Finance (No. 2) Bill

HC Deb 12 July 1984 vol 63 cc1395-429

Order for Third Reading read.

5.42 pm

The Chancellor of the Exchequer (Mr. Nigel Lawson)

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

This has been an important Finance Bill, so I do not complain about the record time devoted to it, especially in Committee upstairs. I pay tribute to my right hon. and learned Friend the Chief Secretary and the rest of the Treasury team—not forgetting the Lord Commissioner—who bore the heat and burden of the days and nights in Committee.

The Bill gives effect to the major changes in taxation which I put before the House when I presented my Budget on 13 March. It was a tax reforming Budget, and this is a tax reforming Bill. However, the Budget was about more than tax. It was also a reaffirmation of the economic strategy which the Government have pursued, without wavering, since 1979. As such, it set the course for this Parliament—and beyond. The Government remain committed, now as then, to defeating inflation, to sound money and to encouraging enterprise, efficiency and competition. The medium-term financial strategy remains the key.

With firm control of public spending and borrowing, and lower monetary growth, we can continue to secure lower inflation and sustain steady growth in output. On that basis, we can look forward to reductions in taxation over the remainder of this Parliament. We remain committed to bringing the burden of taxation back down to more acceptable levels to provide the incentives needed to promote and to sustain higher levels of growth and employment.

The Budget deliberately took the long view, seeking to tackle some of the deep-seated distortions embedded in the tax system, to reform and reshape company taxation and, in general, to encourage enterprise and efficiency and a more productive Britain.

The Budget was also a budget for jobs, not because it espoused long discredited notions of demand management—of course not — not because it pumped money into the economy, which would simply fuel inflation and imperil prospects for growth, but because it was directed at the essentials—at at lower inflation and making the economy work better. In this we have reversed the conventional post-war wisdom of the appropriate roles of macroeconomic and microeconomic policy.

The view once was—and still is, I take it, on the Opposition Benches—that economic growth was to be secured by a macroeconomic policy, notably the fiscal stimulus provided by an inflated Budget deficit, while inflation was to be tackled through microeconomic policies, that is to say, by the panoply of controls, sanctions and subsidies that go to make up an incomes policy, which, as we know, the Leader and Deputy Leader of the Labour party still favour, even though many on their Benches do not.

It is the settled conviction of Her Majesty's Government that the proper roles of macropolicy and of micropolicy are precisely the opposite of those assigned to them by the post-war conventional wisdom. It is the defeat of inflation, and not the pursuit of growth and employment, which should be the objective of macroeconomic policy, and so it is today, and it is the creation of conditions conducive to growth and employment which should be the objective of microeconomic policy, and not the vain attempt to suppress price rises by controls and subsidies.

Mr. Robert Sheldon (Ashton-under-Lyne)

Before the right hon. Gentleman goes further in condemning macroeconomic policy, will he say something about the United States experience, which has been quite satisfactory in that respect?

Mr. Lawson

The United States performance in macroeconomic policy has not been satisfactory. Look at the level of interest rates in the United States, which is one of the matters to which I shall turn in a moment. The United States has indeed been successful in creating jobs, in a way that western Europe has not been, but that is due to its microeconomic policy, to which I shall refer in a moment. Indeed, it is striking that many more jobs were created in the United States during the time when it had a very low Budget deficit than over the past few years when it had a high one.

It is the insight to which I have just referred that has restored the central role of monetary policy, with declining monetary growth in harmony with prudent fiscal policy as the essential means of defeating inflation. This was a truth which I believe was dimly perceived by the right hon. Member for Leeds, East (Mr. Healey) and his fellow pink monetarists when he was Chancellor. Instead of microeconomic policy consisting of even more numerous forms of intervention and interference, its role is now properly seen as allowing markets to work better.

As I said a moment ago to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), the United States has demonstrated over the past 10 years that relatively free markets, the spirit of enterprise, and workers who prefer to price themselves into jobs rather than out of them are a powerful engine of employment. It is a lesson which western Europe as whole has yet to learn, and it is that which provides the context for the Government's Budget strategy.

Our tax policy can be simply stated. The tax system should have a broader base so that tax rates can be lower. High tax rates destroy incentives, and a broad base means fewer distortions. Resources can then be allocated by market forces instead of responding simply to the configuration of the tax system. In that spirit, the Budget raised personal allowances well ahead of inflation—by 12½ per cent.—and ended the pernicious 15 per cent. surcharge on those living on investment incomes.

The combination of high rates and special reliefs to which I have alluded encouraged companies to concentrate their efforts on reducing their liability by tax planning, at the expense of pursuing genuinely profitable opportunities. This was particularly marked in investment decisions where the effects of excessively generous first-year allowances could have the absurd result of turning an investment with no pre-tax profit, or even a pre-tax loss, into one with a post-tax profit. As a result, while company investment in Britain is at a level comparable with our competitors, profitability on that investment has been very much lower. By the time the changes in the Bill are completed in 1986, Britain will have the lowest rates of company tax of any country in western Europe and our capital allowances will be much the same as the average.

The changes that we have made also reduce the bias in favour of capital investment and against jobs—a bias which is unacceptable at a time of high unemployment. To provide a further boost to jobs, we abolished the notorious tax on jobs—the national insurance surcharge—introduced by the Labour Government.

I was greatly encouraged by the response to the tax reform proposals in the Budget. The general structure of these reforms has stood the test of detailed examination in the House of the Finance Bill, and it has not changed during the Bill's passage, but we thought it right to make detailed changes to take account of representations received, or points made in the debates, about the effect on particular industries.

In considering such representations, it is always necessary to strike a careful balance. On the one hand, it may be right to allow for the special situation of some industries as they face the transition to the new system. On the other hand, it is essential not to jeopardise the general structure of the reforms, since one of the defects of our taxation system has been the proliferation of special exceptions and concessions over the years. One tends to lead to another. Therefore, careful judgment was involved. I am satisfied that the Bill has been improved as a result of the changes that we have made.

I shall briefly describe to the House some of the main changes made during the passage of the Bill. First, with indirect taxes, I see the extension of the VAT base as an essential part of the Budget strategy and a necessary counterpart to the reduction in income tax. Moving from taxing earnings to taxing spending gives people more freedom to decide how to spend their money.

We recognised the special difficulties which the standard rating of alterations would carry for listed buildings. An amendment was therefore moved, and carried, on Report for the zero rating of alterations to listed buildings where they required, and have received, listed building consent from the planning authority. I believe that this measure to protect our heritage was widely welcomed in the House and in the country.

