Budget Resolutions and Economic Situation

HC Deb 17 March 1983 vol 39 cc354-438

[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 Revue 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.]

3.46 pm

The Secretary of State for Social Services (Mr. Norman Fowler)

The social services are an essential element of the strategy set out in the statement made by my right hon. and learned Friend the Chancellor of the Exchequer in the Budget: first, because that statement included a number of very major improvements in social security benefits, and, secondly, because the maintenance of our social services depends so crucially on the performance of the economy as a whole.

Perhaps I could begin by setting out for the House just how much this Government are now spending on social security, the Health Service and personal social services. Taken together, spending on those three programmes in 1982–83 amounts to something like £50 billion a year, or 45 per cent. of public expenditure. That means, for example, that on social security we are spending £32.5 billion in 1982–83. That is £625 million a week. In the National Health Service we are now spending £14.5 billion a year compared with the £7.75 billion which was spent when we took office. But what matters more than the statistics of spending are the services that are being provided and that the help which is provided through the social security system is going to where it is needed most.

As far as the Health Service is concerned, perhaps the most significant indicator of all is the number of patients being treated. The latest figures we have are for 1981. They show that the number of inpatients and day cases being treated in hospitals was 500,000 more in 1981 than in 1978. They also showed that the number of outpatients and emergency cases being treated at hospitals in 1981 was 1.5 million more than in 1978. This is a reflection on the improved efficiency inside the National Health Service. It is also a reflection on the fact that new real resources have been added to health.

Mr. Mike Thomas (Newcastle upon Tyne, East)

rose—

Mr. Fowler

I shall come later to the Health Service, if the hon. Gentleman can contain himself until then.

As far as social security is concerned, the Chancellor's Budget on Tuesday contained a range of improvements in benefits which I shall want to describe a little later. Suffice it to say at this stage that we are increasing the real value of child benefit and one-parent benefit to their highest ever level; we are abolishing the invalidity trap which our predecessors were not able to do; and we are restoring the 5 per cent. abatement of unemployment benefit. All told, the benefit improvements announced in the Budget are the most significant made during the lifetime of this Government. They will give considerable extra help to many different groups in our community, to the unemployed, the sick, the disabled, the elderly and families with children. That is the context of this debate.

Mr. Andrew F. Bennett (Stockport, North)

rose—

Mr. Fowler

I should like to begin with the important change in the method of uprating social security benefits which was announced by my right hon. and learned Friend the Chancellor and which is contained in a Bill which I presented to the House yesterday.

Mr. Frank Hooley (Sheffield, Heeley)

I am sorry to interrupt the Secretary of State so early in his speech, but what I have to say is important. How far does the overall increase in social security payments represent the tripling of unemployment during the lifetime of the Government?

Mr. Fowler

I shall come to those precise points later in my speech. I shall seek to set out all the benefits improvements that we are making. I shall give way later, if the hon. Member for Sheffield, Heeley (Mr. Hooley) wishes to intervene.

I thought that it would be for the convenience of the House if I began with the important change in the method of uprating social security benefits. As the Chancellor announced, we are moving from the forecast method of uprating to the historic or actual method, and in judging whether such a change is right it is necessary to understand why the forecast method was introduced. It was introduced in the 1976 Budget and took effect from the 1976 uprating order. But no one, least of all the then Secretary of State for Social Services, Mrs. Castle, ever pretended that it was a change motivated by principle. It was a change made for one reason, and for one reason alone, and that was to save £500 million, which in current terms is worth £1 billion. Had the Government of the day stuck to the historic method, it would have provided a 21 per cent. increase. The forecast method to which they moved provided a 15 per cent. increase.

If anyone doubts that that was anything more than a public expenditure cut, they have only to refer to the diaries of Mrs Castle for the period 1974–76 when she recounts that the main aim of the then Chief Secretary to the Treasury was to get her to agree to a switch from the historic method of calculating the pension increase to the forecasting one which would save the Treasury some £500 million". In September 1975 Mrs Castle recorded her intention to resist this ferociously". But, as she recounts in her diary entries of 14 December, she lost that battle when it went to Cabinet. The Chief Secretary was adamant that he wanted the £500 million and the decision was captured in verse by another Cabinet Minister at the meeting, the right hon. Member for Deptford (Mr. Silkin), who pushed over the table a small rhyme commemorating the defeat which read: All things bright and beautiful All projects great and small All things wise and wonderful The Chancellor cuts them all".

Mr. Mike Thomas

That is a bit rich coming from this Government.

Mr. Fowler

The hon. Member for Newcastle upon Tyne, East (Mr. Thomas) says that that is a bit rich. I cannot recollect when he changed parties, but, as I remember, that proposal and that decision must have been supported by him as he was then a member of the Labour party.

Mr. Andrew F. Bennett

Will the right hon. Gentleman say whether he had a message passed across the table to him, or was he told he had been savaged this time after the decision had been taken?

Mr. Fowler

No. We neither work in the same way as Labour Cabinets, nor—even more wisely—keep diary accounts of what takes place. If any cross-reference is required, one has only to go to the diaries of the then Chief Secretary to the Treasury, the right hon. Member for Heywood and Royton (Mr. Barnett), who makes no secret of the fact that this was a public expenditure cut.

On one level, the 1975 Cabinet meeting was just an everyday story of Cabinet folk in the Labour Government agonising about public expenditure cuts. But what it also shows is that the forecast system was devised on grounds of expediency rather than on grounds of principle or, indeed, grounds of good government. The fact is—

Mr. David Ennals (Norwich, North)

rose—

Mr. Fowler

I shall give way to the right hon. Gentleman in a moment.

The fact is that, since the system was introduced, it has simply not worked. The forecast has been right only twice—in 1977 and in 1979. In other words, it has been wrong in five out of the seven years that it has been used. In 1978 the forecast was 1.9 per cent. too little. In the spring of 1980 the forecast was 1 per cent. too high. In 1981 it turned out to be 2 per cent. too low. In 1982 it was 2.7 per cent. too much. It was basically for such reasons that words such as "shortfall", "overshoot" and "clawback" entered the already not very elegant vocabulary of social security. The case for a return to the historic or actual method of measurement is, in my view, overwhelming, for the plain fact is that the forecast method, judged by whatever criteria one likes to take, has simply not worked.

Mr. Ennals

I speak with a clear record, because I was not in Cabinet when the Labour Government took the decision. During my period we got it right two out of three times. If the right hon. Gentleman's theory is right, that this was done by the Labour Government to save money—he will know that it was done at a time when inflation was dramatically falling—one can presume that the argument is now reversed and that the Government are assuming that inflation will go up and up and that the change is being made for the same reason, to save public expenditure.

Mr. Fowler

I am glad that the right hon. Member for Norwich, North (Mr. Ennals) has been kind enough to confirm why the Labour Government made the change. He has made the point for me. I shall come in a moment to the differences between the methods.

As the House knows, under the forecast method the Government pay pensions and other benefits on the basis of an estimate made several months previously of what inflation will be.

Mr. Ennals

And earnings.

Mr. Fowler

It is true to say that that was the position under the Labour Government. I shall try to tell the right hon. Gentleman what the position is now. I know that he likes fighting the battles of the past—

Mr. Ennals

No.

Mr. Fowler

—but I prefer to stay in the present.

Now the uprating will be based on the actual inflation rate between May 1982 and May 1983. That figure will be known on about 17 June. That date has been chosen because it is the last date which enables us to present an order to the House—that is important—and to ensure that all pensioners and all other beneficiaries receive their uprated benefit in time in November. I believe that the certainty and the stability that this change will bring will be welcome, for the Government will pay on the basis of what has actually happened rather than on a forecast made at the time of the Budget.

Mr. Brynmor John (Pontypridd)

When did the Government realise that they could uprate benefit in five months rather than in the six to seven months to which the Minister of State referred when he gave evidence to the Select Committee on Social Services?

Mr. Fowler

I am glad to say that we have been able to bring down the period to just under five months. We judged that to be the minimum time necessary to carry the uprating measures through. The hon. Member for Pontypridd (Mr. John), with his knowledge of social security matters, will recognise that that is the case. We have improved upon the forecast, which is a matter for congratulation. If we could improve upon it further, no one would be more pleased than me. The hon. Gentleman's remarks since the announcement show that there is some agreement that it is a more sensible way to uprate benefits in principle.

The Times, in its leader today, was factually incorrect to refer to the May to May estimate. It is clearly an actual measure.

Mr. Nicholas Winterton (Macclesfield)

While I fully understand my right hon. Friend's argument for changing the method from the forecast to the historic, does he not agree that doing so this year is, to say the least, a little unfortunate? Forgetting the possibility of an election, does not it appear to ordinary men and women in the street that it could be a way of obtaining the clawback that the Treasury sought to achieve, and that it is a devious way of doing so? Would not it have been more honest to have introduced the new method—which I fully support—next year. In those circumstances, Conservative Members could say "We have done a good thing".

Mr. Fowler

I am grateful for my hon. Friend's support. I wish to explain to him the arithmetic of the method. It is too early to say by how much benefit will increase in November 1983. The rate will be finally determined in June, when we know the May figure. But it is clear that had we used the present forecast for November of 6 per cent., and taken away the 2.7 per cent. overestimate for last year, the benefit increase would have been 3.3 per cent. As my right hon. and learned Friend the Chancellor has said, we are expecting a May to May measure to provide a figure of about 4 per cent. If we take an illustrative assumption of 4.25 per cent. annual inflation in May, that would mean in aggregate that pensions will have increased by about 75 per cent. under the Government, compared with an expected rise in prices between November 1978 and November 1983 of about 70 per cent. We have kept entirely to the pledge made at the election.

Mr. Andrew Bowden (Brighton, Kemptown)

Because of what I can describe only as the orchestrated campaign of misrepresentation of what my right hon. and learned Friend the Chancellor of the Exchequer has said, will my right hon. Friend confirm that the increase for pensioners in 1982 and 1983 will be an absolute minimum of 13 per cent.? There can be no question of any clawback. Will he also confirm that the increase that covered the period from November 1982 to November 1983, linked with the increase for May 1982 to May 1983, means that two five or six months' periods will fall within the same increased amount? That more than compensates for the five months lost between May and November.

Mr. Fowler

In 1982–83, benefits were paid at 9 per cent. on the base of inflation, but it was in fact 11 per cent. because there had been a 2 per cent. shortfall. The RPI at that stage was 6.3 per cent., not 9 per cent. In 1983–84, if we accept the estimate of 4.25 per cent. that will be paid, on an RPI of 6 per cent., which is also an estimate, pensioners will be paid more than 13 per cent. compared with the 12.3 per cent. by which the RPI will have increased. In addition, any rise in prices between June and November this year that was not picked up for the November 1983 uprating will be picked up in the following uprating.

We have taken a whole range of measures that I believe the country will welcome. First, there are measures to help families. We propose to increase child benefit to £6.50 a week for each child from November. The effect will be to establish the cash value of child benefit at its highest ever real value. At the same time, we shall increase one-parent benefit by a proportionate amount to £4.05. That benefit will be well above its highest ever level. Indeed, the proposed level of benefit in November 1983 will be more than 100 per cent. higher than in November 1978, while prices are expected to have risen by only 70 per cent.

But families will not be helped only by those benefit improvements. They will also receive substantial help from the proposed tax changes. Taking tax and benefit changes together, there is no doubt that the Budget is good news for working families with children, and that most will be better off in real terms.

Secondly, we have taken a series of measures to help the elderly. Apart from pensions, they will also benefit from tax changes. In addition, there are to be improvements in the supplementary benefit rules that will be of especial help to pensioners.

The improvements that we propose to the capital disregard limits will help in a number of ways. The increase in the capital limit from £2,500 to £3,000 is the second increase of £500 in successive years. Therefore, in the course of two upratings, we shall have improved the main capital disregard by £1,000—a 50 per cent. increase. That is a clear sign of our concern to help those with small savings or those who have received a modest lump sum redundancy payment. Moreover, it recognises the wish of both sides of the House not to penalise thrift.

We shall also raise to £500 the present £300 limit that applies to claims for single payments under the supplementary benefits scheme. That will help the elderly who, for example, have put money aside towards funeral expenses. They can keep up to £500 intact and still receive a payment.

Mr. Andrew F. Bennett

Will the Minister confirm that for the pensioners and others who had their supplementary benefit increased in November it was 0.4 per cent. less than the price increase because of the new proposals that take out housing? I understand that in May it is likely that there will be a substantial difference between the retail price index with housing and the index without housing. What will happen? Will there be an additional uprating for those on supplementary benefit based on the higher rate, or will they be treated as other beneficiaries?

Mr. Fowler

We shall keep to the present system. If it benefits those on supplementary benefit, they will gain from it.

We propose a new disregard for life assurance policies. I was pressed about that matter during parliamentary questions before the Budget. Up to now, the surrender value of such policies has been regarded in the same way as any other form of capital. We now propose that there should be a separate disregard of £1,500 on top of the ordinary capital limit. That means that a claimant can have policies with a surrender value of up to £1,500, plus other capital up to £3,000, and still be eligible for supplementary benefit. Alternatively, if he has no other capital, he will be able to have policies valued up to £4,500 and still be eligible for supplementary benefit. I believe that this change will be welcomed on both sides of the House.

The third area of improvement is that of early retirement. The proposals in the Budget are designed to help not only those who have already retired but those on the verge of retirement. That is why we are presenting measures to help men over 60 who have either effectively retired from work or wish to do so.

We shall relieve men over 60 of the need to sign on at the unemployment benefit office if all they want to get are contribution credits towards their entitlement to retirement pension. We shall do this by awarding credits automatically to fill any gap in the contribution record of such men. We shall also allow all men over 60, whether unemployed, sick or disabled, to qualify for the long-term rate of supplementary benefit without having to serve a qualifying period of one year on the lower short-term rate. That will put them in the same position as people over pension age. This change will take effect in June. For those who qualify for supplementary benefit, it will be worth up to £7 a week for a single person who is a householder and up to £10.60 a week for a married couple.

My right hon. Friend the Secretary of State for Employment has announced a third measure that will help men over the age of 60. The effect of this will be to extend the job release scheme to people over 62 who move from full-time to part-time work.

Mr. John

What is the right hon. Gentleman's assumption of the effect on unemployment of the measures he has just announced?

Mr. Fowler

The first measure, for example, will mean that about 90,000 people will not need to sign on at the unemployment benefit office. They will not be counted, of course, but that does not seem to me to be any reason for not taking a sensible measure.

Taken together, the measures that I have put forward present a coherent package of help for those over 60 who have already effectively retired or who may wish to do so. The benefit change helps those who are least well off. The contribution credits change helps those who are not generally entitled to supplementary benefit, and the extension of the job release scheme offers the opportunity for partial retirement to those who are in work.

The fourth group that the Budget helps is sick and disabled people. The House will probably agree that the most important measure here is the abolition of the invalidity trap. After November, invalidity beneficiaries will be able to qualify for the higher rate of long-term supplementary benfit after 12 months' receipt of incapacity benefits of one kind or another. Altogether this will help about 55,000 people-30,000 of those aged under 60, and 25,000 out of the 37,000 men over 60 who will be benefiting from the extension of the long-term supplementary benefit rate. The proposal will resolve a problem that has been recognised on both sides of the House, as well as by organisations outside the House, and will give valuable extra help to the families that need it most.

Another important step forward—and my hon. Friend the Minister of State with responsibility for the disabled has done a great amount of work on this—is the improvement in the flexibility of provision for war pensioners with mobility needs. To achieve this we are introducing a new cash mobility supplement and will progressively phase out the existing vehicle scheme. This supplement will be set at £2.10 higher than the civilian mobility allowance, so maintaining the traditional war pensioners' preference. The advantage to war pensioners is that they will be able to choose how to provide for their mobility needs—they can use the money to run a car or to obtain mobility by other means. If they wish to run a car of their own, they will be able to take advantage of the motability scheme. Some 11,000 war pensioners are likely to be entitled to the new allowance; 700 of them do not now drive and so do not benefit from the present scheme.

Finally, we are giving a special boost to the therapeutic earnings limit for the second year running. This is the amount that people receiving incapacity benefits—sickness and invalidity benefits can earn before their benefit is withdrawn. I believe that, all told, these are substantial improvements in the social security provision that the Government have made available to pensioners.

In the current year we shall be spending about £14.5 billion on the National Health Service compared with £7.75 billion in 1978–79. In 1983–84 that figure will go up to £15.5 billion. That represents an increase against inflation of about 17 per cent. It represents an expansion in services of about 7.5 per cent., and it has meant that since September 1978 the National Health Service has been able to employ over 45,000 more nurses and midwives and 3,600 more doctors and dentists. But above all, it has meant—and this is surely the criterion for a successful Health Service—that we have been able to treat more patients and more day cases than ever before.

Mrs. Gwyneth Dunwoody (Crewe)

How much of that increased figure is represented by increased charges?

Mr. Fowler

A very small amount, and a very small amount is due to efficiency changes as well. The bulk of the amount about which I am talking is extra resources which have been provided by the Government. I shall ask my hon. Friend the Economic Secretary to give the hon. Lady the exact figure.

Mr. Mike Thomas

The right hon. Gentleman is wrong and he knows it. If he takes the net figures from his own public expenditure White Paper and makes allowance for the medical advances that need to be financed and the costs that demographic change impose on the health service, does he not arrive at a figure of minus nearly 1 per cent. in the net spending? It is only when he includes the charges paid by patients, not money provided by the Government, that he gets a positive figure.

Mr. Fowler

The hon. Gentleman persists in this ridiculous and foolish argument that he trades round the country. It is absurd to suggest that the provision of more services for more old people—that is what demographic change means—and making modern treatment more widely available somehow do not count as growth. Clearly this is growth, and it is growth that has been financed by the Government.

Mr. Thomas

rose—

Mr. Fowler

No, I shall not give way again.

The fact is that, however spending is measured—whether in volume terms, economic cost terms or cash terms—spending on the Health Service has gone up. We have committed more resources to the National Health Service than any Government in history. I emphasise that we have no intention of turning our back on the National Health Service, which successive Conservative Governments have helped to build up.

Mr. Thomas

It is wrong. The right hon. Gentleman has accused me—

Mr. Fowler

Our aim is to develop the National Health Service and, above all, to provide better services for the patients. What that means in practice is getting the best possible value from the amount of money that the taxpayer is providing. There is no merit in spending money. What counts is what the money buys. That is why we have made it our job to improve efficiency by an entirely new system of regional reviews in which—

Mr. Thomas

rose—

Mr. Fowler

I must make it clear to the hon. Gentleman that I am not giving way to him. I have answered the hon. Gentleman's question several times. He is incapable of understanding it, and I am not prepared to continue a teach-in for the benefit of the SDP.

Mr. Thomas

rose—

Mr. Fowler

That is why we have made it our job to improve efficiency. That is why we have set up a management inquiry with men of exceptional management skills like Roy Griffiths—

Mr. Thomas

rose—

Mr. Speaker

Order. The hon. Member for Newcastle upon Tyne, East (Mr. Thomas) has been told by the Minister that he is not giving way. The hon. Gentleman intends, I believe, to try to catch my eye and, if successful, he will have the opportunity to state his views. The Minister must be allowed to continue.

Mr. Thomas

On a point of order, Mr. Speaker. Is it not the case that when any hon. Member directly refutes a statement made by another, the opportunity is given for the matter to be settled?

Mr. Speaker

Not always, by any means.

Mr. Fowler

I emphasise that our aim is to strengthen and develop the National Health Service. The starting point of our policy is that no one should be prevented from getting health care because he cannot afford it. The principle should be that good health care should be provided for everyone, regardless of ability to pay. An efficient National Health Service financed in its present way is the best means of achieving that goal.

The Government also recognise that the state cannot and should not seek to do everything. This seems to me to be one of the fundamental divisions between our views and those of the Opposition. Basically, the view of the Opposition is that health care should be provided only by the public sector and that every effort should be taken to ban private provision or, at the very least, to discourage it to such an extent that it never has an opportunity to grow. We believe that that attitude is not only absurd, but damaging. It makes no sense to ignore the extra health provision that can be provided in the private sector any more than it does to ignore the provision that can be made by voluntary organisations. It is only by partnership involving the different sectors—the public sector, the voluntary sector and the independent sector—that we can tackle the social and health problems of the 1980s.

Perhaps it is the belief of the Labour party that only the state can provide and that there are unlimited resources that leads the Opposition to make the wild promises that they make week by week as the election appears to draw nearer. A few days ago the Leader of the Opposition put forward his 12-point plan for pensioners. The cost of that plan would be between £10 billion and £20 billion a year.

Mr. J. W. Rooker (Birmingham, Perry Barr)

That is not true. Has the Secretary of State not received advice to the effect that the statement that he has made is totally untrue? Will he put papers before the House showing how he calculated the cost of the programme proposed by my right hon. Friend the Leader of the Opposition?

Mr. Fowler

I shall be delighted to do just that. The House will then be able to judge the irresponsibility and wildness of the promises and pledges made by the Opposition and see how expensive—perhaps unknown to the Opposition—they are.

The hon. Member for Crewe (Mrs. Dunwoody) proposes massive new spending on the Health Service and on the personal social services. Perhaps the hon. Lady wishes to deny that. The right hon. Member for Stepney and Poplar (Mr. Shore) in his pre-Budget statement, has proposed massive new spending, including massive spending on capital investment that the Labour Government did so much to cut back. The fact is that the Labour party appears to live in a fantasy world where spending can be increased virtually without limit, where pay can go unchecked and where no one appears to bother even to think of matching income and revenue with expenditure.

Regrettably, it is not a private fantasy world. The worst charge against the Opposition is that they are seeking to raise expectations that they know, in their heart of hearts, they cannot conceivably fulfil. What, of course, they could and would do would be to recreate massive inflation, and that would inevitably lead not to increases in the social services, in health services and in social security, but to slashing cuts.

Mr. Hooley

rose—

Mr. Fowler

No, I shall not give way again.

The Opposition should study the words of the right hon. Member for Heywood and Royton who, a few days ago, in the debate on public expenditure, said: I hope that what happened between 1974 and 1979 will be a powerful warning to those who may have it in mind to plan for huge increases in public expenditure. They could find happening again what occurred in 1974–75 when we increased public expenditure by 9 per cent. in real terms. Because we did not have the rate of economic growth to match that expenditure, at a time when there were also massive increases in money incomes, it meant that I"— he was speaking as a former Chief Secretary to the Treasury— spent the following five years carrying out the unenviable task of cutting, cutting and cutting again."—[Official Report, 9 March 1983; Vol. 38, c. 885.] There is absolutely no sign that the Opposition will heed that warning.

Mr. Hooley

The right hon. Gentleman gave a specific undertaking earlier that he would answer my point. Has he estimated how much of his social security expenditure is directly related to the 2 million unemployed who were not in the dole queues when this Government took office? This relates directly to the point that he is now making and the extent to which it is possible to spend this money on useful purposes rather than on keeping people doing nothing.

Mr. Fowler

There must be, and clearly is, a correlation between the two. The hon. Gentleman will be the first to concede that, because unemployment has gone much higher than anyone wishes to see, there is a responsibility on the Government to seek to make social provision for those who are unemployed. My point is that the Government have fulfilled that obligation.

We, on the Government Benches, have always recognised that improvements in social services depend not just upon words but, above all, upon a responsible economic policy. The policies followed by the Government have succeeded in lowering inflation and establishing a stable foundation for economic growth in the future. In the final event, it is those policies that will most benefit the growth of social services in this country.

4.27 pm

Mr. Brynmore John (Pontrypridd)

The Secretary of state in his entertaining and wildly inaccurate speech, made one point that I should dispose of straight away. I refer to the amazing allegation that, because there are more old people than there were, greater spending on the Health Service to cater for them represents a real growth in the Health Service. On that basis, the right hon. Gentleman should be boasting of a real increase in unemployment benefit. He is now paying for 3.5 million unemployed, whereas in 1979 there were only 1.3 million unemployed. The right hon. Gentleman must have had everyone culling the political memoirs at the Department of Health and Social Security. The Department cannot give the figures of payments that it is making in respect of the extra unemployment.

For reasons that are apparent, there was no statement yesterday such as is normally provided. It will, therefore, be necessary to clarify some of the details that the Chancellor never seeks to attempt in his Budget statement, although he could have done so. The Government, so boastful of their modest measures, forget that they have cut the social security budget during their period in office by £1.5 billion a year. That is the reality. It is a figure that the Government, in one of the rare intervals when their civil servants were not cut culling through the political memoirs, did manage to come up with. It is not merely a matter of methodology that leads me to deal, in the main, with the historic and forecast method of uprating benefits.

It is not an academic subject for two reasons. First, it is not an arid paper exercise because it affects the amount of money that is paid to people whose income is considerably below the national average. Secondly, it affects every benefit touched on in the Budget except child benefit, so that the spread of those affected by the change in methodology—the disabled, the invalids, the sick, the unemployed and the retired—goes right across the range of social security benefits.

If I heard the right hon. Gentleman correctly I interpreted him as giving me a categoric assurance that there would be no delay in paying the new social security benefits at the due date in November. I emphasise that because the Minister of State, in a memorandum to the Select Committee on 15 December 1982, which even in this Government's memory is not the ancient past, said: The timetable reflects the operational need for a period of six to seven months from the time the new rates are decided". That means a shaving of one to two months off the period that the right hon. Gentleman claimed was physically necessary for making the new payments. If it can be done, I welcome it, but it means that when the Government next say that an interim uprating in a period of high inflation is impossible because of operational conditions, the argument will be less credible than it was last time. I hope that whoever winds up the debate will make it clear that no delay will be tolerated by the Government in the payment of the increased benefits.

I do not know whether the right hon. Gentleman intends to give us further fascinating glimpses of Cabinet life under the Conservative Government. He says that they do not work as the Labour Cabinet did. The Conservative Government work in curious ways. The Secretary of State for Social Services and the Chancellor of the Exchequer apparently never talk to the Prime Minister, because the Prime Minister this afternoon at Question Time said that she could not possibly forecast what inflation will be next November; this is only two days after the Chancellor said, as we can see in c. 139 of Hansard, that inflation would be running at 6 per cent. at that time.

