an excess payment over and above the standard 52 per cent. to be paid for a large range of medium-sized firms. Anything that discourages the growth of business is to be abhorred; that is a strong word but it is the correct one. 279 The Government have reduced the hump from a corporation tax rate of 60 per cent. for the medium-sized firm to about 55 per cent. So they have listened again, particularly since last year when the hump was up at 66 per cent.
The Government should recognise the resentment of the smallest businesses against form filling and regulations. One can sympathise strongly with the views expressed in last night's adjournment debate by my hon. Friend the Member for Banff (Mr. Myles).
There is a need to increase high technology for greater output and productivity. There is also a need for more small and medium firms to provide jobs. This Budget will help both. It is a fair Budget in its efforts to distribute what can be distributed as widely and fairly as possible, while still providing an incentive for growth.
Some measures for the future which we would have liked to see were not in the Budget. I hope that the Government will give thought to them for the future. There is a case for a further study of capital taxes, both capital transfer tax and capital gains tax, to see whether they are restricting the growth of business. The loan guarantee scheme should not only be so buoyant in the amount available under it—the £600 million that was so welcome—but there should also be the possibility of increasing the ceiling under the scheme for individual firms.
We should like to have seen enterprise bonds in some form. Small firms could buy them in an indexed form to save up out of profits, say for three years, in order to buy new machinery in the future. They should not have to turn to lease-lend arrangements to obtain the benefit of the present tax advantages for expansion.
We should like to have seen some relief from rates for very small businesses. Many businesses—especially in northern towns—are under severe pressure from rates, which, in some cases, are forcing them towards closure. I hope that the Government will consider a measure of relief for such little businesses.
We should like to have seen even more attention given to the training of business men. Many of them do not know how to deal with their accounts. They do not understand such things as cash flow or how to present their cash outlook to banks when they go to them. We should have liked to see an extension of formal training, even if only for a few days, to try to bring a greater understanding to a wider range of small business men who need it to prevent them from getting into trouble.
One aspect that the Government should consider—it is a difficult area—is the transfer of pension rights. It is often difficult for a man who has done well in a large firm, who is perhaps highly qualified, to transfer to start in a small firm, because of the restricted amounts that he can get back from the money that has gone in to his pension fund. I can see that there are grave difficulties for the Government in this, but I hope that they will examine the matter closely to see whether an improvement can be made to ensure that such educated and able men can move into the small business sector. Many are now discouraged from doing so.
One other aspect is that we should have liked the Government to take positive measures, as the American Government do, to ensure that small firms get a fair share of Government and public authority orders. I hope also that the splendid small business expansion scheme will not be spoilt by the complexity of the rules applied to it and that as far as possible they can be kept simple.
280 I am grateful to the Chancellor on behalf of the whole small business sector. That sector can create jobs on a vast scale. The Government have now recognised this and are taking action to make it possible.
§ Mr. David Winnick (Walsall, North)
The most immediate questions that must be asked about the Budget are simply these: will the Budget do anything genuinely to reduce mass unemployment? Will we see an end to the continuing and endless massive redundances and plant closures, such as in the west midlands in the past three or four years? The answer is no. There is, as is to be expected from the Government, further fiddling with the unemployment figures for cosmetic reasons. On the Government's own estimates of public expenditure it is likely that unemployment will rise in the next financial year by 280,000. That excludes school leavers. Let there be no doubt in the House about what that mears in terms of human misery, poverty and all the other things that go with unemployment.
The Opposition are pleased that the 5 per cent. abatement of unemployment benefit is to be restored. We have requested and demanded that from the beginning. It was elementary justice that it should be done. The Government give the impression that if they could have got away with it they would not have restored it at all. Nevertheless, it is to be done in November. There will be no retrospection, so the unemployed who have been subject to what is in effect double taxation will have lost for 16 months by November. That is wrong.
The earnings-related benefit introduced by a Labour Government, who did at least do something to cushion the effects of redundancy and so on, is not being brought back. Tax rebates will still not be paid to the jobless until the end of the financial year. That was done for all sorts of reasons, perhaps because of industrial disputes not involving the unemployed, and no doubt for administrative reasons, savings on expenditure and so on. However, I consider it to be unjust. Surely when one becomes unemployed one wants to be able to cash in as many assets as possible, for the most obvious reasons. After all, at the end of the day that money is owed to one by the state.
I am also pleased that the ceiling for receiving supplementary benefit has been raised from £2,500 to £3,000. That is only right and proper. The Government have been asked to do that for some time. My view remains that the new ceiling is too low. If one takes into consideration redundancy payments and all one's savings, sometimes accumulated over a lifetime's work, one realises that the proposed sum remains too low. That is all the more so when one bears in mind that so many of the people adversely affected are in their late 40s or 50s, so the chances of their getting another job become increasingly remote. For all those reasons, if one says that if people have a certain sum which, by present-day standards, is not high, they cannot receive supplementary benefit, that means that someone in his late 50s whose chances of getting another job are not very good has to use up many of his savings, which were probably for his retirement. It may be difficult for the Financial Secretary and others in the Conservative party with substantial means to understand that. I am talking about people who have no great capital, who have saved up over their lifetime and want to protect those small savings.
281 There is no doubt that those on the lowest incomes have suffered the most from the increase in income tax and national insurance contributions since this Administration took office. We all remember the Government's promise that they would reduce taxation. Much was made of it during the last election campaign. However, much has to be made of the fact that those on lower and average incomes have lost as a result of the tax measures taken by the Government. A married man, with two children under 11, on half average earnings paid 12.5 per cent. in income tax and national insurance contributions in 1978–79. He now pays 18.6 per cent. Many people are on three quarters of average earnings. For them the figures are 20.8 and 24.7 per cent. Those on average earnings paid 25.2 per cent. in income tax and national insurance contributions in the last year that Labour was in office and now they pay 28 per cent. There is not much evidence there of a reduction in income tax as promised by the Conservative party when it was campaigning for office.
It would not be true to say that that increase in the tax burden applies to all of the community. After all, we are dealing with a Right-wing Conservative Government. Let us consider a married man, with two children under 11, who is on five times average earnings. He paid 49.7 per cent. in income tax and national insurance contributions in 1978–79. He now pays 44.3 per cent. That is not a bad reduction for someone on five times average earnings.
The hon. Member for Winchester (Mr. Browne) told us that he was an adviser to one or two banks. Perhaps it is three or four. One of these days we may find out how much the hon. Gentleman earns. He is always keen to lecture us about trade unions and workers.
A person earning seven times the national average paid 58.9 per cent. in income tax and national insurance contributions in 1978–79. He now pays 48.7 per cent. That is no doubt a welcome reduction for those earning very substantial sums. It should be compared with a person on one half or three quarters of average earnings.
One must take into account also the increase in indirect taxation, such as VAT, which was almost doubled from the moment that the Government took office, the Government's deliberate policy of increasing gas prices by 10 per cent. in real terms each year for three years and the exorbitant rent increases that council tenants have had to face for the past three years. Those with average or below average incomes have suffered a great deal as a result of the Government's policies.
The Government have, however, looked after their own. While some limited help will be given in income tax and child benefit, the forthcoming national insurance contribution increase will affect all those in employment. No one should be surprised that a Tory Government look after their own. One of the reasons for the Tories being in office is to ensure that the rich and prosperous do well at the expense of the rest of the community. One would not expect anything else from a Conservative Government, bearing in mind the nature of this Administration.
My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) made some observations about the pension increase. What I and I am sure my right hon. and hon. Friends and pensioners would like to know is the increase that retired people will actually receive in November. What will the figure be? It seems that the clawback will be institutionalised in the new arrangement 282 announced yesterday by the Chancellor. All the signs are that retired people will receive an increase of about 4 per cent.
The country needs a Budget that will reverse the tide of mass unemployment and deflation. Ministers are sensitive to the accusation that their economic policies have been responsible for the increase in unemployment during the past three to four years. When I made similar remarks during the debate on the Queen's Speech I was taken to task by the Leader of the House, who quoted what I said. He was keen to deny my charge. I repeat it. Many of the economic policies that have been operated since May 1979 have undoubtedly contributed to the increase in unemployment. No one who studies the facts can believe the Government when they pretend otherwise and say that all the unemployment is due to the world recession and external factors.
§ Mr. Ridley
Will the hon. Gentleman comment upon the fact that policies similar to those of his party have been practised in France, where there has been the steepest rise in unemployment of any European country?
§ Mr. Winnick
I do not believe that unemployment in France has reached the level that it has in Great Britain. I shall compare what has happened here with what has happened in other countries.
Manufacturing output in the United Kingdom fell 19.5 per cent. between May 1979 and December 1982. The average fall in manufacturing output in OECD countries was only 5 per cent. during the same period. Can one really believe that a fall of nearly 20 per cent. in manufacturing output, which is far greater than that in the OECD countries, is not due to Government policy? Will the Financial Secretary deny that? The 1982 index of manufacturing output showed the lowest annual average since 1967, and clearly it was the result of the Government's deflationary policies.
The Opposition believe that there must be a great injection of demand in the economy to overcome the deflation to which I have referred. The Government must increase public expenditure. We make no apology for saying that. Much more needs to be done than the tinkering mentioned by the right hon. and learned Gentleman the Chancellor of the Exchequer in his Budget statement yesterday.
I take an interest in the construction industry. The Chancellor mentioned one or two proposals. They will add up to some £60 million in 1983–84. That will not overcome the problems in the industry. I give the House an example that has been given before. The amount of council house building is now the smallest since the 1920s. In my borough there is a long waiting list of people who desperately need council accommodation. I am sure that it is the same in many other places. I have been trying to get over the point in housing debates, in the Select Committee on the Environment, of which I am a member, and elsewhere that the only way in which many people who cannot afford a mortgage will resolve their housing problem is by renting accommodation from the local authority. They will not resolve their problem through the privately rented sector.
I am in favour of owner-occupation. A Labour Government introduced the option mortgage scheme. That scheme helped many people who otherwise would have found difficulty in becoming owner-occupiers. Although 283 I want to see an injection of demand in the construction industry, I am not in favour of increasing the tax relief on mortgages to £30,000. I do not believe that it is necessary. I believe that that money would he better spent assisting in the provision of the type of accommodation to which I have referred.
I am in favour, as is my party, of continued assistance to people who are buying their own houses. There is a strong case for continuing tax relief on mortgages, but one must also remember the way in which subsidies for local authority housing have been drastically reduced under this Government. If one compares the figures for tax relief on mortgages with the subsidies received by council tenants, they show that council tenants receive a lower subsidy, which is being virtually phased out. That is why council tenants' rent increases have been so substantial. They have been more than double the increase in retail prices during the period the Government have been in office.
The Government have given up the objective of reaching full or nearly full employment. This is the first Government in the post-war period to reject the objective of full employment. They want people, including the unemployed, to believe that there is no alternative to the present policies. That is much the same as the line advocated in the 1930s; then the Labour party and some Conservative Members, such as Harold Macmillan in his book "The Middle Way" and in speeches, argued that there was an alternative to mass unemployment and deflation. It was said by Tory Ministers—it was the Tory orthodox line at the time—that they were quite wrong. The same thing happens now, when the arguments and speeches of the right hon. Member for Chesham and Amersham (Sir I. Gilmour), whose book has just been published, are dismissed.
The Government's line is simple and clear. They hope that people will believe that there is no alternative. The Labour party has much to do to convince the country that there are positive alternatives. We have a lot to do to persuade our fellow countrymen that there is no reason why there should be more than 3 million, probably 4 million, unemployed. It is a lie to suggest that there is no way of organising the economy other than on the basis of what has been done in the last four years.
I admit straight away that the Labour party has not yet succeeded. There may be many reasons. The fact that most newspapers are hardly pro-Labour does not help our case. We have yet to convince and persuade the country of the alternatives.
According to a poll in The Economist two or three months ago, many unemployed people said no when asked whether they blamed the Government for the level of unemployment. I was not particularly surprised. No doubt many Conservative Members consider that a victory, but I consider it a defeat. The unemployed should understand that there is no reason why they should be on the dole queue. There is no reason why people in their 50s must despair at the thought of never working again. It is bad enough for school leavers who go straight on to the dole queue, but think of what it must mean to a man of 56 or 57 who finds himself redundant. What chance is there of his finding a job today in the west midlands? What realistic possibility is there of finding employment? Such people are obviously full of despair. In many cases they have the humiliating feeling that it is somehow their fault, but it is 284 nothing of the kind. We must persuade them that it is not their fault, but, rather, that much of the difficulty springs from the philosophy and practice of this Government.
Labour's job is to give hope to our people. I want to see a reversal in the tide of mass unemployment. That will be the first priority for a Labour Government. We must alleviate the despair and poverty in which many people now live. I receive letters from constituents explaining the limited incomes on which they live and asking whether by representation to the DHSS they might receive more. They itemise their expenditure and how much they receive. That is the sort of life now experienced by so many of our fellow countrymen who do not act as advisers to two or three banks and have no large amount of capital, inherited or otherwise. That is the sort of life now experienced by many of the people whom Labour Members represent.
Until the Government leave office, we shall not see any change. There will be the continued industrial devastation and sharp economic decline from which the country has suffered in the last four years. The most essential need of all in political terms is quite clear. We must remove the Government from office and give our people hope through a return to policies that will prevent unemployment of 3 million or 4 million.