Secondly, we have made a number of changes in the new rules governing capital allowances. They are broadly designed to help with the transition to the new system and to allow greater flexibility in the use of allowances. These changes will therefore be beneficial to all industries, but perhaps I should, in particular, say a word about the effect on shipping. This industry operates in a specially demanding international environment. It will now enjoy free depreciation on new ships. This continues into the new regime the special treatment which it received under the old.

Thirdly, I shall mention the concerns of the film industry which have received some publicity. This industry will, as a result of amendments to the Bill, be able to choose between getting capital allowances on the new basis or writing off costs on revenue account against income as it accrues. Investment in British film companies will henceforth be eligible for the business expansion scheme.

Fourthly, and lastly, I shall mention a major change in the treatment of furnished holiday lettings. Again, as a result of amendments to the Bill, these lettings will, if they satisfy certain conditions, receive tax treatment similar to that given for trades. We have also relaxed the conditions. These changes will bring considerable benefit to a large number of people and have been widely welcomed especially by right hon. and hon. Members representing holiday areas.

I shall now move away from the detailed provisions of the Bill and say a word about the financial markets. This week's rise in interest rates has clearly been a disappointment, in particular to those with mortgages, but such short-term fluctuations cannot, alas, be avoided. However, there is no reason to expect that this will seriously damage the recovery.

At a time when profitability is rising fast and company liquidity is buoyant, higher interest rates are much less difficult for companies to cope with. It is when profits are low that business is vulnerable. Fortunately, our policies and conduct of the economy over the past few years have raised company profits to a greatly improved level. Indeed, profitability rose by 40 per cent. between 1981 and 1983 and is still rising fast.

We have experienced interest rate fluctuations before, and we have surmounted them. The last occasion on which base rates moved to 12 per cent. was in July 1982, and they fell back to 9 per cent. within four months. One thing of which we can be sure, of course, is that if the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), was in office and attempting to put his party's programme into effect, interest rates would be very much higher. They would not be around the same level as American rates, as they are today. They would not even be 4 per cent. higher than American rates, as they were at the end of the period of office of the last Labour Government, two and a half years after the right hon. Gentleman's conversion by the IMF, which would be 16 per cent. or more today. They would be well above that.

Mr. Dennis Skinner (Bolsover)

Is the Chancellor of the Exchequer aware that during this Government's period of office the differential between the average interest rate level and the average level of inflation is greater than at any time since the end of the war? That is why he has a problem and why the interest rates might easily go above the 17 per cent. which the Tory Government introduced in its first year of office after 1979.

Mr. Lawson

The hon. Gentleman is saying that inflation under this Government is very much lower than it was under the Labour Government. That, of course, is true, and is one of the most important achievements of the present Government.

The Government's approach to monetary policy is clearly set out in the medium-term financial strategy. The objective is to maintain monetary conditions which will ensure downward pressure on inflation. The assessment of monetary conditions gives equal weight to narrow and broad measures of money. It also takes account of other indicators, including the exchange rate.

We have targets for money, but we do not set targets for the exchange rate or for interest rates. In today's financial markets, such targets are not practical options. There is a worldwide market in money and Governments can no longer set rates by fiat. It can be positively counterproductive to resist strong market pressures of the kind that we have seen in the last few days. That is not to say that there is no scope for Government action, but nowadays official influence on market rates is more indirect and less a matter of day-to-day movement than it was a decade ago. The result is that interest rates and the exchange rate are bound to fluctuate in the short term in response to market uncertainties and external pressures.

The recent rise in base rates was in no way initiated by the Government, as I think the House is well aware. Rates rose in response to strong market pressures. An important factor has been the high level of American rates, which is widely expected by the market to persist for some time and possibly to increase further. Our rates had become substantially decoupled from American rates, with our rates some 2¾ per cent. lower, but that did not prove sustainable at a time when industrial unrest at home temporarily unsettled the markets.

Dr. Jeremy Bray (Motherwell and Wishaw)

With the inability to sustain the disjunction between American and British rates, and with the effect coming through the exchange rate, does the Chancellor of the Exchequer not believe that it would be helpful to make explicit what is plainly implicit in what he is doing—namely, a trade-weighted exchange rate index of around 76 as the effective target of his current monetary policy?

Mr. Lawson

We do not have an exchange rate target. We never have one. Many hon. Members have at various times suggested that whatever happened to be the effective rate of the day was the target, but then it was changed. We have demonstrated by action that there is not an exchange rate target. We have monetary targets. Of course we have taken the exchange rate into account, but that is not the same as having an exchange rate target, which would be folly in the present circumstances.

Mr. Stuart Bell (Middlesbrough)

Are the Chancellor's targets for monetary growth being met?

Mr. Lawson

Yes, we have two targets—for broad and for narrow monetary growth. The narrow target is bang in the middle of the range and the broad target is slightly above the range, although it has been within the range over the past 12 months as a whole. It is far less above the range now than it was at this time last year. The hon. Member for Middlesbrough (Mr. Bell) will recall, as I know he follows these matters, that by the end of the year the figure was within the range.

The current bout of industrial unrest has undoubtedly affected the markets, but it is clear that, despite the attempts of a few determined people to whip up industrial unrest, over the past five years we have dramatically reduced our vulnerability to such disruption. Industrial relations and working practices in the private sector are greatly improved. That in part accounts for the marked increase in productivity. Areas of economic activity which were once under militant union monopoly have eased their way out from under the unions' tyranny.

In the public sector, too, things have changed. The steelworkers have shown that good sense will prevail where union leaders have their members' interests at heart, and workers understand that strike action will succeed only in damaging their own industry, their own jobs and their own families. Many thousands of miners who are now at work have shown equal grasp of that essential truth. Mr. Scargill, having three times failed to win the approval of his members in a ballot on strike action, has now recognised that a strike can be organised only in defiance of the miners' democratic rights and with the backing of kangaroo courts.

In the last days of the Labour Government it was not just strike action that gave markets the jitters: it was as much the fear of what settlement might be made with the benefit of "Government intervention", as it was called—in other words beer and sandwiches at No. 10. How frequently that Government intervened to guarantee that fundamental problems remained entrenched and unresolved, storing up bitter consequences for the future. How often Labour stepped in to ensure that strikers' pay was increased by more than the country could afford, thus adding inexorably to the gathering momentum of unemployment. That is what happened. Even if, in some quarters, the reality has been slow to dawn, the truth is that all that has substantially changed.