Mr. Fowler

That is an estimate.

Mr. John

Certainly, but Governments run on estimates. Perhaps the Government run on 2-star estimates rather than 4-star. They run on some sort of estimating principle. It is much to be pitied that the right hon. Gentleman does not take time off from his assiduous culling of political memoirs to tell the Prime Minister what assumptions both the Treasury and the Social Services Department are working on when they are talking about uprating. What is generally agreed in almost every forecast is that the period to May of this year will mark the bottom of the spiral.

Mr. Richard Needham (Chippenham)

rose—

Mr. John

I shall give way when I have finished this point, and not before.

The inflationary spiral will be at 4 per cent.; the handout by the DHSS refers to an illustrative assumption of a 4¼ per cent. increase". We shall be at the bottom of the spiral in May. In November it is expected that inflation will have gone up to 6 per cent.; that is the Chancellor's own assumption. Despite all the trumpeting about there being no clawback, there will be a shortfall of 2 per cent. between the forecast for inflation in May of this year and the forecast for November. That shortfall will not be made good in the November uprating that has been proposed by the Chancellor. Now I will give way.

Mr. Needham

I am sure the hon. Gentleman appreciates that all forms of estimating are difficult. Surely it is more sensible to estimate five months into the future than 18 months into the future.

Mr. John

The historic method is to work out what has happened; so it is not an estimate for five months, a year or nine months but it is worked out on past performance. As I am sure the hon. Gentleman understands, all economic commentators accept that the May figure will probably mark the bottom of the inflationary spiral, when the inflation rate will be about 4 per cent. The Chancellor himself has said that he expects that inflation will go up to 6 per cent. Hon. Members on the Government Benches may not agree with the Chancellor but he has to be taken as the most relevant authority on the subject.

In November, when in the real world in which pensioners live inflation is 6 per cent., they will have a 4 per cent. uprating to compensate for the rise in the cost of living. There will be a 2 per cent. shortfall, which will equal in a year one week's benefit for the elderly, the sick the unemployed and the disabled. Let no one be under any misapprehension about what will happen this year because of the change of method; I shall come back to whether it is more accurate. If inflation goes up from 4 per cent. to 6 per cent. in November, it will mean that those in the poorer categories will have one week's social benefit docked.

Of course, this is being done apparently skilfully. when Ian Aitken, the political editor of The Guardian, wrote on 17 February about the clawback of pensions he told us to expect something apparently subtle. He said: The Government is now expected to fudge the issue of a 'claw-back' of the excess pension payments … Indeed, officials at the Department of Health and Social Services believe that it is possible that the total clawback will be almost invisible. Unfortunately, as with the legendary hairpiece of Ernie Wise, we can see the join. Therefore the Government have been caught out. Under cover, under another name, under a pretence, they have operated a clawback of some sort. Therefore, the Chancellor is like the cat burglar whose career has been cut short because he stepped upon a squeaking floorboard and was discovered. The Chancellor tried to be stealthy but his argument did not hold together.

The effect of the subterfuge has been to saddle the pensioners with a week's loss of income this year and with an unrealistic base for the future. In eight of the last 14 years to have adopted the historic rather than the forecast method would have led to pensioners being worse off. As I have said, we can debate in academic calm whether a historic or a forecast system should be adopted. What is not at issue is that the results of the change of method are unacademic; they are practical for everyone.

There is a simple way of ensuring that none of us objects to the change from the forecast to the historic method; the Secretary of State should guarantee that no person will lose this year by the change in method. He should undertake either to uprate the benefit in November by 6 per cent., if that is necessary, or, if he cannot do that because of the system of the DHSS, he should undertake to pay in future a Christmas bonus to all the categories I have mentioned, and not just to pensioners, of a size which will compensate them for their loss.

I am sure that the Minister will accept that it is not a once-for-all change. The effect carries forward. If he will give that undertaking, we are prepared to debate the merits or demerits of the historic as opposed to the forecast system. If he will not give that undertaking, I throw back to him the words that he has so feelingly quoted on many occasions—that the change is designed to save the Government money and that it will save them about £500 million if it is done in this way this year.

Mr. Hooley

Earnings are currently running ahead of inflation, so if the Government had not repealed Labour's measure, pensioners would have enjoyed a higher increase in November than they will receive under the present system.

Mr. John

I spend my parliamentary career trailing a little behind my hon. Friend's arguments. I was about to mention that. The effect of the 2 per cent. cut is to take £1.05 per week from married pensioners and 65p per week from single pensioners. As my hon. Friend says, because the Government have abolished the earnings link, the married couple are already £2.25 per week worse off and the single person £1.45 per week worse off. The cumulative loss is therefore £3.30 and £2.10 per week.

Secondly, by common consent the Budget holds out little or no hope for a rapid reduction in unemployment. Indeed the highest that those seeking to defend the Government pitched their case was to say that unemployment would not rise so quickly as it had in recent years.

As the number of unemployed rises, so does the number of long-term unemployed—those who have been unemployed for more than a year. The figure has already soared to well over 1 million. After a year the initial catastrophic loss of income is compounded by the fact that they then go on to the shorter-term supplementary benefit rate and are never able to qualify for the long-term benefit. As the Minister confirmed when he gave the figures for a married couple, the Government are depriving people, who are hard pressed to make ends meet, of between £10 and £11 a week by not allowing them ever to receive the long-term rate of supplementary benefit.

In the Budget, a tiny proportion—about a company in strength—of the army of long-term unemployed has at last been granted the right to long-term supplementary benefit. I refer to the 42,000 who are over the age of 60. We welcome that, but we are not satisfied with it. Nor will the rest of the army of long-term unemployed be satisfied. There is nothing magic about the age of 60 unless one is attempting to massage the unemployment figures. The long-term unemployed aged 40 and 50 have exactly the same battles to fight as the 60-year-olds and are frequently raising a family as well.

One is left with the suspicion that the main reason for that concession was to massage the unemployment figures. Why else would the Government deal with only 4 per cent. of the long-term unemployed and leave the remaining 96 per cent. without any easement or betterment in their condition? Now that industry lies in tatters around us, it is time that the Chancellor took steps to protect the longterm unemployed by giving them the right to long-term supplementary benefit. That is the major strategic defect in the social security provisions of the Budget and it gives everyone the impression that the Government do not give a damn about the long-term unemployed.

Mr. A. W. Stallard (St. Pancras, North)

Or the short-term unemployed.

Mr. John

No, they seem not to care about any of the unemployed.

We are told that the 5 per cent. abatement of unemployment benefit has been restored. In common with almost all hon. Members, I am glad and relieved that the Government have abandoned their undignified and untenable defence of the indefensible, but our enthusiasm must be tempered by the fact that by the time it is abolished a species of double taxation will have been endured for about 16 months. Many thousands of unemployed people will have spent a full year not just liable to taxation but liable to the 5 per cent. abatement of their benefit. From the small sums of money involved, the single person will have had to give up £1.05 per week and the married person £1.75 per week as a result of the 5 per cent. abatement. A person unemployed for a full year will have had to pay £54.60 if he is single and £91 if he is married. One's enthusiasm is tempered even more by the fact that this was decided not by the macro-economic theories of a benevolent Chancellor but by the arithmetic of a worried Patronage Secretary who knew that he could never force that through the House again. The Government had already suffered enough narrow squeaks on that. We are glad for the unemployed that the Government have had to make a virtue of necessity.

Abatement of benefit does not end there. Many hon. Members on both sides seem to have forgotten that in anticipation of taxation, invalidity benefit, sickness benefit and maternity allowance were also subject to the 5 per cent. abatement under the Social Security (No. 2) Act 1980. For the latter, the loss is £1.05 and £1.75, but the diminution in invalidity benefit is £1.40 and £2.30 per week. Statutory sick pay was calculated on the abated allowance and is therefore taxed on that basis.

Mr. Stallard

Is my hon. Friend aware that the unemployed who lost the 5 per cent. will never get it back? As unemployment pay lasts for only 12 months, those who have been unemployed for a longer period will not benefit from the restoration of the 5 per cent. It will not benefit whose now unemployed, but only those who will be unemployed from next November, so it is an even bigger trick than it appears at first sight.

Mr. John

Yes, it is the unemployed as a category rather than as individuals who will receive the benefit, so it is perhaps a mark of the Government's assumption of continued high unemployment in this country.

Three years after the passage of the Act and the 5 per cent. abatement no scheme of taxation has been devised for invalidity and sickness benefit. Some people in receipt of those benefits would have been liable to tax, but those whose only income was long-term invalidity benefit would not be liable to any tax for the coming year and others would be liable to tax but not to the extent of a full 5 per cent. of their income. Yet all are subject to the 5 per cent. abatement, whether they would be liable to tax or not.

That would not be tolerated in any other sphere of taxation. A scheme could not be worked out to deal with a particular category, so a notional amount was taken. One can imagine the outcry from Conservative Members if we said that we could not work out the details of some new company taxation so we intended to make an arbitrary impost of 5 per cent. There is not a company director or even a second-rate unit trust salesman on the Conservative Benches whose blood pressure would not rise at the very thought of such a thing. Yet they are prepared to tolerate the same injustice in this case.

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

rose—

Mr. John

I had thought that it was not the custom, even for Ministers, to walk to the Despatch Box in that manner before one had agreed to give way. I am determined to finish this point.

The point that even Treasury Ministers cannot deny is that either a person is liable or he is not. If he is, he is liable to be taxed at the correct rate. The 5 per cent. abatement catches many people who would not otherwise be liable to pay any taxes. We must demand of the Government that they either devise a system of taxation quickly or legislate to remove the abatement immediately. They cannot keep piling on the agony.

Mr. Ridley

National insurance surcharge was just such a tax, imposed irrespective of a company's ability to pay, by the Labour Government—the hon. Gentleman's Government.

Mr. John

I remember well the loud and clamorous sound from the Conservative party then. Does the right hon. Gentleman, in his discussions with the Treasury, ever raise a cheep on behalf of the sick and the invalids? I bet he does not. He just takes them as being the unmentionable people, those better forgotten.

To continue with the comparative goodwill—it is becoming a little strained by the Treasury, but the DHSS is not quite as irredeemable as the Treasury—I offer the sincere congratulations of the Opposition to the Government on managing, after only four years of government, to restore the real value of the child benefit to the level that had been achieved when we left office. To be fair, the Government have done a little better. At a 6 per cent. rate of inflation, which is what they forecast, they would only have needed £6.45 a week to restore the previous level, so child benefit has been raised in real terms by 5p a week.

We are asked to ignore the fact that over the past four years child benefit has consistently been running at below its real value under the Labour Government, as of April 1979. A parent has lost, in respect of each child, £80.60 over that period. A child born on the fateful day in November 1979 when the Government first started to plunder the social security system, would now be three and a half. Even if he is in full-time education, the longest time for which a parent can claim child benefit for him is until he is 19. He would therefore be entitled to 15 years more child benefit. At 5p a week, that would repay him only half the amount that he had lost over the past four years. It would take 30 years at 5p a week for the Government to restore what the parents have lost over the past four years.

Mr. Ennals

Does that not also disregard the fact that one of the first things that the Government did was to cancel the extra 50p on child benefit that would be permitted by the Labour Government?

Mr. John

That is part of it. I can envisage children being grandfathers when they catch up, but not great-grandfathers.

The Financial Secretary could feed our view to his Department for costing, as his Department has such difficulty in costing our programme. We believe that much more should be done for children because our meanness to children is the main cause of family poverty. We should pay a sum equal to the real value as of April 1979 for the dependants of short-term national insurance beneficiaries. That could mean an increase of £2 a week. As it is, we have increased child benefit by less than the tax threshold. Tax thresholds have gone up by 14 per cent., and we have increased child benefit by 11 per cent. That is discrimination against the family by the Government who like to pride themselves on being the Government of the family.

Over 1 million children have parents on unemployment benefit, and over 1.75 million children are members of families dependent upon supplementary benefit. While we welcome the tiny move made, let not the Government congratulate themselves that, having taken three steps backwards and one forward, they have made progress over the period that they followed.

We welcome the increase in the capital disregard for supplementary benefit, after pressure by us, to £500 for single payments. We are glad about the recognition of the hardship of taking into account the surrender values of life insurance policies. What puzzles me is why they are not totally disregarded, because the amount of money and the numbers that are involved—if one is taking the only capital of the person as being the life assurance policy, with a surrender value of £4,500—must be extremely small.

What about redundancy payments? They too are designed not merely to bridge the immediate gap, but to compensate for the loss of the rest of the working life. However, receipt of redundancy payments disqualifies the recipient from supplementary benefit. We hope that this will be looked at as a matter of urgency.

Some disregards are even more pressing. The Secretary of State will be aware of the furore about war pensions. Certainly the Minister of State will know about them, and the Secretary of State had something to say about them in his speech. What about the disregarding of income for war pensions? That was set at £4 in 1975. To bring it up to date now, it should be £9.50. Is it not time that the Government looked at this?

We welcome the removal of the poverty trap in respect of invalidity pensions. There is some doubt as to whether that includes widows who are caught in the same poverty trap. Are the Government intending that they should be dealt with upon the same basis, or are the Government planning to replace the poverty trap by a widows' trap?

There were some problems that were not included in the Budget. I have no doubt that the Minister of State will be interested in the first point, which concerns the Government's famous, although some might say mythical, review of the household duties test for the noncontributory pension, instituted by the Labour Government. It is like the horizon, because however far one travels towards it, it is equally far away. I remind the Minister of some of the statements that he had made over the past few years about this. In answer to my hon. Friend the Member for Eccles (Mr. Carter-Jones) the Minister said: The review is nearly completed and I have already said that, when it is, the matter will be brought before the House."—[Official Report, 15 December 1981; Vol. 15, c. 108.] Later, he said, in reply to my hon. Friend the Member for Barking (Miss Richardson): The review is nearing completion".—[Official Report, 26 January 1982; Vol. 16, c. 333.] Later, in answer to my hon. Friend the Member for Wolverhampton, North-East (Mrs. Short) he said: The review is still not complete".—[Official Report, 30 March 1982; Vol. 21, c. 91.] On 29 June 1982, at an all-party group meeting on disablement he said: The DHSS review of the household duties test is almost complete"—. it has been "almost complete" now for a year and a half— and will probably be brought before Parliament in the Autumn. Then, my hon. Friend the Member for Wolverhampton, North-East became even more inquisitive and asked another question, to which the Minister replied: the … test is under review. I am not yet in a position to make a statement."—[Official Report, 1 February 1983; Vol. 36, c. 75.] Then the hon. Member for Aberdeenshire East (Mr. McQuarrie) finally tried to rumble the truth and asked another question to which the Minister memorably replied: I can give no undertaking at present."—[Offical Report, 10 February 1983; Vol. 36, c. 444.] When will the review be completed? Is it going on? Is the Minister of State going on? He appears to be going round in endless circles. He might be the Flying Dutchman or a species of bird known to the armed forces, but he does not appear to be achieving a great deal of progress in this case. The household duties test is one that discriminates against married women and one about which they feel deeply. I hope that the Minister will be able to give us firm and reassuring news later.

Operation Major at Oxford revealed to me the total inadequacy of the daily allowance given for the single homeless. At the moment it is £2.93. If one provides that sort of money, is it not likely that such people will be forced to go to the shady lodging house and the unscrupulous landlord? That may be the only type of accommodation that they can afford.

Even those of us who take the rather naive view that a breach of the law is a breach of the law do not want such people prosecuted because poverty has forced them into lawlessness. The Secretary of State should consider urgently the single homeless allowance and act to avoid such unsavoury episodes in the future.

The Chancellor boasted of his achievement in cutting the number of civil servants. May I remind Ministers that, despite the easy cheers that that received from their Back Benches, the quality of service in the welfare state depends upon the dedication and numbers of staff who service the system. The operational strategy could form the basis of an improvement in the quality of the service, but will it? The staff are worried that the Government will regard the Civil Service as having to be self-financing, which will lead to lower numbers rather than higher standards.

The Government could set those fears at rest by undertaking that all the staff affected by the first phase of the exercise will be redeployed in improving the quality of the Civil Service and will not be declared redundant. In the past year in Birmingham and elsewhere we have seen the pressures placed upon staff and claimants by the number of claims and the restrictions imposed on claims by the Government. Unfortunately, the staff will suffer the hostility in the coming year from those who have suffered from the great clawback swindle, because for all the modest improvement in some parts of the Budget, the abiding impression will be of the trick that failed. The Chancellor has become by incompetence what Tommy Cooper is by design—a would-be grand illusionist whose performance goes wrong time after time.

Those who have to live with the consequences of those mistakes will neither forgive nor forget the Chancellor.

5.2 pm

Sir Ian Gilmour (Chesham and Amersham)

The hon. Member for Pontypridd (Mr. John) was labouring under considerable difficulty—the Labour Government's record. If it had not been for that, he could have made an effective speech. Even he agreed that there are a number of good things in my right hon. and learned Friend the Chancellor's Budget, and a great many of them occur within the responsibility of my right hon. Friend the Secretary of State for Social Services. I congratulate them both. I am glad that the running sore of the 5 per cent. abatement has at last been removed. I hope that we never have such an episode again.

Like everyone else, I am delighted by the elimination of the invalidity trap. I welcome the concessions on capital limits made by my right hon. and learned Friend the Chancellor and by my right hon. Friend the Secretary of State.

I believe that the change in the method of indexing pensions and other benefits must be right. I was going to make the point made by my hon. Friend the Member for Macclesfield (Mr. Winterton) about the timing, but I became so lost in the learned exchange between my hon. Friend the Member for Brighton, Kemptown (Mr. Bowden) and my right hon. Friend the Secretary of State that I do not feel able to say any more about it. Perhaps my right hon. Friend can find some way round the difficulty.

Like the hon. Member for Pontypridd, I regret that the Government have not introduced a long-term supplementary benefit rate for the long-term unemployed. However, the hon. Gentleman failed to point out that the Labour Government also failed to make such provision. I know that the hon. Gentleman can legitimately say that there were fewer long-term unemployed. Nevertheless, there was the same need for the Labour Government to do it. I hope that my right hon. Friend will be able to bring that reform in before long, because there is no reason why the unemployed and their children should be treated worse than other unfortunates who have to resort to supplementary benefit.

The rise in child benefit is to be welcomed wholeheartedly and unreservedly. I congratulate my right hon. and learned Friend the Chancellor and my Night hon. Friend the Secretary of State upon that.

Vast sums of money are spent on social security because there are so many people without jobs. The great gap in the Budget is the absence of measures to deal with unemployment. There are measures to deal with unemployment figures, but that is not the same thing—although, as my right hon. Friend made clear this afternoon, those measures are fully justified.

On Tuesday my right hon. and learned Friend the Chancellor, at the beginning of his speech, said that his proposals were designed to further the living standards and employment opportunities of all our people and to sustain and advance the recovery for which we have laid the foundations.… Lower inflation and lower interest rates are themselves the right foundations for economic recovery, a recovery which can be sustained. Lower inflation and interest rates are certainly good, but the claim that they will, by themselves, bring about a recovery is an act of faith. It is not based upon any evidence of which I know; still less is it based upon the evidence of the 1930s as Mr. Ronald Butt suggested, wrongly, in The Times today. There was a great deal of intervention from protection upwards or downwards during the 1930s.

I give one last quotation from my right hon. and learned Friend's speech: It is our purpose as well to secure a sustainable growth in job opportunities."—[Official Report, 15 March 1983; Vol. 39, c. 134–38.] That sounds hopeful, so we turn naturally to the Red Book to see how it will be done. Unfortunately, the first bit is not encouraging. At the beginning of the chapter on the medium-term financial strategy, in paragraph 2.01 it states: The objective over the medium term is to continue reducing inflation, and to secure a lasting improvement in the performance of the UK economy, so providing the foundations for sustainable growth in output and employment. After four years we are still providing the foundations. It is just as well that the Chancellor is not a builder. If he were, his buildings would never appear above ground level. He would always be laying the foundations. Even the foundations are not all that solid, because 3 million or 4 million unemployed people and a large loss of manufacturing capacity are not the best foundations upon which to build.

Dr. Alan Budd, who is a great supporter of my right hon. and learned Friend's policies, although he sometimes admits to considerable mistakes, made a similar point in The Guardian on Monday when he suggested that it would be tragic to throw away the hard-won gains in reducing inflation in a premature dash for growth. After three or four years of unprecedently severe depression, I should not have said that it was necessarily premature to do something to help industry and reduce unemployment.

I should like to ask the Government when, under the present policies, will it not be premature to go for expansion? When will it ever not be premature for the economy to be expanded? On Tuesday the Chancellor said that nothing could be more dangerous for recovery than a resort to reflation. It seems to be all right for other countries to expand and for us to try to take advantage of their expansion, but it is apparently not all right for Great Britain to expand.

If we look at the more encouraging area of productivity, the Red Book states: In 1982 there was evidence that the period of exceptionally rapid productivity gains in manufacturing was giving way, as had been expected, to more moderate gains. Nevertheless, there have been gains. Productivity is plainly a key element in growth, and we need to see what, in the Treasury's view, will happen to growth.

In the debate last year I was sceptical about the Treasury's estimates of growth. The Treasury now admits that the estimates were wrong. It was 0.5 per cent. instead of 1.5 per cent. This year I am less sceptical. I hope that the estimates of growth made in the Red Book will turn out to be fully justified. What are those estimates? They are: Real output is assumed to grow by 21/2 per cent. a year on average over the three years. Therefore, even on the Government's own showing, output will not rise enough to get unemployment down in the next three years. The only way that the Government could argue that unemployment will fall would be to say that the productivity gains were illusory and productivity had fallen, not risen. However, that is not true, and they would not say that.

I think that it is fair to say that the Government have been generally over-optimistic about unemployment. However, this year they are being more cautious. The Red Book states: Growth of total output in the range 2–21/2 per cent., if sustained for a period and accompanied by no major shifts in financial pressures on employers, is probably consistent with no great change in unemployment. Unless the productivity gains are small, which would bode ill for our future, that phrase must be a euphemism for unemployment continuing to rise, though presumably more slowly than in the past. Therefore, on the Government's own figures the so-called "real jobs" will not materialise for the next three years. We shall still be laying the foundations, and the scourge of high unemployment will go on getting worse, not better.

That is my first and major criticism of my right hon. and learned Friend's Budget. The second is that the Budget makes little attempt to further the objectives laid down by my right hon. and learned Friend. After the sentence already quoted — It is our purpose to secure a sustainable growth in job opportunities"— my right hon. and learned Friend added: So we must look for a larger share of rising demand to be translated into British output and British jobs. We all say, "Hear, hear" to that. In a mood of qualified euphoria, my right hon. and learned Friend said: British business is now better placed than for many years to make inroads into markets at home and overseas".—[Official Report, 15 March 1983; Vol. 39, c. 138–39.] As we have seen, the Chancellor's euphoria is not firmly grounded in the experiences of the recent past. Although, fortunatelY, last year exports held up well, it was the first year in our history when we had a trade deficit in finished manufactures.

Granted my right hon. and learned Friend's objective of translating a larger share of rising demand into British output and British jobs, surely there should have been a strategy in the Budget to achieve that objective. That would have meant at the very least not just a small diminution in the national insurance surcharge, but its abolition. The failure to abolish it was a damaging omission and at variance with the Chancellor's principal objective. A strategy to achieve that objective would also entail a considerable rise in public investment, not merely to shore up our decaying infrastructure but to help the construction industry, which is not import-intensive, and would produce many jobs.

However, instead of seeki0ng to achieve his objective of translating rising demand into British output and British jobs, my right hon. and learned Friend is having a mini consumer boom. That was set off—intentionally or unintentionally; I do not know which—by the removal of hire purchase restrictions last July. It will not be stopped by the Budget.

That absence of strategy is all the more serious because of what will happen to North sea oil. The Government's policies have been made possible only by North sea oil. Without those enormous revenues, the Government would not have been able to rely on a so-called medium term financial strategy. They would have been compelled to have a strategy for the real economy.

An answer to a question asked by my hon. Friend the Member for Halesowen and Stourbridge (Mr. Stokes) makes it clear that North sea oil production is expected to decline from 1986 onwards and that from then on the revenue will decline, subject to the price level. On the same page of The Guardian from which I gave a quotation by Dr. Budd, that point was made by Mr. Francis Cripps and Professor Wynne Godley.

The prospective decline in oil production and oil revenues highlights the need for the Government to act. Yesterday my right hon. Friend the Prime Minister said that the Government had a long-term plan. That is very good news. However, there is not much sign of it in the Budget. Instead of allowing unemployment to rise or to continue at its present astronomic height, my right hon. and learned Friend should have started to rebuild the economy. Instead, he has merely gone on tinkering with the foundations.

There are many good things in the Budget. Many measures deserve praise, particularly the social security measures. However, because my right hon. and learned Friend has not addressed himself either to the present problem of unemployment or to the future problem of the fall in North sea oil production, I fear that the Budget makes scant contribution to solving Britain's economic problems.

5.17 pm

Mr. David Ennals (Norwich, North)

The right hon. Member for Chesham and Amersham (Sir. I. Gilmour) has made a powerful attack on the Chancellor of the Exchequer's speech. Except for his preliminary incorrect comments about the record of the last Labour Government, I agree with every word that he said. I welcome his plea for expansion. I hope that what he has said, with all his experience, will be taken seriously by the Chancellor.

We are debating a dismal, unimaginative Budget. It was a wasted opportunity. As the right hon. Gentleman said, with massive and rising unemployment, the Chancellor has not risen to the challenge or seized the opportunity to set Britain on a new course. If he had taken a little notice of the pre-Budget speech of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) a week before and had given us a Budget that compared with the Budget that a Labour Government would have put forward, it would have been a different story. The right hon. Gentleman referred to the need to rebuild the economy. We have seen none of that in the Chancellor's speech. It was a limp, lacklustre Budget that will soon be forgotten, but in many cases will not be forgiven.