§ 7.4 pm
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
The hon. Member for Walsall, North (Mr. Winnick) was right to ask why, when we have well over 3 million unemployed and when there are considerable problems—I come from the west midlands and no one knows that better than I—the Labour party does not seem to pick up that disaffection. The panaceas that it offers seem on the surface to be enviable. It promises to spend £10 billion or £15 billion of other people's money. It vies with the TUC in upping the ante almost daily. Why then, according to the latest opinion polls, do people put the Labour party third?
Yesterday, the Leader of the Opposition said that he would like the Government swept from office so that a wonderful, resurgent Socialist party could take over, run the country as it should be run and get unemployment down to 1 million. Why is the Labour party not believed by the man in the street? We do not need to ram home some political philosophy in the hope that people will believe it. Successive Governments since the war have promised to spend this and that as a way of protecting everyone against the ravages of inflation, as if the money grew on a banyan tree and was given out each morning without anyone having to work for it.
This and the previous generation have seen those promises fail and the tree wither. People are willing to put the Government in the highest ever position in the opinion polls because they believe that they are pursuing an honest policy which in the end will give true and solid growth.
There are many good things in the Budget, but there is also much to do. I was encouraged to hear my right hon. and learned Friend the Chancellor mention the west midlands and its problems twice. The Budget contains some measures—£100 million here and £30 million there—that will help. I am delighted that my right hon. and learned Friend plans to come to Birmingham in April to see the situation for himself and to discuss with business men the problems that we face. It is not yet fully realised 285 how grievously industry has suffered in an area such as the west midlands, which is the bedrock of manufacturing industry.
In the 1920s, the west midlands had the glamour industries, such as the motor industry, and the white goods industry. At that time unemployment was like a forest fire surrounding the midlands, but it was only 2 per cent. in the area. Now, through the policies of successive Governments, the area is stuck with the mature industries, such as the motor industry and the declining industries.
People need only to see the problems for themselves to realise that it is not carping to suggest that there is much to do, not just for small businesses but for large businesses. It is fashionable and proper to try to breed new growth industries, but it must be remembered that the large businesses employ many people, and their problems must be attended to as well.
I should like to have seen the national insurance surcharge finally go. It should never have been introduced. It was a tax on exports rather than imports. If there is to be an autumn Budget—I hope that it will mean more to give away—I should like the NIS finally to go.
For some time I have peddled the idea of rate relief for manufacturing industry. That is a fair suggestion. If it is good enough for farmers, who are among the most prosperous people in the land as well as being in the most prosperous industry, surely an ailing industry has a right to a share of that relief. From my experience in local government, I believe that it is possible for capital expenditure to be incurred with non-revenue implications. If so, that ought to be encouraged. That is investment, not spending or frittering money away.
There are many good strategies in the Budget. Growth industries for the future often start with small beginnings and enormous risks. In the Budget, the Government are encouraging new businesses. Those who do not take advantage of the incentives, clearly do not wish to start a business or take any risk whatsoever.
The business start-up scheme is most imaginative and sensible. It is splendid that it is to be extended to expansion schemes, because existing businesses have moaned, quite rightly, that they are unable to get tax relief. I have been involved in a scheme to set up a new business—Birmingham Executive Airways—at Birmingham airport. The start-up scheme was useful. The new business it will take from British Airways some routes that it cannot use because its aeroplanes are too big, and it will provide 46 jobs in the west midlands. If every firm could create a few jobs, unemployment would fall. The new business will help Scotland, because two new Jetstream aircraft costing £3 million will be bought from British Aerospace at Prestwick, and that will create jobs in Prestwick.
The business start-up scheme has been described as small, but the ramifications throughout the country can be considerable. I hope that more people will use that facility. Any help that can be given to west midlands engineering firms to re-eqiup themselves will be of tremendous importance, and I hope that the west midlands will get its proper share of any advantages that are offered. Unless the west midlands is rebuilt, any hope of rebuilding industry in this country will be virtually lost.
Yesterday my right hon. and learned Friend the Chancellor of the Exchequer mentioned free ports. I hope 286 that the concept of free ports is not docks by the sea. Free ports are of tremendous importance. They could do much, mainly psychologically, for the west midlands. They could give the west midlands a name for being ready and willing to go, because it certainly is.
The Budget is a step in the right direction. I said on another occasion that the industries of the west midlands had their backs not against the wall but against the precipice. Industry has come perilously close to being in that terminal position. From the talks I have had with business men, some of whom had their backs against the precipice, the view appears to be that an upturn is beginning. Industry is in a convalescent period. If the Goverment had given too much too soon, the distortions would have been disastrous, and a big increase in imports would have occurred. There are steps in the Budget that are in the right direction for encouraging industry.
In the past we have had two Budgets in one year. That does not mean that mistakes were made. If the Government's money targets are achieved and they have money in hand towards the end of this year, I hope that they will come forward with more measures to help industry. That would be the right time, because industry is willing to grow. It has made itself more efficient. This Budget will give industry the confidence to take risks that will make it more prosperous. The good news is coming. In the last Budget the country had further hard things to bear. The Government have made a good start and should press on to help not individuals, but companies, which, in their turn, will create real jobs.
§ Mr. Martin J. O'Neill (Clackmannan and East Stirlingshire)
I remained in the Chamber with some reluctance when speeches of a national nature were being made and I was relieved when I heard the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) speak of the problems of the west midlands. When listening to the Chancellor yesterday, I gained the impression that the west midlands was the only part of the country in need of special assistance.
I should like to discuss the Scotch whisky industry, which is in many respects at the mercy of the Chancellor. That industry, which used to employ about 27,000 people, exists in a variety of forms. It employs small groups of people in distilleries in remote parts of Scotland. Therefore it fulfills not only an employment function but an important social function, as it is the only source of industrial activity within those areas. The industry sustains some of the older crafts, one of which is cooperage, which is dying out as a trade throughout the country.
The hon. Member for Upminster (Mr. Loveridge) said yesterday that we had a listening Government. Ministers have been willing to grant audiences to visiting groups from Scotland. The Scottish Whisky Association, the Scottish Trades Union Congress whisky committee and the central region local authority made representations to Ministers in the Treasury urging the smallest possible rise in duty, and if possible no rise at all. I heard with some disappointment that there was to be an increase of 25p on a bottle of whisky. Although an increase of 25p on a bottle works out at 1p a nip, rarely is only 1p passed on to the consumer by the bar owners. Invariably it is an excuse for a bigger increase. There will be a further reduction in the consumption of Scotch whisky and a further erosion of the home base of this vital industry.
287 In the past three Budgets, increases in the price of whisky have amounted to £1.18 p. Of the price of a bottle of Scotch, £1.43p can be attributed to the activities of this Government. Before the Budget, duty accounted for 80 per cent. of the price of a bottle of whisky, 49 per cent. of the price of a bottle of wine and 38 per cent. of the cost of a pint of beer.
An argument can be advanced for some measure of parity between the various drinks. On this occassion whisky has not been treated more severely than any other drink in terms of the alcoholic content, but at a time when the industry is in severe difficulties and when massive redundancies have been announced in recent weeks and months, it had hoped that the Government would be prepared to do more. The malt and grain distilleries are operating at about 38 per cent. of capacity. The blending and bottling process, which takes place three or five years after the whisky has been laid down, is operating at 63 per cent. of capacity. In the long term there will be an even greater reduction in blending and bottling, with the consequent effect on employment in those areas.
The labour force in the Scotch whisky industry, of about 27,000 in 1979, has now fallen to about 21,000. The Scotch Whisky Association said in December 1982 that its survey had shown a loss of about 5,770 jobs over a three-year period. Since then, in the first three months of this year, about 1,000 jobs have been lost in the industry. In my constituency, the largest distillery in western Europe, the Carsbridge distillery in Alloa, has shed about 250 jobs. It is a grain distillery and is different from the small malt distilleries that attract some public attention and sympathy. Some people might say that the method of production of grain whisky is akin to that in a simple chemical works. However, the product still has to be laid down for three or five years, and grain whisky produces a drink in the best blends that is comparable with the best of the malts for those who have a predilection for that type of whisky.
The problem is twofold. I see that the hon. Member for Moray and Nairn (Mr. Pollock) is in the Chamber. Following the announcement of redundancies, he and I participated in a radio programme in which we discussed the common problems of the industry and the fact that the impact that the industry had on a small village was similar to that on a medium-sized town such as Alloa, where the Carsbridge distillery is to be closed. Thus, no part of Scotland can be left untouched by such a process of erosion and decline in the Scotch whisky industry.
The recession has led to a change in expectations. In 1978 it was estimated that the annual increase from 1978 to 1990 would be about 4.4 per cent. However, the figures have had to be revised and last years demand fell by about 2 per cent. Stocks are now in excess of demand and that, in turn, leads to cuts in distillation. Thus, there has been no increase in sales, a reduction in stocks and a cut in distillation. The whisky distillers must now look for other ways of selling their product.
Normally, the product is sold in bottles that are exported, or is sold in bulk. There is a debate about the desirability of selling whisky in bulk, although I do not propose to go into it now. However, as bottle sales of Scotch have declined, so the bulk side of the industry has increased. In 1979, 184.6 million bottles were exported. In 1980 the figure was 170.9 million and in 1982 it was 163.2 million. However, the bulk export of blended whisky has resulted in an increase from the 1979 figure of 288 49.5 million bottle equivalents to a 1982 figure of 61.3 million bottle equivalents. If the value in 1982 of a bottle that is exported is compared with the bulk export of an equivalent bottle, the bottle price is £4.50, whereas the bulk price for a bottle is £1.21. That means that it becomes very attractive for the foreign bottlers of bulk whisky to aim for the cheaper end of the market. The inferior quality whiskies then start getting a hold of the markets abroad, and that results in the further undermining of the quality end of the export market.
I am talking about the type of industry that the Government's industrial advisers tell us we should support. Often we are talking not just about the Distillers Company Ltd. or about large multinationals such as Lonrho, but about small firms that are operating on a narrow base, with few employees, producing high-quality products whose integrity must be protected. The United Kingdom's tax regime is crucial to the protection of that integrity. However, the Budget has not done as much as it could have done to help those firms.
The Scotch whisky industry is under tremendous attack from foreign firms that use malt whisky that is exported, for example, to Japan, and then mixed with the local product to produce something like whisky. For example, the Santory brand enjoys the patronage of a member of the Thatcher family. The Prime Minister's son apparently appears in advertisements in Japan to promote that product. A parent cannot be responsible for what her son does for a living in the middle of an economic holocaust, but it does not behove a Government who stress economic nationalism, the quality of British products and the competitiveness of their price to do so when a member of that family is undermining the efforts of those who are trying hard to protect and support what has been for many years one of our major dollar earners. We might have hoped that the industry would also be a yen earner as the Japanese come around to enjoying our national drink.
The problem is complicated, and it is not simply a matter of saying that a penny on a nip is not very much and that even those unemployed who like a drink can still afford to pay it. The problem is more complex than that. Bar owners the world over will use the opportunity of a 1p increase to enlarge their profits. In addition, our base within the United Kingdom is being undermined and the Government are ignoring the representations by all sides of the whisky industry in Scotland. They are also ignoring the representations of local authorities in Scotland that have to face the reduction in rate revenue. Indeed, the hon. Member for Birmingham, Selly Oak thought that it might be desirable for rate relief to be extended to industrial companies. At present, many of the local authorities in Scotland find their rate base is being severely eroded by the closure of whisky distilleries. If they are not in production and are closed, they do not pay rates and so those local authorities have less revenue with which to fund the services for which they are responsible.
I make no apology for introducing a Scottish note into an area of debate that may be narrow and restricted. The industry always looks to the Chancellor of the Exchequer for assistance. I recognise that some assistance has been given in the past 12 months by the deferment of duty, but it has not been enough to stem the flow of redundancies and closures affecting large multinational companies such as the Distillers Company Ltd. as well as the small privately owned distilleries that contribute so much to the economic life and well-being of the highlands of Scotland.
289 I ask the Government again to consider providing other forms of help to deal with the problems of what for many years has been one of our biggest export earners and one of the industries that have contributed to our balance of payments in a way that some of our traditional industries have never matched.
When we talk about whisky, we are not just talking about people in distilleries or bonded warehouses. We are talking about the bottling industry and the packaging industry, both of which at present are having considerable difficulty in keeping alive. I say that in spite of the fact that in my constituency we have one of the most modern and efficient bottling plants in Europe. I know that there have been 300 or 400 redundancies since 1979 in that plant alone. We are talking about help for an industry which has contributed to the British economy, and which in many respects has reduced the burden on the taxpayer, at a time when one would have hoped that the Government would be more sympathetic to the pleas of trade unions, the management, and those of us who are consumers.
§ Mr. Peter Hordern (Horsham and Crawley)
I agree with the hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) about the difficulties that the Scotch whisky industry is going through at present. I sympathise with him when he says that whisky duty should not be increased. I believe that it would have been preferable to increase tobacco duty somewhat more, particularly as tobacco companies are doing quite well. Moreover, if the duty on spirits—whisky in particular—were not so high, it is possible that the duty on Scotch whisky charged by the Japanese would not be so high. That is one way in which the Japanese keep our products out.