Meanwhile, I see nothing in the domestic monetary situation to justify a sustained period of interest rates at this level. The June money figures were disappointing—that is broad money, as I mentioned to the hon. Member for Middlesbrough. However, it is never wise to put much weight on one month's figures. MO, one of the two main measures of money, to which we give equal weight, is performing well, by any standards. The year-on-year growth in sterling M3 is less than 10 per cent. and growth over the current target period has so far been less than it was over the comparable period last year. On that occasion, we ended up well within the target range over the year as a whole.

In spite of what has been suggested, the exchange rate is not giving a different message. There is no lack of confidence in sterling. The dollar has been exceptionally—indeed, many would say absurdly—strong against all leading currencies. The deutschmark-sterling rate is now around the same level as it was at the time of the Budget and more than 5 per cent. above the low point reached in March last year. Moreover, inflation is well under control, and Monday's producer price figures confirmed the indications from the latest CBI review.

Mr. J. Enoch Powell (South Down)

As the right hon. Gentleman has returned to the subject of the exchange rate and interest rates, will he account for the fact that the movement in the exchange rate is not an alternative—instead of additional—to the adjustment of domestic interest rates, or is it his view that the movement of the exchange rate has not fully offset the effect of American interest rates?

Mr. Lawson

It is a matter of the market's view of whether the exchange rate has offset the movement in interest rates. It is not a matter of my or the Government's view. The point is that in recent days there was considerable pressure on domestic money market rates, which had pushed them up well above the rate which validated the bank lending rate. It was that pressure to which the banks eventually had to respond. When the market can take a more dispassionate view of the United Kingdom situation, I have every expectation that the fundamental soundness in the economy will be reflected by a resumption of the trend towards lower interest rates. The policies which I outlined in the Budget provide the best way to put us back on that trend. No doubt the Labour party will try to portray this week's disappointing news on interest rates as a serious setback to the recovery.

On television last night the right hon. Member for Sparkbrook gleefully set about what he is best at—running down his country and urging investors to take their money elsewhere because what is bad for Britain is good for the Labour party. Fortunately, the economy is in sufficiently robust health to take in its stride both the rise in interest rates and the effusions of the right hon. Gentleman. How different that is from the situation under the Labour Government. We all remember the right hon. Member for Leeds, East executing a U-turn at Heathrow, cancelling his visit to the annual meeting of the International Monetary Fund and the World Bank and scurrying back to try to regain control. We remember, too, the humiliation to which this country was subjected when the IMF told the Labour Government that they would have to adopt responsible economic policies before we could qualify for another cent of credit.

This Finance Bill confirms the course that we have set towards the steady improvement of the workings of the economy. What, by contrast, does the Labour party now offer? The red party has become the scarlet woman, Walworth Road Lil, obeying every whim of her militant trade union sugar daddies, a party now so enslaved and dependent that it cannot even summon the breath to condemn the savage violence inflicted on trade unionists who want to work and on their wives and families by the bullies who fear the ballot box. [Interruption.] Labour Members do not like that. They cannot take the truth, because it hurts. How well the right hon. Member for Sparkbrook epitomises his fallen party. Every now and then he shows a flicker of his hidden conviction and even the faintest hint of courage, but then once again he feels the twitch on the thread and he is back in line, condemning miners who wish to go back to work and assuring his party that however extreme its manifesto at the next election he will support it.

We look forward to hearing in a few moments an all-to-rare contribution from the right hon. Gentleman to our discussions on economic matters, but I doubt whether he will have much to say about the fundamentals—the fact that inflation is down to 5 per cent., growth is robust and has continued at an annual rate of about 3 per cent. since the trough of the recession in 1981, and profitability has increased sharply and is still rising. As a proportion of GDP, industrial and commercial companies' gross trading profits net of stock appreciation are at their highest level since the early 1960s. Investment has moved steadily ahead since the trough of the recession, rising by 11 per cent. across the whole economy in the six months to March and the investment intention surveys show that that trend is likely to continue strongly in the coming year. Productivity in manufacturing has risen by an unprecedented per cent. per year for the past three years and now stands about 13 per cent. above its pre-recession peak.

Against that background, there is no question whatever of our changing course. The turbulence of markets comes and goes like bad weather, but we shall see it off. The industrial unrest at home, for all the encouragement that the Opposition may choose to give it, will not succeed in undermining the soundness of the British economy. The Government have a clear and consistent strategy based on firm control of public expenditure, lower Government borrowing and a proper monetary discipline, and a strategy for lower taxation which leaves people with more of their own money to spend as they wish. This Finance Bill begins the task of reforming and simplifying the tax system and reducing the tax burden to more acceptable levels. It raises income tax personal allowances to their highest real level for more than a decade and puts company taxation on a sound footing for the future. I commend it to the House.

6.10 pm

Mr. Roy Hattersley (Birmingham, Sparkbrook)

rose——

Mr Speaker

Before I call the right hon. Gentleman, I should like to say that earlier this afternoon I accused him of providing me with an indifferent photocopy of his application under Standing Order No. 10. I have now seen his original letter, which is quite distinct. I apologise to the right hon. Gentleman for a mistake which was mine, not his.

Mr. Hattersley

Thank you, Mr. Speaker, for those words, which, as the House will agree, are typical of your conduct, but which nevertheless are a welcome demonstration of how we should all behave when we make the occasional error.

Having expressed my genuine admiration for your response to that small error, Mr. Speaker, I must say that the Chancellor of the Exchequer has responded to his immense errors exactly as I would have expected. If the only people who had lost confidence in the Government had been the members of the Labour party, the Chancellor of the Exchequer could indeed have continued to swim along in the sea of complacency that characterises all that he does. But the people who are saying that the economy is deteriorating—and deteriorating fast—are not simply those on the Opposition Benches.

Mr. Lawson

indicated dissent.

Mr. Hattersley

The Chancellor shakes his head. That must be because, as the Prime Minister often says at Question Time, we cannot all be well informed. At 4 pm today, the Press Association reported that Governments faced major collapse of confidence in the City as price of leading shares crashed following two per cent. rise". The Chancellor must understand, if he is to have the remotest hope of putting right some of the errors which he has perpetrated, the nature of the loss of confidence in his policies and what he stands for. Before I deal as best I can with the contents of the Bill—as is normal on Third Reading—I should like to spend two or three minutes explaining to the Chancellor the nature of his errors and the tragedy which faces this country if those errors are persisted in.