The industrial package was absolutely inadequate, especially for the major industries. There were many little goodies for small businesses, but the trouble is that most businesses are becoming smaller rather than bigger and some of them are going out of business altogether. The response that I have heard in East Anglia from industrialists to what the Chancellor did is tepid. The Chancellor admits that his Budget will have virtually no effect on unemployment. With so much to be done, it is a criminal waste of human resources that so many people are kept on the dole when work needs to be done.

It is not my task, nor is there time, to comment broadly on the Budget. I shall pick up four points. Firstly, the Chancellor decided at the last minute to change the rules of the game in relation to the uprating of the retirement pension and the other benefits that go with it. I need to take little time over that as my hon. Friend the Member for Pontypridd (Mr. John) put the case so effectively. Only four hon. Members now in the Chamber have been Cabinet members, and my hon. Friend is not one of them. It was most extraordinary that the decision not to claw back but to change the rules of the game was taken at the last minute, either at the Cabinet meeting that morning or by the Chancellor the previous evening. It must have been taken within 24 hours before the Budget speech because, as my right hon. Friend the Member for Stepney and Poplar revealed from the documents that had already been published, the Chancellor had intended to claw it back. [HON. MEMBERS: "Oh."] That is clearly true, and is one reason why the Chief Secretary to the Treasury said yesterday that the papers would have to be corrected. They had been prepared before the Chancellor delivered his speech.

It is no wonder that the organisations who speak for the elderly were very angry. As I said in an intervention, the Chancellor has done this although he knows that inflation is increasing. The estimate of 6 per cent. in November may prove to be correct, but what may the figure be in February or in June 1984? We know the motivation for the Chancellor suddenly changing the rules of the game. There is no point in Conservative Members shaking their heads and saying that it was not a sudden decision. It must have been.

I welcome the restoration of the 5 per cent. that was stolen from unemployment benefit. It was immoral and it tipped down the living standards of the unemployed for two years. There has been no suggestion of retrospection. Those individuals will never recoup what they lost as a result of the decision of the Chancellor or the Secretary of State—it is difficult to know who.

The Spastics Society has said that it welcomes the restoration of the abatement but is disappointed that there has still not been any similar commitment on the pension element of Invalidity Benefit; nor had a date been set for IVB to be brought into the tax system. Consequently many thousands of invalidity pensioners, whose income would be below the tax threshold, are being unfairly penalised. The Secretary of State boasts about what he is doing for the disabled, but he must accept that he is still forcing down the standard of living of invalidity pensioners. They still receive only £31.45 a week. The fact that 90,000 men aged over 60 will be fully entitled to pension rights without having to register is, as my hon. Friend said, largely massaging the unemployment figures. If that is a serious intention, why does not the Chancellor start now to bring down the pension age? The Select Committee and other bodies have concluded that it is time to bring the pension age below 65. Why does he not make a bold move instead of a small move that he knows does nothing but reduce the monthly unemployment figures?

The Secretary of State said that VAT for charities is not his responsibility, but fortunately the Economic Secretary to the Treasury, whose responsibility it is, is here today and will reply to the debate. He knows the enormous service that has been rendered by voluntary organisations, especially in social services. Much of the work in the social services—caring for the elderly, children, the sick, the handicapped and the mentally ill and handicapped—has been carried out by voluntary organisations. They often perform exactly the same services as those performed by local authorities, who need not pay VAT.

The Daily Telegraph of 2 March carried a moving letter from a charity of which I had not heard—the Foundation of Edward Storey in Cambridge—which stated: To fulfil an urgent local need in 1981 our Foundation built an extra care home for frail elderly women. Since the social services do not meet any part of the running cost of the home and most of our residents have nothing to live on apart from their State pensions, we have had to base our charges to them on what they can claim through the Department of Health and Social Security supplementary benefits office, plus attttendance allowance for a limited number. This means that the charity is finding a substantial proportion of the running costs out of its own income … A social services Part III home for the frail elderly is zero-rated for VAT. We received no VAT concession whatsoever. This is the level at which the Chancellor should be assessing the worth of charities for exemption from VAT. The work our Foundation is doing is being repeated over and over again throughout the country by charities caring for the frail, the disabled, the elderly, the blind and the mentally handicapped. We are happy to fulfil a need which Government resources cannot meet out of taxation. All we ask is that we be given the same concession for VAT as the Government grants to State-run homes. That irrefutable case has been made many times to the Chancellor and his Ministers by the group of organisations that has campaigned to be relieved of the burden of VAT. However, they have failed. It is not as though it cannot be done. The Secretary of State has relieved from VAT those commercial firms which, for private profit, will seek contracts with the National Health Service, but the Treasury cannot do the same for the voluntary organisations that perform such a great service. If the Government wanted to do it, they would. They always find ways of getting round problems to meet their needs. Since this Government believe very much in the voluntary sector—as I do—their action is deplorable.

A Spastics Society news release states: The Spastics Society feels bitter disappointment". This is a statement from Mr. Tim Yeo, who has just been adopted as a Conservative party candidate, so there are no party politics in the document. He is one of the lucky ones who has been selected to fight in the next election. No doubt when he sits on these Benches he will envy his present position. The document states: The Spastics Society feels bitter disappointment that no VAT relief has been given to charities in the Budget. The arguments against granting relief are irrational because relief is not indiscriminate, as claimed by the Chancellor: it goes to charities who are incurring expenditure. The claim that relief for controversial charities is unacceptable is nonsense as other reliefs have been extended to them, including the new one on capital transfer tax, which only benefits larger charities, who are likely to receive legacies over £250,000. We have calculated that the extra concessions are worth about £60,000 to The Spastics Society in the next financial year as opposed to £518,000 in VAT.

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

Conservative Members share the right hon. Gentleman's admiration for the work of the voluntary sector, and I shall do my best, if I catch your eye, Mr. Deputy Speaker, to answer the right hon. Gentleman's basic point. However, perhaps he could clear up one point for our benefit. He had some responsibility in this area in the Labour Government, when the VAT position was precisely the same as it is now. Did he do anything about it then?

Mr. Ennals

VAT is now 15 per cent. It has been doubled since the days of the Labour Government. Thus, the effect on charities has been doubled. I attended a meeting of representatives of 120 charities, all of whom felt that something had to be done. That feeling did not exist at the time when VAT was at a modest level. The hon. Gentleman's intervention is simply not good enough.

The last issue that I want to raise also concerns VAT, but it does not concern health and social security. I hope that the Treasury will consider assistance in the fight against rising crime. Indeed, I hope that an amendment will be tabled in Committee. My local paper this morning draws attention to the matter. It says: At this time last year the Home Secretary … was under a great deal of pressure from the Right-wing of the Conservative Party and other prominent groups in the law and order lobby. A ten per cent. increase in the number of recorded serious crimes in England and Wales in 1981 had just been announced … There has been little so far to suggest that a similar emotional outburst will follow this week's relevation that the number of notifiable serious offences recorded by the police in England and Wales rose by ten per cent. again in 1982. This may be largely attributable to the fact that politicians and the media have been concentrating on the Budget in the past few days". The nation must face this issue. Under this Government, crime is going up steadily and seriously to proportions previously unknown. There is something that the Chancellor could do, and I hope that the Minister will listen to what I am saying, because it is something that he could do, which perhaps the Home Secretary could not do.

The Home Secretary must be worried. Let us consider the situation as it affects Norfolk. In 1982, nearly 2,900 homes were burgled in Norfolk—a massive increase of 26 per cent. over the previous year. There has been a big campaign to persuade peo0ple to purchase various security devices—locks for doors and windows—all of which are subject to VAT. Many people simply cannot afford to make their houses secure. If VAT were removed from security devices, the situation would be easier for those people and more difficult for the burglar. Surely it is paradoxical for the Home Office and the police to urge people to purchase security equipment and then put a tax on it. I well appreciate the problems of seeking VAT exemption, but, as I said about charities, where there's a will there's a way. The Government could tackle the issue by removing VAT from security equipment to deter criminals, particularly burglars.

I shall say no more, because I know that others of my colleagues wish to speak. I end by saying that this is a dismal Budget. It has failed to rise to the challenge of the nation. It gives no hope. It just gives away little crumbs to a large number of people and takes away crumbs from many others. It gives no hope and no leadership. That is what the right hon. Member for Chesham and Amersham said, and I entirely agree with him in the challenge that he put to the Government.

5.33 pm

Mr. Donald Stewart (Western Isles)

The right hon. Member for Norwich, North (Mr. Ennals), at the end of his speech, gave an accurate description of the Budget. In some ways, what it omitted is of more interest that what it contains.

The right hon. Member for Chesham and Amersham (Sir I. Gilmour) pointed to the widest gaping black hole of all—the lack of measures to deal with unemployment. Apart from the little frippery of the 90,000 who will be taken off the figures, reducing them to that extent, there is no mention of employment in the Budget. It contains no plans for putting the appalling number of people on the dole back to work. The Government look on unemployment—if they look on it at all—as something like rainfall that cannot be affected in any way by human or Government action.

The same is true of the Government's lack of plans to rebuild the economy. The United Kingdom was in on the ground floor in the industrial revolution. Now this Government are leading the industrial counter-revolution, dismantling the industrial base of the country, and making no commitments to rebuild it.

The Chancellor of the Exchequer lectured the House about the usefulness of small businesses, their contribution to the national economy, and so on. He emphasised their vital role. That message should have been addressed primarily to his own Department. Who gave small businesses the kiss of death? This Government.

The Budget is a low-key, totally uninspiring affair. It will do nothing to save the Scottish economy from the depression into which Westminster mismanagement and neglect have plunged it. It has been said in some quarters that it is a "something for everyone" Budget. I do not agree. There is plenty for the well-to-do, a few things for the middle class, and little for the poor.

Mr. Ron Leighton (Newham, North-East)

Many of them would be worse off.

Mr. Stewart

The hon. Gentleman is right; many of them would be worse off.

There was a fillip for the west midlands—that is, indeed, a depressed region—in the form of the reintroduction of the small engineering firms investment scheme. We know that that area needs it, but, as it is largely based on car manufacture, one wonders what was the point of raising the road fund tax and the tax on petrol.

The rural areas of Scotland were dealt another blow by three measures. First was the rise in vehicle tax. The use of a private car or van is extremely important in rural areas of Scotland. In my constituency, where there are no railways, it is the only means of travel. Indeed, it will increase the cost of transport and inevitably the cost of living in those areas.

Another blow was the application of another 25p on a bottle of whisky. I do not argue that whisky is a great priority in the national larder, but it makes an important contribution to the Exchequer. While it may be a fair target for the Treasury in normal times, one would have thought that an industry which in the past two or three months has lost 1,000 jobs throughout Scotland—from Galloway to the Orkneys, from the east to the west, mostly in small communities—would have been spared. Such areas of Scotland struggle constantly to avoid the triple jeopardies of depopulation, decline and deprivation. This Budget has not helped them one iota.

The one piece of good news of any major proportion was the raising of personal allowances. The Government are acting as though it were a piece of great benevolence on their part. In fact, it is only a catching up. No one should forget that the Government froze the level of allowances in 1981, when they overturned the RookerLawson-Wise amendment which linked allowances to inflation.

In opening, the Secretary of State made great play of quotations from Mrs. Castle's diaries. It was a fair point. It showed that the Labour Government were guilty of fiddling. Some of us in other parties in the House hardly needed to be told that Labour Governments have as much musical expertise in that respect as the Conservative party. There is nothing new in that. However, it seems odd that this Government think it sufficient defence to say, "You did the same." We come back to the fact that two blacks do not make a white, but the Government appear to believe that two blacks cancel each other out.

Even though there had been a cash handout, the low-paid are paying more of their wages in tax now than three or four years ago. Under the Labour Government the gap between rich and poor grew; under this Government that movement has been accelerated. Bankers, financiers, stock traders and big business men have never had it so good. Most of us have never had it so bad.

This year revenue from Scottish oil will amount to £8,000 million. That figure brings home the extent of the fraud that is being perpetrated upon the Scottish people. The policy of over-production in the past has contributed to the world oil glut, and that has caused a danger of collapse in the price of oil. We welcome the tax adjustment for marginal fields. It makes sense to have continuity of development rather than a stop-go policy. It also safeguards employment, which is important to Scotland. However, Government action should have been instituted on prices. Future development will depend more upon a stable price structure than on taxation cuts and incentives.

The Scottish National party recently announced its budget plans for an independent Scotland. Even in the present context, many of the suggestions could usefully have been implemented by the Chancellor. We demanded a cut in VAT from 15 per cent. to 10 per cent.

I join the right hon. Member for Norwich, North in his comment about charities. That is an appalling situation. What the Government have done is a disgrace to any administration.

We also suggested a reduction in the tax on petrol, but the Government have gone the other way. There is no justification for that. We would have used oil revenues for public spending in Scotland. That would be one way to overtake the appalling unemployment figures. We believe in using the opportunities presented by oil revenues to invest in capital projects for the future which would prevent money from being frittered away on unemployment benefit. It would assist the development of new industries and improve the quality of life in Scotland.

The Budget has done nothing to solve the unacceptable level of mass unmployment. We believe that the Budget that we put forward and independence for Scotland represent a realistic plan to put Scotland back to work.

5.42 pm

Mr. Julian Critchley (Aldershot)

I have a confession to make. I am a member of the Conservative party but I am not a monetarist. That, I acknowledge, can be something of a disadvantage in our great party. II is the equivalent in party terms of being young, black and unemployed. I have no economic beliefs and therefore I can have no invisible means of support, which means that I am unlikely to be asked to become a member of the Prime Minister's fifth brigade—that Chicago-trained corps of economic stormtroopers.

I have other failings. [HON. MEMBERS: "Hear, hear."] My heroes—my Conservative heroes—are not such as might commend themselves to the new regime. Were I asked by some smart reporter on the Aldershot News to name my heroes from the pantheon of our party, I would not offer the names of either Mr. Wackford Squeers or Mr. William Sykes. Instead, I would offer the names of Archdeacon Grantly and Lord John Roxton. Bat enough of these wanderings.

The Chancellor is the very embodiment of "economic man". He believes that what goes up must come down. Years ago when I was in the House and he was not—clearly the dark ages of the Conservative party—he came to me for advice on how best to be adopted for some seat in the far north-west. In those days, as in this, Treasury Ministers found some difficulty in getting suited. The Chancellor showed me his speech. It was all about economic man. Acting upon my advice he abandoned that gentleman in favour of a more reasonable approach. He was adopted and the rest is history. For my contribution I deserve a footnote in the history of our times.

This is the Chancellor's fifth Budget. On Wednesday The Times, which has fallen into the hands of Sir Les Patterson, published one-line summaries of all five of his Budgets. So much is contained in so little. About the June 1979 Budget it said: Tax incentives welcomed by managers but big boost to inflation. Those were the days when monetarists believed that wages had no effect whatever upon the rate of inflation. It was the year that they sat and failed their A-level in economics. About the March 1980 Budget it said: Tight money and fiscal policies welcomed by City but little relief for industry in recession. A cloud no smaller than a man's hand. About the March 1981 Budget it said: Few supporters, many critics. That was the understatement of the year; the majority of the then Cabinet were amongst the critics of the Chancellor's 1981 Budget. Severe contractionary effect dismayed industry in depths of recession, not offset by promised lower interest rates. About the March 1982 Budget it said: Modest expansion generally welcomed. About the March 1983 Budget it said: something for everybody in a possible election year, though expansion thought inadequate by critics. What more should one say? As for the Chancellor's fifth Budget, I like the plums but not the pudding. I would mount a bus driven by the right hon. Member for Stepney and Poplar (Mr. Shore) but only to alight at the first stop. The Budget will stimulate the economy but a further reflation is essential for recovery. Perhaps we should look forward to the Williamsburg summit and to the agreements reached there. I hope that there will be an agreement on stabilising exchange rates. I also hope that there will be an agreement that the OECD countries should do a little more to concert the expansion of all our economies.

For four years the Government have wrestled with inflation and, at some cost, have managed to bring it down. In the next four years they must wrestle with the problem of unemployment. We need more reflation and a change of rhetoric. It is clear that after the election the Chancellor, for whom we all have much admiration and affection, will leave the Treasury for the real world. We wish him well in whatever office he is called upon to serve—even in the Welsh Office, although I have a feeling that that office is reserved for my right hon. Friend the Member for Henley (Mr. Heseltine). We shall be sad to see him go but I only hope that when he does he does not forget to take economic man with him.

5.50 pm

Mr. Mike Thomas (Newcastle Upon Tyne, East)

Like the hon. Member for Aldershot (Mr. Critchley), whose act is well known to be hard to follow, I have been studying my newspapers. I came, with some surprise, upon a most remarkable commentary on the Budget, more crisp and pungent than The Times ever manages to run to, that stated that the Budget was a "lack-lustre, pedestrian performance." It later stated: Sadly the Chancellor's financial strategy lacked thrust and vision. I thought that was pretty tough stuff and that that commentary could not be from the damper end of the Conservative party but probably from the Morning Star or at the very least The Guardian. I was staggered to turn over my newspaper and discover that that was the verdict of the Daily Express on this year's Budget. If it carries on like that, the Prime Minister will have to get Mr. Murdoch to buy the Daily Express as well. Why did the Daily Express say such things? It was fascinating and illuminating reading yesterday morning. It stated: More than anyone else, the 3,200,000 unemployed needed something to raise their hopes, some plan to get Britain cracking again. The best Sir Geoffrey could offer them was a cut in the National Insurance Surcharge—the jobs' tax based on company payrolls. This was no sweeping measure eliminating it altogether. It was a mere nick reducing it from one and a half per cent. to one. The Social Democratic party would have abolished the national insurance surcharge. The overall context of the Budget, even as perceived by the Daily Express, is couched in terms which the hon. Member for Aldershot would consider more than mildly critical. The reasons are clear. The Government's assumptions are, and the right hon. Member for Chesham and Amersham (Sir I. Gilmour) described them accurately, that unemployment will rise by 280,000 to 300,000 this year.

If anyone believes that this is a partial judgment I pray in aid what the hon. Member for Carlshalton (Mr. Forman) said in yesterday's Budget debate. Like the Under-Secretary of State for Health and Social Security, the hon. Member for Braintree (Mr. Newton), the hon. Member for Carshalton is "damp but not green". He said: 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."—[Official Report, 16 March 1983; Vol. 39, c. 299.] What was the response of the Chancellor of the Exchequer to that position? He decided to restore the 5 per cent. abatement of unemployment benefit after cheating the unemployed for 16 months—there can be no justification for those 16 months—out of the money they were entitled to by right. He failed to give the long-term supplementary benefit rate to the unemployed. Hon. Members must remember that the Chancellor of the Exchequer did away, in a previous Budget, with the earnings-related benefit. The compassion of the Government toward the unemployed is, at best, limited and late. The Chancellor concentrated most of the remainder of his help, with the honourable exception of the child benefit increase, which the Social Democratic party welcomes, on those in employment. That is what I call the Richard Nixon approach to politics.

In the 1960s, the President of the United States was approached by a person who was working in the White House, who had come with him from California, who said, "I have to tell you, Mr. President, that I cannot keep quiet any more. It is terrible what our polices are doing to the poor, to the blacks, to the unemployed and to the people who live in our great cities." President Nixon is reputed to have replied, "Young man, go away and put a notice on your wall that says 'The majority of Americans are not poor, are not black, are not unemployed and do not live in the inner cities.'"

For this Government to base their policies, as they do, on continuing to keep the support of some proportion of the 87 per cent. who are in employment at the price of largely disregarding the position of those who are not in employment, is the greatest moral—the word "moral" is that of the right hon. Member for Chelmsford (Mr. St. John Stevas)—criticism of this Government as well as the greatest economic and social criticism of their policies. The Government illustrate that criticism by the cheap deceit of choosing May as the month in which they will decide by how much the pensions and benefit are to be increased. They are perfectly aware that May will probably be the month when inflation will be at its lowest point for almost a decade and probably for a decade to come. I do not dispute the arguments about returning to the old system of dealing with the uprating. I think it is to be preferred. There are disadvantages and advantages to both.

The right hon. Member for Western Isles (Mr. Stewart), said that the Government and the Labour Party thought that two blacks made a white as they exchanged criticisms across the Chamber, saying, "Well we are doing it and you did it when you were in office." The right hon. Member for Norwich, North (Mr. Ennals) said, "Yes, but they are blacker than we are." It is an illustration of what is wrong with this Chamber that such views can be taken of politics in this country. I do not intend to fall into that trap. There are disadvantages and advantages in both systems of uprating. On balance, I think that the Government are right to return to the old system. To choose May as the month is a classic illustration of what is wrong with the overall approach of the Government's policies.

The right hon. Member for Chesham and Amersham demonstrated the bankruptcy of the Government's policies, underlined in last year's Budget debate by the right hon. Member for Sidcup (Mr. Heath) and his supporters. The Government provide no answer to the question posed in some of the more intelligent newspapers in the past few days as to how the Government can engineer a non-inflationary recovery for Britain. That is the central question. That is why there is no intellectual coherence to the fudging and mudging of the Government.

Those hon. Members in the alliance—in the Social Democratic party and in the Liberal party—have stated how the national insurance surcharge and other matters would be dealt with. We would bite the bullet of increasing PSBR by about £3 billion net and do so in such a way as to distribute the benefits so as to reduce unemployment by about 1 million throughout a period of 18 months to two years. To ensure that that did not spark off a burst of inflation that could not be coped with, the alliance would, in two stages, reduce value added tax to 10 per cent. The figures are available, the programme has been costed and put through the Treasury model. From the launch of our party and the Warrington by-election, the SDP's proposals have never seriously been challenged by any Government economic spokesman. It will be interesting to see whether the Financial Secretary in his reply can mount any challenge.

We should give credit where credit is due. A number of minor changes have been made in the benefits relating to the invalidity trap and the rise in the disregard. There were some other measures. The Secretary of State listed nine or 10 in a press release, which are sensible and welcomed.

We believe that increasing the personal allowance is the right way to cut income tax. However, we must be clear what it means. The Government are fond—I will come to the Secretary of State's propensity for this — of claiming the gross figures and never looking at the net. Let us examine what the allowances mean. We must discount what the increases in allowances mean against the rate of inflation during the past year, and also consider that national insurance contributions will rise. The Government conveniently announce those increases at another time.

The increase in the single person's allowance is £220. If we take off the inflation rate and the increase in the national insurance contribution a single person will gain, if he is earning the average wage of £172 a week, £56 and not £220. Comparable figures for a married man, whose wife is not working, are £350 gross and £136 net. Those are the figures for those who pay the contracted-out rate of contribution. For those who are not contracted-out, the differences are greater and they are worse off. Thus, even the Chancellor of the Exchequer's increase in personal allowances offers only the most minor help.

The second major aspect of the Chancellor's tax changes relates to the increase in mortgage tax relief. What a terrible retrograde step. No one would believe that a Government could do away with mortgage interest relief, particularly in the case of those who have bought houses on the assumption that they would continue to benefit from doing so. However, we all know that it has the most pernicious side effects and that it should 'lave been allowed to wither on the vine. Let us see what The Daily Telegraph had to say on that point. Again, I have not chosen a newspaper that might be construed to support my party or the Opposition, but a newspaper that supports the Government. It said: The decision to raise the limit on loans qualifying for mortgage interest relief is understandable in the narrowest political terms, but in every other way it is shabby. It should be borne in mind that tax cuts do not help the unemployed and those who do not earn wages or pay taxes. However, the unemployed could have been helped by a direct attempt to use public expenditure to create real jobs. We illustrated that clearly in the Budget that we published together with the Liberal party. We have shown how we could increase the number of people in employment by about 1 million in 18 months to two years for a net £3 billion on the public sector borrowing requirement. We would do that by carefully directing the public expenditure increase so that we obtained the maximum benefit for employment, and the minimum risk to inflation and so that there would be the minimum risk of money put back into the economy being spent on items that would produce import suck. That would export jobs and would lead to possible balance of payments difficulties.

The health and social services are labour-intensive and there one can engage in the most magnificent win-win game. For example, one can keep an elderly person out of hospital and give him a better quality of life, letting him stay in his own home, by spending money on home helps. However, many authorities have had to cut the number of home helps as a result of the Government's policies on local government expenditure. In addition, money could be spent on the adaptation of such homes. Again, in many local authorities such work has been cut because of the Government's financial constraints. Such expenditure would give work to both home helps and construction workers.

Let us put the Government's record on Health Service expenditure straight. The Secretary of State is fond of blustering and asserting that the figures that I quote to him are "wrong". I shall quote them to him quite straightforwardly and he can then stand up and tell me whether they are wrong. However, it is no good the right hon. Gentleman talking, as he does, in fudging phrases. The other day, he quoted at me something that I said about him in Darlington. I shall repeat it, just to put it on the record. I said: Mr. Fowler's claims for Health Service spending are only true in the sense that the words he uses are literally correct. The Secretary of State got a cheap laugh out of that the other day. However, he did not read the rest of the sentence, which said: on any reasonable judgment of the facts they"— the right hon. Gentleman's words— amount to little more than forms of words to promote the false impression that NHS spending has been protected and to camouflage the unpleasant truth that it has been in fact ruthlessly squeezed by this government. I then gave several examples of the Secretary of State's use of such words as "growth", "development", "growth money" and "expansion". He uses such words in circumstances in which it is clear that there has been no such thing.

I should like to take on the Secretary of State on the central charge, which is his assertion that the Government have increased the resources available to the NHS by 7.5 per cent. in real terms. Again, I give him full credit, because that is literally correct. If those words were measured in a court of law, they would be found to be truthful, but they do not represent the whole truth. As the hon. Member for Pontypridd (Mr. John) has said, if there are twice as many old people and spending on the elderly is doubled, the level of service will not be improved, but will remain in exactly the same position.