When Harold Macmillan was Chancellor of the Exchequer—many years ago—he said that the difficulty about writing Budgets was that one had to use last year's Bradshaw. Nowadays the Chancellor has to use international timetables, not knowing whether the aircraft will fly at all, and bear in mind the fact that timetables are always shifting. He has to take into account not only what is happening here, but what is likely to happen in America, and the price of oil now has a major effect upon our fortunes. A recovery in world trade and a real improvement in production and growth is unlikely unless the United States is involved. Although the European Community accounts for a much larger share of world trade than it did, it is surely inconceivable that recovery, let alone growth, is possible unless the tide of recession turns in the United States. Our own fortunes as a trading nation depend on a resumption of growth in world trade, and in America in particular.
There seem to be some signs of recovery in the United States at present. We must hope so. Certainly the pound is lower against the dollar than it has been for many years, and the opportunity for our exporters lies ready to hand. It is strange that the fall in the value of the pound against the dollar should have come at a time when we are registering such substantial surpluses on our balance of payments, without taking account of our oil surplus, whereas the Americans are now showing a substantial deficit on their trading and current accounts.
290 The high level of real interest rates in America must be one reason for that apparent disparity, coupled perhaps with what has come to be known as the Shore factor. If we ask ourselves why interest rates are so high in America—they are important, because they affect the structure of interest rates everywhere—the answer must be that the public sector deficit in America is high—over 7 per cent.—and has been rising for many years. If we ask ourselves why the deficit has risen, we are bound to acknowledge the huge and growing cost of expenditure on defence that America has undertaken on behalf of NATO. No Conservative Member resents that expenditure.
However, if the Americans are prepared to shoulder the burden of defence on behalf of the Western Alliance, and if the level of interest rates is set by that obligation, it is as well to see which country has a favourable balance of payments and could best help to alleviate that burden. There is no question but that the finger points unerringly to Japan. Japan has a massive surplus on its balance of payments account, and the proportion of Japan's GNP taken up by public expenditure at 4.7 per cent. is much lower than in the United States at 7.1 per cent. As Japan unquestionably benefits as much as any of us from the protection of the United States, it is to Japan that we must look to put it right.
The Americans are right to complain about the effects of the European Community's common agricultural policy. The more one hears about that policy, the more wasteful and damaging it appears to be. After all, Mr. Tugendhat, the EC Commissioner who is responsible for the European budget, was quoted last week as saying:If the Commission's proposal for a 5.5 per cent. increase in farm prices was accepted, this would lead to a rise in spending next year which would be double that of the increase in available own resources.Where that leaves us in relation to our claim for more money from the European Commission I do not know, but the signs are not good. It occurs to me that if we are to expect a genuine revival in demand in America, we must allow it access to our food markets, particularly as we cannot afford to continue financing the CAP on the present scale.
If we consider our own prospects, clearly much depends on the price of oil and a level of production set far above that which the market is prepared to pay can last. It is impossible for the Chancellor to do his sums accurately. It must be like trying to ride on a switchback railway without the benefit of rails. His only recourse, it seems to me, is to keep a tight course. Certainly, that has been done in the proportion of GNP that is taken up by the borrowing requirement. However, in one respect it is not as tight as it was a year ago. I refer to the contingency reserve, which, this time a year ago, was £2.5 billion. Now it is a little over £1,000 million. I see no reason why the prospects for this year are so much more certain than they were a year ago. I should have thought that the contingency reserve was rather low.
I come now to the Budget. I welcome the Government's achievement in reducing inflation to its present 5 per cent. I do not doubt that this achievement has been made possible, if not by closely controlling the money supply all the time—there have been many deviations from a close and narrow path—at least by reducing the Government's borrowing as a proportion of GDP to the 3½ per cent. 291 where they said that it would be. At any rate, the first objective that the Government set themselves, to reduce inflation, has been achieved.
However, I do not think that the Government will rest content with that. Certainly it is clear from the expenditure that the Government propose on training and retraining and on the community development programme for the long-term unemployed, that unemployment is now the main priority. That reducing inflation is a necessary condition of returning to fuller employment is certain. We could not have carried on printing money, subsidising nationalised industries' prices, and trying artificially to keep interest rates low, as Governments used to do, without permanently damaging our economy. That lesson has been well and truly learnt.
Inflation has been brought down, productivity is at its best level for some years, and there are signs that an industrial recovery is about to take place. Nevertheless, unemployment is the most depressing feature of our economy and society. However much the Government may do in their training programmes and in their provision of special programmes for the long-term unemployed, we know that those are only palliatives that do not address the main problem of our times—how to find a way in which the productive and human resources of many people that are at present laid waste can be used.
No one can claim that one Budget can change the prospects for employment on its own, but it can change the climate in which business and industry have to work. We should recognise that industry, conscious of the enormous sacrifice that it has had to make to meet a much reduced demand, sees the public sector still growing, and growing in a way that is insensitive to the needs of industry. Only yesterday the figures came out again showing that the National Health Service has increased its numbers, as it has done every year since the war. They were up by another 23,000 last year alone, making 90,000 since the Government were elected. One must contrast that growth, and the growth in the number of administrators and technicians, with the serious losses that industry has experienced.
There have been profound changes for the better in the control of public expenditure—notably in the cash limits regime—but there is still no proper distinction between public capital expenditure and current expenditure. It may be that, for the purpose of raising revenue or borrowing, there is no effective difference between the two for the Government. But for the private sector there is a profound difference between Government revenue expenditure and capital expenditure. The first is properly a form of redistribution of income, whereas the second has a material impact on the order books of companies, and it is the second that industry and business wish to see grow.
It would be helpful if this distinction were set out clearly in the national accounts. The House will remember the old distinction that used to be drawn when revenue was placed alongside expenditure and below the line capital expenditure was set against borrowing. If we were to make a distinction, we would find that total current expenditure would be £128.1 billion for 1983–84. On the other hand, to meet this, the total revenue is expected to be about £134 billion, so there is a surplus to carry forward to capital expenditure of £6.2 billion. The total capital expenditure required is £11.25 billion, and thus we arrive at a borrowing requirement of £5 billion, to which needs to be 292 added capital grants to the private sector and the contingency allowance, making the public sector borrowing requirement £8 billion.
Total capital expenditure is expected to be 12 per cent. higher than in 1982–83, but that is only because £1 billion was underspent last year by local authorities. Although the total outturn of public expenditure for 1982–83 was 43.5 per cent. of GDP, we should remember that this proportion was only 40.5 per cent. in 1979–80. Even more important is the fact that we now spend less than 10 per cent. of total Government expenditure on capital investment compared with 20 per cent. 10 years ago. That figure alone explains why the construction industry is in such poor shape. That is why the national accounts need to be redrawn.
Furthermore, it would also be helpful to Government Departments to make that essential distinction between current and capital expenditure. Some £2 billion was raised by the sale of council houses last year, but the land register, which the Department of the Environment has available to it, shows a return of 100,000 acres of land which has already been earmarked for development. That land is owned either by the local authorities or by the nationalised industries. We should also notice that the local authorities have at present borrowed £5,000 million from the banks for their general purposes. Can we seriously imagine that any business or industry at present would borrow money from the banks in order to hold development land surplus to requirements?
The Government have the power to instruct local authorities and the nationalised industries to dispose of development land if it has not been brought into use within the next two years. There is not a single step that would do more to put the construction industry to work than to instruct the local authorities to dispose of that land as soon as possible. At present those authorities are holding on to their land in the hope that a better price might be obtained if inflation does its work. As many of them brought their land during the property boom of 1972–73, it is tantamount to saying that the country should still be paying for the excesses of that time. I hope that local authorities will be instructed to dispose of their land and that from that source the Government will receive an extra £1 billion each year for the next three years.
The general taxpayer, as well as the construction industry, would be perfectly justified in asking what we thought we were doing by financing an extremely expensive land bank. Every business has to look carefully at its capital assets to see whether they are being used for the best purpose, and I cannot see why Government Departments should be in any different position. Without altering the size of the PSBR, it should be possible greatly to increase the scale of public capital expenditure on roads, drains and housing and to allow the nationalised industries to carry out more capital expenditure as well.
I welcome the changes that have been made in raising the threshold of the allowances and increasing child benefit. However, I want to say a word or two about that part of current expenditure that is related directly to helping industry, unemployment and business activity in the regions. It must be said that my right hon. and learned Friend has produced proposals that are of great complexity. I do not doubt that they are of great assistance to the areas to which they are directed, but they are of great complexity and represent rather a patchwork quilt. Other countries have precisely the same problems and 293 difficulties of regional unemployment as Britain, but they do not appear to try to meet them in the same way as we do.
For example there is no Department of Industry in West Germany or the United States. That has not prevented them from achieving a much better industrial performance, and indeed regional performance, than we have. We should also bear in mind the fact that the Department of Industry was spawned from the old Department of Technology which was thought up by the right hon. Member for Huyton (Sir H. Wilson) in his white heat of technology phase. It was also thought up to give Mr. Frank Cousins a job. From those small beginnings the enormous Department of Industry has grown, but when a study of regional incentives was commissioned by the Department some two years ago it found that no discernible benefit to employment in the regions had been gained by the lavish grants that the Department had made.
It does not necessarily follow that because the present system of grants and payments has proved ineffective in preventing unemployment, any other system would do better. However, unemployment in some of the regions, particularly in Northern Ireland, is now so great that experiments must be tried. It is for that reason that I should like the payment of corporation tax by companies operating solely within the Province to be abolished. That would cost about £40 million. Whatever the cost, it would surely be worth while discovering whether the absence of tax might not engender much more business activity than the presence of cash grants. When we observe the striking movement of workers away from manufacturing into the service industries, surely any attempt to halt that trend should be assisted by tax relief rather than by cash payments.
One unintended consequence of the present scheme of cash grants has been to assist large capital projects which may well have been carried out in any case and which employ few people. It would surely be much better if we could relieve small businesses from corporation tax altogether. Therefore, I hope that my right hon. and learned Friend will consider an increase in the limit for small companies—to some extent he has done so—and in due course abolish the tax below that level altogether.
Another helpful step would be to encourage companies to borrow long-term money on the market. As the House knows, to meet the money supply targets the Government have borrowed far more than they need for their own purposes in order to counterbalance a marked increase in bank lending to private individuals and industry. In doing so, the Government have made it virtually impossible for companies to borrow long-term on the markets. It would surely be helpful for such companies if they were able to borrow money by means of deep discounted bonds with a low rate of interest. That would be particularly attractive to high taxpayers. I cannot see why such taxpayers should not be encouraged to lend directly to business rather than automatically to the Government. It is also a striking phenomenon that such discounted bonds have been encouraged by the Government, but, because of the tax treatment by the Inland Revenue, they have met with virtually no success. Such bonds should be taxable on their capital gains and not made subject to income tax in the 294 hands of the subscriber. The proposal that my right hon. and learned Friend made yesterday to tax them on their redemption or sale is of no use.
I should like to see early retirement on full pension allowed for those who have reached the age of 60 and who have been unemployed for over a year. By that means, 270,000 people would be removed from the unemployment register. If, in carrying out our election pledge, the earnings rule were abolished as well, there would still be an incentive to take up part-time work in another business, or even to become self-employed.
I wholly approve of the measures that my right hon. and learned Friend has taken to provide a stronger safety net for those on low incomes and for those who need help, whether they are pensioners or those who receive supplementary benefit in one form or another. But the subjective payment of cash grants to those who do not need help in industry should be halted. I feel sure that it is worth while trying to experiment to see whether relief from tax for small businesses will not do more to engender a spirit of confidence and enterprise than any manner of Government assistance. We should encourage the smaller businesses—the newer technological and electronics businesses—because upon those and upon our service industries will depend the change in our fortunes that we all wish to see, and upon which fuller employment ultimately depends.
§ Mr. Tam Dalyell (West Lothian)
The hon. Member for Horsham and Crawley (Mr. Hordern) made a thoughtful and interesting speech. I want to follow him in his references to the construction industry and the regions. I wish to argue the case for more public investment to be paid out of the window on the oil revenues, and to say that we should not give away a good deal that the Chancellor of the Exchequer has given away. I wish especially to argue the case for spending more on water and sewerage systems, which are causing problems in whole areas of Britain.
There are more than 146,000 miles of public sewers in the United Kingdom, with probably as many miles of private sewers. In most of the inner city areas there are more miles of sewers than roads. They form an enormous capital asset—more than 80 per cent. of one of the most capital-intensive industries in Britain. The total capital renewal cost has been estimated by the Institution of Civil Engineers as £40,000 million before the end of the century. It follows that the importance of the sewer network to our way of life cannot be over-estimated. Industry relies heavily on the network to remove safely waste products that result from manufacturing processes. The environmental benefits from the reduction in pollution of natural watercourses and lakes, and the public health aspect, cannot be over-estimated; nor, indeed, can the damage from damaged sewers.
The present system is decaying rapidly. It has reached the stage at which the many parts that have collapsed and been replaced by miles of sewers are in an unknown condition, but highly suspect because of their age. Much of our basic infrastructure was constructed by our Victorian and Edwardian forefathers. It is a tribute to their handiwork that those magnificent constructions have lasted for so many decades, but we cannot continue to live in our Victorian and Edwardian heritage forever.