First, the pound has been depreciating against the dollar for a very long time. Throughout that period of depreciation, my right hon. and hon. Friends and I have never once raised that issue with the Chancellor or the Treasury Bench as being a matter which was their responsibility and for which they were properly to be blamed.

I have not shared the Prime Minister's beliefs about the reason for that depreciation. The right hon. Lady has always said that the depreciation of the pound against the dollar was wholly the result of the United States deficit, and the interest rates in the United States which had been raised to finance that deficit. The Prime Minister would be right to attribute part of the depreciation to that, and since it was at least part of the cause the Opposition have never thought it right to say that the Government's record on the depreciation of the pound against the dollar was leading this country to ruin. Remembering the right hon. Gentleman's conduct in opposition, I am sure that if under a Labour Government the pound had sunk from 2 dollars to 1.30 dollars or just above, the right hon. Gentleman would have been performing in the House day after day undermining confidence just as he now accuses the Opposition of doing.

The right hon. Gentleman talks about the Opposition talking down the pound, and glorying in the failures of the country. To accuse the Opposition of talking down the pound and rejoicing in discomfiture has been the refuge of panic-stricken Chancellors down the ages. The blame lies with the right hon. Gentleman and with the policies that he follows.

Had nothing happened in the past 10 days apart from the depreciation of the pound against the dollar, no one would have wished to discuss these matters this afternoon or believed that the country was facing an incipient crisis. We would have said—as we tried to say at the time—that if the dollar was moving up, and if it was the result of the United States deficit, and if it was caused by interest rates in the United States being too high, it would have been sensible for the Prime Minister to have used the London summit not as a public relations exercise but as an opportunity for the industrialised countries to come together in a compact to end the difficulties brought about by the American deficit.

The Prime Minister did not want the London summit to take that form. Indeed, she prevented the Prime Minister of Canada from raising those matters when he tried to do so. The Chancellor will remember the day. It was the day on which he accused the Secretary of the United States Treasury of being weak-minded.

The London summit was arranged as a public relations event, and if the Government now claim that our problems are all the responsibility of the American deficit and American interest rates, it was criminally irresponsible of the Prime Minister to do nothing about those subjects when she had the chance. The Chancellor ought to understand the difference that has come about in the past week. That difference is that the pound has begun to deteriorate against the effective exchange rate—the average of European currencies. That has happened because the money markets, the people about whom the Government are supposed to know, with whom the Government are supposed to work and who the Government represent, have lost confidence in the Government's policy.

The Chancellor says—in part I concede that he is right— that part of the problem is the result of the dispute in the coal industry. Of course it is. There cannot be a 19-week strike without there being an effect on the economy, especially if it results in the British Government and British oil companies selling less oil abroad to keep more in Britain to run power stations. If the strike results in our importing more oil and exporting less and all sorts of adjustments to industrial production, output and exports, of course it will influence international confidence. That is one of the reasons why the Opposition think that the Prime Minister should have used her good offices to bring the dispute to an end rather than use her pressure to keep it going in the hope of having a knockdown, drag-out victory over the miners.

The Chancellor says that the dispute in the coal industry is partly to blame. He must not think that the Opposition or the country think that that is a criticism of the Labour party, for it is a criticism of the Prime Minister for allowing it to go on far longer than necessary. If the crisis is caused by the coal dispute, it is caused by the Prime Minister's instructions to the chairman of the National Coal Board.

I want to tell the Chancellor something else in this, I regret, ugly part of my speech. He said that other disputes have had an effect on confidence. I do not think that the docks dispute will have the type of effect on our economy that was once the case. When the Labour party was in power and the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) was Chancellor, he and other Labour Chancellors presided over docks disputes that had a disastrous effect on the economy because we then exported more manufactured goods than we imported. Docks disputes prevented our exports from being sent abroad. Under the present Chancellor, the docks dispute has quite a different effect as we now import more than we export, so the result of a docks dispute is a halt to disastrous imports coming in.

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

Earlier this summer, the right hon. Gentleman said that if he had been a Nottingham miner he would have been on strike. If he were an Immingham dock worker, would he now be on strike?

Mr. Hattersley

What I said about being a coal miner applied exactly and entirely to the rules that I should apply if I were a member of any of those trade unions. I happen to have a strong view of loyalty. It is one of the things that the Chancellor holds aginst me. He says that I am never prepared to rebel against my party, by which he means that I am perpetually and permanently loyal to the Labour party. I plead guilty on all charges. I should be in exactly the same position with my trade union. What I said about the coal mining dispute I meant and I repeat. If there were an official dispute and I was called out on strike, of course I should come out on strike.

Mr. Tony Baldry (Banbury)

The accusation that Conservative Members make is that the loyalty of hon. Members such as the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is that they have a loyalty to the Labour party but none to the country.

Mr. Hattersley

I propose to treat that trivial intervention with the contempt that it deserves. My vision for Britain is of a more equal society. The Labour party is the only possible instrument by which that can be achieved. That is my definition of patriotism, which concerns the Labour party's success and prosperity.

The Chancellor does not understand the circumstances of the past 10 days during which confidence has disappeared. I said that he does not understand. I suspect, however, that he does understand but that he does not take it sufficiently seriously to tell the House in all honesty what he fears. In his less guarded moments he admits that there is a crisis in the markets. After an intervention he spoke of the markets being able to take a more dispassionate view of what is happening. He knows that that confidence is not present, for three or four specific reasons.

First, there is the effect of the dispute and the feeling of fear throughout those countries where we have creditors that the Prime Minister is less concerned with running an efficient economy than with striking a pose of belligerence, toughness and unyielding character.

Secondly, the consequences of the coal dispute have demonstrated to our creditors what the British economy will be like when permanently we cannot export oil and permanently we import it. In a few years, the great boom, the unconvenanted benefit that has kept this country out of bankruptcy over the past five years, will be gone. People realise that the oil is likely to run out and the circumstances of the coal mining dispute will be repeated month by month and year by year.

Thirdly, there is growing understanding that the Government are not concerned with the real economy, the underlying economy, the need for investment, growth, employment and exports.

The Government are obsessed with numbers. Again today the Chancellor treated figures such as the money supply as if they were mystic symbols out of the Old Testament. As long as we pay obeisance to them, everything will go right. If he has not learnt this week that everything will not come right simply by applying these formulae, the conditions and prospects of the country are desperate.