I shall give the Secretary of State the exact figures so that he can be in no doubt. According to his public expenditure White Paper, net expenditure on the NHS in 1978–79 was £6,311 million. In 1983–84 net expenditure will be £12,465 million, on the right hon. Gentleman's own figures. That is a cash increase of 97.5 per cent, but when the increase in NHS pay and prices is deducted, it represents a growth in resources of 5.9 per cent.

Mr. Stephen Dorrell (Loughborough)

rose—

Mr. Thomas

When I have given the Secretary of State the figures I shall gladly allow the hon. Gentleman to take the bait.

Thus, the growth in resources is 5.9 per cent. However, on the Secretary of State's own figures, which were given to me in a parliamentary reply, expenditure needed to grow by 6.5 per cent. to stay level with demographic changes, with the increase in the number of the elderly and with the cost of medical advance. Therefore, there is a net decrease of 0.7 per cent. The Secretary of State can get out of that only by using words that are literally correct and that have been very carefully chosen and placed so that they cannot be literally argued with.

Mr. Ennals

Weasel words.

Mr. Thomas

Exactly. The Secretary of State can claim growth only by adding on to the net figures the increases in charges. However, that is not public or Government expenditure on the NHS, but the spending of patients' money paid by them in charges that in most cases have increased far faster than the rate of inflation. That is the only way that the right hon. Gentleman's claim can stand up.

Before taking interventions from minnows on the Back Benches, I should like to know whether the pike in the pool wants to challenge. The figures are quite clear. Allowing for the effect of demographic change and for the cost of medical advance one obtains a figure of minus 0.7 per cent. for the net growth in resources, even on the Secretary of State's own figures for 1978–79 and 1983–84. Does the right hon. Gentleman want to argue about that or not?

Mr. Fowler

I shall argue to the extent that what the hon. Gentleman says is quite wrong. For example, the hon. Gentleman takes away the figure for demographic change and medical advance from total NHS expenditure, although he should be taking it away from total hospital and community health services expenditure. That makes a difference of 2.5 per cent., and in turn makes all the hon. Gentleman's figures as silly as they were in the first place.

Mr. Thomas

I suspect that the Secretary of State's convoluted explanation will be found wanting. I doubt whether it is even literally correct. However, we shall see. I have asked the right hon. Gentleman to provide me with the figures and I am sure that he will do so, because he is scrupulous and honest. He has always done so in the past, even when it has been to his detriment and he has regretted it, as he does now. However, that does not explain the situation or answer my question.

The Government's claim to have spent more in real terms on the NHS, taking account of the changes in need, is false. It does not matter how many times the right hon. Gentleman comes to the Dispatch Box and says simply "You are wrong", because we shall not believe him until he shows us that we are wrong.

Mr. Dorrell

I am grateful to the hon. Gentleman for giving us an opportunity for a contest of minnows. I have followed his argument carefully. He has been arguing that we cannot claim an increase in NHS expenditure, because spending per head has not increased substantially according to his figures. Will he apply the same principle to spending on education? Will he recognise that although expenditure on education has fallen, the number of children in school has fallen more quickly, and so spending per head has risen? Will the hon. Gentleman therefore welcome the fact that the Government have contributed to an increase in education expenditure, on the hon. Gentleman's definition?

Mr. Thomas

The answer is yes. We are not trying to play around with figures to prove that black is always black. However, if the Secretary of State does not like the figures that he provided, he had better provide us with a new set. The situation is not much better on the Labour side of the House. I would still like to see the Labour party's irresponsible pledges costed. The looseness of the £10 billion to £20 billion figure made me worry again about the Secretary of State's mathematics, but I understand that the pensioners' plan has been put forward, which the Secretary of State believes will cost between £10 billion and £20 billion. I do not know. I suspect that the hon Member for Pontypridd does not know either, which is what really worries me. Perhaps when the Opposition come to reply, they will tell us what their proposals will cost.

Mr. John

Would the hon. Member for Newcastle upon Tyne, East (Mr. Thomas) like to be added to the mailing list again?

Mr. Thomas

I should be more than delighted but I suspect that I would not discover very much. All I know about the costing of the Labour programme is that the hon. Member for Crewe (Mrs. Dunwoody), who is not in the Chamber at the moment, has been fond of saying that there will be a 3 per cent. increase in real terms but has been told that she must take that out of the programme, not because the Labour party is suddenly discovering financial probity but because she has been instructed that nothing in the programme must be capable of being costed.

I do not wish to detain the House for much longer. The central criticisms of the Government remain: first, that they have increased unemployment unnecessarily while allowing a catastrophic decline in manufacturing output and in our manufacturing base; second, that they have dealt in the most miserly fashion with those most affected—the poor, sick and the unemployed—while claiming that they are "safe" with the Conservatives. Theirs is the Richard Nixon approach to politics—"Worry about the people you think might vote for you but disregard those you think never will." I suspect that they are right with regard to everyone who has become unemployed during the Government's term of office.

Above all, the Government have laid no foundations for the future. There is no indication in what they say about how the country might be put back on its feet and how unemployment might be brought down without starting inflation running away yet again. In the changes they have made in taxation and benefits there is no long-term strategy, as was pointed out by the hon. Member for Carshalton yesterday. The Budget offers no prospect and no hope for Britain.

I should like to rely on the Daily Express for a concluding comment on the Budget. It said: After weeks of leaks about the contents of the Chancellor's famous Gladstone Box we now know the secret. The Box was empty. If this was a pre-election Budget, let us have the election without delay.

6.11 pm

Miss Jo Richardson (Barking)

I hope that the House will forgive me if I do not follow the tortuous arguments of the hon. Member for Newcastle upon Tyne, East (Mr. Thomas).

Generally people outside the House—the people with whom we are concerned who are at the receiving end of the Budget—are not impressed by it. Many of them are bitterly disappointed. Yesterday afternoon I met a group of pensioners in my constituency. It was a non-political occasion. I wondered what they would say when I arrived at the meeting. They all said, "Look, our pockets are full of the money that the Chancellor has given us!" The irony was ringing around the hall before I entered it. They have quickly rumbled the disadvantages that the Government have brought them, having been led by the media into thinking that they would receive a better deal than eventually proved to be the case. The Budget was disappointing to them and was a cause of despair to the unemployed who needed substantial increases in benefit to improve their lives which have been made so unnecessarily miserable by the Government.

I wish to make three specific points, two of which are connected with the Department of Health and Social Security. I am glad to see the Economic Secretary to the Treasury present because I hope he will have something to say about these matters at the end of the debate. I should like to say how disappointed I am, and how disappointed millions of women will be, at not having any response from the Government, let alone actual movement, on the removal of VAT from sanitary products. This is a matter of concern not only to women but to men—to fathers, to husbands and so on—particularly when the wife is not working. Millions of human beings—in the case of women, those between the age of 13 and 50—are affected by this issue. They represent a substantial proportion of the population. It is beyond belief that women should be so discriminated against on a product which is such a necessity to them.

During debates in which this argument has been put forward—we have not had many such debates—we have always been told that, if VAT is removed from sanitary products, VAT must then be removed from razor blades because razor blades are as essential for men as sanitary products are for women. I believe that that is a load of rubbish. Men can grow beards, as my hon. Friend the Member for Stockport, North (Mr. Bennett) has already done. To equate the two is insulting to women. There is nothing that women can do other than purchase the product. On average, the product costs—it depends on where one buys it, of course-50p for a packet of 10, and at least one packet is needed every month.

I make no apology for making these comments in the House. It is time for us to face up to this matter and to realise how essential these products are to such a large number of women. Not only menstruating women are affected. Elderly women use sanitary products because they have become incontinent. The product is widely used in that way, a fact which is not particularly considered. My right hon. Friend the Member for Norwich, North (Mr. Ennals) spoke in favour of the abolition of VAT on safety devices. I entirely accept what he said because they are essential, but I hope that he will forgive me for saying that, if the two are competing, sanitary products are even more essential.

I hope that the Economic Secretary to the Treasury will say that he has studied the correspondence which has been written over the years about this matter, that he has heard about the petitions that have been presented to his colleagues at the Department of Health and Social Security and that he knows that the Prime Minister herself received a deputation a few months ago, led by my hon. Friend the Member for Eton and Slough (Miss Lestor), bearing a large petition with a huge number of signatures. I hope that the Chancellor will consider that.

One of the other benefits to which I wish to refer, which has already been mentioned by my hon. Friend the Member for Pontypridd (Mr. John), is the housewife's non-contributory invalidity pension. My hon. Friend listed the number of occasions on which the Minister has said that the review will come forward. Like my hon. Friend, I am inclined to think that it has gone straight into the wastepaper basket or has been slung out of the window or that a great many files have been put on top of it. I find it impossible to accept that, even within the Department of Health and Social Security, a review can take well over two and a half years. My guess is that the review has been received by the Minister but that he does not like what it says so he is now sitting on it, and has probably been sitting on it for 12 months.

I should like to consider for a moment those who are disadvantaged by the delay. Women are disadvantaged and discriminated against in a real and pointed way. Men and single women, if they are employed, can claim the non-contributory invalidity pension as of right, but a married woman must go through the humiliating process of submitting to a household duties test to prove that she cannot carry out her household duties. The very idea of making people go through that test is hugely disciminatory and is contrary to the concept that most women have come to accept—that they are no longer content to be deemed housewives doing only housework.

We all know that the Government have a family policy tucked up their sleeve, the aim of which is to encourage women back into the home, but these women receive no support in their efforts to manage a home and are discriminated against through not receiving a pension that should be theirs of right. They do not receive benefits because they have devised ways to help themselves. If a disabled person has guts and the will to carry on, he or she will devise ways to do their jobs.

I know a woman who has devised a fork holder for peeling potatoes. He husband helped her to design and make it, but that meant that she did not qualify for benefit because she had shown that she could help herself and carry out some household duties. The cleverer the person, the more she is willing to help herself to crawl around the home and do things for herself—for example, in making out a shopping list—the more it militates against her because she has failed the test. The family policies study group, with its rhetoric about thrift and self-help, sounds hollow to the many women denied that pension precisely because they tried to help themselves.

The benefit has had a chequered history, not least under the Labour Government—I fully admit that. But it had reached the stage where the National Insurance Advisory Commission had considered the matter and made recommendations. Yet today we are back to yet another review. I hope that the Minister will tell us, if he has been told, what has happened to that review and when we can debate it.

The third benefit that I wish to discuss is also connected with women, and I make no apology for mentioning it. It is the invalid care allowance. Women are disappointed and dejected because the Chancellor made no reference to it in the Budget. Married men and single people qualify for the allowance, but married women and cohabiting women do not. Yet they form the vast bulk of the carers for invalids. There is a great deal of discrimination. It is almost always the mother, the married daughter, the married sister, or some female relative who looks after the invalid. The government must reconsider the matter.

The Government made great play in the Budget of cutting taxes by £11/2 billion. Most of my poorer constituents will find that little of that money will reach their pockets. To extend invalid care allowance to the women to whom I referred would cost about £60 million—well worth spending. The Government also made great play about the carers in our society. They always talk of the need for better and greater voluntary services and the need for women to stay at home and look after children and dependent relatives, yet they continue to discriminate against them. It makes nonsense of any suggestion that the Government are moving towards equality between the sexes.

The next Labour Government will deal with all three matters that I have raised. The last two benefits will be extended to women. When that happens, it will be none too soon. There are many people outside these walls who cannot wait for that to happen so that in some small way they can feel that they are not forgotten. Many of them believe that the Government have entirely forgotten them.

6.25 pm

Sir Brandon Rhys Williams (Kensington)

In a short speech it is difficult to comment on all the aspects of a Budget that contains so many detailed changes, but I wish to give a special welcome to the decision of my right hon. and learned Friend the Chancellor of the Exchequer to raise both child benefit and one-parent benefit to the highest levels that they have ever achieved in real terms.

I have been unpopular in some parts of my party in the past because of my continued emphasis on the importance of child benefit and the need for it to be increased for the sake of the economy. I welcome what my right hon. and learned Friend said in his speech about its importance in the Government's strategy for the relief of poverty and for increasing incentives.

We must also praise my right hon. and learned Friend for his onsistency—which has run through his Budgets and was very much apparent in this Budget—in applying policies in which he believes: reducing the burden of Government borrowing, modifying the taxation of private capital, bringing down interest rates, bearing down on waste in Government expenditure, helping the growth of small business, and, of course, making a significant reduction in the real burden of income tax and employers' national insurance contributions.

This is an extremely competent annual Budget, but is it part of a consistent, long-term plan? The Red Book helps, and it is a better production than ever before. My right hon. and learned Friend has tried to peer into the future and make known the Government's plans, at least in the medium term. At a time of great economic uncertainty, a duty falls on the Government to look as far ahead as possible to the economic future and to clarify and simplify the role of the Government, so that people outside Government can make long-term decisions in the reasonable expectation that they will prove right.

In the presentation of the Government's accounts and future plans, there should be much greater clarification and precision between current account spending, capital account spending and what the Government do with the transfer account—where the Government act as agent and not as spender.

I should like to call for a major programme of simplification in the way in which the Government impinge on the private sector. Yesterday my hon. Friend the Member for Carshalton (Mr. Forman) revived the call for the reform of personal taxation and social security. I have campaigned for that for many years. If I have the good fortune to serve in the House after the general election, I hope to continue that campaign and to bring some success to it. I am committed to the concept of the basic income guarantee—what might be called the BIG idea. Inevitably, we shall have to bring in such a reform in clue course if only for administrative reasons.

I should like also to take up the campaign initiated by Basil de Ferranti for the outright abolition of coporation tax. My right hon. and learned Friend, after consultation with industry, has decided not to make changes in corporation tax this year. I understand that, because of the unbelievable complexity of its impact on so many different industries. There are not many industrialists, however, who would disagree if the Government committed themselves to the progressive elimination of corporation tax. I would gladly dwell on the subject, but wish to take all the time I can to deal with another matter, and that is the balance of the economy as between different aspects—export and import, manufacture and services, consumption and investment.

It seems to me that we are allowing the economy to change and develop in ways that are profoundly unhealthy. If evidence is needed we have only to look at table 3.8 on page 21 of the Red Book, which shows constant price forecasts 1980–84. This table deserves a great deal of careful study.

Taking the whole period from 1980 to the first half of 1984 we find GDP static, consumers' expenditure rising, total fixed investment static, exports rising slightly and imports rising strongly. I do not think that those are signs that the economy is in a healthy state. In particular, it seems to me that it shows that during the period 1980–84 the exchange rate has been out of kilter with reality and has been creating unhealthy distortions in the way the economy has been developing.

There are very many ways in which we can try to create the conditions for a revival of the economy. I should like to see a revival of investment in ambitious new projects so that British industry can catch up with the arrears of investment of very many years, perhaps even looking back to the period before the war. Other economies have been investing much more strongly and as a result those peoples have been improving their standard of living much faster than we have.

We seem to be suffering in British industry from a kind of anorexia, a determination not to accept the funds which are on offer. Even with the Government's interesting new schemes for small businesses, there is not nearly sufficient confidence in the business future to take up the funds which are readily available in large volumes if business men can come forward with competent schemes.

We have seen a very sharp reduction in the real profitability of British industry in recent years. We hope that profitability will revive, but there are still the problems of the very high borrowing cost to industry and the general unpredictability of market conditions. While profit margins are so low, business men must be prudent and they will be chary of making big investment judgments and big commitments, when they cannot be certain that will not simply be putting their businesses into liquidation by taking the course which perhaps would be in the best interest of the health of the economy if they had the courage to launch into it.

Here the parties divide as to what should be done. From the Opposition we hear a cheap kind of Keynesian policy—not one which Keynes himself would have advocated for one moment in the present circumstances. The Opposition's policy is to raise the temperature in the hothouse, raise the heat, to force the blooms to come out even if this sickens the plant in the long run. I do not accept that policy. The Government's policy is to get the conditions right for the long-term health of the different species in the greenhouse.

While we have high rates of unemployment, there is a great deal of impatience for results. I feel that the Government need to do more to encourage the health of British industry and to restore the balance in favour of manufacturing investment. I do not think that Britain can afford to depend on a declining manufacturing sector in the long run.

As to the high borrowing cost, the real rate of interest, as we see from what the Government need to spend in order to raise money on their own indexed issues, is 2½ per cent.—roughly what it was in the 1930s when inflation was not a consideration in anybody's mind. How are we to make it possible for industry also to borrow long by new types of company commitment to long-term loans, which would enable industry to get the benefit—in the same way as the Government—of issuing indexed stocks?

I think that the announcement which the Chancellor made on Tuesday and which was developed more fully by the Financial Secretary yesterday offers an opening for industry to take advantage of the availability of funds at low real rates of interest, provided that the inflation risk can be overcome by some sort of benign indexation. I have spoken before about the difference between malignant indexation, which simply destroys one or other party to the deal, and benign indexation, which enables both parties to thrive in spite of changes in the basic value of the currency in which the deal is expressed. I hope that we shall now see dynamised debentures or indexed stocks beginning to be used much more as ways of financing companies' longterm plans and getting businesses out of debt to the bank and on to long-term relationships with their shareholders.

The unpredictability of market conditions is to a great extent a world phenomenon and has certainly not been induced by anything that the British Government, in particular, have done. We are in many respects re-living the 1930s—hot money movements, high unemployment, low growth, low commodity prices. Many features of today's economic system remind us all too clearly of the problems of the 1930s.

Under the Bretton Woods agreement we had an international regime which took the place of the chaos of the pre-war monetary system. It ushered in a tremendous period of real growth of wealth under a system of fixed rates of exchange. It is not unnatural that at this year's International Monetary Fund meeting it was Mr. Muldoon—who it was known would call for a return to Bretton Woods—who filled the hall when none of the other spokesmen did.

What we are going through at the moment was thought to be an improvement on the fixed rate system of Bretton Woods, because it would give vent to real market forces through floating exchange rates. There is an attraction in allowing the market to dictate exhange rates provided we do not have what we have at the moment, which is known as dirty floating—rates of exchange dictated half by current account movements and half by capital account movements which may be completely irrational and incompatible; half settled by controlled release of funds under Government intervention and half by free movement of funds from the economies where the Governments do not seek to intervene.

The international exchange rate structure, therefore, is unrealistic and it is also completely unpredictable, as can be seen from the high cost of getting even short-term cover in the major currencies. Of course, in the minor currencies it is virtually impossible now to get cover for any sizeable period or sum of money.

Therefore, it falls to the greater industrial countries, including our own country, taking part in the Williamsburg conference to come forward with recommendations for bringing the exchange rate structure back to some sort of predictability. I recognise the difficulties for Britain in joining the European monetary system as at present operated. There is far too much emphasis on the fixed angle and not nearly enough emphasis on the adjustable angle in the "fixed but adjustable" formula.

I think, however, that the time has come when we should join the European monetary system, but we should do so on two very clear terms. One is that we should never be asked to maintain the exchange rate for the pound except at its purchasing power parity with the other major currencies of the system. There might be minor adjustments in the central rates every few months, but I do not think that would disturb the market as long as the Government's policy in making the changes in the central rate was clearly understood and could be predicted well in advance.

The second thing we have to insist on if we are to join the monetary system is the steadily increasing freedom of arbitrage in the European Community's markets for capital. While all the other countries are maintaining one form of restriction or another on the market for capital we cannot have a really united European market for capital such as exists, for instance, in the United States of America. Until we have a really free and united market for capital, there will always be an unpredictable element bearing on the exchange rates, which is likely to shake confidence and to result in movements which business men cannot accommodate. In saying this I realise that I am in conflict with the Red Book, which states on page 13: The exchange rate will continue to be determined by market forces". It is easy to place emphasis on market forces, but what will determine the forces that affect the market? Those forces are not blind. They arise from actions that we control to a great extent ourselves. First, there is the balance of payments. That is not the result of blind forces. By their tax and economic policies, the Government can affect the balance of payments, as happened successfully for many years under the Bretton Woods system when changes in the rates of exchange were not considered a normal part of the game.

The forces that determine the market certainly include interest rates. What my right hon. and learned Friend the Chancellor has been doing about interest rates is highly commendable. Interest rates in London are determined largely by the Government's borrowing policies. Government and Bank of England intervention in the interest rate structure in London undoubtedly plays a part in determining market forces in relation to the rate of exchange. I believe that we should deliberately work on our interest rate policies, to produce an exchange rate structure that is meaningful and realistic and accepted as such by the market.

The market will also look at forecasts of inflation as these affect the major currencies in the international system. What is happening in Germany, Italy, France, the United States, Japan and elsewhere will be compared to what is happening to sterling. The Government's resolution in fighting inflation has achieved world respect, admiration and confidence. If, for example we can maintain a rate of inflation of the pound that is not greatly different from that which affects the deutschmark, the prospects for creating a genuine European market for capital are that much stronger. The Government are right to pursue their campaign against inflation of sterling because of the benefit that confidence in the currency brings to business men who want to make long-term plans.

The other major factor determining exchange rates is political expectations. So long as overseas observers, who may or may not be well informed, believe that there is any risk of a return to power of an Opposition who plan to take Britain out of the European Community, who openly advocate wildly inflationary policies and who appear to have no conception of the real needs of business, the pound will be in danger and regarded as a speculative currency. My right hon. Friends, above everything else, have a duty to industry to win the next election. I should like to see the election come soon. I do not think that industry should be kept in a state of suspense for much longer. We need a decision about Government policy over coming years. Only a Conservative victory can give business the assurance it needs.

6.43 pm

Mr. Andrew F. Bennett (Stockport, North)

Of nine hon. Members who have contributed to the debate, only one has really given the Budget wholehearted support. I suppose that one can hardly expect the Minister to be critical. The odds seem fairly well stacked, as I look around the Chamber, that there is perhaps only one other hon. Member present, besides the Minister, who will have given the Budget an enthusiastic welcome by 10 pm. That seems odd for a Budget that was heralded as a give-away Budget. The truth is that it was probably an opportunity given away rather than a give-away Budget.

I am pleased to be able to address the House on the Budget, although I have considerable regrets on two grounds that I am not able to be present in my constituency today. The first is that one of my constituents Miss Mary Crabtree, is celebrating her 100th birthday. I would have liked to be able to congratulate her. My second regret is that the Secretary of State for the Environment is visiting my constituency. I would have liked to show the right hon. Gentleman some of the conditions that I shall be describing to the House to emphasise that action should be taken. I am sure, however, that Stockport council will be lobbying the Secretary of State pretty hard on some of the worst problems in the borough.

The most damning criticism of the Government is that their first Budget was designed to give away a considerable amount of money to the well-off in tax relief in order to stimulate investment. It was necessary, according to the Government, for everyone else, particularly the poor, to make sacrifices. In the first Budget, the tax concessions to the well-off amounted to about £1.5 billion. That has been repeated each year. It is also unfortunate that the granting of those concessions involved cuts in the pension and unemployment benefit under the Social Security Acts of 1980 and 1981 of about £1.5 billion—almost exactly the same amount—taken from the less well off in society. I do not wish to take up the time of the House listing all the cuts. They are listed in early-day motion No. 368—"The less well off and the Budget".

I suppose that I would have been just about prepared to accept this approach as justified if the Government's strategy had worked. It has not worked. The tax concessions have not stimulated industry or investment in my constituency. The 3 million to 4 million unemployed emphasise that the concessions have not worked. It is possible that the concessions stimulated investment abroad. They did not stimulate it in this country. Trade union officials in Stockport can point to examples of failure to invest. Bernard Reagan, the AUEW district secretary, has supplied Stockport Members with a list of 47 firms that closed or declared major redundancies between January 1980 and January 1983. I shall not read them out. They are listed in early-day motion No. 235 relating to the effect of Government policies on Stockport. The number since January has gone well over the 50 mark. In all instances, there was a loss of skilled workers and of major opportunities for training apprentices.

It has not only been a matter of lost jobs. There have also been some interesting features about the closures. Many were supposed to be the result of so-called rationalisation. An interesting example is Bredbury Steel where steel making operations were to cease and manufacture of bright steel concentrated on the midlands. It was then discovered that the rolling mills part of the operation was to be exported to South Africa to permit railway lines to be manufactured in that country. So we were not only losing jobs in Stockport through the closure, but seeing equipment exported to another country to be reestablished there and presumably take away further opportunities for British industry. The Government's whole strategy in trying to attract investment to areas such as Stockport has failed.

Another element of the first Budget was the announcement of the phasing out of intermediate status for areas such as Stockport. Not only did the Government fail to attract investment as a result of their concessions for the rich, but they removed an incentive for people to invest in areas like Stockport.

There is great bitterness in the north-west over the lack of any Government strategy for regional policy or regional investment. It is particularly bad when we see on television in the north-west of England advertisements for Warrington new town, for example. Such places are trying to pinch industry from areas such as Stockport. That creates great bitterness. We do not want a big scramble for what little business there is. We want Government investment to encourage industry to develop in these areas. Intermediate status should be returned to them so that they are not forced to compete on unequal terms with other parts of the country. Stockport is attractive, but it can be developed only if it gets investment, particularly from the Government. One way in which the Government could help would be to return intermediate status to Stockport.

Not only must the Government encourage investment in industry, but they must reflate the economy by spending on the environment, particularly on housing. Stockport has many old private dwellings which desperately need improvement grant work done on them. During the last three years the Government have had a stop-go attitude almost all the time to improvement grant work. In January and February I had letters from constituents in which they hold me that they applied to the local council for an improvement grant but the council regretted it could not proceed with a grant because there might not be enough money.

As a result of lobbying, the Government have announced that the ceiling on grants will be removed. For the next 12 months there will be more money available for improvement and repair grants. The local council, however, still has the uncertainty about what will happen in the following year. This discourages people from going ahead with grant work. One moment they are told that they should apply, and the next they are told that there is a lack of money. So they think about a foreign holiday or something else rather than getting on with the improvement work. As soon as they have changed their commitments, they are told that the grant will be available. If the Government want old housing property to be improved, they must have a firm five or six-year programme and they must make it clear to local authorities that over that period they can spend on improvement grants as much as they have got.