295 Sewer collapses are averaging more than 10 a day. While the most dramatic examples are in the north-west, Greater Manchester and the city of Glasgow, where the sewerage systems are among the oldest, there are daily examples in almost every other industrial city and suburb to remind us that the problem is nationwide. Certainly industrial constituencies such as West Lothian are becoming gravely affected.
Despite the additional resources that have been allocated in recent years, many water authorities simply do not know where their sewers are, let alone their condition. A recent survey by the Severn-Trent authority showed that £100 million was needed during the next 10 years simply to maintain the present system. That authority's plans envisage the expenditure of only half that sum.
The case that I am making for sewers has been confirmed on a national level by the recent report of the House of Lords Select Committee on Science and Technology, which produced two significant facts supporting my case. Their Lordships say that £140 million per annum needs to be spent on maintaining our present water system without improvement. Only some £90 million is being spent, which leaves a shortfall of £50 million. They say that £310 million per annum is required to maintain the existing sewerage network, but only £205 million is being spent. That is a shortfall of £105 million.
The substantial loss of water through the system must be taken into account. The Monopolies and Mergers Commission reported that leakage was about 25 per cent. in the Severn-Trent area. The Anglian water authority recently reported that £500,000-worth of water is lost per year in the Northampton area alone. That that is not untypical was confirmed by the water authority last October, when it said that the leakage rate was quite normal and better than in some regions, which lose nearly 50 per cent. of their water through leakage. On a national level, the technical working party of the Department of the Environment calculated that 18.6 litres of water are lost every hour for every property in the United Kingdom on mains water supply.
It is easy to understand why collapses take place. Sewers are built below ground, and in our country out of sight is out of mind—especially for the politicians who decide the priorities of public expenditure. There are no votes in the sewers. I have been interested in the subject for some time. I recently attended a conference at the Institute of Civil Engineers in Great George Street. Pictures of 19th century persons on the walls include five who were Members of Parliament. They may have been returned by rotten boroughs, but they were not unconcerned with rotten sewers. They did something about that. I am not sure that we pay the same attention to the issue.
There has been a progressive decline in the ability of Governments of all political colours to pay for the ever-increasing demands of citizens for social services, defence and, recently, the cost of the recession. That has all led to increasing pressure to cut capital spending to continue financing the public sector wage bill, social security and local government.
I notice that, following the recent water strike, which I shall not bring into this debate, a spokesman for the water industry said that it was hoped to meet the cost of the settlement from internal economies. I very much hope that that does not mean more cuts in capital expenditure, which 296 would merely mean that water workers had priced themselves and the private sector construction workers out of jobs.
There is increasing pressure on the capacity of water mains and sewers. Above ground, ever-increasing traffic brings its weight to bear on narrow, unsuitable streets running above crumbling sewers. In rural areas, increasing populations and new developments have brought more and more stress to bear on the basic infrastructure. In this day and age, with more than 3 million unemployed, we cannot neglect the importance of sewer renewal for jobs. A calculation by the federation of contractors shows that not only is such work labour-intensive—more than 50 per cent. of the cost involves labour—but that if we take into account lost taxation, lost insurance contributions, unemployment benefit and its attendant entitlement to rent arrears and rate rebates, the real cost to the Treasury—I cannot over-emphasise the statistics—of £100 million spent on sewer renewal is probably only half of those other costs. For every £100 million spent on sewers, the real cost that is arrived at from more people being at work, greater prosperity among contractors and the reduced unemployment benefit that must be paid out is only £50 million.
Not only would large numbers of real jobs be created in areas of vital importance, but, because the construction industry is domestic, those jobs would be British. Moreover, they would be provided in precisely those areas where unemployment is most serious—the west midlands, Greater Manchester, the north-east and the Greater Glasgow conurbation. Further still, prosperity would return, to some extent, to the suppliers of materials.
My case is entirely consistent even with the Government's economic approach. They say that they are looking for jobs that are real, not illusory, in the wealth-creating sector, not the wealth-consuming sector, in Britain rather than in Japan and which improve the efficiency and competitiveness of other industries. Every hon. Member must know that potential buyers of a business always ask what the water supply in the area is like. Clean water and efficient sewage disposal are essential ingredients of civilisation. To keep the system in good repair inevitably costs money, and its paramount importance was recognised by our ancestors.
There are two sources of information about the condition of sewers. There are repair data and sample television survey data. We learn from repair data that there are about 5,000 incidents a year, of which 3,500 are collapses and 1,500 are major blockages that require excavation and repair. Such repairs cost about £70 million to £100 million a year.
The data from sample television surveys look rather worse. Many sewers are affected and the old ones are the worst. About 2 per cent. of 50-year-old sewers are defective, whereas 15 per cent. of 100-year-old sewers are defective. One should compare that 15 per cent. with the mere 0.1 per cent. of the system that is repaired each year. The survey data suggest that the expenditure on repair each year should be about £400 million a year, rather than £70 million to £100 million. However, not all the defective systems will require attention. The industry has spent about £110 million dealing with hydraulic overloading problems, so perhaps the overall expenditure required will be less than £400 million. That depends partly on the skill with which we identify priorities.
There are rather more water mains than sewers. Britain's would go around the world 8.5 times. The 297 problem is principally one of cast-iron corrosion. Almost all water mains over 40 years old are made of cast iron and few are protected against corrosion, either inside or out. As 50 per cent. of the distributed water is corrosive and 10 per cent. of the soil is corrosive, Britain has a real problem which is locked underground. The problem emerges as bursts, power pressure or discoloured water. The current estimate is that there are 80,000 bursts a year which cost about £25 million to repair. There are also about 80,000 customer complaints each year which cost about £12 million to deal with.
At present, about £40 million is spent each year on replacing or relining water mains. At that level it will take 70 years to deal with all the unlined water mains that are over 40 years old. That does not even take into account the younger mains, which are likely to cause the same problems in a similar period of time because they have thinner walls.
The existing standard of service, which is already unsatisfactory in many respects, such as the quality of water, will be made much worse unless more money is spent. During the recent water troubles, it was suggested that compensation at a rate of 10p a day should be paid. That compensation was regarded as derisory, as people would have to suffer from having no water supply. The fact remains, however, that we take the water industry and the provision of water for granted. Suddenly, and mostly at the same time because sewers age together, we will be faced with a formidable problem.
I am conscious that other hon. Members wish to speak and I shall take just two more minutes. No speech on public expenditure from me would be complete without a reference to the Falklands. I should like to pay tribute to the Financial Secretary to the Treasury, whose role has been honourable. It was not his fault, whoever else's it was, that the present circumstances have arisen. He did his best in 1980.
As I was lucky enough to be called in the debate on public expenditure, I should merely like to repeat questions that I asked the Treasury last Wednesday. In the interests of brevity, I shall just refer to seven of them. First, I referred on 9 March to the enormous defence costs of £684 million for 1984–85. Is that the Treasury's present estimate? I am told that the figure has increased steeply. Moreover, I should like to repeat my question about the type 23 destroyers, not so much to find out about the destroyer itself, but as an example of what is happening. Three months ago the estimate of its cost was £65 million. It then came to £85 million. I was told in a parliamentary answer this week that it was £90 million, and I am told by people in the industry that we shall be lucky to get it for £110 million.
What does the Chief Secretary think of those estimated rip-roaring and inflationary costs? The fact remains that one can take it as a thumbnail sketch these days that a replacement will be three times as expensive in real terms as that which it replaces.
My third question is a repeat of that at the bottom of column 892 about the requisitioning of ships. A mass of ships were requisitioned, including 25 British merchant ships and others, which I described both in questions and in a previous public expenditure debate. Examples are the 298 Swedish ship Linne and the ships that we had to charter from Norway and Denmark. What is the total of those requisition fees?
Fourthly, I wish once again to draw attention to the 1.2 per cent. reduction in the gross domestic product, the 6.4 per cent. reduction in education expenditure, the 54.8 per cent. reduction in housing and the 15.5 per cent. reduction in overseas aid. Those figures are the blackcloth to the Budget, and it is supremely ironic that we should have such a Budget and such defence expenditure when only last week a technological university in my constituency—Heriot Watt—was fined £20,000 for the heinous crime of having exceeded its quota of engineering students. It is a very odd country that penalises a high grade institution such as Heriot Watt university for taking on just a few more students than it should. It is absurd, ridiculous and policy gone mad.
Fifthly, at the bottom of column 894, I asked about the cost of the Mount Kent station that is being built, where concrete will be carried by helicopter, at a cost of thousands of pounds an hour, because of inclement weather and difficult terrain for the poor old mules, even if we had them. Do we wish to get deeper and deeper into such a financial commitment, because very soon—this is not the place to argue it—we must leave those islands and negotiate on their future? If not, they will become our Vietnam and the sheer pressure on finance will dictate our activities in South America.
Sixthly, I return to the airport at Port Stanley, and I couple with it my seventh question at the bottom of column 895. We are spending millions of pounds on an airport that is 8,000 miles away. The Chief Secretary to the Treasury must be involved in the Cabinet Sub-Committee that is considering the matter. What does he think, in his present ministerial berth, with his colleagues asking for peanuts for either housing or education—during transport questions today his hon. Friends and mine asked for pittances for their areas—when the Daily Express tells us that the runway at Port Stanley will cost £880 million? I am told by reputable people who were involved in the construction of Edinburgh airport and who know about instrument landing systems that the airport will require a category 3B instrument landing system and at least 75m of runway,. which will cost millions of pounds. We must also overcome corrosion problems.
The amount of money that we are putting into the South Atlantic is mind-boggling. I ask the Chief Secretary, with some friendliness, whether it is not about time that he worried about the financial mess that we are getting into. That commitment will only distort our entire budgetary strategy.
§ Mr. Nigel Forman (Carshalton)
A week ago tonight at almost exactly the same time I spoke after the hon. Member for West Lothian (Mr. Dalyell). On that occasion his mind was deep in the bogs of the Falkland Islands, as it was a few moments ago in his concluding remarks. However, for the majority of his speech tonight, he was more bogged down in Britain's sewers and there was only a little burst on the Falklands at the end of his speech. I shall not follow him down those channels, because there is a real danger of becoming obsessed with such matters.
I prefer to direct my remarks to the aspects of the Budget that interest me. There are three ways to consider such a Budget. The first is to ask what it does to deflate 299 or to reflate the economy. The second is to consider what it does to advance or to retard the Government's strategic tax objectives, and the third is to ask what it does for different groups in society who want more of this or less of that.
A consensus seems to have emerged that the overall effect of the Budget in a full year will be mildly reflationary to the tune of about £2.5 billion to £2.75 billion. That is good news for the economy, and I welcome it. However, we must realise that reflation—if that is the right word—of about £2.5 billion is marginal in terms of the present British economy, which has a money GDP of about £270 billion. It represents about 1 per cent. of the total. It is marginal also in the global context, to which several references have been made in this debate.
As the United Kingdom now accounts for about 4 per cent. of world GNP and 8 per cent. of world trade, one must be realistic about the role of this country as a locomotive, or whatever the fashionable metaphor may be.
In terms of the macro-economic effect of the Budget, the dilemma is that if my right hon. and learned Friend had chosen to do enough to make a really dramatic impact on demand, he would have had to give the economy a massive stimulus, and that would have threatened to increase inflation and make our balance of payments worse. We all know from bitter experience that in the long run that process would have led to the loss of more jobs.
Therefore, the Chancellor was right to reflate cautiously, but cautious reflation has little or no impact on real activity in the economy and precious little effect on jobs. From a macro-economic point of view that is also sad for those of us who want to see a revival brought about as prudently and as quickly as possible.
So far as we manage to stay on the path of Treasury rectitude, so far as attitudes to pay bargaining remain realistic, and so long as oil prices and sterling continue to be relatively depressed, our gains in productivity and competitiveness—which I welcome—are unlikely to reduce unemployment. On the contrary, as table 3.8 in the Red Book shows, unemployment is likely to increase in the short term.
When we look at the macro-economic picture, there seems to be no convincing alternative to the Government's cautious and responsible policy. However, Samuel Brittan wrote in the Financial Times today an interesting economic assessment of the Budget, and I agree with one point he made, which seemed to be consistent with the Chancellor's strategy. He said:If productivity is rising and inflation falling"—we must all hope that that is the present macro-economic picture.it would surely not be dangerous to have a more stimulative policy if that proves necessary.I hope that will be the conclusion that my right hon. and learned Friend draws if he considers any further measures later in this calendar year.
I do not believe that the Budget has helped the Government to advance towards their strategic tax objectives. I regret that, because such objectives should be in the mind of any Chancellor when framing his Budget. What we want in the long run is not only a lower incidence of direct taxation at all levels of income, for all the reasons with which we are familiar, but a parallel attack on tax expenditures—on tax allowances and the rest. The logical outcome of that policy, and the goal towards which we 300 should be working, would be the introduction of a fully fledged tax credit scheme. In the early 1970s a previous Conservative Government came close to inaugurating such a scheme but, regrettably, the scheme was stifled more or less in its infancy by Barbara Castle, who was Secretary of State for Social Services in the 1974–79 Labour Government.