I propose, if you will allow me, Mr. Deputy Speaker, under the new rules governing debates for Third Readings, to return, at least in passing, to the economic implications of the Bill, what the Chancellor proposed in the Budget, and what has been debated so long and hard in Committee. Neither the Chancellor nor I were members of that Committee, but I pay tribute to my right hon. and hon. Member Friends who fought the Bill clause by clause for a record time with determination as well as lucidity.

Mr. Peter Rees

That is one way of describing it.

Mr. Hattersley

Well, at least none of my colleagues went to the leader of their party and whined that they had been treated badly by the other party.

Mr. Peter Rees

Substantiate that.

Mr. Hattersley

That report appeared in a most reputable newspaper. If it is not true, the right hon. and learned Gentleman has the right, and the duty, to protect the Prime Minister as well as himself and write to that newspaper to make it clear that he never made such a complaint against Labour Members.

I repeat my tribute to my right hon. and hon. Friends and I remind them, the House, and the Chief Secretary of the circumstances in which they debated the Bill. They debated it in the terms set for it by the Chief Secretary himself in the Second Reading debate, in which he said that the Bill shows a firmness of purpose on financial strategy".—[Official Report, 10 April 1984; Vol. 58; c. 248.] He then went on to particularise the Government's determinations—to reduce the rates of monetary growth and public expenditure, and to reduce the pressure of inflation and interest rates, and so provide financial stability.

Those are the claims with which the Bill began its passage through the House. It ends its passage not with a reduced rate of monetary growth, but with a growth in the money supply that is 40 per cent. above the targets on one indicator and 6 per cent. above another. It ends its passage not with a firm reduction in inflation but with an anticipated increase. It ends its passage not with reduced interest rates but with increased interest rates, and not with economic stability but with the uncertainty and lack of confidence that the stock market and the international exchanges now demonstrate.

I hope that the Chief Secretary recalls the phrase a stable currency is a pre-condition of more general economic stability". It comes from the guide to Tory candidates circulated during the last general election campaign. There may be some poor, misguided Tory Members who fought their seats on that promise of financial stability, who will now trail into the Lobby as if the promise has come true. We all know that, despite that promise, the strategy on which this Finance Bill is based is a clear failure by any standards. It is a clear failure by our standards because it does not take into account the principal moral imperatives of any decent economic policy — the need to reduce unemployment.

I am delighted that the Prime Minister is still in her place. When she went through, at her usual panic speed, the Government's economic achievements in the past five years, she said not a word about unemployment. Some things may have improved, but employment has spectacularly deteriorated. The great condemnation of the Government and their economic strategy is that they have no plans for, or interest in, reducing overall umemployment. That is to judge the Government by our standards. To judge the Government by their own standards of the money supply and interest and inflation rates, their strategy is in a shambles.

I shall qualify that statement at once. The economic strategy of the Conservative party is an overwhelming success in one particular, which has been reinforced by the Finance Bill. The Government are determined to redistribute income from the poor to the rich. That part of the Government's economic policy has been triumphantly successful.

Let me tell the Chancellor how that has come about. He has increased the overall burden of taxation, as did his predecessor for five years. The Chancellor shakes his head. Does he not agree with that assessment? The Financial Secretary is always telling us in written answers, as his most recent written answer confessed, that the overall burden of taxation in the past five years of Conservative government, since the day when Labour left office, increased by £22.5 billion.

It is pernicious that much of the additional burden is carried on the shoulders of those who are least able to pay. We all know that the only recipients of tax relief under the Government are men and women, or families, with substantial earnings. The Finance Bill has reinforced that trend in little, mean ways.

The Government have introduced VAT on take-away food and home improvements. The tax will fall disproportionately on the lower paid. If I had to think up a little package of measures that typified the meanness of the Bill, I would think of VAT on fish and chips, which is perhaps matched by the abandonment of investment income surcharge. I would think of the Chancellor's pretence that he had done something for the poor, in the chortling and cheering that he induced on Budget day by saying that he had knocked rather less than 1p from the price of a gallon of paraffin. That is the measure of the Budget's shoddiness.

The debates about VAT in Committee and elsewhere have done nothing to convince the Opposition that the uncertainties we fear and feel about the future of VAT in this country are unreasonable and will not one day be shamefully realised.

We have not had a proper assurance about VAT on food. We continue to ask for an assurance—not in the Finance Bill today, but in the lifetime of this Parliament—that VAT will not be put on food. We do so in the light of the Chancellor's obsessive desire to do what he coyly calls widening the tax base and in the Prime Minister's craven agreement to increase own resources to the European Economic Community. The conjunction of those two factors must lead us to fear the extension of VAT to food. Until the Chancellor or the Prime Minister is prepared to tell the House and the country that VAT will not be levied on food in the lifetime of this Parliament, our reasonable suspicions will remain.

What is more, that is an example of the movement of tax benefits away from the poor and towards the rich, and of the tax structure as it affects direct taxes. The Government have failed to alleviate poverty, as they might have done. At the same time, they have given enormous concessions to men and women in higher income groups. We have compared time after time the reduction in income tax allowance by 12.5 per cent. with the increase in child allowance of no more than 5 per cent.—less than half that amount.

Every hon. Member knows that when the child allowance was replaced by child benefit the idea was that the benefit should be adjusted at Budget time so that the recipient would get more or less what she would have got if she had been receiving child allowance and it had been indexed. Yet the Chancellor chooses to discriminate in favour of the direct taxpayer—and, therefore, discriminates most in favour of those who earn most—and against the family.

Our criticism of the direct tax structure that the Chancellor proposes is also a criticism of his proposals on company taxation. He rejoices in the abolition of the national insurance surcharge. I also rejoice, and I give him that little victory. My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) pressed for the abolition a year ago, my right hon. Friend the Member for Leeds, East (Mr. Healey) introduced the surcharge six years ago, I welcomed the abolition on Budget day, and I welcome it again now.

However, it is wrong to pretend that the abolition of the surcharge will compensate for the other things that the Budget has done to reduce employment. I give one example. There was much rejoicing on the Conservative Benches yesterday over the reduction in corporation tax. However, when that reduction is set against the removal of capital allowances, industry will be paying more as a result of the Budget, at least in the short term—this year and next year. If one adds that to the amount that will be charged to industry as a result of the imposition of VAT on the work involved in house improvements and alterations, one sees that the net effect of the Budget, at least for the next two years, is more likely to depress employment prospects than to enhance them.

The change on corporation tax, balanced by the removal of capital allowances, will work adversely against industries that are most in need of assistance—the new industries which are developing and want to invest. They want to install new plant and machinery to create more jobs, but they are on the margin of profitability and the Budget has penalised them.