The same argument can be made about improving council houses. The Government must give councils the opportunity to make long-term plans instead of allowing the money to be spent on a piecemeal basis.

Government strategy was that the poor were asked to make sacrifices so that investment could be made. If the Budget was to be a give-away measure, the Government should have improved the position for some of the least well off. If there was any give-away element in the Budget, it has not been in favour of the least well off. For example, the Government are claiming great credit for putting up child benefit by 65p. All that means is that in real terms child benefit will be about 5p more than it was when the Government took office. Yet the whole strategy intended for child benefit was that in real terms it would be increased significantly.

Why have the Government not dealt with child benefit in the same way as tax concessions? The tax thresholds are being raised by 14 per cent., but child benefit is being increased by only 11 per cent. If the Government are committed to a family policy, why do they not do at least as much for child benefit as for tax levels? If they had made a larger increase in child benefit, it would have meant more for the low paid, many of whom do not pay tax and therefore cannot benefit from a tax concession.

The Government seem at long last to have been forced by pressure from their own Back Benchers to give back the 5 per cent. abatement to the unemployed. As was pointed out earlier, it is not being given back to those who lost it previously; instead, it will go to next year's unemployed. Those who will have been unemployed for 16 months and who have been charged tax on their unemployment benefit will not get back the 5 per cent. because, if they are not working again, they will have exhausted their unemployment benefit and will be receiving supplementary benefit. Those people have lost the 5 per cent. for ever. Why could not the Government have restored the 5 per cent. in June, the anniversary of when they took it into taxation? Why will the next group have to wait until November to benefit?

I welcome the Government's decision to give the long-term benefit concession to people over 60. Why do they not also give it to families who have to live on supplementary benefit? The shoe pinches much harder for families on supplementary benefit. If the husband or the wife is signing on for work, he or she is unable ever to get on to the long-term rate. It would cost only £150 million. I should have thought that if the Government wanted to have a give-away Budget, that would be one of the first areas for a concession.

What a fiddle and what a twister the new uprating method is turning out to be. The Government seem deliberately to have chosen the one month in the year when inflation will be at its lowest. Why have they not chosen April? It would have been much easier administratively, because they would have had an extra month to do the uprating. It appears that the April figure is likely to be higher than the May figure. Because of the new method of uprating, retirement pensioners will be 1.05 per week worse off over the next 12 months. The relevant figure for an unemployed couple is £1.30 and, for the lone parent with two young children, 1.05. It is a very mean measure. The Government ought to think again about it.

The effect on supplementary benefit raises a major problem. I was able to intervene briefly when the Minister was speaking. I hope that at the end of the debate there will be more explanation about what is to happen to supplementary benefit. Last November the system for uprating supplementary benefit was changed. It was no longer to be uprated in line with the general retail prices index, but in line with the retail prices index minus the housing element. Whereas other people were supposed to have got a so-called overpayment last November, those in receipt of supplementary benefit had a 0.4 per cent. underpayment.

Will that 0.4 per cent. underpayment be restored? What will happen about the retail prices index minus the housing element in May? As I understand it, one of the elements that is bringing down the retail prices index in May is the considerable reduction in the mortgage rate since last year. If, for supplementary benefit purposes, we take out the mortgage element, the inflation rate will be that much higher. I hope it will be confirmed that supplementary benefit will be increased by the higher rate. I should also like to hear that the 0.4 per cent., which was lost last November, will be restored.

Because the supplementary benefit rate will be increased slightly more than the pension rate, the implication is that more pensioners will have to get supplementary benefit. Administratively, that is difficult. Many pensioners already qualify for only small amounts of supplementary benefit. The Government should increase pensions by the same amount as supplementary benefit to avoid a rise in the number of pensioners who will be entitled to, but sadly often fail to claim, small amounts of supplementary benefit.

The newspapers have said a great deal about the impact of the Budget on a family with two children and average or just below average earnings, but they have said very little about the way in which the new housing benefit legislation will operate for people receiving rebates and the fact that almost 1 million people will lose about 70p per week as a result. If we take those losses into account, as well as the changes in the Budget, it is clear that a large number of people will not benefit at all. I hope that the Government will make it clear that in uprating the amount payable under the housing benefit scheme under the same legislation, with the changes in the benefit rules, they will take account of the need to eliminate those losses. Many of the people involved will lose more than 70p, because they will also face rent increases as a result of other aspects of Government policy.

The Budget is extremely disappointing. It is clear that the Government's strategy of stimulating investment by tax concessions to the well off has not worked. The least well off have been asked to make unfair sacrifices. Now, in a give-away Budget, the Government are doing nothing for them, and they remain a neglected group.

7.1 pm

Mr. Richard Needham (Chippenham)

I have listened with great interest to the Opposition speeches. It seems that they have not heard of the recession or the problems facing not only the British economy but the world economy and would blindly spend money without ever considering where it might come from. Their speeches increasingly lead one to conclude that if they had been in charge of the nation's affairs the IMF would have been here not just for a weekend but permanently ensconced in the London Hilton.

We should be grateful to the Chancellor of the Exchequer, certainly from our side of the party—

Mr. George Foulkes (South Ayrshire)

Which side is that?

Mr. Needham

—for increasing child benefit.

Mr. Foulkes

Will the hon. Gentleman give way?

Mr. Needham

No; I have only just started my speech. I will give way later. We should congratulate the Chancellor—

Mr. Foulkes

rose—

Mr. Deputy Speaker (Mr. Bernard Weatherill)

Order. The hon. Gentleman is not giving way.

Mr. Needham

No, I am not giving way yet. I have only just started my speech and I wish to be reasonably quick.

Child benefits have been increased, thresholds have been increased, the 5 per cent. abatement of unemployment benefit is being restored and we are grateful for that. The Chancellor's approach to the Budget reminded me of a family doctor bringing to a convalescent patient not, I admit, a hamper from Fortnum and Mason but an orange, three duck eggs and a pint of milk. I am grateful that at least he did not bring with him that famous male midwife, the Institute of Directors. I am also glad that my right hon. and learned Friend ignored the advice of the quacks in the Opposition who would have fed the patient on a mixture of porridge and pate administered by NUPE and paid for by those staying at Claridge's.

Certain aspects of our economic condition are becoming chronic, especially the level of long-term unemployment. It was hoped that once the market was operating more successfully and efficiently labour, as the phrase goes, would begin to clear by finding its own price. Not only do I abhor the use of such terminology in dealing with human beings and their careers, but I doubt its efficacy. I do not believe that people can be compared with sides of bacon or failed British Leyland motor cars, which at least have a clearing price. If people could be cleared in that way, unemployment in Ceylon where wages average £4 per week would not be running at about 50 per cent.

Secondly, I doubt whether labour markets can clear on price because new technology requires a trained work force often with different skills from those of the people who have been made redundant. Moreover, those made redundant are often in different parts of the country from the areas in which new technology is likely to develop.

Thirdly, skills are often short in one area and over plentiful in another, but the housing constraints in the economy are such that movement from one part of the country to another is almost impossible. Very little can be done about that as so many people own their own homes and cannot easily sell them and find new homes elsewhere.

Fourthly, there is a historical lack of guidance, especially to young people, about the skills and occupations that they should pursue.

Fifthly, structural change leads to high unemployment which will not be immediately reduced by the new industries that grow up to replace the old. That has certainly been the case in previous periods of recession and change. The process of restructuring and finding new jobs and industries is long and painful and may last for many years.

This leads me to three conclusions.

Mr. Foulkes

At the beginning of his speech, the hon. Gentleman referred to his side of the party. I have listened carefully to the five points that he has made. He seems to be eschewing the possibility of getting on his bike and going from one part of the country to another, so does one take it that he is on the high humidity side of the party?

Mr. Needham

If the hon. Gentleman does not know which side of the party I am on, no doubt he will find out if he continues to listen to my argument. He can make his own judgment, if that is possible.

The points that I have made lead me to three conclusions about the labour market. First, I do not believe that reducing wages as such is likely to have any effect on the majority of employers seeking adult trained workers. What most employers want is not cheap labour but a happy, efficient and productive work force using modern machinery. I accept the converse of that argument—that the same does not necessarily apply to young workers. Starting wages have certainly become ridiculous in many cases in recent years and have made it extremely difficult for young people to find work which might otherwise have been available to them.

Secondly, although reducing wages will not force people back into work, increasing wages beyond increases in productivity, especially in long-established industries now facing major competition, will lead to a loss in competitiveness and to many firms having to close down. To take an example from another country, wage rates in the United States steel industry now exceed $26 per hour whereas output per man is half that in Japan. As a result, the only way in which the United States steel industry can keep going is by the introduction of import controls, which is totally against the principles of those of us who believe in free trade.

My third conclusion derives from the previous two. For the reasons that I have given, I believe that long-term unemployment will be with us for a very long time. That being so, what should the Government do about it? The first thing that this or any Government should do is encourage people to stay in work. The Government have accepted that principle in the Budget by extending the invalidity supplementary benefit so that those who receive it can increase their earnings to £22.50 until their benefit gets cut. The same applies to single-parent families. However, it does not apply to the vast majority of the unemployed who, after a £4 allowance, find that their benefit is reduced for each additional pound that they earn.

There is an incentive for many of those living on short-term supplementary benefit to try to earn additional money, either through the black economy or in any other way they can. I do not see why, in principle, we should treat single-parent families or the disabled or chronically sick differently from the vast majority of the unemployed. Unemployment to anyone who is unemployed is as much a disease as any other disease. The disregard of £4 should be increased considerably because the Government should be prepared to assist anything that allows people to maintain a link with the world of work and to find additional money to give them increased dignity.

The second point, which I know my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) has made on many occasions and recently in his splendid book, is that we should give long-term supplementary benefit to the long-term unemployed. In the first instance, we should give it to those with families, but, from a Conservative point of view, why should people be treated separately purely because of their age, and why should we, the party of law and order, consider treating the children of criminal families better than we treat the children of the unemployed? That is nonsense.

Furthermore, more money for the long-term unemployed means that those people have the opportunity of greater mobility and more chance of escaping the trap of unemployment. They have some chance of getting round the country and finding work.

Although I welcome the increase in the capital disregard to £3,000, and to £1,500 for life assurance policies, I do not believe, again as a matter of principle, that it is right to attack the capital of those who have sensibly saved over their lives and not to give them the same benefits as we give those who have not attempted to save.

Unemployment is a slow-burning fuse which at the start of its increase began to worry people. Now it has started to frighten people. Next it will make people very angry. Because of the long-term nature of unemployment that all hon. Members must now accept, in November we should look to the Government to begin to take the steps, to make sure that those who find themselves unemployed for long periods through no fault of their own can begin to see a way out of the trap in which they are caught. I am sure that, having listened to the arguments of myself and my hon. Friends, my right hon. Friends on the Front Bench will agree.

7.14 pm

Mr. David Penhaligon (Truro)

My years of being interested in politics from the Liberal Bench have taught me one thing. If one wants to produce a wet Conservative, one needs a Liberal breathing down his neck. I have never been certain whether this particular phenomenon is the result of the Liberal breathing down his neck or the result of the local Conservative association finding a candidate to maintain that position. There was very little in what the hon. Member for Chippenham (Mr. Needham) said with which I disagree. I wonder how long he will be prepared to stay on the Government Benches.

Mr. Needham

I remind the hon. Member that I maintained my position on these subjects when I had the honour of having a Liberal candidate against me and when I did not have that honour.

Mr. Penhaligon

As the hon. Gentleman will no doubt recall, I said that I was not sure whether it was the Liberal breathing down his neck that made the wet or whether he got his nomination because his dampness appealed to the local Conservative association.

One of the delights of being able to make a speech in the Budget debate is that one can complain about what is not in the Budget and therefore raise virtually anything. I have been promising a number of constituents that I would raise a point that was not referred to in the Budget but it is an anomaly that has been brought to my attention by three or four constituents. I am sure that it has been drawn to the attention of other hon. Members as well. It is beyond any logical explanation and one would be pleased if the Government could at some time apply their mind to resolving it.

A couple are on supplementary benefit and have been for some time. Their general standard of living reflects the fact that they are on supplementary benefit, and perhaps the husband is in declining health. The husband dies and from that day the lady is in receipt of widow's benefit. Her poverty requires her to go to the local supplementary benefit office to get help towards the cost of burying her husband. She discovers that the fact that she became a widow excludes her from help towards the cost of burying her husband. The irony is that she lost the right to benefit because her husband died, but that was the reason why she requires some help towards the cost. I have had four such cases in my constituency and I cannot believe that other hon. Members have not had the same problem brought to their attention.

Could not some administrative change be made so that those who find themselves in that position and who have been drawing supplementary benefit for six continuous months before the tragedy happens can be treated in the calculation of help towards meeting burial costs as if they were on supplementary benefit? I know of people who are faced with bills that they cannot meet. Despite their visiting everybody they think will be able to help, it is clear that the law stops people from helping them. It is a ludicrous position to which I should like to see the Government applying their mind.

There are a number of useful measures in the Budget. I cannot recall a Budget that has been all bad. The tax allowances, the child benefit and the restoration of the 5 per cent. abatement are all welcome. They are in the Budget for different reasons, but I am pleased to see them there.

However, the pension increase this year and the way in which it has been carried out are desperately unjust. The argument has been raised on a number of occasions in the past six or eight years about how we adjust pensions, but what is happening this year is matched only by what happened in 1977 for the fiddle that it is. The problem is a simple one. In a period of rising inflation, say, of 5 per cent., then 10 per cent., then 15 per cent., and then 20 per cent., if one give a pension on last year's physical, measured inflation, the year that inflation is 10 per cent. the pensioner gets only 5 per cent., in the year that it is 15 per cent. the pensioner gets 10 per cent. and the year in which inflation is 20 per cent. the pensioner gets only 15 per cent. If after a year when there is 20 per cent. inflation we move into a year when it is reduced to 5 per cent., then for that year the pensioner hits the jackpot if the system is maintained because in a year with 5 per cent. inflation the pensioner gets a 20 per cent. rise.

That is more or less what happened in 1977, but the Labour Government decided not to pay. They decided to change the system and to guess what the following year's inflation would be. We have been stuck with that system ever since. During a period of falling inflation, the Government make a profit, or find themselves with a lower level of expenditure. If inflation runs 20 per cent., 15 per cent., 10 per cent., 5 per cent. during a year of 20 per cent. inflation the Government guess that it will be 15 per cent. the following year. The pensioner therefore receives a rise less than that year's inflation. In a year when inflation is running at 15 per cent., the Government guess that it will be 10 per cent. the following year, so the Government do well. In the year that inflation runs at 10 per cent., the Government guess what it will be the following year and, again, they do well.

All these trends come to an end. If we take a year in which there is 5 per cent. inflation rising to 15 per cent., clearly the time arrives once again when the pensioner does rather well. If during a year of 5 per cent. inflation the Government guess that the inflation the following year will be 15 per cent., the pensioner receives an increase in real terms. That is the present position. We are at the bottom of the curve. Inflation is about to rise again and so, surprise, surprise, the Government have changed the system and returned to the one that we had before.

There is no doubt that in the coming year pensioners will receive an increase which is less than the current level of inflation. I believe that the Government by trying to be clever have put themselves on a hook that is less defensible than if they had been honest and come to the House and said that they would claw back the amount pensioners had received the previous year and guess at next year's inflation. I believe that the Government have made a mistake that they will live to regret.

I sometimes wonder whether the cost of living index is the right index on which to base pensions. In the latest newsletter of the Cornwall branch of Age Concern there is a paragraph which suggests that the Treasury always seems to overlook the fact that many pensioners do not have mortgages and do not purchase other items which have favourably affected the index. They do, for example, spend a sizeable proportion of their income on heating energy costs, which have risen at a rate greater than other items. As a result, they have been falling behind in the battle against rising living costs. Pensioners have experienced 12 per cent. more inflation than other households since 1974. I have no way of checking that figure, but I suspect that there is some truth in the allegation that those who live solely on the state pension experience an increase in the cost of living beyond that of the average. One wonders whether we should produce a pensioners index and promise to tie pensions to it. [HON. MEMBERS: "There is one."] I know that there is one. The House should agree that pensions will be calculated on that basis in future. Pension increases will be less than the average increase in wages during the Government's period of office. The Government are reducing the living standards of the retired element of our society compared with that of working people who are the neighbours of pensioners. I see no logical reasons for doing that.

Mr. Ridley

I hesitate to breathe down the hon. Gentleman's neck. Is he aware that there is a pensioners index compiled from the items which feature prominently in pensioners' budgets, which shows a smaller rise than the RPI? What the hon. Gentleman is suggesting would mean a reduction in the rate of old age pension.

Mr. Penhaligon

The right hon. Gentleman knows that that is not true over a significant period. [HON. MEMBERS: "It is right."] It is probably true on a one-year basis, and it may be possible to produce figures to show that. Over a sustained period the right hon. Gentleman knows that it is not true.

Pensioners have lost 2 per cent. and perhaps a little more this year. The figures have already been mentioned. It amounts to 65p for a single pensioner and £1.09 for a married couple. The Budget is interesting because of the way in which the Government have decided to treat pensioners compared with the way in which they treat young people or people who are considering buying their own houses.

I have never met a constituent who has had any difficulty in obtaining a mortgage, or paying for it, when the mortgage is more than £25,000. I spent a fair proportion of time on the telephone this morning ringing building societies in my county to ask on how many occasions they could recall first-time buyers coming in to raise a mortgage in excess of £25,000. The answer was, "Not one."

I admit that the position is a little different in the southeast. One is aware from going around the country that the section of our community that can afford mortgages of about £30,000 is not the one that has most difficulty in housing itself. It is not the element that comes to mind when one considers how the Government may use some of their hard-raised taxes to help a particular section of our community achieve the desirable objective of home ownership. I find the Government's attitude extraordinary.

Mrs. Dunwoody

I do not want to disagree with the hon. Gentleman on the numbers that he has quoted from his constituency, but I thought that one of the difficulties in the south-west was the fact that a number of people buying retirement homes pushed up the cost of housing for ordinary families who were often faced with high prices.

Mr. Penhaligon

There is some truth in that. The difficulty caused by people having two mortgages and a second home in Cornwall and receiving mortgage relief has now ended. I do not know whether it was this Government or the Labour Government who ended it. One can now get relief only on what is described as one's "principal" residence. Therefore, the problem is not as serious as it was.

The population drift that has taken place towards my part of the country has undoubtedly forced up house prices, but there are still properties that the first-time buyer can buy for considerably less than £30,000. My constituents find that the problem is earning the money to pay for a £20,000 mortgage rather than obtaining the mortgage from the building society.

My main criticism of the Budget is that it has no strategy to get the country out of its present trouble. I have not heard one Conservative Back Bencher say that the Government have a strategy which will eventually bring Great Britain out of its difficulties. Unemployment has increased year after year. The predictions are that it will increase yet again this year. About 20 per cent. of our industry has gone. I have no reason to believe that the Budget represents anything other than a further step in that trend of the strategy.

It is worth remembering that certainly in the medium term, and the short term probably, the nation has nothing other than its industry, its engineering ability, and its factory base to provide the pensions about which we have been talking and the roads, schools or anything else. Great Britain has little else to offer the world in order to earn her living. Let us be thankful that we have the City, but we cannot run an entire economy on it. We have North sea oil, but, as we all know, it is a finite resource and the day will come when the oil is no longer available.

We must look to industry to provide a living for our people. I see little in this Budget to help this country's industrial base. It cannot be the answer for the Government to squeeze the source of our wealth just to reduce inflation. It may occasionally have to be done for a year to try to redress or balance the economy, but it cannot be sensible as a long-term strategy.

My colleagues and I and our Social Democrat friends believe that the Government must expand the economy. We believe that the Government must start to differentiate between money put into good, sensible economic investments and money borrowed for other purposes. At public meetings that I have recently attended the obvious member of the local Conservative association has asked where the money will come from. It will be borrowed. It is extraordinary for Conservative Members to say that they do not like borrowing when many of them have succeeded in building up good businesses from very little over a short period. They know better than anyone else that there is nothing wrong with borrowing money, provided that the purpose of that borrowed money is good, sensible economic investment. The Government should be looking for and making that investment at the moment.

I do not accept the general pessimism about long-term unemployment. I do not believe that 1979 or 1980 represent key years and that thereafter it will be impossible to offer everyone employment. I do not accept the pessimistic view that we shall have that problem on our hands from now to eternity. One of the most frightening things that one can find in the country is a general acceptance that perhaps there is nothing whatsoever that can be done about it.

For areas with significant unemployment—in my county 20 per cent. of the male population is unemployed—the Budget gives no reason for optimism. One suspects that the only reason for optimism for them is that, as recent trends suggest, we may be in for a change of Government before long.

Several Hon. Members

rose—

Mr. Deputy Speaker

Order. The 10 hon. Members who are in the Chamber are anxious to take part in the debate. There are 90 minutes left before the wind-up speeches begin. Will hon. Members bear that in mind?

7.32 pm

Mr. Ron Leighton (Newham, North-East)

This is the Chancellor of the Exchequer's fifth Budget. It is said by some to be his last, so it might make sense to put all the Budgets together as a package and at this stage of this Parliament to ask ourselves to what extent the right hon. and learned Gentleman has fulfilled his objectives and whether the Government's policies have failed or succeeded. I took the opportunity today to refresh my memory as to what he said when he introduced his first Budget on 12 June 1979. The right hon. and learned Gentleman started by talking of a new beginning, and said: We need to strengthen incentives, by allowing people to keep more of what they earn, so that hard work, talent and ability are properly rewarded. We need to enlarge freedom of choice for the individual by reducing the role of the State. We need to reduce the burden of financing the public sector, so as to leave room for commerce and industry to prosper. The Chancellor said that the tax changes that he proposed on that occasion would be only the first step. When he referred to public expenditure, he said: In order to reduce the borrowing requirement and the burden of direct taxation, we must make savings in public spending and roll back the boundaries of the public sector. When the right hon. and learned Gentleman spoke about cutting personal taxation, he said: This is the only way that we can restore incentives and make it worth while to work and, at the same time, increase the freedom of choice of the individual. We must make a start now. On income tax, the Chancellor said: That brings me to the keystone of our policy. Excessive rates of income tax bear a heavy responsibility for the lack-lustre performance of the British economy. We need, therefore, to cut income tax at all levels. Later the Chancellor talked about the deterrent effect of tax on additional earnings, and he ended on a rather euphoric note: The Budget is designed to give the British people a greater opportunity than they have had for years to win a higher standard of living—for their country and for their families".—[Official Report, 12 June 1979; Vol. 968, c. 240–63.] That was the prospectus; that was the promise. That is what the Government set out to do. At this stage of this Parliament I should like to look at that policy and ask three questions. First, have the Government cut taxes, as they promised to do? Secondly, have they cut public expenditure, as they promised to do? Thirdly, have they increased wealth, and are we now all better off, as they said we would be?

Let us look at public expenditure first. The 1979 White Paper began with the sentence: Public expenditure is at the heart of Britain's present economic problems. There is nothing about efficiency, nothing about management expertise and nothing about trade unions. The prime cause was public expenditure. At a stroke the Government had discovered the solution to our sad performance and the philosopher's stone had been uncovered.

As a newish Member, I suspected that that was a fallacy. What has happened? Only last week the Chief Secretary to the Treasury told us that in 1979–80 public expenditure was 40.5 per cent. of gross domestic product. However, in 1981–82, it had gone up to 44.5 per cent. It was to have come down, according to the Chancellor when he introduced his policies, but we now discover that it has dramatically increased. Therefore, all the misery and destruction has been for nothing.

One asks oneself: what went so disastrously wrong? Public expenditure is spent primarily on the private sector. After all, who is the customer for bridges, roads, schools and hospitals? Who buys and pays for the equipment that goes into hospitals and schools? It is the Government or the community. It is the public. Therefore, when the Government slash their spending, who is hit? When the Government stop issuing contracts and orders, who suffers? Private industry does, so it starts laying off workers. Here is the rub, the fallacy and the error. The Government never cease to tell us that customers create jobs. Who is the largest customer? It is the community. It is the Government, by public expenditure, who are the largest customer.

If we could put all the unemployed who have been laid off into gas ovens, the policy might have a chance of succeeding, but, of course, we do not do that. We pay them dole money, which is extraordinarily expensive on both sides of the account. First, the Government lose the tax revenue that the workers paid and, secondly, pay them wages for not going to work. We give them dole money and redundancy payments. Each worker on the dole queue is costing us between £6,000 and £7,000. That is a direct charge to the Government. The dole queue is public expenditure.

Therefore, as the Government cut public expenditure, it grows because of the cost of the dole queue. Then the Government are forced to cut faster and deeper, pushing the economy further into recession. The minimum figure that I have heard for the cost of the dole queue is £17 billion. My right hon. Friend the Member for Doncaster (Mr. Walker), in answer to a question that he asked, got the figure of £20 billion. That is more than we spend on the National Health Service. It is more than we spend on education. It is more than we spend on the whole of the rate support grant. If we push the economy into recession, we do not need steel, so we get Mr. MacGregor to cut the steel industry in half and sack half the work force and put them on the dole. But still the steel industry makes huge losses, and that is a further cost to the Government.

If we do not need coal, that industry will lose money and be another charge to the Government. If we do not move steel or coal, we do not need the railways, so yet another loss-making industry is charged to the Exchequer. Every turn of the ratchet pushes up public expenditure. The public expenditure percentage of the gross domestic product under this Government has not decreased by 5 per cent., as they said it would, but has increased. The hon. Member for Perth and East Perthshire (Mr. Walker) is smiling engagingly, but he was probably waving his Order Paper euphorically in June 1979 when the Budget was announced.

Mr. Bill Walker (Perth and East Perthshire)

I was in hospital in June 1979.

Mr. Leighton

I am sure that the hon. Gentleman was listening to the radio and waving his bed sheet. However, I am glad to see him in rubicund good health today.