In this context, the increase in child benefit is a welcome step towards our strategic tax objectives, but the increase in mortgage interest relief, popular though it is with many of my constituents and with home owners throughout the country, is a step away from the objective of a simpler system of lower direct taxation. The decision to restore the 5 per cent. cut in unemployment benefit, however, is a step in exactly the right direction not only on grounds of tax strategy but on social grounds. Unemployment benefit now comes into taxation, which is the correct approach to these matters, and this is entirely consistent with a general move towards a tax credit scheme.
I realise that there is always a conflict in the difficult area of overlap between taxation and social security, between clarity and simplicity on the one hand and complexity and equity on the other. I believe that the only way to solve that problem is to move purposefully, although I fear all too slowly, towards a tax credit scheme. No doubt the Minister will tell me that the real difficulty is the Inland Revenue Staff Federation, the unwillingness to instal computers quickly enough so that these matters can be dealt with on one pattern and so on, but we heard all that in the early 1970s and the story is wearing rather thin. I hope that more purposeful progress can now be made.
The third angle of the prism through which I wish to consider the Budget is the more conventional aspect of how it affects the various social groups in our society. In that respect, I believe that it is a very good Budget, especially in terms of social policy. That is very important for a Conservative Government at this stage in their career, as in recent months there have been one or two unfortunate incidents in which unfounded and non-authoritative stories have been leaked about what a future Conservative Government might do in the social policy sphere. I regarded most of those rumours, happily, as ill founded. In so far as they had any foundation, I regarded such policies as ill advised and I was delighted when my right hon. and learned Friend's Budget gave the lie to that kind of smear campaign by the Labour party.
I refer especially to the good news for the low paid in work, with the raising of personal income tax allowances and thresholds and the good news for families with children with the raising of child benefit and one-parent benefit, which is increasingly important in this country which now has nearly 1 million one-parent families.
There is also the good news for pensioners and others in receipt of state benefits. There was a good deal of argument about this earlier in the debate, but I believe that the Opposition have lost sight of the two main points. First, we have kept pensions ahead of the rise in prices throughout the period 1978–83, fulfilling our clear pledge to the people. Secondly, we have in no way deprived them of the windfall gain, if I may so put it, that they received from the previous system of calculation last time around. Nor need we be apologetic about changing the method of calculation. As my right hon. and learned Friend the Chief Secretary pointed out earlier today, that was done on a 301 previous occasion by Barbara Castle to save money. The difference is that we are not doing it specifically to save money, but because we believe that the historic basis is the right basis for the system and that it should never have been changed to the present temporary basis.
In all those ways and in many others, such as the help for the severely disabled, the help to solve the problems of the invalidity trap, the help for those on supplementary benefit through the capital disregards and our package of tax measures to encourage donations to charities, the Budget gives the lie to the Labour argument that somehow Conservatives are not to to trusted with great and important issues of social policy.
In the context of helping different groups, I should like also to mention the imaginative aspects of the Budget in terms of alleviating—I say alleviating rather than solving—some of our tragic unemployment problems. Clearly, the Budget has had a positive effect under a number of headings. Those parts of the Budget which deal with housing and construction must be welcomed in this respect. At present, far too many workers in the building and construction industry are unemployed. One of the quickest ways to bring unemployment down, or to slow the rise of unemployment, would be to get many of those people back to work.
I warmly welcome my hon. and learned Friend's decisions on job flexibility and job creation. I welcome the extension of enterprise allowances to the whole country, which must be a move in the right direction, and the imaginative new scheme for part-time job release. On this point I should like to draw the attention of the Treasury, if it has not already noticed it, to an interesting article in Lloyd's Bank Economic Bulletin of September 1982 in which Christopher Johnson pointed out that, with sensible measures to encourage part-time work, it would be possible, with a doubling of the present number of part-time jobs over a number of years, to reduce unemployment by as much as 2 million people. Clearly, there should be a major effort to encourage part-time work.
I was also pleased with the measures for small and new businesses, to which my hon. Friend the Member for Upminster (Mr. Loveridge) referred. I am delighted with the measures to encourage technology and innovation. It is in that sphere, where there is a package worth £240 million over three years, that the future of this country lies, if we are to compete successfully and favourably in the world.
This has been a cautious Budget at the end of a long line of cautious Budgets. It has been a conservative Budget, but none the worse for that, and a Budget which allows the prospect of a further stimulus later in the year, something to which Sam Brittan refers in the article that I have already mentioned.
The sad truth is that there are limits to what any sensible Government on their own can achieve. Even if this had been a miracle-working Budget, there are still limits to what any modern Government can achieve if they are to be sensible and retain contact with reality. So much more depends on the people of this country and especially on the two sides in pay bargaining. So much more depends upon our joint efforts to improve our competitiveness and performance. All these things are the key to the future, not only to bringing inflation down, but to bringing 302 unemployment down. These vital matters are to a greater extent in the hands of the British people than in the hands of Government.
In all aspects of industry and commerce we must try to restore the profitability of British industry which, as is evident from paragraph 3.40 of the Red Book, is disastrously low, with an average real rate of return of about 3 per cent. now, compared with 10 per cent. on the same basis in the early 1970s. That must be a priority task for anybody involved in British industry and commerce.
At the end of the day there is a great responsibility on all Governments and on economic decision-makers both in this country and abroad. It is only by making imaginative joint efforts with them at the Williamsburg summit and elsewhere that we will be able to bring real hope to the millions of tragically unemployed people in this country and to all those in this and other countries who look to their Governments and decision-makers for enlightened leadership for the future.
§ Mr. James Hill (Southampton, Test)
One aspect of Budget day which does not change is, of course, the ritual of the Budget debate. No bridge hand has such an instant post mortem. Television commentators, newspaper editors, Opposition Members and tame or not-so-tame pundits from the London School of Economics or the ivy-covered universities are trotted out and dusted off. Only 10 minutes after the Chancellor has resumed his place, regardless of whether it is a highly technical Budget, the pundits are able to judge the short-term and long-term effects and generally to produce instant judgments.
The public are immediately bewildered—almost shocked—by the varying views on the Budget. I suppose that we confound them still further. Our debate on the Budget continues for four days and alternative Members find parts of the Budget which will delight them or horrify them. Only 24 hours after raking over all the information, the forecasts are made by the pundits, leaving Back Benchers on both sides of the House with the options of boring by endless repetition, selecting issues which they feel will have an effect on their constituents or asking for the unobtainable. The latter course is taken predominately by Opposition Members. I shall take the middle course and select issues that will have an effect on my constituents—future prosperity and employment, or unemployment, percentages in Southampton.
One of the jewels in the Budget statement was my right hon. and learned Friend's reference to the findings of a policy committee on whether it would be in the national interest to have free ports. This is an imaginative and forward-looking concept and I understand from the speech of my right hon. and learned Friend the Chief Secretary that the necessary legislation to bring several names forward for what I should say is almost an honour will be introduced in the Finance Bill. When that has been done, the free port sites will be selected.
The sites will be selected on an experimental basis but I can tell my right hon. and learned Friend that there are over 400 free ports in the world, dealing with almost 9 per cent. of world trade. In the immediate vicinity of the United Kingdom there is the active port of Hamburg. In the Irish Republic there is a prosperous and active free airport and port called Shannon. One of our Crown 303 colonies, Hong Kong, has been a most successful free port in the past. Even in the United States, Miami, Florida, is an active and prosperous free port.
There will be a great deal of employment in these customs-free zones. There has been support from the Institute of Directors, the Department of Trade and Associated British Ports, the latter being anxious to get off to a new start. My right hon. and learned Friend will know that Associated British Ports is an imaginative privatisation of the 19 ports formerly known as the British Transport Docks Board, and that 49 per cent. of the shares were sold. If any one of the 19 ports became a customs-free zone, the prosperity of Associated British Ports would be given a tremendous boost.
Never being one to stand back, I brought a delegation from Southampton to the Department of Trade to discuss these matters. The delegation consisted of council officers, the city planning officer, the chief executive, the leader of the Conservative-controlled council and a representative from the board of the Southampton port of Associated British Ports. It was understood that a case would have to be presented to obtain a rating for consideration as a customs-free port. This I hope they will do. There is a great deal of co-operation in Southampton and everyone is 100 per cent. behind the idea of a free port.
People should not misunderstand; a free port is not somewhere they can buy a bottle of whisky duty-free and walk out of the gate with it. It is a place into which the containers of the world can be shipped and re-packed for a whole of the Community, if necessary, without any paperwork. Goods can be imported into the customs-free zone, assembled by a local work force and exported as completed articles without any customs duty being payable. Of course, this would create much employment. It is an extension of the enterprise zones which my right hon. Friend announced over 18 months ago.
The establishment of a customs-free zone would lead to more trade in the area. Hong Kong is a typical example. Statistics prove that in most areas where a free port is established the volume of cargoes goes up three or four times. The reference in the Chancellor's speech to free ports was most important. The experiment will be criticised by the media and by the very people who are employees of the Chancellor—Customs and Excise. They will not be happy if their traditional powers are bypassed. Nevertheless, this should not deter the Government. The experiment will prove satisfactory. Certainly I shall be pushing the claim of my constituency.
I want to refer to several other matters lest they do not get enough coverage. It is first-class that home repair grants are to be increased by 20 per cent. Local authorities will be able to improve the fascia of the buildings and do external maintenance in a street if the private owners give them permission. If the scheme is taken up fully, it will cost £60 million in 1983–84.
The national insurance surcharge, which has been mentioned by everyone, must go eventually, but I am not one of those Members who ask today for the unobtainable. During the lifetime of another Parliament we should be able to remove the remaining 1 per cent.
The business expansion scheme is imaginative but there are snags. It improves the business start-up scheme, which has had a tremendous impact for people wishing to start their own small businesses. Coupled with the loan guarantee scheme it is proving extremely useful, but I would point out to the Treasury a major problem. The 304 ordinary person who wishes to set up a small business and who has no credit rating, no experience and no audited accounts for three years, runs into a tough stumbling block because he cannot provide sufficient references to enable him to get a lease on a property. That could be closely looked at. The banks could be directed by my right hon. and learned Friend to give those references as and when they are demanded.
I praise my right hon. and learned Friend as he has done something about a matter that has been worrying me for some time. There has been a criticism that the people who have been thrifty and have saved are not allowed supplementary benefit until they have got their income down to a certain level. At one time it was a ridiculous level. I think that it was in the hundreds. My right hon. and learned Friend has removed that criticism and raised the level to £3,000. Another jewel in the Budget is that £1,500 of the surrender value of a life assurance policy will not be counted as savings. For most people who are thrifty and work hard, that is about the sum that they expect to receive from their life assurance policy. That is a clear sign that this is a compassionate Budget and that the Government will not penalise those who are thrifty and who put a few pennies aside for what will eventually come to most of us. That is a time when those savings are most needed.
No one has yet mentioned the man over 60 who does not want to be a burden on the state, but who is forced to sign on at the unemployment exchange for his card to be stamped, so that at the age of 65 he can receive his pension. He will no longer be forced to do that, so his dignity will be restored. He will get those credits. From the age of 60 to 65 he will be able to ensure that his pension will not be tampered with because those credits will be put towards his pension. However, only 90,000 people will be affected by that.
This is an excellent Budget, which encourages business. It is a compassionate Budget, which has brought in fresh ideas for small businesses, particularly free ports. I wish my right hon. and learned Friend every success. Let us hope that the numerous pundits are proved, once again, disastrously wrong.
§ Mr. Raymond Whitney (Wycombe)
In previous economic debates I have said that the real debate is between hon. Members on the Government Benches. The debate is between those of us who believe that the way to economic health has to be through following a firm monetary policy and those of us who take a different view. There is a difference of perhaps £1 billion or £2 billion between us about the size of the public sector borrowing requirement. That has been the real debate. Tonight, that is literally the debate. It is extraordinary that no Opposition Back-Bench Members are present, given our professions, all the shades of opinion and the deep concern about the state of the economy. None of them wishes even to offer his thoughts to us. That should not go unremarked in the country.
We are almost obliged to operate in a partisan manner when we conduct our affairs in the House and in the country. One measure of the impact of the Budget is to look at the reaction from both the Opposition parties and the press. I take great comfort from the extraordinarily unconvincing response both from political parties and the press.
305 The Leader of the Opposition, obliged to speak immediately after my right hon. and learned Friend the Chancellor sat down, deeply disadvantaged in being less than economically literate, was therefore furnished with a brief for the occasion, because clearly his research staff did not trust him to enter into one of his usual extempore forays. His contribution was extraordinary and seemed to turn entirely on the future of the Shildon railway works, not unconnected perhaps with its proximity to Darlington. Some eight or nine days ago the Conservative party was being accused of some dastardly plot by leaning on British Rail to keep the repair works at Shildon open to have an impact on the Darlington by-election. The Leader of the Opposition concentrated most of his speech on his belief that the railway works were threatened with closure. There was no suggestion from him of any alternative strategy.