The tragedy of the Budget is not simply its content but the framework within which it operates. That framework is doomed to failure, because it is concerned not with the realities of the economy but with the myths of the economy. The Chancellor persists in his stubborn view that if he holds the monetary aggregates to figures that were conjured out of the air and called the medium-term financial strategy, everything will automatically come right. It will not, even if the right hon. Gentleman hits his targets. But he does not and cannot hit those targets. What will he do when his target is not hit? He will go in again for the same old dreary round of cuts and squeeze in the belief that he can eventually improve economic activity by reducing it in the short term.

Everybody knows—even though the Chancellor denied it today—that an operation is going on in the spending Departments to ensure that there will be less spending than was previously planned.

The Secretary of State for the Environment was asked by one of my hon. Friends about a capital moratorium. The right hon. Gentleman said in a written answer that he would be making a statement shortly. I suppose that it is possible that that Secretary of State will come to the House to say that he has nothing to say. But that is unlikely. The implications are clear: capital works in the public sector are soon to be cut again.

The Chancellor still believes that every time that he is blown off course he can swim back by cutting public expenditure, increasing unemployment, paying more in unemployment benefit, putting more pressure on the public sector borrowing requirement and keeping the hurdy-gurdy going round and round.

I said earlier that the tragedy of the events of the past 10 days was that the confidence that we should be enjoying, having benefited from the unconvenanted boom of North sea oil—a benefit which no other British Government has enjoyed—has been lost by the Government. I revise that opinion now. The real tragedy is that the Chancellor of the Exchequer and the Prime Minister have clearly learnt nothing from the events of the past week, and the same dreary deterioration will go on and on until the Government are removed.

6.34 pm

Mr. Roy Jenkins (Glasgow, Hillhead)

This is a year, if ever there was one, to recall the old adage of Iain Macleod: that if a budget looks good in March—I add if it was bouncily presented in March—it will almost certainly look bad by July. That is not always true. Nor is the converse, which was also propounded by Iain Macleod: that if it looks bad in March, it will look good by July. The Foreign Secretary's budget looks pretty drab in every season of the year.

The Chancellor came to the House and presented his Budget like a resplendent spring bird with a good deal of strutting self-confidence. I congratulated him on his lucid presentation and even on some of its substance. However, I also said that it was frivolous about the central problems of the economy. Today that frivolity is increasingly self-evident. However much the Chancellor tries to shrug it off, he cannot convince anybody but himself.

There is no doubt that our financial management is in a mess, and a worse mess than in any comparable country in our interdependent world. We have a reeling currency with much more of a shadow over its future than over Monsieur Mitterrand's French franc. Our interest rates are far higher than those in Germany, and we have a much higher rate of inflation. The Chancellor particularly put forward low interest rates as the Budget's special contribution to industry and said that they were far more important and valuable than a stimulus to public sector investment in its impact on the industrial prospects. Yet we have less growth and fewer jobs than the United States and we have a more dangerous base of unemployment, from which to go into a possible recession than any other country, except perhaps Belgium and Ireland. A comparison in any respect with Japan hardly bears thinking about. In addition the money supply, especially the PSL2—the broad money—is way off target.

All those considerations are of varying importance. I have never believed that it was possible to get them all right at one time, but to get them all wrong at the same time requires incompetence on an awesome scale. That is precisely what the Chancellor has done. The Chancellor seemed almost to be arguing in a statement last night that the pound was not too low and perhaps should go even lower, and that no one should be perturbed about its recent collapse. If that is his view it does not say much for the effect of the Government's policies upon the level of British competitiveness or for the sense of previous exchange rate policies.

Mr. Lawson

I should make it clear that that is not my view. The right hon. Gentleman made comparisons with other Community countries, and he has a distinguished record in the European Community. Would he, in all fairness, agree that last year Britain had the highest rate of growth in the Community and that the Commission's forecast is that this year Britain's rate of growth will be second only to that of Germany?

Mr. Jenkins

I made a comparison with the rate of growth and the creation of new jobs in the United States. My comparisons on the rate of interest in Germany, the rate of growth in the United States and other matters were all strictly accurate, and the Chancellor does not deny that. However, he is not now saying that the pound is too low. He appeared to say yesterday that there was no need to be perturbed about the recent collapse in the exchange rate level of the pound.

It is also possible—I am not sure whether it is the Chancellor's view—to take the view that Governments or central banks should do nothing about exchange rates. That is a mistaken policy, and I do not believe that it is the right hon. Gentleman's view, whatever he may proclaim in public. In view of the attachment which the Government have proclaimed to low interest rates, and if the Chancellor believes that the Government and the central bank should not be concerned with exchange rates, it is by no means clear why interest rates have increased twice during the past six days. Nor is it clear why, as the hon. Member for Bolsover (Mr. Skinner) said in one of his more sensible interventions—it was one of his rare interventions, delivered on his feet—the real rate of interest of 7 per cent. is at an historically high level.

It is impossible for anyone except the Chancellor to deny that the reaction to the problem by the Government or the bank, or the two in combination, has been extremely clumsy during the past week. There are two rules when trying to deal with such a problem: first, if we must move, we must not do it too late; and, secondly, when we move we should not do too little and then have to do it again. During one week the Chancellor has broken both rules. First, he moved rather too late and clearly not enough and, secondly, he had to move by another two points within four days. There is no question but that the Chancellor has broken both rules, and his approach during the past six days has been bumbling.

Then there is the Government's unamiable tendency, some of which springs from the personality of the Prime Minister, to blame everyone but themselves for everything that goes wrong. They blame the United States for having high interest rates. We all wish that they were lower, but America's massive structural deficit and Mr. Volcker's method of dealing with its consequences are not new factors. They were wholly predictable before this week, although, if anything, the Chancellor predicted them wrongly. He said that world interest rates would fall. Mr. Reagan is supposed to be the Prime Minister's best friend and, to some extent, her financial apprentice—at any rate, she hoped that he would be. The reason why the undesirable but predictably high United States interest rates hit Britain so much worse than they hit Germany is the inherent weakness of our economy which the Government, contrary to their protests, have deepened and not in any way cured. Sterling will have a rough ride during the next few years.

The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) put his finger on it when he said that it would have a rough ride when the market took more into its consciousness what the position of Britain would be when the oil had gone—a time not far distant—and it was replaced by an oil deficit.

The tendency of this Government is to blame everybody — strikers included—but themselves. I do not take exactly the same view of the strike as the hon. Member for Bolsover but it is clear that the Government welcome industrial confrontation——

Mr. Skinner

rose——

Mr. Jenkins

I will not give way. I am anxious to conclude my remarks.