What has happened to taxes? To pay for the recession and the dole queue, there has been a gigantic increase in personal taxation and a switch to the less well off. In the last year of the Labour Government personal taxation revenue was £42 billion. In the year just ended, the Government have received from income tax, national insurance and VAT a total of £67 billion. Allowing for inflation and considering that figure in real terms and at constant prices, that is £9 billion more. Could there be a more graphic illustration of Conservative deceit or failure?

In Birmingham, a few days before the general election, the Prime Minister said: The Conservatives are going to put that incentive back. We are going to do it by cutting tax. That was her promise. The Conservative party election manifesto stated: We shall cut income tax at all levels to reward hard work, responsibility and success; tackle the poverty trap. The truth is that we are now paying a substantially larger proportion of our income in tax. Answers to parliamentary questions show that the average family, with two children, on the average wage is paying about £9 a week more.

Peter Jenkins, in The Guardian yesterday, said: The relief given to those below average earnings makes only minor redress for the disproportionate burden of taxation which has fallen upon them during the Thatcher Administration. For example, a family with two children earning half the average wage of about £160 a week in 1978–79 paid 12.7 per cent. of its income in tax and stamps. In 1982–83 it paid 18.6 per cent. Sir Geoffrey's tax reliefs do not alter the fact that during his Chancellorship he has helped the rich and soaked the poor. That is the reason for the existence of the Labour party. It is here to champion the interests of the poor. While there are poor people in Britain, there will always be a Labour Party. We shall be here in this House fighting the battle for the less well off.

I excuse the hon. Member for Perth and East Perthshire from being obsessed with monetarism, because he is not one of those who talk about M3s, PSBRs and all the other mumbo-jumbo. Some of us, like him, tend to look at the real economy—real people working in real factories and producing real goods, or perhaps not producing goods at the moment. The biggest disaster to have hit Britain in peace time has occurred in that sector. Our industrial base is being smashed. We have shattered and devastated our economy, and we are enduring the worst economic crisis for more than half a century.

An industrial wasteland of silent factories and workshops is spreading across the country, especially in Scotland. There are record bankruptcies and company liquidations. Firms that made a valuable contribution to their communities are now being consumed in the monetarist holocaust. We know that the high interest rates for which monetarist policies called led to an over-valued pound, which rose, as Dr. Emminger told us, by 37 per cent. between 1978 and the first quarter of 1981. No wonder British competitiveness under the present occupants of the Treasury Bench declined by 35 per cent. As a result, we have had the spectacle of companies shutting down and seeing their modern machinery sold at auctions, crated, shipped abroad, used to manufacture goods in countries, such as the United States of America, with higher wage levels, and exported back to us. We are manufacturing 20 per cent. less than when the Government came to office.

Are we becoming wealthier? We have destroyed 20 per cent. of factory output, and the manufacturing decline, plus the remorseless increase in imports, means that, for the first time in recorded history, we have become a net importer of manufactures. We are ceasing to be an industrial nation. If private industry is flat, why should there be investment? Firms are restricting, not expanding, their operations. In the last year of the Labour Government, investment in manufacturing industry increased by 9 per cent. In the first year of the Tory Government it fell by no less than 18 per cent.

It is not as though there is a shortage of savings or of money. On the contrary, there are plenty of savings and money, but it is being shovelled abroad. Last year more than £6 billion was exported, primarily to equip our rivals the better to compete against us. As a result, we have higher unemployment than in the 1930s, the highest jump in unemployment in any year since 1930 and the biggest collapse in production since 1921. If we consider the postwar world, our car production is lower than it was in 1957–26 years ago—and our steel production is lower than it was in 1950. We are producing less steel than Poland. Fewer houses are being built this year than in 1947, which was a difficult post-war year.

The Government are a destroyer of wealth, and the destruction is cumulative because the wealth cannot be replaced. If we add together the costs of the dole queue—£17 billion—idle factories and lost production, tens of billions of pounds of wealth is being thrown away. It is no wonder that there is now a growth of real poverty, especially among children. It is no wonder that the country is becoming shabbier and tattier, that our services are worsening and that our railways are becoming more decrepit.

Under the Labour Government, our national wealth increased each year, but under this Government it has decreased each year. Under the Labour Government it increased by 9.5 per cent., which was worth £1,800 to the average family. Under the present Government, the GDP has decreased by 4 per cent., which means that the average family is £800 worse off. There is much talk about a world recession. It is true that many countries have difficulties, but no other country, apart from Canada, is worse off than Britain. If we take the average of the OECD countries, their wealth increased by 3 per cent. Britain was the only one to go down.

Why has our manufacturing output declined by 20 per cent. and our GDP by only 4 per cent? Why have we not had the most horrendous balance of payments problem and run on the pound? How have we been able to pay the prodigious cost of the dole queue? The answer is North sea oil. Without North sea oil, the Government would have collapsed and the country would have gone bankrupt. We could not have afforded redundancy payments. We would have had to slash unemployment benefits, as we did in the 1930s. We have already taken £40 billion out of the North sea.

The crimes of this Government are being disguised by oil. When we had the first oil shock under the Labour Government, we did not have a drop of oil. Now we are self-sufficient. We are a net exporter. So we are paying for our deficit in manufactures by this one-off amazing piece of good fortune. Instead of wisely using the North sea oil wealth for investment and training to modernise and rebuild our industrial base for the future, we are pouring it down the drain. It is being squandered on the Government's dole queue and disguising Britain's industrial collapse.

If the Conservative party were to win the next election, it would be the first occasion on which an election was won on North sea oil. A second term would make everything horribly worse. We have already seen leaks of Conservatives' future plans to destroy the welfare state. They claim that inflation has come down. It had to come down. At the time of the next election it is likely to be what it was at the time of the last election—about 7 per cent. However, I hope that the House will not be fooled by the oft-stated philosophy—when inflation comes down, real jobs will begin to grow. No one has explained to me the process by which that happens. Presumably, it is by some process of spontaneous combustion. It is simply not true. We know that from history. During the inter-war slump we had nine years of negative inflation, from 1926 to 1933. Prices came down each year. In 1931, prices came down by 7 per cent. The peak year for unemployment was 1933. In that year, prices came down by 3 per cent. So it is the savage deflation caused by unemployment that has brought down inflation.

It is clear that the strategy of the Chancellor of the Exchequer and the Government has been an abysmal failure. Unless there is a change, there can be no prospect of recovery. This Budget is a non-Budget. It tackles none of the problems. It is purely peripheral. We need a complete change of Government to restore any hope to this country.

7.53 pm

Mr. Terence Higgins (Worthing)

I welcome the substantial increases in the income tax thresholds that the Chancellor has introduced, and which I think are the essential feature of the Budget. It is also true that the Chancellor has been remarkably responsive to many pressure groups, and that the Budget therefore contains a number of complex issues on which I shall comment in the central part of my speech. First, however, I shall concentrate on broader economic issues which, to some extent, have been neglected in our debate today, partly because there are so many individual items which are matters of controversy or congratulation, as the case may be.

It is important to consider the relationship between the Government's present monetary and fiscal policies. My right hon. Friend the Financial Secretary to the Treasury, who I am glad to see on the Front Bench, will know that I criticised some of the Chancellor's earlier Budgets, particularly with regard to monetary policy. I pointed out that in earlier years my right hon. and learned Friend did not adopt what one might describe as a true monetarist policy. Because we were unable in the early years to cut public expenditure substantially, there remained a large gap between public expenditure and taxation, with the result that we had large public sector borrowing requirements, and it was necessary to have high interest rates to fund those high borrowing requirements. The effect, therefore, was very different from the situation envisaged by those who advocate monetarist policy, where there is a small gap between taxation and expenditure, a small PSBR, and low interest rates. Certainly, we had a substantial deflation in the early part of this Government's period in office.

It is also true that the effect of those high interest rates, combined with North Sea oil, which was mentioned by the hon. Member for Newham, North-East (Mr. Leighton), was a massive rise in the sterling exchange rate. That itself had a serious effect, not least on industry. As a result, we had a recession, which did not start with an inadequacy of consumer demand; it started halfway along the productive chain, in manufacturing industry. Therefore there was a substantial reduction in overmanning in British industry.

The present situation is much closer to what I have described as a true monetarist policy. Recently we have been much more successful in getting public expenditure under control, although, as the Treasury and Civil Service Select Committee pointed out, not perhaps as successful as the Chief Secretary has at times suggested.

Here I express a word of caution about the system of cash limits. The system works well in restraining public expenditure when inflation is high and rising, but when inflation is coming down fast and one has a set series of cash limits, spending Departments may find that they have an additional claim over resources which, in real terms rather than money terms, might be better reallocated elsewhere. That matter should be borne in mind.

As a result of the improvement in controlling public expenditure, and as a result of other changes, the public sector borrowing requirement is now much lower than it was previously, and we have therefore been able to lower interest rates substantially. This change has been combined with a growing understanding, not least by the Government, of the importance of the exchange rate. There is a contrast between the original statements that were made by the Government when they came to office and the present situation, when far greater weight is placed on the exchange rate. This underlines an important feature of the background to the Budget. Because the exchange rate has fallen so far and fast, I believe that it would be a mistake for it to fall significantly further, particularly in relation to the dollar. The effect of that on the rate of inflation would be important and disadvantageous, and it would not benefit British industry—not least in the west midlands. My impression is that no one there is much in favour of a further fall in the exchange rate. As a consequence, the Government have needed to keep interest rates high for international reasons and to prevent the exchange rate falling further. The general structure of interest rates in Britain at present is such that the Government should have little difficulty in financing the PSBR. So the relationship between monetary and fiscal policy is important, and we have to get it right.

In recent years I have tended to stress the importance of getting down the PSBR rather than controlling money supply. The Government tended, at any rate initially, to take the opposite view. My feeling is that the Government could have taken a slightly more relaxed fiscal stance than the Chancellor adopted in this Budget, because the borrowing requirement will be funded with comparative ease because the interest rates are high for international rather than domestic reasons. My view is that—I hesitate to refer to that good old-fashioned expression, "the Budget judgment"; it has not been mentioned by the Chancellor or others in this debate—the Budget judgment could have been a little more generous—if I may put it that way—than would otherwise be the case because of this.

If that is so, the right thing to spend that money on—if that is the right way to put it—would have been to abolish rather than simply reduce the national insurance surcharge, which is a tax on jobs. It puts us at a disadvantage compared with importers and it does not help exports. If one has rather more scope for the reason that I have just analysed there would be a case for abolishing the national insurance surcharge, not least because in purely electoral terms it is much better to abolish something rather than to reduce it.

Be that as it may, I hope that, as time goes on and the considerable uncertainties in the present economic position clarify, particularly with regard to oil prices, my right hon. and learned Friend will not rule out abolishing the national insurance surcharge at a later stage, not necessarily waiting for an autumn Budget but perhaps doing so at the Report stage of the Finance Bill. The sums involved are substantial—about £400 million in the remainder of this financial year and about £800 million in a full year. None the less, if we are able to make further change that is where we should place our priorities. While I am advocating what might be regarded as a policy of perfection I would not wish to underestimate the important reductions that the Chancellor has already made and which undoubtedly will help industry.

Considerable controversy has arisen on the precise analysis of the Government's pension proposals. It is not unimportant to realise that one is returning to the system that the Labour Government abolished when they were—I almost said "in the clutches"—being encouraged by the IMF to cut public expenditure. That is what we are going back to and it has considerable advantages over the system that we have had recently and which we are now proposing to change. I was astonished by the fact that the hon. Member for Truro (Mr. Penhaligon) did not know that there was a pensioners' index or that the increase that we are proposing to give to pensioners would have been somewhat less if we had based our calculations on the index rather than on the RPI. If we had done what he suggested we should have cut the proposed increase for pensioners.

There is not just the increase in pensions but the reduction in taxation on elderly people. If one looks at the figures in the various press releases, the tax relief per week for a single person is between £1.27 and £3.90 and for a married couple it is substantially more—from £2 up to £4.80 a week. The pensions increase must be seen against the background of those tax reductions for the elderly. That, combined with other of my right hon. and learned Friend's proposals, has put them in a significantly better position than they were before.

It is important to remember that our last election manifesto stated in clear and categoric terms that we would phase out the earnings rule for pensioners during the life of this Parliament. I regret that that has not been done. Time is running out and it would be unfortunate if we had to delay the next general election to fulfil that promise. Therefore, I urge the Government to take action on that. Of course, there will be arguments from Labour Members that such a measure is in some way unfair to the unemployed; that pensioners will be taking jobs away from the unemployed, and so on. That is not true. It is wrong that pensioners who wish to continue to work to make a little extra money should be penalised in the way that they are by the earnings rule. I hope that we shall have an opportunity to debate that on the Floor of the House when we come to the Committee stage of the Finance Bill.

I must declare an interest, as I did in the course of the debates on the Armitage report and in other debates on heavy lorries. The proposed taxation changes for lorries will have the effect of encouraging operators to change from the type of heavy lorries that do the most damage and are the most dangerous. Even though the Budget will increase taxation on some operators it will be beneficial because the adverse environmental effects of the decisions that the House made to increase the weight limit on heavy lorries a short time ago will be ameliorated. Operators will be encouraged to use heavy lorries which have three axles on the front tractor and two on the back trailer, rather than two at the front and three on the back. As we know from earlier debates that will have a beneficial effect both in terms of reduced road damage and increased safety, because three-axle tractors are much less likely to jackknife. That is one of the many specific proposals in the Chancellor's Budget that should be welcomed, rot just by my hon. Friends but by Labour Members as well.

I return to my original theme of economic management, with reference to the remarks of the right hon. Member for Stepney and Poplar (Mr. Shore) both in this debate and earlier. I regret that the right hon. Gentleman's reputation as a serious student of economic affairs has been undermined by his statements over the past six to nine months, in particular his suggestion that the sterling exchange rate should be devalued by some 30 per cent. I recognise the need to restore competitiveness to British industry but the idea that that can be done by the devaluation of the pound combined with a massive reflation is a complete and utter mistake. We lost competitiveness partly because of the rising exchange rate and that, to a considerable extent, has already been ameliorated. However, we particularly lost competitiveness because of a massive increase in wage inflation. That cannot be corrected at a stroke by the kind of policies that the right hon. Gentleman is advocating. On the contrary, an increase in import prices would follow from the fall in the exchange rate and general relaxation in the economic climate that would result from such a massive reflation, would lead to a vast increase in the level of wage settlements. That, inevitably, would not help unemployment. On the contrary it would mean that unemployment a couple of years or so hence would be a great deal worse because we would become completely uncompetitive once his measures had taken effect.

The crucial point is that we are facing a completely different kind of unemployment from that which we have faced in any period since world war 2. We have seen an enormous reduction in overmanning. Many companies have cut their labour force by about 30 per cent. and they have made enormous redundnacy payments as a result of the Employment Protection Act 1975. Now that they know that they can produce probably as much as they could before they are not likely to take those people who have become unemployed, often through no fault of their own, back on their payrolls. It is bound to take time but we must encourage more investment and more firms to start up. Several of the measures in my right hon. and learned Friend's budget will achieve that objective.

At the same time it is crucial that we should reduce the level of real interest rates. That will be difficult for the reasons that I have mentioned. We must look at interest rates in relation to those in America and the projected size of the American deficit is horrendous. Anything that my right hon. and learned Friend can do to persuade the Americans to reduce that deficit is bound to be good, not only for Britain and the world economy but for the United States as well. If we are to reduce our interest rates and real interest rates it is essential that we should do everything we can to restore confidence in sterling. It is essential that the change in wage negotiating attitudes that has been apparent recently should be sustained. That is the only way that we shall reduce unemployment. It is a matter of great regret to me that in the past the trade union movement has consistently pushed for higher and inflationary wage settlements rather than protecting the employment prospects of their members and their competitiveness. Therefore, it is important that that responsible attitude should continue in the future, and that the Government should do all they can to reduce industrial costs. That is one of the reasons why I have put great stress on the need for further progress in eliminating the national insurance surcharge.

The recommendations of the CBI in regard to industrial costs were relevant to reducing the level of unemployment. If the Government are to reduce interest rates and restore confidence, they must be seen to be pursuing responsible economic policies. The recent statements by the shadow Chancellor have tended to undermine confidence. It is highly unlikely that there will be a future Labour Government. It is important that we should get a decisive result at the general election. If the Government achieve that, they can reduce interest rates, increase investment, get the economy going and see a further succession of five or more Conservative annual Budgets.

8.11 pm

Mr. A. W. Stallard (St. Pancras, North)

It is inevitable at this time and at this stage of the debate that hon. Members have time simply to concentrate on one or two aspects. Much as I would have wished to follow the right hon. Member for Worthing (Mr. Higgins) by talking about taxation and other issues, Back-Bench Members are denied that privilege because of time. I shall restrict my remarks to the social services and pensions because of my position as co-chairman of the all-party group and my interest in pensions both inside and outside the House.

The debate has centred on pensions, which I welcome. Campaigns that have been carried on outside the House as well as by hon. Members on both sides of the Chamber have focused on a number of issues during the past 12 months. The Government, especially in this election year, have shown some sensitivity to the opinions of those who have studied this issue throughout the country.

The Chancellor, in his first Budget speech in 1979, said that the Government's general policy would be to make substantial reductions in public expenditure but that it must not be done in a way that bore unfairly on the most vulnerable members of society. Hon. Members have proved today, and can prove a million times over, that exactly the opposite has happened. The Government's policy has fallen heavily on those who could least afford it. I calculate that since 1979 social security savings have amounted to more than £20,000 million. A substantial amount of that figure has come from the pensioners. It is safe to say that, whatever concessions the Chancellor has handed out this week, many of them have come from the money he has clawed back, stolen, swindled, cheated, thieved or nicked—and it is quite right to use those terms to describe what has happened. That is the money that he has been able to dole out this week in his so-called concessions.

My hon. Friend the Member for Pontypridd (Mr. John), in an excellent contribution, mentioned some of the pensioners' problems, such as the break with the earnings link and the amount that that cost pensioners. He could have mentioned the shortfall of 1.7 per cent. in 1980–81 which was never made up and how much that cost pensioners. He could have mentioned the lengthening of the normal 52 weeks in a year for the rest of us which became a 54-week year for pensioners. He could have said how much that cost the pensioners who never got it back. It was far more than the £2.25. If we were to make a calculation, it would be at least double that sum. He could have mentioned the money that pensioners will lose because of the change in housing benefits—the new unified benefit scheme. I have ascertained from answers to written questions that some pensioners will lose money on that deal.

When the Chancellor announced in his statement that he would claw back money from pensioners, it was inevitable that there would be a massive backlash from all parts of the House and all parts of the population. There have been lobbies, meetings and motions. It was noticeable, from the language of Front Bench spokesmen in their speeches and in the replies to questions, that a softening had taken place and I was able to speculate with others that the clawback would not take place but that the Chancellor was looking for another trick and scheme by which he could get the same amount of money but without mentioning the dreaded clawback.

It was gratifying that the political editor of The Guardian rumbled that and began to agree with us. He said recently that the Chancellor was looking for other methods. His not-so-new trick was the 1976 formula which was based on the alleged current rate of inflation. That is all right if inflation remains stable. If it increases between May and November, the pensioners and other beneficiaries lose again and they are back to where they started. I calculate that the reversion to the old method will cost the pensioners £105 million. That represents another saving at the expense of pensioners. It is another means of clawing back money from pensioners.

There are alternatives. The Chancellor could have agreed to a bi-annual review, which has been argued for many years. Many political correspondents will understand that. Other countries can, if necessary, increase pensions monthly, but, with all our computerisation, according to the latest estimate, we are not able to do it in less than seven months.

The Chancellor of the Exchequer could have reviewed, as I asked him to do a few weeks ago, the pensioners RPI. We know its inadequacies. That is why we have been asking for a review and a complete rethink as to how pensions are calculated. The Chancellor could have taken guidance from a document sent to him by Age Concern printed by Mr. W. Smith, who was able to prove that if the Chancellor used the new index that Mr. Smith has devised—it is based on pensioners' costs—the pensioners' rate of inflation has increased by 12 per cent. more than that of the rest of the population since 1974. Pensioners say that there is a differential rate between pensioners and the rest of us. There is even a differential rate among pensioners.

The method of calculating pensions is in need of urgent review. The Chancellor could have looked at those alternatives rather than returning to 1976 policies.

That leads me further to speculate that this Budget is an interim sweetener. The Chancellor has stated that by a date in June he will be able to announce the pension increase because it is based on the month of May. If one examines the election calendar, that is a very good date. June will offer another great bunch of goodies to pensioners based on what the Chancellor would consider to be the inflation rate. It might set the scene for an October election. That is the type of strategy that is not beyond the trickster who on Tuesday introduced what the Labour party hopes is his last Budget.

The right hon. Member for Worthing, (Mr. Higgins) mentioned the omission from the Budget of mention of the earnings rule. The Conservative party's manifesto commitment on this was far clearer than most. The Conservative party said that in the lifetime of a Parliament, and not eventually, the earnings rule would be abolished. Under the present rule, if pensioners earn more than £57 a week they lose some of their basic pension. I understand from a reply given recently that if the figure had been increased to keep in line with inflation it would now be £72. The Government have not made any progress towards abolition, or got anywhere near its true value of £72. In any language that is a disgrace.

I do not think that the Minister for Health is considered a wet or to be damp. Therefore, I cannot do better than to quote something that he wrote on the earnings rule in a pamphlet which was published by the Conservative Political Centre in July 1976. He said: The earnings rule is a form of taxation which embodies almost everything that Conservatives traditionally oppose:

1. (i) It falls on the elderly but not the young.
2. (ii) It is levied on earned income but not unearned, and
3. (iii) It is a disincentive to work."

I wish that the Minister had been able to convince the Chancellor of the Exchequer of that. If he had been able to convince him, we might not have been talking about the earnings rule any more.

Nothing has been done for the over-eighties. Many crocodile tears are shed for them. An ever-dwindling and decreasing number of people who did not qualify for full pensions because they had not made enough contributions were given a non-contributory pension, which is about 60 per cent, of a normal pension. However, that has not been changed. Nothing has been done for the over-eighties in this Budget. Furthermore, nothing has been done about that miserable allowance of 25p that is given to the over-eighties. It could have been raised. Nothing has been done about the death grant or about the unanswerable case that has been made by hon. Members on both sides of the House and by all the voluntary organisations that are involved. Much has been left undone that could have been done if the Chancellor of the Exchequer had been seriously concerned about his intitial Budget statement in 1979.

This Budget has done little or nothing for pensioners. There is no joy about it among the pensioners in my constituency, and I am sure that pensioners in the constituencies of Conservative Members do not feel any joy either. The pensioners will not forget. They realise that they are not yet back to the position they were in in 1979, despite all the talk to the contrary. They will draw their own conclusions about the trickster who has introduced yet another awful Budget for them.

8.21 pm

Mr. Stephen Dorrell (Loughborough)

The hon. Member for St. Pancras, North (Mr. Stallard) began by saying that, because of the constraints of time, the wise Back Bencher chose between discussing the details of the pension and social security provisions in the Budget and the macro-economic judgments. He made one choice, and I hope that he will forgive me if I make another.

Those hon. Members who have regularly attended economic debates during the lifetime of this Parliament will know that I have not been the most persistent or ardent admirer of some of the Chancellor of the Exchequer's previous Budgets. I agreed with the view expressed by my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) about the previous Budgets, particularly the Budget in the spring of 1981, which pressed the economy still further and needlessly into deep recession. I do not retract any of the comments I made at the time about that Budget and some of the other things clone then.

However, one of the most dangerous traps in politics is to pursue yesterday's issues when the circumstances that gave rise to them have changed. My right hon. and learned Friend the Chancellor of the Exchequer made what my right hon. Friend the Member for Worthing (Mr. Higgins) insisted on calling the Budget judgment against a background that is in many important respects different from that against which earlier Budget judgments were made. For that reason I find much less to take issue with in this Budget.

I shall run through the various factors that have changed and that make the judgment that the Chancellor of the Exchequer made on Tuesday something that most Conservative Members can support and defend. The first and most obvious change in the past six to nine months is the substantial drop in the external value of sterling. It has cut the dollar costs of manufacturers in this country and has contributed to a considerable easing of the competitive pressures on British manufacturers and the widening of their margins. It has also made it easier for them to compete, not only for export orders overseas, but for orders within the British economy, where they must compete against imports. The pressure on manufacturers' margins is considerably less than it was 12 months or two years ago.

Therefore, although I have argued in the past that the emphasis on tax cuts should be placed on cutting the national insurance surcharge, I no longer regard that as my principal concern. Industry is now better able to deal with the competitive pressures to which it is subjected and its primary concern now is not the cost pressures that were so compelling two years ago, but the lack of orders. That is why I take the view expressed in the Budget that the emphasis this year should be placed on personal tax cuts, because of their impact on demand.

If one wants to increase the demand for British goods, and thus increase orders for British factories, it is much more effective to put money into people's pockets, and particularly into those of relatively low earners, than to try to do it through reducing the national insurance surcharge. Therefore, that switch of emphasis was right.

The second aspect of the changing background is that we are no longer dealing with a world economy that is sinking further and further into recession. That is a dangerous statement to make in such categoric terms, but there are clear signs in the American and German economies that they are, at the very least, turning round. In the United States of America, in particular, there is increasing evidence of the possibility of quite a strong upturn in the level of that economy's activity. Given that 30 per cent. of the total wealth that we produce is export-dependent, if that is true, it highlights the essential need to ensure that the international initiatives that the Chancellor of the Exchequer has undertaken as chairman of the interim committee of the IMF, and which he has repeatedly said that he proposes to continue at the Williamsburg summit, and in the review of the international monetary arrangements, can have just as great an impact on the level of economic activity in Britain as any of the Budget's contents. Therefore, the decline in the value of sterling and the improvement in the prospects for world trade amount to a significant change in the background against which my right hon. and learned Friend made his Budget judgment. Given those two factors, the House may legitimately ask what the proper response is, but it must be done against that background.