We were, therefore, looking forward this afternoon to the speech of the right hon. Member for Stepney and Poplar (Mr. Shore) to see whether he would offer some ideas. He had many criticisms. He said that taxes were too high, that the increase in the various taxation levels were also too great, and that the reductions that we had made in other taxes were inadequate. It all added up to an impossible piece of arithmetic. At one stage he mentioned the order of magnitude of his proposals. However, "order of magnitude" came there none.
The right hon. Member for Stepney and Poplar said that he wanted a substantial increase in public expenditure, a substantial decrease in taxation and sharp reductions in interest rates. Everyone knows that that package is mutually exclusive and economically illiterate. The right hon. Gentleman did not quantify his proposals. Outside the House he occasionally ventures some figures, which may be £10 billion or £11 billion depending upon the time of the day or whether the moon is in the firmament, but he knows that he could not offer such figures to the House. They would not stand up for a moment. He was well advised not to venture a figure.
The hon. Member for Colne Valley (Mr. Wainwright) seemed to be speaking not just for the Liberal party but for the alliance. He offered the same figureless formula—give away more, spend more all over the place and somehow retain interest rates and force down inflation. Everyone knows that that is nonsense. For that reason the debate is among those of us on the Conservative Benches who have a responsible attitude towards such matters.
The press view is interesting. To the Daily Mirror the Budget was dismal, joyless and drab. The Guardian seemed to have some difficulty in deciding its views on the Budget. The headline said that it was an each-way gamble, but it was then condemned as being mild and melancholy. I am glad that it was a mild Budget, because this country's economy did not want an exciting Budget. It wanted a sensible one which would do precisely what my right hon. and learned Froend the Chancellor is aiming to do, which is to hold on to the strategy but, within that strategy, to offer what he has in terms of genuine increases in benefits to old-age pensioners—keeping their pensions above the inflation in prices—increases in child benefit, and increases in the other social security benefits. Those are great achievements within a framework which has also allowed further increases to industry.
I commend all that has been done, and is now being offered, for small and medium-sized firms. Many of my 306 hon. Friends have elaborated on this subject and I shall not go into details. The Chancellor mentioned the new business expansion scheme, the improvement in the business start-up scheme, employee options, profit sharing, the loan guarantee scheme and the small workshop scheme. Those schemes and all the changes that he announced are to be welcomed.
When these measures are put into practice, I hope that the Chief Secretary will ensure that there is a more intensive and effective information effort. Last year, it seemed that the information reached the head offices, but it did not seem to filter down to ordinary people unused to these things, for whom it took a long time for the penny to drop. I therefore hope that the considerable resources of the Treasury information machine or the COI will be made available so that every accountant, tax adviser and bank manager has a ready source of information to stimulate and encourage those who are waiting to take advantage of the scheme to start up or expand their own businesses.
I echo the point made by my hon. Friend the Member for Winchester (Mr. Browne). I hope that my right hon. Friends will continue to look hard at the possibility of promoting the development of equity capital. We all know the problems, but if in doubt I hope that my hon. Friends will take a chance. We could wear the odd sleepless night by the inspector of Inland Revenue because of the stimulus that that would give to British industry. That is the way in which we shall create jobs.
The way in which the economy has been run provides many lessons which people are learning quickly. Perhaps the significant message of the absence of Opposition Members is that ordinary people now understand what the Government are trying to do and are supporting them in their efforts.
Mention has also been made of the international background against which our economy is beginning to move. This year our demand will increase by more than 3 per cent., and over the next 12 months growth will rise by 2½ per cent. That is probably as near to the safety limit as we can go, given our national circumstances such as the oil and exchange rate problems.
We are playing our part in getting the world out of recession. There is no question of an economy the size of our own being the locomotive, but we have a significant part to play. When the Prime Minister goes to Williamsburg she will be able to tell a story of Government determination and courage as well as saying that a deep sense of realism has dawned in the British people.
§ Mr. Graham Bright (Luton, East)
The emphasis by the Government on helping small business over the lifetime of this Parliament is fully endorsed by myself and my hon. Friends who are supporters of the Conservative smaller businesses committee. We are particularly pleased at the Government's response to the arguments that we have advanced during the last four years. The changes in personal taxation will undoubtedly help small firms. More importantly, the change in interest rates will go a tremendous way to help those firms, particularly the many that are now starting up.
Many people have described the national insurance surcharge as a tax on jobs. That has been particularly so for small firms. It does not matter quite so much for large firms, which can absorb such costs, but the small man with 307 a few members of staff thinks before employing another. The changes in the rates of interest, the reduction in the small companies rate of corporation tax from 40 per cent. to 38 per cent. and the increase in the limits at which the initial rate and the full rate of 52 per cent. apply will give tremendous encouragement to small firms to expand. The sharp transition from the initial rate to the full rate has been of major concern to small firms in the past, but that has been substantially alleviated and the hump, to a large extent, has been left behind. I thank the Treasury team for examining that problem and giving it due consideration. If small firms are able to build up capital investment funds through the creation of what I call "enterprise bonds", their prospects will be transformed even more, because they can bank their reserves and finance their businesses from their own generated profits.
It is not simply the initial funding and finance of small firms, whether or not incorporated, that matter. The flow of external investment into small businesses and the availability of lending money to them is vital. All the research that has been carried out since the report by the Bolton committee in 1971 confirms that.
The business start-up scheme, which has been in operation for the past two years, offers excellent incentives to outsiders to invest in new and small companies, provided the necessary conditions can be met. I was delighted to learn that those conditions are to be altered and the scheme transformed into the business expansion scheme. Many hon. Members have argued for that transformation since the scheme started. I shall be interested to examine the detailed conditions set out in the Finance Bill. The additional capital that outside investors can put into a small firm is often crucial to the decision whether to expand. It should not be hampered by the Inland Revenue's obsession with tax evasion. I trust that the House will ensure that the Inland Revenue does not tighten up that provision too far and that those funds come in so that the business expansion scheme can take off and inject a great deal of money into small businesses.
It is equally gratifying to note how successful the loan guarantee scheme has been since 1981. Additional lending to small firms has been made possible and the doubts of the many sceptics, especially those in the Treasury and the banks, about the need for the scheme have been confounded. The extra £300 million that my right hon. and learned Friend has made available will make it easier for small firms to borrow on terms more comparable to those for large companies and bring the pattern of lending closer to that of international rivals.
An original trial scheme of £50 million got the loan guarantee scheme under way, and it is tremendous to see that it has blossomed in such a short time to £600 million. That is a tribute to the Treasury and to the Government, who have put their weight behind making the scheme work. The principles behind both schemes are right and have been vindicated entirely by experience. I am confident that they will be even more successful in their extended forms.
The role to be played by small businesses in the economy clearly illustrates the difference between the two major political parties. The Government recognise small businesses as a vital ingredient in our industrial and commercial life. The independence and the self-reliance shown by their owners are qualities that hon. Members wish to foster in the nation's interest. Small businesses produce manufactured goods and provide essential 308 services that fill the gaps in the markets that no large private or state-owned organisations could even think of supplying.
The concern for the small businesses expressed by the right hon. Member for Ebbw Vale (Mr. Foot) in his response to the Budget statement was a rare example of this piority being recognised by the Opposition. He did not say—perhaps he could not bring himself to say—that "Labour's Programme 1982", endorsed at its party conference, provides for the expropriation of small firms by employees acting with the consent of a Labour Government but without that of the owners and families. That is a true measure of Labour's concern. We believe in ownership by people who have founded and contributed to the prosperity of their enterprises. We believe that employees should be encouraged to invest in and share in the profits of the firms from which they work.
Unemployed people should be given the opportunity to start new firms. The extending of the enterprise allowance is a great tribute to the Government. They set up a pilot scheme to monitor the situation. That scheme was successful and an extension has been made. A few weeks ago it was announced that there are now 210,000 more self-employed people in this country. Those 210,000 people are just a start. Soon they will employ others. That is how small businesses will continue to grow.
The growth of the small firms sector is the only way to rebuild the foundations of our economy on a secure basis. The preservation of genuine free enterprise and real democracy depends upon it. The measures in the Budget will help us to achieve those objectives. They are the objectives that we set out to reach four years ago. I and those of my colleages who wrote the book "Moving Forward—Small Business and the Economy", which was published a few weeks ago, set out those objectives again, I commend the courage and consistency with which the Government have acted to help to realise them.
§ 9.1 pm
§ Mr. Stanley Orme (Salford, West)
I shall address myself to the problems facing industry and the economy, as well as to unemployment. Much of the debate has centred on industry and employment. However, I want first to return to the subject of pensioners, to what the Chancellor of the Exchequer said and to what the Chief Secretary said in response to my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) and me.
The Government are showing great anxiety about the situation of pensioners and the change that they have made in the assessment. Whatever the Government may say about the change that the Labour Government made in assessment between 1974 and 1979, pensioners were never worse off and were always better off then. They were 20 per cent. better off in real terms when we left office in 1979.
On the Government's figures, pensioners are 5 per cent. better off after four years of Conservative Government. Pensioners are being cheated by the change that the Government are making. The abatement will catch them in November, particularly if inflation is assessed at about 4 per cent. in June or July. The Chancellor of the Exchequer has said that inflation will have increased by November, so the clawback will operate.
§ Mr. Orme
The Government are very sensitive on this issue. We shall ensure that pensioners are fully aware of what has happened.
On 10 March 1983 the Financial Times asked:Is Britain falling to pieces?The article continued:There is plenty of evidence on the surface to suggest that it may be—patched and pot-holed urban roads, peeling paint and boarded windows on dilapidated council estates, motorways with cracked bridges and miles of lanes closed for repairs.The same question could be asked about British industry. After the long years of recession and an overvalued pound, the manufacturing sector is certainly leaner, but rather than being fitter it is on the point of total collapse. Some industries are close to disappearing altogether. As the assistant managing director of Birmid Qualcast is reported to have said:Any further rationalisation would be decimation.Perhaps the Secretary of State for Industry, when he speaks in this debate, will comment on that.
Since May 1979, our people have been waiting for the action that this Government promised during the general election of 1979. They are still waiting, and they will continue to wait. This Budget will take the nation no closer to the fulfilment of the promises that the Government made in 1979. In fact, this Budget will deepen the recession that has a stranglehold on our economy.
The construction industry has been mentioned, both in the Budget statement and in the subsequent debate. The so-called incentives to that industry are marked by a seeming lack of awareness of what has happened to the industry, and the seriousness of the crisis that it faces. Output has fallen by 18 per cent. since 1979. Nearly 69,000 jobs were lost in the industry in 1982, and for the first time since 1929 employment in the industry has dropped to nearly 1 million. One in eight of those who are unemployed last worked in that industry.
The measures that the Chancellor has announced give little prospect of expansion. The capital and current spending problems of local authorities will continue to depress that industry. Only the top end of the housing market will be booked by the mortgage relief that has been given. My hon. Friend the Member for West Lothian (Mr. Canavan) told us about the work that needs to be done to the sewers in inner cities. It will cost tens of millions of pounds to put right rundown Victorian sewerage systems. Such are the issues that should be tackled and are not being tackled, particularly as a result of the cuts in local government expenditure.
All that the Chancellor seems prepared to offer by way of hope to the unemployed is the enterprise allowance scheme. How will that help the unemployed school dinner lady, the out-of-work 17-year-old, or the redundant steel worker? What hope for the future has the Chancellor to offer them?
This is a marginal Budget. Industry will reap no benefits from it. Aid to small firms is all well and good, but large enterprises also looked to the Budget for signs of a reprieve. They looked in vain. Hon. Members may have heard Sir Monty Finniston say this morning on the radio that this Budget has nothing to offer major industry in the United Kingdom. He said that the depression that exists in major sectors of our economy, including the manufacturing sector, will not get better as a result of these Budget proposals. To keep the public sector borrowing 310 requirement at the same level through the next fiscal year will mean no fiscal boost to the economy, no growth in demand, and no expansion of industry.
I shall outline the background to the Budget. We have 4 million people unemployed. Our industry is not just run down; large parts of it are closed, possibly for ever. Apart from my time in this House and in the Royal Air Force, I spent all my working life in manufacturing industry. In areas such as Trafford park, the west midlands, London and elsewhere, we had major industrial centres. Certainly, the rundown has been taking place over a number of years, but what happened in 1979 is without parallel in our society.
In the west midlands over 367,000 people are out of work—.6 per cent. of the population. That was referred to by my hon. Friend the Member for Walsall, North (Mr. Winnick) and by the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark). Dunlop has closed its Erdington plant, making 1,000 workers redundant. The Round Oak steel works has closed, with a loss of over 1,200 jobs. GEC in Coventry laid off 600 workers last December and Lucas Electric shed 1,200 jobs last January. Yet the west midlands is the centre of our industrial society. If we cannot produce wealth we shall not be able to make the improvements in our society that we want, such as improving the Health Service, social benefits and the infrastructure. What is happening is catastrophic.
§ Mr. Winnick
Does my hon. Friend know that in May 1979 the registered unemployment rate in the west midlands was 5.1 per cent. and it is now over 16 per cent.? In my travel-to-work area it was 5.1 per cent. in May 1979 and it is now over 18 per cent. Those are the official figures.
§ Mr. Orme
My hon. Friend only underlines the seriousness of the position. I do not believe that he ever thought that he would see such a situation arising in the industrial heartland of the United Kingdom.