Mr. Skinner

Did not the right hon. Gentleman agree with the Leader of the SDP and attack the strikers?

Mr. Jenkins

I agree with the Leader of the SDP on all issues, as I am sure the hon. Gentleman knows.

As for the irrational market forces about which the Chancellor was complaining this afternoon and which he hoped in time would take a more dispassionate view of circumstances than they do at present, it was not long ago that this Government were almost claiming to have invented market forces, or at any rate to have set them free and given them their proper role.

Hence, we have the position of this unerring Government beseiged by an improbable conspiracy of President Reagan, Mr. Scargill and malevolent market forces, all of which does not quite seem to add up or to ring true. It was not market forces, Mr. Scargill or even Mr. Reagan which put the right hon. Gentleman, with his blustering maladroitness, in the position of Chancellor of the Exchequer. That was done by the Prime Minister, who excluded many wiser people on grounds of ideology, not of competence.

Although market forces did not make the right hon. Gentleman Chancellor—and I do not know what he would say about his recent performance if he were writing as financial editor of the Sunday Telegraph, which he once did—ironically, market forces may bring his meretricious Chancellorship to a fairly early and inglorious end.

6.47 pm

Mr. Tony Baldry (Banbury)

It is a distasteful experience to hear so many Opposition Members trying to dance on the grave of Britain. I remind the House that yesterday Sir Terence Beckett wisely said that the chief cause of the latest rise in interest rates was external. He went on to say that our underlying situation was one of steady growth and low inflation. One cannot reconcile that view of the president of the CBI with anything that we have heard this afternoon from the Opposition Benches.

As the hon. Member for Banbury, it is not surprising that I wish to deal with the question of agriculture. I recognise that the Budget did a considerable amount to assist agriculture in Britain. It increased the basic thresholds, abolished the investment income surcharge, reduced the top rate of capital transfer tax and increased the development land tax threshold.

However, as my hon. Friend the Financial Secretary has recognised, farming, by its nature, does not incorporate, and thus agriculture is likely to be seriously affected by the switch as between corporation tax and capital allowances, something which everywhere else is to be welcomed as encouraging jobs. My request to the Chancellor is that during this year he should monitor the effects of that change on agriculture, and if it is seen to hit agriculture particularly harshly, he should, in next year's Budget, make an exemption for agriculture in relation to capital allowance reliefs.

The other small matter that I want to urge upon my right hon. Friend is that at a time when many British farmers are experiencing difficulties not of their own making as we rightly seek to grapple with the problems of overproduction of milk, while I recognise the concessions that were made yesterday in relation to stock relief on a herd basis, none the less there is still much more that can be done. We should recognise that as many dairy farmers will have to get rid of somewhere between 10 and 20 per cent. of their herds, to have to be taxed on such disposals not unsurprisingly makes them feel slightly hard done by. Although there is some small justification for that, it would be a measure of generosity if the Exchequer were to consider a one-off concession at some stage during the coming year to give some assistance to such dairy farmers.

Like, I suspect, every other Conservative Member I warmly welcome the Chancellor's Budget and soundly deprecate the tactics that are being advanced by the Opposition, who constantly seek to talk down Britain. One imagines that they would only be happy and smiling if all British industry were brought to a halt by the dock and mining disputes. I suspect that that is the only thing that would give them cheer. To those of us who are confident and believe that the Government are on the right track, I simply say on behalf of British agriculture that I hope the Chancellor will give close attention to how it fares during the coming year to see whether the balance is right and perhaps to make any necessary adjustments in his Budget next year.

6.51 pm

Mr. Stuart Bell (Middlesbrough)

I am grateful for the opportunity to follow the hon. Member for Banbury (Mr. Baldry). I hope to lay to rest what is obviously a political ploy of the Government somehow to distort the crisis and make it into a situation where the Labour party, either through its Front Bench or in the country, is seeking to talk down the pound, to the detriment of Britain. We shall not be deflected by such arguments from the serious nature of the crisis—as we would call it—which has afflicted the markets—as the Chancellor would call it—by that kind of language. When the hon. Member for Banbury intervened in the speech of my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) and asked him about his loyalty to the Labour party as opposed to the country, my right hon. Friend answered him aptly. I repeat that they are not mutually exclusive. Loyalty to the Labour party does not disavow loyalty to Britain.

None of us in the debate and who have followed the 150 hours of the Committee stage of the Finance Bill have anything other than care, compassion and concern for the fate of our country and for the 6 million house owners who tomorrow will learn what the rise in the mortgage rate will be a direct consequence of the Government's policies. I say that advisedly, because yesterday the Government had two options available to them. One was to allow interest rates to take the strain of what was happening in the United States. The other was to allow the Bank of England to intervene. The Government chose not to allow the Bank of England to intervene, but rather to place the burden of what was happening in the United States upon the British people. That was a choice which the Government made, which they will have to live with. Unfortunately, it is also the choice which the British people will have to live with.

Mr. John Maples (Lewisham, West)

If the Labour party had been responsible for the situation, would it have let the pound slide and done nothing about interest rates?

Mr. Bell

I shall not pursue that avenue of Conservative propaganda at the moment. When faced with a crisis, Conservative Members ask what we would have done. I shall not do so for two reasons. First, we are not in government, and, secondly, it becomes rather stale to refer to what the Labour party did from 1974 to 1979 when we have a Tory Government which is going into its sixth year. We shall not allow the public to be deflected into considering what we would be doing because we are not in office.

We lay the blame for the present economic difficulties fairly and squarely at the Government's door, and we shall not be deflected from that. We shall tell the people why their mortgage rates and the cost of living are going up. We shall tell them why the inflation rate that was forecast by the Chancellor in his Budget statement of 13 March will not be achieved. We shall let the people know who is responsible.

The Chancellor of the Exchequer has a belief in the market, and it is reflected in everything that he says. It is reflected in what he said when he was asked about a target for the exchange rate and said that there was no such thing under this Government, and that the market, as he perceived it, would fix the target.

The target of the present situation is that what the Chancellor of the Exchequer believes of the market is not what the market believes of the Chancellor. The Chancellor consistently, even in reply to my intervention this evening, refers to the MO, or "Little Mo" as I call it—the definition of money supply based mainly on currency—and says that that is on target. He was a little more reluctant to say that the M3 target, now running at about 14 per cent., was the yardstick of the City of London. The City of London does not look, as the Chancellor does, at "Little Mo"; it looks at M3. The City sees the Chancellor's Budget target being overshot, and although the Chancellor may hope that that overshooting will regularise itself between now and the end of the year, it is what the market perceives the monetary target to be that really counts.