The Chancellor's Budget has been represented by the press as being a low-key, safe Budget and as having a relatively low impact on the outlook for economic activity in Britain. In many ways the press has underestimated the likely stimuli that will come to bear on the British economy in the next few months. Hon. Members should remember that last autumn my right hon. and learned Friend injected a further £1 billion into demand by cutting the national insurance surcharge. The tax cuts in Tuesday's Budget are in addition to the other three factors that I have mentioned. All those things amount to a considerable stimulus to the likely level of economic activity in the next few months. Bearing all those stimuli in mind, it is only sensible and prudent to consider what constraints in the economy prevent further and more imaginative initiatives—as some of my right hon. and hon. Friends might call them—being taken.

We must remember that we cannot simply look at a graph of declining manufacturing output and economic activity and say that that is spare capacity lying around waiting to be taken up. It is not. Many of those factories are closed, people are on the dole and the work forces have been dispersed. We start from the position that we are in now, not from a position 17 per cent, above it. If that is true, we must expand the level of activity at a pace which the industrial and commercial base of this country will be able to match. We must remember that, precisely because the recession has been so long and so deep, many parts of our manufacturing industry, particularly in the west midlands, are in a fragile state and that, against the background that I have described, a massive injection of demand at this stage would have been an unreasonable risk for any Chancellor of the Exchequer to take.

Previous Governments have made the easy mistake of imagining that, because we have been through a recession, a major stimulus is required to get the economy moving and have provided that stimulus at exactly the wrong moment, just as the economy has started to recover. It is true that bigger stimuli are needed in the depths of a recession than when the economy begins to recover. If my analysis that the level of activity is likely to increase over the next few months is correct, this is not the time for a major stimulus to domestic demand. What we need during recovery is what I have often described as a policy of "drip feeding" the economy out of recession. I wish to see the Budget followed up by a similar package of measures with the emphasis on "little and often".

Earlier this afternoon my right hon. Friend the Member for Chesham and Amersham said that if one projects the Budget judgment forward for three years it would contribute to a 2.5 per cent. growth rate over that period. If it were true that this was the end of wisdom for the next three years, that analysis might be correct, but I hope that when my hon. Friend the Economic Secretary to the Treasury comes to reply he will be able to assure the House that this is not the end of wisdom and that we shall see, if necessary, further stimulus measures being taken when it is clear—if it is clear—that the economy has successfully responded to the stimuli that are already in the system.

I agree with my right hon. Friend the Member for Chesham and Amersham to the extent that the Budget is not sufficient by itself, but for the moment it is probably a reasonable judgment for my right hon. and learned Friend to have made. I hope, most of all, for the future that we can get away from the absurd annual ritual of insisting that in March we make a decision that will last us right through the year. As the recovery progresses, as I hope it will—I think it is now reasonable to anticipate that it will—I hope that my right hon. and learned Friend will ensure that whatever can be done to increase the rate of recovery will be done, but obviously within the context of the ability of the economy to respond to the stimuli injected into it.

8.32 pm

Mr. Michael Meacher (Oldham, West)

There are two clearly overriding criteria by which judgments of the Budget should be made: first, how much will it reduce mass unemployment, the biggest single political and economic scourge in this country, and, secondly, what effect will it have on living standards? With regard to both, I believe that the Thatcherite echo in this Budget is unmistakable. The Budget will lead to unemployment rising still further and overwhelmingly benefit the rich.

On the first point, calculations suggest—here I agree with the right hon. Member for Worthing (Mr. Higgins)—that the overall balance of the Budget—I think he called it the Budget judgment—is mildly reflationary. But thanksgiving that the continuing and deliberate contraction of the economy engineered by the Chancellor's preceding four Budgets has now been halted is tempered by the fact that a 0.75 per cent. of GDP stimulus—that is the view of most people—pales into insignificance when placed alongside the Government's fiscal and monetary policies which remain excessively conservative and extremely tight. That is clearly shown by the fact that if we exclude the cyclically oriented components of the Budget deficit—the £17 billion which is expected to be spent on unemployment benefit, supplementary benefit, and taxes forgone in the next year—with a public sector borrowing requirement of only £7.5 billion, the Government are running a huge surplus in the middle of the biggest world slump for 50 years. No other western country pursues such a horrendously damaging and self-destructive policy.

The central criticism of the Budget must be that, with a collapse in manufacturing production of no less than 20 per cent. during the past three and a half years—a collapse without precedent in the history of capitalism, apart from the 1930s—it offers no answer to mass unemployment and falling living standards.

The Budget contains the Chancellor's micro measures—and they are certainly microscopic. They are pathetic little baubles, full of sound and wind, but signifying next to nothing compared with the enormity of the industrial collapse that has befallen Britain under the right hon. and learned Gentleman's regime.

The Chancellor has given no answer to the two essential questions facing Britain if a recovery happens—not that there is much prospect of that. First, how, on the Government's own premise, do they intend in the longer term to sustain a recovery without refuelling inflation? Hitherto, the only means by which the Government have held down wage inflation has been by the threat and reality of mass redundancies.

Secondly, if a recovery occurs, how will the Government prevent an upturn in demand being dissipated on imports, which will create an intolerable balance of payments debt? It is important to note that during the two years to the end of 1982, British demand for manufactures increased by 11.5 per cent., but our supply of manufactures fell by 3.5 per cent. Those are the central questions of British economic policy, but the Budget gives no answer to them.

Another yardstick for judging the Budget is its effect on living standards. The judgment is stark. Following the Budget, it is clear that, for the first time since the war, the Government will conclude their five-year parliamentary term leaving virtually the whole of the population—other than the very rich—worse off than at the beginning of the term. Even previous Conservative Governments did not manage to achieve that.

The Government's figures show that real personal disposable income, which is acknowledged to be the best indicator of living standards, fell by 6.5 per cent. between the last quarter of 1979 and the middle of last year, which is the latest available figure. All classes of people, other than the rich—those earning more than £30,000 a year—have shared in that decline.

What about those in poverty, dependent upon supplementary benefit? Their numbers have risen by no less than 60 per cent. since the middle of 1979. One in eight of the population is now explicitly in poverty. That represents more than 7 million people. What about families on average earnings? I am grateful to the Treasury for the interesting answer that it gave me earlier this week. It showed that, taking account of all changes in income tax rates, personal allowances and thresholds throughout the last four years, and including all five Budgets, those on average earnings made a gain of precisely £5. That is insignificant, and it is before taking account of large, swingeing increases, such as the 3.5 per cent. increase in national insurance contributions. Therefore, those on average earnings made a substantial loss during that period.

Low-paid workers earn two thirds of the national average. According to Treasury figures, they made a tax loss during that period of £45 in real terms. By contrast—I again quote the Treasury figures—company directors and top professionals earning over £30,000 a year have been awarded a massive real tax gain of no less that £3,650.

That is the record of Thatcherite Britain. After five Budgets, including the latest and four years of Thatcherite rule, the official verdict is tax increases for the low and average paid and colossal tax cuts for, and only for, the richest 1 per cent. elite of this country. That is the official verdict on four years of Tory rule according to Treasury figures.

The Chancellor boasts—the right hon. Member for Worthing mentioned this, understandably—that his tax cuts this week are worth about £2, or more on some calculations, to families throughout the land because he has raised personal allowances by 8.5 per cent. above the level of inflation. What he did not say was that two years ago he left personal allowances where they were, which was precisely 15 per cent. below the level of inflation when he failed to put them up at all. The fact is, therefore, that people, even today, after the handouts in the latest Budget, have not made up what they lost then.

It is not just the average paid who have suffered. Middle managers and professionals on double average earnings—£15,000 a year—have actually made a tax loss under this Budget because they do not earn enough to benefit from the increase in the higher rate threshold, and at the same time they have been hardest hit by the big increases in national insurance contributions.

As some of my hon. Friends have said, we have the really unpleasant spectacle in this Budget of the Chancellor showering tax handouts on the rich. According to Treasury figures, he has given more than £800 a year to senior managers, at the same time changing the method of assessment for the pension uprating in a manner that can have been designed only to cut it back surreptitiously. First, we had direct, overt clawback of the 2.5 per cent. so-called overshoot. Now that that has become too politically hot, even for Tory Back Benchers, we have the snide clawback.

The pension uprating will be fixed, as we all know, at 4 per cent. in June in line with inflation in May. When pensioners get it in November, inflation will be 6 per cent., if not higher. It is mean to use back-door methods to cheat the pensioners of what they are clearly entitled to, at the same time, in the same Budget, handing out £20 a week extra to Mr. Ian MacGregor and the likes of him—and, incidentally, let me say to the Chancellor, to himself and to other Members of the shadow Cabinet—[Interruption.] That was indeed a serious mistake. I withdraw the word "shadow"—to other Members of the Cabinet. I was obviously thinking six months ahead.

Those are the values of Thatcherite Britain—look after self, especially selfish rich, and the devil take the hindmost. This is not a Budget on which we can say anything different from what we have said before. The most notable feature is yet again massive largesse for the rich and pretty small beer for everyone else. The Budget does not address itself to the central problems of Britain today—problems which cry out for a solution, for hope of bringing down the level of mass unemployment, and of pointing the way to an early recovery. That is the essential measure of its failure.

8.44 pm

Mr. Bill Walker (Perth and East Perthshire)

I shall endeavour to concentrate my remarks into as short a space of time as I can because I know that other hon. Members are keen to speak.

I believe that we must accept that this Budget has to be seen against the background of the present fragile state of other world economies, the historic endemic high rate of inflation, low productivity, indifferent management and intransigent unions and the overmanning that has bedevilled British industry for the past 30 years.

Lack of demand worldwide has created a situation in which protectionism is again rearing its ugly head and United Kingdom exporters are having to face intense competition, particularly on prices and delivery, in order to hold their existing markets. The prospects of increasing their market share is made much more difficult by the introduction of modern technology and equipment in countries that have been largely Third world, low labour cost countries, which today still enjoy low labour cost and also now the benefits of modern technology.

The pressure to reflate must have been substantial, particularly at a time when the thoughts of most hon. Members and of the media are on the coming general election. After all, this has been the accepted practice in the past. Governments of different political complexions and in different parts of the world have taken the view that increased borrowing in the last year of office which, in turn, led to increased inflation and increased rates of interest, could be justified if the Government were reelected. Power was more important than the underlying and true state of a country's economy. To their credit, this Government and the Chancellor have recognised that, in unstable financial and economic world conditions, it would be dishonest and foolhardy to attempt to purchase short-term popularity by increased borrowing or by printing money.

I wish particularly to refer to the Scottish element of the Budget. There are no doubts in Aberdeen and in Scotland that the measures contained in the Budget to encourage further North sea exploration and appraisal will stimulate activity and produce more wealth and jobs in Scotland. I only wish that I could, with confidence, say that the Scotch whisky industry looks forward to an increase in activity. The Scotch whisky industry has a remarkable record of success in the export market. Indeed, if all other British manufacturers could emulate the Scotch whisky industry's record, there would be no problem for the British economy and reflation would be a viable proposition.

The Scotch whisky industry is paying a heavy price for the failure of other sectors of manufacturing industry in the United Kingdom. I am concerned at the continuing shift from bottle sales in the export market to the export of bulk whisky, particularly malt. I believe that the Government have understood the problems of the industry and that they have attempted to assist in a real and positive manner. For that, the industry and myself are thankful. The deferment of duty was an example of Government assistance to industry that was most welcome.

I recognise, as, I am sure, do the Government, that the home market for Scotch can set the pattern and give a lead to the rest of the world. We must acknowledge that the level of taxation imposed in' the United Kingdom, if emulated by every other country where Scotch is sold, could lead to a reduction in the demand for Scotch. This would create even more problems for our exporters. My right hon. and hon. Friends will not be surprised when I say that I, for one, have never accepted that because taxation was at a certain percentage level in 1975 or, for that matter, in 1925, it should be at the same percentage level today on a product such as whisky. I realise that Ministers accept this view. Otherwise, the tax on whisky would have been substantially increased. If my mathematics are correct—I believe that they are—the price of whisky is about half what it was 20 years ago. I hope that Ministers will acknowledge that prices in the Scotch whisky industry have not risen to the same extent as prices in other industries and that this has contributed substantially to the export success of the Scotch whisky industry.

Another element in rural costs that are so important to Scotland is the price of petrol and derv. I am glad that my right hon. and learned Friend the Chancellor has taken these costs on board in considering his Budget. This is much appreciated. Those living in rural areas depend on private transport much more than public transport. Petrol and diesel prices can be a regressive form of cost, particularly if they continue to be indexed to the rate of inflation. I hope that the new structure of vehicle excise duty will help the rural areas and that the reduction of 10 per cent. on lighter commercial vehicles will help to reduce costs for the movement of goods and the provision of services in rural areas.

I also welcome the reduction in corporation tax for small businesses from 40 per cent. to 38 per cent.

I wish there had been some provision in the Budget to encourage the National Coal Board either to lease at peppercorn rents or to give for nothing to miners those mines in Scotland that the miners believe can still be worked but which the National Coal Board wishes to close.

I am pleased to note that the work done by the Select Committee on Scottish Affairs on free ports has not been ignored. In some small way it has contributed to the decision to establish free ports. This is a good decision and will, in the main, be given a welcome on all sides of the House. May I draw to the attention of the Minister the fact that the Scottish Select Committee was considering Prestwick? I hope it will be top of the list when the decision is taken about where free ports are to be sited. If Scotland is fortunate enough to have two, may I put in a bid for Dundee? I do not have a constituency interest in either of these sites. If there are to be two free ports in Scotland, both sides of the country should benefit, but my first preference is for Prestwick.

8.51 pm

Mr. Frank Hooley (Sheffield, Heeley)

Much of the economic debate has tended to concentrate on the level of public expenditure and whether it is high enough or low enough. The aspect of public expenditure that has not been debated enough is what the Government are spending the taxpayers' money on. In this respect table 1.14 on page 17 of the public expenditure White Paper, volume 1, is revealing.

If we compare the unproductive expenditure for 1978–79 with 1983–84, taking note particularly of expenditure on armaments and on the unemployment element in the social security payments—that is, allowing for 2 million more unemployed—we find that in 1983–84, to which the Budget relates, the Government will be spending £8 billion more in real terms at constant prices on armaments and unemployment than was spent in 1978–79. If we turn to productive expenditure on industry, energy, trade, transport, housing, environment, education and science, and compare 1978–79 with 1983–84, we find that there has been a reduction of £4 billion. That is £4,000 million less in real terms on expenditure on the essential productive parts of the economy.

The totally unproductive expenditure has gone up by £8 billion while the productive expenditure on the important sectors of the economy has been reduced by £4 billion under this Government. I remind the House that these are constant prices and do not take account of inflation. It would have been possible to reverse those equations without spending a penny more overall in public expenditure. This shows the grotesque failure of the Government. It is one of the reasons why industries are being destroyed and why we are falling behind our competitors. The fundamental expenditure on industrial training and equipment, on energy and on the infrasructure of society has been grossly neglected and cut back by the Government while unproductive expenditure on financing the dole queue and on our absurd armaments level, which is far beyond that of our NATO partners, has soared up to these fantastic levels—£8 billion more wasted and £4 billion less being spent on the essentials of the economy.

Every hon. Member knows of the need for expenditure on industry, microchips, electronics, telecommunications, biotechnology, investment in energy conservation and on energy sources. All these things are crying out for additional money. What has happened is that expenditure on precisely those things has gone down during the past five years.

The Minister will no doubt remind us of the Chancellor's announcement that £240 million will be available for technology and innovation, but that is over three years so it is really only £80 million—a petty, fiddling amount compared with the gigantic increases in expenditure on armaments and the enormous cost of financing an ever-increasing dole queue.

One of the Government's standard alibis for the troubles of the past three years has been the world recession, as though it were some kind of measles that no one could do anything about. A major problem in that recession, however, has been the trap in which the Third world countries have found themselves. With falling commodity prices and rising oil prices, their difficulties are appalling compared with ours. One way out of the recession and this trap would be an injection into the Third world economies to build up international markets and thus help our own. Yet between 1978–79 and 1983–84 overseas aid has been cut by £172 million at constant prices—a cut of 16 per cent. or 17 per cent. in real terms. Those are the figures in the Government's own White Paper.

It is no use the Government constantly whining that the world economy must expand if we do nothing to expand our own economy, because we are part of it. One no longer needs to rely on the Brandt report in this argument. Internationally, spokesman after spokesman from America, West Germany and elsewhere has said that unless the major economies of Japan, the United States, Germany, France and Britain follow a path of expansion there will be no way out of the trap of international recession and slump.

Yet the Chancellor has introduced a deflationary Budget. The public sector borrowing requirement is screwed down rigidly to 2.75 per cent., as though there were some special virtue in that. What is the Chancellor forecasting for the current year? I quote his own forecast, not any invention of mine. The Chancellor forecasts rising unemployment, rising inflation and a miserable rise in output of 2 per cent., which itself is suspect, as this time last year he forecast a 1.5 per cent. rise in output and the result was a third of that—a mere 0.5 per cent.

A number of people have commented that this is a rich man's Budget and that is certainly true. A man or woman on £40,000 a year will be £1,000 better off as a result of the tax changes. The person on average income will be about £100 better off or, if he is single, only £66 better off. The Chancellor has given 10 times as much tax relief to the rich as to those on average earnings. Moreover, we still have the fantastic situation in which a single person earning £40 per week or a married couple with £60 per week will jump straight into the 30 per cent. tax rate—the highest in the world for that level of income, I believe—the same rate as that paid by the person who enjoys an income of £300 per week.

The so-called tax give-away amounts to £2 per week, but a moderate smoker will spend an extra 25p per week on cigarettes, a moderate drinker 12p on beer and the person with a small car an extra 28p on petrol and 10p per week on car tax—not to mention the 0.25 per cent. increase in national insurance that the Government were careful to announce way back in November. All that will offset any tax advantage as a result of the Budget.

In addition, anyone who is unlucky enough to be a council tenant will find that he gets 85p on his rents and increases in rates, inflation and transport charges. By my rough calculations, the chances are that anyone on a moderate or even a medium income will be practically no better off as a result of the Budget, if one calculates all the pluses and minuses. The Guardian this morning calculated—I have not checked the calculations—that those on medium incomes, because of the effect of the higher national insurance contributions, will be net worse off because of the increase in the band and the 0.25 per cent. extra, offset by such a miserable amount of tax relief.

There is now no time to go into some of the details of the Budget. In it, there is no hope for unemployment. Perhaps the most cynical sentence in the pile of documents that have poured out from the Treasury is the one that says that a severely disabled person can now earn £22.50, in place of the £20, before the benefit is affected. How many severely disabled persons have a dog's chance of getting a job at all with 3.25 million on the dole?

We have heard much about the small business man. My guess is that the tax changes are an accountant's paradise, which the average small business man will not understand. I can see how many small business men will rush along to buy some deep discounted stock, which is the new gimmick of the Chancellor.

This is a slump Budget, a deflationary and an unemployment Budget. It is a "no hope" Budget. The claim to fame of the Chancellor will be that he has grimly persisted to the bitter end in a policy of mass unemployment and industrial dereliction.

9.2 pm

Sir Anthony Meyer (Flint, West)

Like most of my right hon. and hon. Friends who have spoken in the debate, I come tonight not to bury Caesar but to praise him, and to add my modest contribution to the chorus of faint praise that has greeted my right hon. and learned Friend's Budget. I take my theme from the editorial in the Liverpool Daily Post, headed "Consistent if colourless", which ended with the words: Sadly, for the moment, the jobless it seems will have to be patient. In between, the editorial praised the Chancellor for his refusal to be diverted from the austere path of rectitude that he has chosen.

It is wrong to underestimate the importance of consistency or the difficulty of maintaining it. One phrase that has been dropped from the political vocabulary these days is "stop-go". Some say that it has been replaced by the word "stop", but that is not fair either. The Government have halted, and perhaps reversed, the slide towards catastrophe. A nation such as ours, dependent on exports, cannot go on with three men doing two men's jobs and getting four men's pay. There is now a real possibility—I put it no higher—that we can avert catastrophe in the 1990s and 2000s. However, there is still the rest of the 1980s to get through. We may have to get through with 3 million-plus unemployed for many years to come. That problem is bad in the south-east, but intolerable in the north and Wales.

Some people may find compensation in the high level of unemployment and say that it induces a more reasonable attitude to pay bargaining in private industry in weakening the monopoly power of the unions and the public sector. Although I welcome both these developments, I cannot regard them as justifying unemployment. I see better ways of bringing such things about. In a society where a real job is still a vital ingredient in a person's self-respect, there are no compensating advantages in unemployment.

I accept that at this stage there is no possible action that would have an immediate effect on unemployment. I warmly welcome the minor measures in my right hon. and learned Friend's Budget—particularly the raising of the thresholds and the things that he has done for small businesses that could create many more jobs. We have fewer small businesses than most of our partners in the EC, especially Germany.

I welcome also the idea of free ports. I can understand the eagerness of Liverpool to be considered as a free port. I hope that this will not be done at the expense of those smaller ports in the region on which Liverpool has so often in the past cast a baleful eye. If claims are being made that Liverpool and Merseyside would benefit from free port status, I am entering a claim on behalf of my constituency for free port status for the tiny port of Mostyn which, with the nearby enterprise zone in Flint, could give a boost to economic activity in north-east Wales, which has the worst unemployment in Great Britain.

I was glad to hear my right hon. and learned Friend talking about the modest steps that he is taking in relation to job sharing. I shall say a word about that later. I am not entirely persuaded by those of my right hon. and hon. Friends who wanted to see some reflation in the Budget. There is a serious risk that more reflation would lead not to more jobs but to more imports. I believe that there is room for considerable expansion in the economy that would not create an extra job. On the contrary, expansion could create bottlenecks through shortage of skills. Therefore, I warmly welcome what my right hon. Friend the Secretary of State for Employment is doing with new training initiatives.

I welcome the Government's other new job creation programmes, many of which I am bound to say were treated with considerable scorn by Conservative Members when they were introduced by the Labour Government. I welcome particularly the community programme, which enables unemployed people to do work that is valuable to the community and important to the environment. All these schemes, admirable though they are, are patchy and makeshift and are not seen as part of an imaginative drive to get everyone to work.

Above all, two things are lacking in the Government's and the Chancellor's approach. The first is proper recognition of the fact that anything that we can accomplish nationally is liable to be undone by international developments over which we have all too little control. The second is any vision of the type of society that we are trying to bring about. I cannot properly develop these themes in the two minutes that I have left.

We have only to see how fluctuating sterling exchange rates have shaken the Chancellor's attempt to pursue a consistent course and how much uncertainty is introduced by movements in oil prices to recover our sense of proportion and to wonder why we do not join the European monetary system exchange mechanism and, in the longer term, as the hon. Member for Sheffield, Heeley (Mr. Hooley) pointed out, why we so glibly ignore the dangers and opportunities that have been pointed out to us in two successive Brandt reports.

At home, the need is not just to recognise that the days of full employment are gone for ever, but to act upon that conclusion and to move at an accelerating pace away from the 40-hour week, 40-week year and 40-year working life towards the 30-hour week, 30-week year and 30-year working life. From there we must move towards industry, only a small part of which will be manufacturing, whose purpose is not only to provide jobs but to create wealth and to use that wealth to bring about the best social services, the best education system, the most generous pensions and the most agreeable environment of any country.

We need from Ministers a vision of Great Britain and its place in the world. The Government and the Chancellor are moving in the right direction, but let them move rather faster, and let them tell us where we are going, if, indeed, they know.

9.8 pm

Mrs. Gwyneth Dunwoody (Crewe)

There used to be a time when Chancellors came to the House to enunciate their financial strategy. They laid down a policy which was meant not just to restore the balance in our economic performance but to give some sign to the people of exactly how the Government imagined that we would develop in the coming year. Those days are long gone. On Tuesday the Chancellor explained a strategy that was just about as clear as mud. It bore a close resemblance to a swamp. We know that we are in it, but neither he nor anyone else seems to be capable of getting us out.

The theme that has been repeated time and again in today's debate has been the real dismay that has been expressed, with considerable honesty by the Opposition and in veiled terms by Conservative Members, about the complete failure of the Budget to give encouragement to the British people.

Since the Government took office there has been no understanding of the damage that they were doing and no caring for the social cost. Ministers come to the House time and again prepared to massage the unemployment figures. This Budget is no different from any other. Have we been given any stimulus for economic growth? No, we have not. We have heard about overmanning. I assure Conservative Members that there is no overmanning in firms that go bankrupt. At present we have the largest number of bankruptcies ever recorded in small firms that Conservative Members are so fond of telling us they are anxious to promote.

What the Budget does is to try—I say "try" advisedly—to cover up the paucity of political commitment and thought in the Conservative party at present. The Secretary of State showed that clearly when he opened the debate. He has an endearing habit of acting as publicity agent for various members of the Labour party. He tells us what has been in the various books that they have published during the time that they were either in or out of the House. However, he then gave the whole game away in one sentence. We asked him, "Now you have told us what happened when the Labour party was in power, tell us how much consultation there was by the Chancellor with you on the Budget, tell us how much notice he took of your views on what should happen to pensions, and tell us how he wanted to know what your policy was on the social services." In one sentence the right hon. Gentleman put it all into perspective, saying, "We do not do anything like that." What happens is that the Prime Minister tells Ministers what they ought to do and then they proceed to do it. Otherwise, they know that they would not retain their places on the Front Bench.

I positively encourage and applaud certain aspects of the Budget—for example, the suggestion that we shall alter the law on benefits in kind of directors and employees, and the suggestion that in future it will be far more difficult for directors of private enterprise to benefit by having special loan facilities for their homes and the private schools to which they send their children.