The Government only tinker with the position; the Budget does nothing to deal with it. In the northern region over 235,000 men and women have lost their jobs—18.1 per cent. of the population. In the north-west the jobless total is over 447,000—16.5 per cent. of the population. Nor does the south escape. London, East Anglia and the south-west are also facing such difficulties. The Gloucestershire diesel engine company of R. A. Lister lost 225 workers in January. Metal Box in London lost 300 workers and Fords at Dagenham responded to the recession by laying off 3,000 workers in February. Not a single area in Britain has escaped. The Government cannot continue to blame everyone but themselves for the problem.
We keep hearing two reasons for the problem. One is oil prices and the other is the world recession. Why is Britain—an advanced industrial nation—at the bottom of the OECD's league table? The blame lies firmly at the Government's door. They have created a climate in which private industry has been forced out of Britain, despite their claim to support the private sector. Examples are the Timex factory in Dundee and Linotype-Paul in Cheltenham, and I have just been informed that the ICI plant in Blakely, Manchester, is to be transferred to Brussels. Therefore, through their blind and inflexible policies, the Government are driving industry out of Britain. We should like the Secretary of State for Industry to answer those points.
311 On 3 February the work force at Linotype-Paul was told that 500 jobs were to be lost and the works transferred to Germany. That was despite the company's profitability and the workers' record of high production and low wage settlements. We keep hearing from the Government about competitive industry. I am giving the House some examples now of competitive industries that have been driven out of the United Kingdom.
§ Mr. Ridley
As the right hon. Gentleman is talking about a firm in my constituency, what action does he think that the Government have taken to drive out Linotype-Paul? Is he aware that it moved out because the alternative new generation machine has been developed in Germany? It has nothing to do with Government policy. Had he asked the work force, he would have found that out.
§ Mr. Orme
The Minister should have a word with some of his hon. Friends who represent constituencies in that area, especially the hon. Member for Cheltenham (Mr. Irving). I have written to the Secretary of State for Industry, who has met the managing director of Linotype-Paul. I am still waiting for a reply. There is no reason why that firm should leave the United Kingdom. One thousand nine hundred workers at Timex in Dundee have been declared redundant, and the work is to move out of Britain.
Those are the real results of Information Technology Year, 1982, despite the propaganda that we have been fed by the Government. They demonstrate the Government's failure to support and invest in high technology industries. The Minister for Industry and Information Technology is in the Chamber, and he cannot deny that statement. Those examples demonstrate the abrogation of social responsibility of multinationals that are allowed to move and invest out of the country at will.
A Labour Government would take powers similar to those in France and Italy, which have an understanding with mulitnationals. They do not allow them to ride roughshod over their countries and Governments. I have been passed some good news for the House. It was announced on the nine o'clock news that Mr. MacGregor is to be chairman of the National Coal Board. When I deal with the steel industry, I shall say something about that.
What have the Government done to encourage our industries? Since 1979, 1.5 million jobs have been lost in the manufacturing sector. Investment has plummeted by 33 per cent. Manufacturing output as a whole has fallen by 19 per cent. The slump in basic essential industries such as steel, shipbuilding, engineering and textiles have been especially severe. Since May 1979, output in metal manufacturing has fallen by 30 per cent., textiles by 30 per cent. and engineering by 17 per cent.
Mr. MacGregor was given a large sum of money to run the steel industry. We wonder what agreement has been reached for his takeover of the National Coal Board. The steel industry has continued to be in the front line of the recession. What is the price that the steel workers and the steel industry have had to pay for the recession, the lack of demand and the imports that have flowed into Britain? Capacity has been cut by about 40 per cent. and more than 100,000 jobs have been lost. That is many more than in other European countries. Further reductions could undermine the future ability of the steel industry.
On 22 October 1982, the Secretary of State told the House that any closure of major steel works would be the responsibility of the Government. In December, he 312 committed the Government to the continuation of five major plants, yet on Monday he was not prepared to deny the possibility of massive job losses at Ravenscraig and the possibility of the closure of its strip mill. When he speaks later, I hope that he will tell the House where he stands on the survival of Ravenscraig.
§ Mr. Allen McKay (Penistone)
Is my right hon. Friend aware that 82 per cent. of tube steel is flowing in from abroad? Is he further aware that the special steel industry in Sheffield has been decimated by the input of steel from foreign countries? The Government have done nothing to stop that.
§ Mr. Orme
No, I must get on.
Privatisation is no answer to the problems of British Leyland either. BL is the only major British car manufacturer and should be supported. More than 200,000 jobs in the vehicle production industry have been lost since May 1979. That has sent shock waves through many other sectors of industry, both public and private. The west midlands has felt the main bite of the redundancies, but they have taken place in plants throughout the United Kingdom, especially among component suppliers.
Both existing and future British industry is being undermined. This year, about 9,000 craft and technician apprentices will be recruited into the engineering industry. That is lower than any previous year—in 1974, there were 32,000 craft apprentices. Moreover, that reduction is occurring when unemployment among young people is reaching record and tragic proportions. It is a scandal.
The Government have made a great deal of their support for new technologies, especially information technology, yet the publication last week of the authoritative NEDC report called "Policy for Information Technology Industry" shows how inadequate our national effort in this regard has been. It says:Taken in an international context, the performance of the UK IT industry has been less successful and it is a matter for concern that the industry's full potential is unlikely to be realised if the current trend continues …The UK's nearest competitors geographically—France and Germany—have developed national policies to encourage the international success of their respective IT industries."
Our information technology industry cannot achieve its full potential without an effective national policy to encourage it.
The report continues:Information technology in the UK is characterised by two features. First, the UK IT industry is relatively small and also fragmented … Secondly, while there is a plethora of welcome initiatives to stimulate the UK IT industry, these appear as a largely unco-ordinated response to a wide variety of competing demands for severely limited resources and expertise.
§ The Minister for Industry and Information Technology (Mr. Kenneth Baker)
In view of what the right hon. Gentleman has said, no doubt he will get around to welcoming the Chancellor's commitment yesterday of a further £185 million to research and development in the new technologies, which follows last year's commitment 313 of £100 million. We are spending five times what the Government of which the right hon. Gentleman was a member spent on new technologies in 1979. We should recognise those facts.
§ Mr. Orme
We recognise what the Government have failed to do, which is to invest at the proper time and to maintain that investment, especially when our main competitors—never mind Japan but even France and Germany—are doing so. We have had many press releases from the Minister, but not a lot of real action.
As I have already said, imports of manufactured goods have increased by 10 per cent. while the volume of exports has dropped by 4 per cent. Last year, for the first time in more than a century, Britain suffered a deficit in manufactured goods of more than £643 million. Import penetration in textiles and clothing has risen to nearly 70 per cent. of all textiles and garments sold, from about 30 per cent. 10 years ago, and employment in that sector has fallen from 800,000 to 525,000 since 1979.
In the face of those facts, can the Government still claim that there are no alternatives? The Labour party knows that there are. Our manufacturing industry must be saved because of the production, wealth and jobs that it creates. The Labour party is committed to regenerating British industry and, as my right hon. Friend the Member for Stepney and Poplar said, we shall reduce unemployment to below 1 million within the lifetime of a Labour Government. We shall not leave industry to flounder in the sea of free market forces.
With every other successful industrial country, we must have a national economic strategy to plan the economy with regional and local input. That is why we emphasise the crucial role of industrial democracy, tripartite sector committees and local planning. At the centre of the planning framework we shall set up a planning council, and the new National Enterprise Board will be given more powers and resources to innovate and to invest. It will work closely with a national investment bank set up to channel resources into the wealth-creating sectors of the economy. [Interruption.] Conservative Members laugh about that. We are talking about 4 million people unemployed and about areas of the United Kingdom that are now barren of industry. The Labour party is determined to rebuild Britain's industrial strength by working with unions and management to plan industrial development. Our aim is not only to save companies and factories from closure, but to back the creation of new companies and new science-based industries, to be led by new public enterprise and supported by the development of industrial democracy. There should be more expenditure on construction, telecommunications, the railways, hospitals, schools, housing, the improvement of roads and the conservation of energy. That is not wasted money, as the Government would have us believe. The use of public money in those ways will create jobs immediately in the public and private sectors and will be of lasting benefit to the nation.
This is a no-hope Budget for employment and industry. We need a Budget for jobs. Britain is at the crossroads as a major industrial power. Unemployment will increase as a result of the Budget, and that will threaten the very social fabric of our society. Those problems, with unemployment at such a high level, with young people unable to get a job 314 for years, not just for months and weeks, and with the middle-aged having no chance of returning to work in many key industrial areas, are the background to our discussion of this Budget.
The matter is serious for both the House and the nation. If we are to succeed we must have an industrial base. In the past, industry was treated as a second-class citizen. Those who worked either on the shop floor or in management were not given priority in society. We have seen what the Japanese, the Germans, the Americans and the French have done. Our priority will be to create industry where it has been decimated, to save industry where it exists and, above all, to get our people back to work. We are concerned with getting Britain back to work, and only a Labour Government can achieve it.
§ The Financial Secretary to the Treasury (Mr. Nicholas Ridley)
The right hon. Member for Salford, West (Mr. Orme) succeeded in speaking for half an hour before he mentioned the Budget, and he did not mention the customers of industry at all.
Unlike the right hon. Gentleman, I know something about Linotype-Paul. There is no question that any action of the Government was responsible for the change. It was nothing to do with incentives or lack of them. Linotype-Paul is a profitable company which, for perfectly proper commercial reasons, has decided to manufacture its products elsewhere. That gives the lie to the right hon. Gentleman's whole speech. For the right hon. Gentleman to suggest that the whole industrial decline of this country can be laid at the feet of the Government is utter nonsense. There must be demand for British goods. There is plenty of demand for goods, but not necessarily for British goods.
The hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) made an excellent and well-researched speech about the whisky industry, but he will agree that the problem is lack of demand for whisky. We have to address ourselves to the problem of finding things that people will buy. Nobody has tried harder than I to improve the supply prospects of the whisky industry. Taxation is not the problem. The duty has been reduced by 28 per cent. since 1975, and in real terms the retail price of a bottle of whisky is almost half that of 20 years ago. That should show the Opposition that they cannot simply pin the blame on the Government.
My right hon. Friend the Member for Stafford and Stone (Sir H. Fraser) said much about development land tax. Anyone who wishes to bring old factories into modern repair and sell them at a profit may do so without having to pay that tax. The tax is payable only where reclassification takes place as part of a planning process and a windfall profit results. I do not think that my right hon. Friend is right to blame development land tax for some of the troubles of the building industry.
My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) spoke about the growth in the number of Government servants. It is not for me to comment on the National Health Service, but in Customs and Excise and Inland Revenue, total numbers of staff have been reduced by 14,000 since the Government came to office. That is a decline of 13 per cent.—an achievement which I am sure my hon. Friend will recognise as an example of good management and curtailment of bureaucracy. I hope that 315 he will pay tribute where tribute is due to those in the public service who have established more efficient working practices.
§ Mr. Ridley
I shall not give way at the moment; I have only just begun my speech.
The right hon. Member for Salford, West was rightly concerned about jobs. A disappointing aspect of the debate has been the Opposition's total failure to pay due regard to what is done in the Budget to increase real jobs for the future. This is the European year of the small and medium enterprise. I do not suppose that that appeals to the Labour party, but it appeals to us, and to the hon. Member for Colne Valley (Mr. Wainwright), who welcomed the many measures in the Budget which will help small businesses and thus produce more jobs.
The right hon. Member for Stepney and Poplar (Mr. Shore) pooh-poohed the whole operation and said that it did not cost enough. I should not like to take the right hon. Gentleman out to dinner if I were paying the bill, as he is obviously the sort of chap who will always choose the most expensive item on the menu just because it is the most expensive. Perhaps he will change his tune if I tell him how much the small business measures in the Budget will cost. The cost in 1983–84 will be only £140 million as they relate mainly to the corporation tax side and will not come through until next year, when the cost is estimated at £380 million. If that is not a major shot in the arm for small businesses I do not know what is.
My hon. Friends the Members for Upminster (Mr. Loveridge) and for Luton, East (Mr. Bright) and many others recognised how much the Budget does for small and medium businesses. It is a rich crop indeed. I pay tribute to my hon. Friends for their pamphlet "Moving Forward", which inspired the Government to take many of their recommendations on board, and for their continual pressure on us to introduce measures to provide more jobs through small and medium businesses. The extra £300 million borrowing available under the loan guarantee scheme will be a major help to such enterprises, as will the reduction of the small profits rate of corporation tax to 38 per cent. and of the marginal rate between that and the main rate to 55 per cent. As has been pointed out, the hump is very much smaller. I am sure that my hon. Friends will agree that the best way to smooth the profile of corporation tax is that which we have chosen and which now extends right up to profits of £500,000, embracing the medium-sized firms about which my hon. Friend the Member for Upminster rightly expressed great concern.
I draw my hon. Friend's attention to three other measures that will greatly help medium-sized private firms. The rate of relief for minority shareholdings in unquoted companies is increased from 20 to 30 per cent., which will make a great difference to their ability to pay this tax. In addition, although this was not in my right hon. and learned Friend's speech, we intend to extend from eight to 10 years the period over which capital transfer tax may he paid by those in this category. Moreover, capital gains tax relief for retirement has been increased from £50,000 to £100,000 to encourage people to keep their money in their businesses.
316 Those reliefs, although the Labour party cares not a fig for them, will be a great help in persuading people that it is right to stay in their businesses, to expand them and to provide more jobs.
§ Dr. Bray
How does the right hon. Gentleman reconcile the 75 or however many special provisions for small firms with the high principle of non-intervention in the market which seems to exclude such discrimination? In particular, did he read the interesting article by Samuel Brittan saying what a lot of nonsense all this was?
§ Mr. Ridley
The hon. Gentleman is out of date. The 75 has been indexed and is now well over 100. To take away discrimination may be to even up the balance. The discrimination that successive Governments have built in against those who invest in equity as opposed to lending money has caused serious distortions, which may well be at the heart of the problen to which the right hon. Member for Stepney and Poplar referred.
On the business expansion scheme, I start from the premise that many of my hon. Friends found it too complex and restrictive in its previous form, as my hon. Friends the Members for Southampton, Test (Mr. Hill) and for Luton, East have said. The restrictions were deliberate, as it was intended to target the scheme on start-ups. With the experience that we now have, we have decided to widen it to all unquoted companies apart from those on the unlisted securities market. If there are restrictions in the scheme when it comes before the House, I hope that my hon. Friends will at least acknowledge that Ministers have taken those decisions and have cut the restrictions to the minimum to preserve confidence in the new scheme.
The scheme may cost up to £75 million in a full year—I hope that it will cost more—and I hope that it will be a great help to those medium-sized businesses to which my hon. Friends have referred. For the first time it extends these privileges to all unlisted companies, whatever their size. Full details will be included in the Finance Bill, but it might help the House to know that it will start with shares issued after 6 April 1983 and run until April 1987, at which time the next Conservative Government will no doubt extend it.
The limit for subscription to shares in any one year is increased from £20,000 to £40,000. We have done away with the 50 per cent. limit on share capital, subject to business expansion scheme relief, which was one of the main complaints of my hon. Friends. Relief will be claimable more quickly. On the other hand, individuals will not be allowed to replace their existing loans to companies with equity subscribed for under the business expansion scheme. I must say for the benefit of my hon. Friend the Member for Winchester (Mr. Browne) who told me that he would not be able to be present for the reply, that it is not possible to allow the scheme to be available to the directors and senior employees of a company. The scheme is for outsiders to put in additional and new equity and to keep it in the company for at least five years.
I believe that with loss relief on unquoted shares and with the purchase of own shares relief, which we introduced last year, and with the new business expansion scheme, small and medium-sized businesses will be provided with a shot in the arm unknown in any other industrial country in the world. No small or medium-sized company need miss the chance to expand through lack of capital. What this will do for jobs, to improve the gearing 317 of industrial companies and to reduce bank lending remains to be seen, but the opportunity is now there for those who are prepared to take it.
§ Mr. Cook
Before the right hon. Gentleman congratulates himself and his Government any further on what they have done for small businesses, would he like to explain to the House why small and medium-sized businesses have been going into liquidation at the fastest rate since records first began, and why they are currently going bankrupt at the rate of 40 per day?
§ Mr. Ridley
The hon. Member for Edinburgh, Central (Mr. Cook) should not measure one side of the account without the other. There has always been a large number of companies going bust and a large number starting. It is the net number that the hon. Gentleman should measure.
We have been considering how to make the work of computing and paying taxes simpler for small businesses. Those who cannot afford a wages clerk or a computer put in long hours working out their liability for PAYE and VAT. On VAT, we are asking for the views of small business men and their associations on whether they would welcome a switch to a system of annual accounting and payment of VAT. This would not obviate the need to keep records, but it would mean that calculations would have to be done only once instead of four times a year. This change would be helpful to their cash flow, although not, alas, to ours. It would mean that companies would have to accumulate the necessary funds by the end of the VAT year and it could not be optional. The Government are prepared to consider this only if the clear majority of those concerned are in favour.
We have not yet found a way of providing for annual accounting for PAYE. The cost of doing so would be large, but I think it worth drawing it to the attention of business men that they may engage and reward their employees on a net of tax basis. For businesses in certain trades, mainly those that employ piece workers, this could be very beneficial. We are considering whether there is more that the Government could do to help businesses interested in arrangements of this type. Tax inspectors are ready to explain this method of payment and to assist those who wish to switch to it.
Although we are not making any major changes to capital gains tax this year, the Chancellor announced increases in the amounts of a number of the reliefs. The doubling of the limit for retirement relief is an important component, which I have already mentioned, of our strategy for encouraging owners to keep their capital working in their businesses until their retirement. We shall also be providing relief where gains on overseas bank accounts are made by those resident but not domiciled here. We are also proposing to withdraw two reliefs—the exemption for gifts up to £100 and the facility for the payment of capital gains tax by instalments. In the light of recent changes in the tax, especially the substantial increase in the threshold and the rollover reliefs for gifts and settled property, these reliefs are now of little practical significance. I recognise that the tax remains excessively complicated, but these proposals provide a modest but useful simplification.
We have sought to increase the range of borrowing instruments. I agree entirely with my hon. Friend the Member for Horsham and Crawley that we would like to 318 see companies borrowing more from the markets and less from the banks. We would like to cheapen and stabilise the flow of long-term funds to companies.
There are three ways in which companies may raise long-term finance. First, there is the conventional full coupon issue, which has always been available. The only modification here is increased flexibility in the terms. It will be possible for such stocks to be issued at a discount of up to 0.5 per cent. a year up to a maximum of 15 per cent., with that discount being subject to capital gains tax in the hands of the investor. Although it will not be deductible by the company, it will have greater scope to use the discount as a way of varying the yield on successive issues of a particular stock—in other words, shelf issues.
Secondly, as originally announced in the statement by my right hon. and learned Friend the Chancellor of the Exchequer in June 1982, companies are permitted to issue indexed stock. Index bonds can be issued in broadly two forms, which I will call the capital route and the income route. Under the capital route the bond is structured so that indexation constitutes a capital uplift of the principal. The borrowing company will not be able to claim a deduction for this uplift against its profits for corporation tax purposes, but the investor will be subject only to capital gains tax, which, given the indexation provisions introduced last year, will frequently mean little or no liability.
§ Mr. O'Neill
On a point of order, Mr. Speaker. Does the Minister's speech constitute a reply to the debate, or would that be better achieved by means of a circular from the Treasury?
§ Mr. Ridley
It is incredible that a means of facilitating industrial borrowing, which could lead to the provision of more jobs, should be treated to such a cavalier and cheap interjection.
Under the income route the bond is structured so that the indexation generates additional sums of interest. These can either be paid out year by year or rolled up and paid out with the capital on redemption. Under such an arrangement the interest will be deductible to the borrower and subject to income tax in the hands of the lender. Coupon interest actually paid will, under either route, be treated as at present.
The third category is zero or deep discounted bonds, which were the subject of the recent consultative document. Many of the responses asked us to abandon the concept of symmetry—the principle that the discount should be treated for tax purposes in the same way both in the hands of the borrowers and the investors. This concept is not an obscure piece of theology but a simple piece of common sense. It takes little imagination to see how departure from symmetry would enable a company to both borrow and lend the same amount, at great cost to the Revenue.
However, an alternative proposal attracted support. The discount would still be treated as an income item for borrower and lender, but the borrower would be allowed to deduct the discount as it accrued on a compound basis, as is the practice in the United States. The lender would pay income tax on the accrued discount only when the bond was sold or redeemed. Any further gain or loss chat 319 he made as a result of the general shift in interest rates, for example, would be treated as a capital item. This proposal represents an attractive compromise. We have no hang-up over symmetry, only over arbitrage. There is a degree of asymmetry in timing, but the scope for arbitrage is limited. Companies get relief as the discount accrues, giving a cash flow benefit, while lenders pay tax only after they have received funds from disposing of the bond. We propose therefore to introduce legislation in the Finance Bill to provide for taxation in this way.
I should now like to answer many questions put by the right hon. Member for Stepney and Poplar, who is no longer with us.
§ Mr. Ridley
I am glad to hear that.
I should like to compare the burdens which the Government have placed on different sectors of society. In 1978–79, persons paid 76 per cent. of the non-North sea taxes and companies paid 24 per cent. After this Budget, persons will pay 79 per cent. and companies only 21 per cent. As the Chancellor said, that represents a switch of £3 billion from business to persons. In many debates we have been urged to reduce taxation on companies. There are many reasons why we should and why we have done that. Not least is the fact that the fall in profitability has reduced the corporation tax yield. The national insurance surcharge will have been cut from 3½ per cent. to 1 per cent. in August and national insurance contribution increases have been limited for business as against employees. Despite that, and despite the fact that the Government have got spending under control, although it is still high, if inflation was to be squeezed out and we were to have lower public sector borrowing requirements, it was necessary to increase personal taxation.
I want to discard another of the Opposition's main cards. They want to place more of the tax burden on those in the higher income groups. The hon. Member for Walsall, North (Mr. Winnick) made much of this. Unfortunately, we have done this on capital transfer tax and I regret it. Over the most of the scale, capital transfer tax is more onerous today than it was in 1975. To put this right would cost £75 million over and above the £50 million cost of the measures proposed yesterday by my right hon. and learned Friend through indexation of the CTT rate bands.
The right hon. Member for Stepney and Poplar said recently, when putting forward Labour Budget policy, that a Labour Government would restore CTT to the proper levels. I presume that means that he would reduce the rate bands by £75 million, because those were the bands which the right hon. Member for Leeds, East (Mr. Healey) brought in. We have reduced the absurdly high rates of income tax. The Opposition seem to think that there is a crock of gold to be got out of increasing rates of tax on the better off. It is not so.
To go back to 1978–79 income tax rates would produce £700 million, assuming the higher rate bands were kept at 1978–79 real levels. This would buy less than 1p off the basic rate of income tax, or allow thresholds to go up by about 4 per cent. But there is more to this than arithmetic. The policies of the Opposition are the politics of envy and of job destruction. The right hon. Member for Stepney and Poplar said that the main object of his party in its Budget would be the creation of wealth and the reduction of 320 unemployment—those were its central goals of policy—but we cannot create wealth by chasing the wealth creators away. If impossible burdens are put on those who can manage businesses, all that one does is invite them to go and manage businesses overseas. That is the failure of Labour party policy which it has never been able to face.
§ Mr. Ridley
But the right hon. Gentleman's Government trailed the world, whereas we shall lead it.
Nothing gives me more pleasure than that we have been able to increase personal allowances by 8½ per cent. over indexation. I should like more. I was asked to make comparisons by the right hon. Gentleman, the hon. Member for Motherwell and Wishaw (Dr. Bray) and others. The hon. Member for Motherwell and Wishaw mused about why the Labour party was in such a terrible state and so unpopular. My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) joined in the musing, which I thought was unkind of him. One should not be gleeful at private grief.
The hon. Member for Motherwell and Wishaw wondered whether the squabbles in the Labour party had brought it so low. He asked: is it the Falklands factor? I thought that I was going to cry. He went on to ask: has it been the mild winter? He answered that by saying: no, it is not. It is because this wretched Government have kept the standard of living of those in work at a high level. What a terrible accusation. What a disgraceful thing to have done. What a monkey that makes of the right hon. Member for Stepney and Poplar, who tried to make out that everyone is worse off.
The truth is that since the Labour Government left office income tax thresholds are 5 per cent. higher in real terms. Net of tax pay for those on average earnings throughout the period is up 8 per cent. in real terms. The percentage paid in income tax for those or, average earnings without children is down 1 per cent. The percentage paid in income tax for those with two children on average earnings is also down 1 per cent.
§ Mr. Ridley
The national insurance contribution is not a tax. It is necessary to pay for the cost of the retirement pension. I want to come to what right hon. and hon. Members have——
§ Mr. Ridley
I shall not give way.
I want to come to what right hon. and hon. Members including the hon. Member for Colne Valley have called a cheat. They said that we have robbed, deceived and diddled the pensioners. Our pledge was simply that we would price protect the value of the retirement pension. Between November 1978 and November 1982 prices rose by 61 per cent. We estimate that by November 1983 they will have risen by 70 per cent. If the figures that my right hon. and learned Friend gave yesterday are achieved, pensions will have risen by November 1982 by 68 per cent. as opposed to 61 per cent. for prices and by November 1983 by 75 per cent. as against 70 per cent. for prices. I require the Opposition to withdraw those words and the charges that they have made.
§ Mr. Ridley
I shall not give way. I ask the Opposition to stop using emotive and untrue language. They know full well that we have stood by the pledge that we gave to pensioners at the last election. They have no conceivable justification for the campaign that they are waging to deceive the pensioners, fiddle the facts and cheat the electorate about the reality of what the Government have done. I shall not give way to that.
Even if we include national insurance contributions in the calculations that I gave earlier, the net of tax pay for those on average earnings has increased 4 to 5 per cent. in real terms between the time when the Labour party left office and now. I accept that the percentage paid in tax by those on average earnings after income tax and national insurance contributions is up 1.5 per cent. I give the hon. Member for Edinburgh, Central (Mr. Cook) his little point.
§ Debate to be resumed tomorrow.