The Secretary of State told us that we were so lacking in information about what was happening in the National Health Service that we needed yet another management survey. That is an absolute disgrace when one thinks that we have had a Royal Commission on the National Health Service and continuous management monitoring, but still the right hon. Gentleman is convinced that the only way that he can find out what is happening in the NHS is to have yet another management survey. To do that he is calling in his friends from private enterprise. The Government are good at doing that. They did it for the transport system, and it cost the taxpayer a great deal of money.

If the right hon. Gentleman is suggesting that the same advantages and tax benefits will be offered to the management in the NHS that have been offered to directors in private enterprise, or to the nurses and the ancillary workers, who are so appallingly paid, that may be welcome. Under the present Government there has been a direct attack on the NHS.

The Secretary of State says that the Health Service overall is 7.7 per cent. better off. Of course, he is not talking about the hospital budget, because it has suffered significantly. Even so, the right hon. Gentleman has had to work fairly hard to find his new percentages. He has enunciated a new theory. He says that in future expenditure on maintaining the same level of service because of demographic change within the population is equal to the expenditure of new growth money. He knows that that is absolute nonsense. It cannot be defended in any way.

Since the Government came to office, demographic change has made it necessary to spend an extra £431.9 million on the Health Service just to stay level with the services provided in 1979. The right hon. Gentleman ignores the effect of the costs of new medical technology, which are £265.6 million more than in 1979. In addition, we must not forget that we have suffered the largest industrial dispute in post-war Britain—the health workers' dispute—for which the Government have made the health authorities pay £59.2 million. They are trying to invent new ways of apparently saving money on the National Health Service. They have invented a system of efficiency savings, which is a remarkably imaginative piece of creative accounting that claims arbitrarily that health authorities are wasting 0.5 per cent. of their money and that they had better give it back to a central pool. That is not only a meaningless juggling of figures, but is almost as bad as a direct cut, because it disrupts the planning of expenditure without guaranteeing a long-term improvement.

Mr. Fowler

If the hon. Lady believes that it disrupts planning, why do the regional health authority chairmen accept that a 0.5 per cent. efficiency saving can and should be made?

Mrs. Dunwoody

I suppose that it has nothing to do with the fact that the Secretary of State carefully selected regional health authority chairmen who would not give him any trouble, even if that meant sacking several highly talented and responsible members, and removing people such as the former deputy general secretary of COHSE from any board on no grounds other than political prejudice.

The reality of efficiency savings is that the DHSS has taken an arbitrary cut across the board and told authorities that they should be capable of saving that amount. If they cannot, it means, unfortunately, that patient care will suffer. That is the extent of their commitment to the National Health Service. The hospital and community services budget has fallen by as much as 3.9 per cent., but to avoid that damaging admission several Ministers have spent sleepless nights with their accountants trying to produce the magnificent sum of £80 million, which the Secretary of State announced in the House last November as though he was handing out a positive benefit to the NHS.

Between £40 million and £50 million of that sum was produced because inflation has fallen faster than the Government expected, but for which they constantly take credit. The result was that health authorities and departments had more cash than they expected. However, in many cases, there has been a direct cut in the money available.

The pensions offshoot was not the only instance where the Government clawed back money that they wanted. Last year 3,120,000 working days were lost in industrial disputes. The Government will say that the Health Service workers are lucky to have a job, and one can understand that attitude if one considers the amount of economic stimulus in this Budget. However, let us assume that £70 is an acceptable average wage. In that case, the days lost in strikes when staff were not paid meant that health authorities kept £43.7 million in wages that they had expected to pay. The Government, in their infinite generosity, have decided not to take that money away from the NHS. However, of the £80 million, £50 million will go to the hospital budget, and £40 million of that will be used to pay for the 1983–84 contingency reserve and the 1982 pay deal. The Government have insisted on the health authorities paying a larger percentage of the cost of the extra pay rise—more than 4 per cent.—and they must pay half the amount for this year.

The money for health authorities will be given to them, in effect, from their own reserves. That is what is called new money. We are told, "If you deduct all of these sums, you will see that we have £10 million of new money. However, do not relax too much, because £6 million of that is already going towards propping up the Government's initiative on joint financing." In every debate in this House, we are told that the Government are seeking to expand care in the community and that they will do it by encouraging joint financing. They know that that is the most empty of the empty gestures that they make regularly. Joint financing is collapsing for the simple reason that the previous Secretary of State for the Environment, who had to weigh the amount of money in the social service budgets of local authorities, ensured that they were totally unable even to keep up their previous expenditure on local authority social services. It makes nonsense of all the discussion papers and the empty confessions that the Government are seeking to do something considerable to change the pattern of health care in this country.

The real expenditure in the DHSS, the real expansion, the real costs, are the Government's action in putting 2.2 million people on the dole. The Government have increased to £15 billion the cost of unemployment and expenditure on maintaining the people who are unemployed. They have squandered the money that has come from the North sea oil revenue. On top of that, by removing all exchange controls and allowing £1 billion a month to leave this country, they have encouraged investment in the industries of our competitors.

The north-west and the midlands are not bothered about the minor cosmetic changes in the Budget. The only growth they see has been in the work of estate agents who have taken it on themselves to sell off the assets of factories which for many years produced jobs for the people in their communities. The Government's economic policy is consistently damaging the employment prospects of our people. We are told that there are many concessions in the Budget. We are told that we are being unreasonable. We are told to look at the assistance that it gives to the elderly, and the changes that have been made in the income tax bands.

Let us talk about some of the things that are not in the Budget. We know that the Government pride themselves on encouraging the voluntary sector. They talk constantly of the need for partnership between those who offer their services and the state services. However, there has been no concession whatever to the charities. By removing value added tax from charities, the Chancellor could have made a positive contribution to real care in the community. By not doing it, he will continue to take large sums from the charities. The Spastics Society has calculated that the amount that it will pay in VAT this year is equal to the provision of a new home. That shows the Chancellor's priorities. Help the Aged has said that if it were relieved of or zero-rated for VAT it could provide eight minibuses. However, it has been given no assistance whatever.

Nevertheless, when it suits the Government, they are perfectly able to relieve some sectors of the community of VAT. The new cowboys' charter for privatisation has no difficulty in relying on the assumption that small enterprises and private enterprises should be relieved of the payment of VAT. Indeed, in an attempt to assist private enterprise to tender for jobs in the hospital service, the Government are insisting that health authorities must provide office space and equipment, special clothes, sterilisation and special disinfectant materials, and that all those must be free to the private contractor. They must also have direct subsidies for office space and telephones and on top of that they are exempted from VAT. Just to make sure that the authorities come up with the correct result—after all, this is the fourth time that the Secretary of State has tried to bully people into taking these measures—the authorities must take the lowest tender. [Interruption.] This is the fourth time that the health authorities have been circulated with demands to move towards privatisation. The Secretary of State is perfectly well aware of that.

That one change alone, on top of all the costs of the NHS, is worth £2.2 million to the present contractors—a small gift from the Chancellor to the contractors who will undercut the employment of ancillary workers in the NHS. There will be great pressure on the authorities to move rapidly towards the position where, instead of going for capital growth and modernising their equipment, they are required, in a wholly artificial manner, to hand out contracts to those who want to go into the NHS in order to make a profit.

It has been said that because the Government care so much about the family they have made considerable changes in the various rates not just for pensions but for child benefit. In Britain there are nearly 1 million children living in homes with parents living on either supplementary benefit or unemployment pay. Those children are living in real poverty. They represent Britain's future, yet the Government's sole contribution is the great concession of bringing the child benefit rate back to where it was when the Labour party left office, with only 5p extra.

But even when the Government talk about child benefit they are still not honest with the House and the country. There are two elements in child support for persons receiving supplementary benefit. One is the straightforward child benefit and the other is the child dependency addition. In the last three upratings the Government have taken advantage of loosely drafted legislation to cut the value of the child dependency additions. Instead of uprating the total child support in line with inflation, they have held the separate element steady and the total cost of child benefit has not increased to anything like the amount that it would have done had that happened. Were the correct rate now to be paid, child benefit would be up to £8.50 for each child. That is the reality of the empty gestures that the Government have made in the Budget.

Mr. Mike Thomas

What is the cost of the Labour party's social security proposals and the improvements that it says it wishes to make? Is the Labour party still committed to the 3 per cent. real increase in NHS spending over and above the 1 per cent. for demographic change? What will be the cost of the other promises, including the pensioners programme that the Secretary of State said would cost between £10 billion and £20 billion?

Mrs. Dunwoody

If I thought that the hon. Gentleman could read, I would send him a letter. [Interruption.] I am delighted to tell the hon. Gentleman that the Labour party, when it is returned to power after the next general election, intends to commit 3 per cent. in real terms to the NHS and 4 per cent. in real terms to the personal social services. The hon. Member for Newcastle upon Tyne, East (Mr. Thomas) should take great care not to offer himself to the electorate too often by making light commitments, because it is unlikely that he will be able to fulfil them.

Mr. Fowler

Are hon. Members to assume that that 3 per cent. increase in the National Health Service expenditure is in addition to demographic growth and medical advance? Will the hon. Lady make an estimate of the increase in the social security programme to which the Labour party is committed?

Mrs. Dunwoody

The commitment is a commitment in real terms. Moreover, if hon. Members are looking for an expansion in jobs and social services and for a civilised way of life, they ought to ask why the Government are not prepared to give the same commitment that the Labour party is prepared to give, instead of asking whether the Government are prepared to see a 15 per cent. increase in defence expenditure.

The Government have a commitment to spend 3 per cent. in real terms on defence. Even after allowing for all the extra costs, the growth in expenditure on defence under the present Government has been 15 per cent.

Mr. Fowler

rose—

Mrs. Dunwoody

The Secretary of State has made his speech. I shall not give way.

Mr. Fowler

rose—

Mr. Speaker

Order. If the hon. Lady is not giving way, she must be allowed to continue.

Mr. Fowler

rose—

Mr. Speaker

Order. I think that I have interpreted the mind of the hon. Lady, and the answer is no.

Mrs. Dunwoody

I am concerned that it should be made very clear—[Interruption.] The Secretary of State does not like the simple fact that his Government think that spending 3 per cent. on defence is the right priority. The Labour party intends to spend 3 per cent. on the National Health Service. It is as simple as that. That encapsulates the point that under this Government there has been a 15 per cent. increase in defence spending and a direct cut in the National Health Service. What will happen next year—it is noticeable that the House has not been given the figures for the coming year—is that five regional health authorities will have a direct cut in the amount of finance available to them and an RHA such as Oxford will not be given any extra money to deal with demographic changes, and will face even more difficulties.

The reality of this Budget is that it contains no clear economic strategy or commitment to the people of this country and shows no concern for the young, the unemployed or the sick. The Government's clear commitment is to support the wealthy, some but not all small businesses, a society where if one cannot pay for provident care one is not entitled to enjoy the National Health Service, and a system of education which believes in privilege, where some are given good conditions and good school books and others are in under-funded and rundown buildings without the proper equipment.

The Government are totally insensitive to the state and size of the social damage in the country today. I am utterly appalled that a Chancellor of the Exchequer should come to the House and put before it so thin a gruel at so great a cost.

9.34 pm

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

The House will have taken careful note of the way in which the hon. Member for Crewe (Mrs. Dunwoody) responded to a factual question from the hon. Member for Newcastle upon Tyne, East (Mr. Thomas) and a further factual question from my right hon. Friend the Secretary of State. She totally failed to answer either question. She evaded them and that put her whole performance in a proper perspective. She said that the Budget made no concessions to charities. I can only assume that she has not studied the Budget statement, because several important concessions were made to charities, just as they have been in all our previous Budgets.

Indeed, I shall remind the hon. Lady of what my right hon. and learned Friend the Chancellor of the Exchequer has done for the benefit of charities in successive Budgets. He has abolished the stamp duty on transfers to charities, exempted charities from development land tax and exempted charitable bequests of whatever value from capital transfer tax. He has reduced the minimum period for covenanted gifts from seven years to four years. He has introduced higher rate tax relief for covenanted gifts and has increased the ceiling to £5,000 per year. The hon. Lady should be the first to recognise that he has also gone out of his way, in successive Budgets, to provide special VAT reliefs on medical equipment and aids for the disabled.

Mr. Ennals

rose—

Mr. Bruce-Gardyne

If the right hon. Member for Norwich, North (Mr. Ennals) will calm himself I shall come to the very point that he raised, which the hon. Member for Crewe also touched on. I refer to the relative treatment of charities for VAT and local authorities providing competing services. The hon. Member for Crewe referred to the proposal to exempt from VAT contracted-out services in the National Health Services. She is, of course, quite wrong to imagine that that is a concession to the providers of such contracted-out service. They do not get a penny out of it. It simply ensures that the position of the NHS on VAT is unchanged in practice.

To return to the point raised by the right hon. Member for Norwich, North and by the hon. Member for Crewe, the right hon. Gentleman should be the first to recognise that throughout the lifetime of this tax and throughout the period when the right hon. Gentleman was responsible for such matters the position has remained the same. When the tax began it was deemed that there was no real point in charging local authorities VAT for non-business services, which would then have to be recovered through rates or taxation. They have been reimbursed for the VAT on those services from the start under section 15 of the 1972 Act. When the right hon. Gentleman was in office he did not make any attempt to change the position, and for good and sufficient reason.

Mr. Ennals

The Minister has failed to take any note of two points. First, an increasing responsibility has fallen on charities, because of the cuts in expenditure on social services. As a result more, proportionately, is done by charities. Secondly, VAT has been doubled since the Conservative party came to power. Despite the long list that the Economic Secretary read out of the benefits given to charities, the major charities say that they have got back about one eighth of what they lost because of the Chancellor of the Exchequer's refusal to make a concession on VAT.

Mr. Bruce-Gardyne

As I said during an intervention in the right hon. Gentleman's speech, we profoundly welcome the contribution that charities make. However, the right hon. Gentleman should be aware from his period in government that the problem about arranging for the repayment of VAT to charities is that there are a- mass of charities, some which would benefit disproportionately to their public support. In many cases the charities' objectives would not command universal support. All Governments have faced that problem. [Interruption] The hon. Member for Crewe must allow me to make my speech. The right hon. Member for Norwich, North made an extremely lengthy intervention and I wish to reply to the debate.

Thursday's Budget debate might almost be described as a claimants' union day—the day when Opposition Members parade their plans for extra spending of their constituents' taxes and insurance, sometimes with a crass indifference to their failure to oblige when they have had responsibility for such matters. This afternoon has been no exception.

I wish to touch on other matters before I conclude. I refer, first, to some of the points raised by the hon. Member for Pontypridd (Mr. John). I had some sympathy with the comments of the right hon. Member for the Western Isles (Mr. Stewart) about the change from forecast to historic assessment of benefits uprating having a certain air of circularity about it in view of what happened in 1976. Opposition Members have made great play of the claim that the date chosen for this year's planned historic assessment—May—promises to be a month of low inflation. It simply represents the last month compatible with achieving uprating on time in November—[Horn. MEMBERS: "Oh."]. That happens to be true.

Mr. John

rose—

Mr. Bruce-Gardyne

The hon. Gentleman asked a question to which I am trying to give an answer. I can assure the hon. Gentleman that it is indeed my right hon. and learned Friend's intention that the November deadline will be met. Comments from the Labour Benches about the timing of this change from the forecast to historic method are curious when one recalls that the switch in the other direction from the historic to the forecast method was so arranged that the whole period from March 1975 to November 1975 was effectively disregarded. It is a curious coincidence that that happens to be the period of the highest level of inflation in our history. I can assure the hon. Gentleman that his suggestion that the difference between the effect of the historic arrangement to May and the possible level of inflation in November could not remotely approach in money terms the £500 million saving that his right hon. and hon. Friends obtained on that occasion, and which they gloried in so doing.

Mr. John

Will the hon. Gentleman undertake on behalf of the Treasury that no person on sickness benefit, unemployment benefit or invalidity benefit will lose as a result of any difference in inflation between May and November?

Mr. Bruce-Gardyne

I cannot possibly give such undertakings because, apart from anything else, we do not know what the level of inflation will be at those respective dates. I can guarantee that the scale of withdrawal that the Labour party perpetuated in 1976 will bear no relation to what the Government are doing this year. Those figures are way out of sight.

Mr. Ennals

rose—

Mr. Bruce-Gardyne

The hon. Member for Crewe intervened during the speech of my right hon. Friend the Secretary of State for Social Services to ask a question, the answer to which he promised I would give when I came to reply. She made the charge that the increase in real resources allocated to the National Health Service under this Government was largely accounted for by efficiency savings and extra charges.

Mrs. Dunwoody

I asked, "How much?"

Mr. Bruce-Gardyne

I see nothing wrong with harnessing charges and efficiency to improved performance in the NHS. In any case, I can assure the hon. Lady that she is wrong, because, against a rise of real resources, as my right hon. Friend explained, of about 7.5 per cent. since the Government took office, charges account for about 1 per cent.

The hon. Member for Pontypridd and others asked about the review of the household duties test.

Mr. Mike Thomas

rose—

Mr. Bruce-Gardyne

I must continue. I have been interrupted twice and time is running short.

I can assure the hon. Member for Pontypridd that the review is continuing and that a statement will be made in due course when it is ready.

The hon. Member for Stockport, North (Mr. Bennett) sought an assurance that the uprating of supplementary benefit would be done on the same basis as last year, that is, with a disregard of the housing element in the RPI. I am afraid that I must disappoint him, because the answer is that it will.

The hon. Member for Barking (Miss Richardson) and the right hon. Member for Norwich, North urged upon us the need for a number of concessions in value added tax. I could not help noting that the hon. Lady told her right hon. Friend that the concessions that she sought were more important than those that he sought. Unfortunately, that is the fact of the matter. With all the perfectly legitimate campaigns that we face for concessions on VAT, those who support and promote each one regard theirs as of overwhelming importance. Each concession granted in one area inevitably leads to the strengthening of demand in other areas until we gradually find that the tax base is eroded. It would not be right to go down that route.

My right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) and my hon. Friend the Member for Aldershot (Mr. Critchley), together with other hon. Members, broadened the area of debate, and I make no complaints about that. My right hon. Friend and my hon. Friend made typically elegant and, perhaps, sceptical comments about the Budget. I must tell my hon. Friend the Member for Aldershot that his choice of phrase is always so enjoyable, even when one does not agree with it, that I marvel that he ever thought to conceal it behind a cloak of anonymity.

I must pick up my right hon. Friend the Member for Chesham and Amersham on one specific point. He said, as others have said before, that last year was the first in our history to produce a deficit on manufactured trade. That is not the case. On a balance of payments basis—[Interruption.] It is the only basis on which we can make a strict and proper comparison—

Mr. Shore

rose—

Mr. Bruce-Gardyne

I shall not give way.

Mr. Shore

rose—

Mr. Speaker

Order. We cannot have two Members standing at the same time.

Mr. Bruce-Gardyne

I wish to complete my remarks on the points raised by my right hon. Friend the Member for Chesham and Amersham. On a balance of payments basis, which is the only one that compares like with like, there was a surplus of £2½ billion on manufactured trade last year. If my right hon. Friend has other figures, I should like to hear about them. In any case, we cannot ignore the impact of oil on the current account. Of course, it means that the balance is struck on a different basis.

Sir Ian Gilmour

Is my hon. Friend disputing the Government figures that show a deficit on finished manufactures of £186 million?

Mr. Bruce-Gardyne

Those figures are based on the trade accounts. They ignore the fact that imports are calculated on a cost-inclusive basis, but exports are not.

Mr. Shore

Surely the origin of the dispute is simple. The right hon. Member for Chesham and Amersham (Sir I. Gilmour) is correct. The value of manufactured goods imported by Britain last year exceeded, for the first time since the Tudors, the amount that we exported. What the hon. Gentleman is telling us—and he is correct—is that when we take account of the shipping charges, the insurance and the other charges we are still in narrow balance. But the point is that for the first time in British history we are exporting fewer manufactured goods than we are importing. Our shipping services have always been in surplus.

Mr. Bruce-Gardyne

The right hon. Gentleman is not comparing like with like. The only strictly comparable basis is a balance of payments basis. Therefore, the figures I have given to the House are correct.

Several Hon. Members

rose—

Mr. Speaker

Order. Hon. Members must not have a personal discussion. Only one Member can speak at a time, and the Minister is addressing the House.

Mr. Critchley

My hon. Friend referred to a very readable article that I wrote in The Observer years ago. This is a compliment from a fellow journalist who has vanished into Government and now publishes nothing save his private correspondence.

Mr. Bruce-Gardyne

I can only say "Touché" to that. I want to turn to the comments of my hon. Friends the Members for Kensington (Sir B. Rhys Williams) and for Loughborough (Mr. Dorrell), who picked up a point which has been raised several times in this debate about the desirability of a more explicit exchange rate objective.

We had the same argument this morning from, of all people, Mr. Samuel Brittan, a gentleman with whom, as my hon. Friend will recognise, I exchanged correspondence. If I had been in a Shakespearian mood I would have felt inclined to say "Et to Sam" when I read his comments this morning, because Mr. Brittan was the John the Baptist of the floating rate. Never a week went by, from 1967 right through to 1972, when he did not berate successive Chancellors for failing to let the pound float free. I therefore find it a little curious that he should now, together with others, such as my hon. Friends the Members for Kensington and for Flint, West (Sir A. Meyer), urge upon us the need for a more explicit exchange rate target.

I wish that Mr. Brittan and Opposition Members as well as hon. Members on this side of the House who want an exchange rate target would spell out a little more clearly how they see it operating in practice. It is not, according to Mr. Brittan this morning, by wholesale intervention which suppresses symptoms and postpones problems", he said, although some hon. Members, such as my hon. Friends the Members for Flint, West and for Kensington, who favour immediate participation in the exchange rate mechanism of the EMS, would presumably take a different view since willingness to intervene is effectively a precondition of such participation. According to Mr. Brittan, however, the pursuit of an expressed exchange rate purpose would apparently be backed up by conscious overshoot or undershoot of the monetary targets—in layman's language, by actively encouraging a rise or a fall in interest rates, as the case may be. This, in effect, was the point made by my hon. Friend the Member for Kensington this evening.

If we consider the practical implications of such exchange rate management, we face certain difficulties. I think it is fair to say that in recent months by far the strongest impact on the movements in the sterling rate has been made by the shifting preceptions of the likely course of world oil prices. From time to time it may have been affected by some of the wilder pronouncements of the right hon. Member for Stepney and Poplar, for while you, Mr. Speaker, and I know that the likelihood of the right hon. Gentleman having a chance of putting his crazier notions into operation is so remote as to be discountable, to the outside world he remains the spokesman for the alternative Government, and laying off for the outside chance that the British electorate might take leave of its collective senses may seem a cheap precaution. Let us suppose that the exchange rate was to diverge—

Mr. Shore

rose—

Mr. Bruce-Gardyne

I am not giving way again.

Hon. Members

Give way.

Mr. Speaker

Order. It appears that the Minister is not giving way. He might be allowed to continue.

Mr. Shore

rose—

Mr. Speaker

Order. The Minister cannot be made to give way.

Mr. Shore

rose—

Mr. Bruce-Gardyne

I am not giving way. I am sorry.

Mr. Speaker

Order. We have had an orderly debate. I hope that we can continue in that manner. It is clear that the Minister is not giving way. He must be allowed to continue.

Mr. Bruce-Gardyne

I am sorry, but time is short. I have a number of points that I wish to cover. I cannot give way to the right hon. Gentleman again.

The question that has to be asked is whether, if the exchange rate were to diverge markedly from some chosen and published zone because expectations of oil prices shifted dramatically for whatever reason, it would necessarily be right to loosen or tighten domestic monetary conditions simply for that reason. That is by no means clear to me. For my part, the course of wisdom in these matters seems to be the one that the Chancellor has mapped out repeatedly in recent years and once again on Tuesday—that the exchange rate is one of several indicators of domestic monetary conditions that may, from time to time, in the short term, be primarily influenced by wholly extraneous pressures. If it moves significantly in one direction or another, it is only common sense to consider whether it is telling us something about the domestic monetary environment calling for corrective action. However, we must also study what is happening to other indicators.

I wish to say a few words about a subject that was raised by my hon. Friends the Members for Perth and East Perthshire (Mr. Walker) and for Flint, West and that has been much discussed in the press. This relates to my right hon. and learned Friend's announcement of our intention to legislate to provide for the possibility of the establishment of free ports in the United Kingdom. I should perhaps say first that since, as the House knows, the working group that I chaired reported only a fortnight ago, I am afraid that it will not be possible to include the text of the legislative proposals in the Finance Bill in time for the First Reading. I can assure the House that the necessary clauses will be tabled in ample time to allow them to be properly debated in Committee.

I wish to add a word or two of warning. I get the impression sometimes that a good many eminent authorities, and even perhaps some hon. Members look on free ports as a sort of cross between a status symbol and Shangri-La, a place of hash and dancing girls and cut-price videos, where the Humphrey Bogarts of the 1990s will come together to do business from the corners of the globe—places in whose reflective glory adjoining civic heads will bask. [Interruption.] It is rather good stuff, actually.

Unfortunately, I must tell the House, free ports will be a good deal more prosaic—a group of wired-off enclosures where, for the most part, at any rate, goods from anywhere beyond the Common Market can be transhipped, handled, stored and proceed prior to onward shipment to any export market beyond the Common Market. There will be no tariff privileges that are not readily available elsewhere in the United Kingdom, no tax or rates relief, no absence of control of drugs, arms and pornography. What they will enjoy is a large measure of exemption from basic customs control procedures unless or until their products are sent out into circulation within the European Community and a potentially alluring style and title, although even there there is no copyright.

It follows, as our working group emphasised in its report, that the success or failure of the whole experiment will turn upon the interest of traders. The enthusiasm of port and airport operators, of regional development officers and chief executive officers of metropolitan councils and the like is both understandable and meritorious, but they will not add a penny to the cash flow of a free port. That will depend on traders who will take a stake and set up shop within them. We have already embarked, with other interested Departments, on the preparation of guidelines.

Debate adjourned.—[Mr. Major.]

Debate to be resumed upon Monday next.