The Bank of England has taken, and continues to take, the view that if monetary aggregates rise too fast, the strain must fall on public expenditure, so there may have to be public expenditure cuts. The City of London's perception of the market is different from that of the Chancellor, and that is what has brought us to the pass in which we now find ourselves. If the market perceives that there is an overshoot in the money supply, public expenditure cuts become a self-fulfilling prophecy.

The Chief Secretary, at Question Time today, did not entirely rule out, nor could he, the possibility of public expenditure cuts in the future—even in the imminent future—depending again on how the market preceives the money supply and on what is happening in the United States. Those are the real criteria which the markets and the City of London will be considering.

The Chancellor of the Exchequer said that somehow we had decoupled our interest rates from those of the United States. It was my feeling at one stage during this year that the Government were congratulating themselves on decoupling our interest rates from those of the United States. Now the Government are saying that they regret the decoupling, and that it is because of the difference between our interest rates and those in the United States that our rates must rise. It is the British taxpayer, through what happened yesterday and what will happen tomorrow, who will make his own contribution to the United States Budget deficit. We say that it is a wrong philisophy, a wrong way to look at the question, and the wrong consequence for our people.

The Chancellor of the Exchequer referred to macroeconomic policy and to microeconomic policy. He referred extensively to his speech on the occasion of the fifth Mais lecture on 18 June. What he is really saying is that he has dismantled macroeconomic and microeconomic concepts and has replaced them with uninhibited, unbridled and unmitigated market forces and monetarism. The Chancellor of the Exchequer will not countenance that deficit spending really works. He always turns against what is happening in America and says that it cannot be done here.

The right hon. Gentleman calls it the United States conundrum and regards as heresy the concept that deficit spending will create jobs. If he were to accept that deficit spending would create jobs, the basis of the Government's policy would be destroyed. Therefore, he looks, as he suggested during his speech at the Mais institute, for other phenomena. He talks of the unique position of the dollar as the world's reserve currency. The concept in the 1960s was that a reserve currency in the form of the pound sterling was a drag weight upon the British economy. It is now being said that the United States dollar is a world currency reserve and that that is the source of and explanation for the massive expansion of the United States economy.

The Chancellor took the view in his Mais lecture, in his new-found definition of macroeconomic policy and microeconomic policy, that macroeconomic policy goes to the conquest of the inflation, while microeconomic policy goes to the conquest of unemployment. The reality, as we see in our daily lives, is entirely different. The Chief Secretary intervened in the speech of my right hon. Friend the Member for Sparkbrook and referred to Immingham. The policies which the Government are seeking to follow are designed to remove restraint, and the issue at Immingham is the removal of the dock labour scheme. The scheme is considered to be a restraint, but its removal will not lead to more employment. Its passing is likely to make men at Immingham out of work, which is why there is a strike.

If it is the Government's policy to accommodate inflationary pressures—the phrase was used by the Chancellor in his Budget speech—why did the Government not allow the Bank of England to step in and maintain the value of the pound, rather than allow interest rates to do the job for them? As I have said, it is the Government's intention that the British people, not the Bank of England, should take the pressure.

The Chancellor said during his speech at the Mais institute in the City that the climate was changing. That speech was made on 18 June. Certainly the climate is changing. The Government have challenged the bastions of trade union and local government power. The Chancellor referred to that when he talked about militant union monopolies. The Government thought that they could deprive Cheltenham trade unionists of their rights, that they could deprive miners of their jobs, that they could ride roughshod over their own Back Benchers and that they could do the same to the leaders of the Liverpool city council, the GLC and the metropolitan authorities. All these areas of conflict and challenge were of the Government's own choosing, and even on the grounds of their choosing they have fled from the battlefield leaving their rhetoric behind them.

The miners' strike has entered its 19th week and the Government have been beaten into a compromise at Liverpool. The ponderous weight and authority of the other place ensured that the Government reversed their decision to abolish free elections. This is what the Chancellor describes as the climate of change. In the eyes of the Government, it is clearly change for the worse. The goals of the former Chancellor, who is now the Foreign Secretary, were boldly and nobly taken on by the present incumbent.

As the right hon. Gentleman said in his Mais lecture, the goals were to conquer inflation and to restore the British economy to growth and prosperity. We are witnessing the consequences of a policy which is entirely unbalanced. It is a policy which I would describe as a cloak of many colours, and the cloak is tattered if not bloodstained. If there are marks upon it, they must be the marks of tears of those who have lost their jobs as a result of the medium-term financial strategy.

The Government have failed to understand the impact of their own policies and the very inflation which they seek to curb. The pound is falling like a stone through the floor of credibility. This will make North sea oil more expensive as well as other raw materials that are used for manufacturing purpose. The consequences will seep through into interest rates and act like a hypodermic needle that is shot into the skin, thus pushing up the cost of borrowing and mortgage interest rates and destroying the Chancellor's target for inflation at the end of the year. It is not that the Government are off course; it is that they do not know that they are off course. They persist in drawing atttention to "Little Mo" when the market, which the Chancellor insists is sovereign in these matters, insists on using M3.

As we come to the end of the debate on the Finance Bill, the miners are on strike for the 19th week. There is a dockers' strike and an overspill of the miners' strike into the steel industry. Industrial action is about to be taken by teachers. There is a threat to the capital spending of local authorities. There is a change to the M3 indicator of money supply, which today has surpassed, even by the Chancellor's reckoning, the Government's annualised monetary targets. Interest rates have increased by 2 per cent.—that is taking two bites at the cherry, because last week interest rates increased by 1 per cent. Mortgage rates will increase, thereby causing increased inflation. That is what the Prime Minister described as an economy in good shape. If that is an economy in good shape, we are entitled to ask: what is an economy in bad shape?

We have sat through 150 hours of debate on the Finance Bill, through Report and Second Reading. We have seen the euphoria which greeted the Chancellor's Budget statement evaporate. As Mr. lain Macleod said, a Budget may begin with euphoria but that euphoria can and does disappear.

The Government should look at their policy and philosophy. They should look compassionately at the people and think of the unemployed and of the long-term future of our country when North sea oil begins to run out. They should consider all those factors and think again. If they do so, they will gain the congratulations not only of the Opposition but of the country as a whole.

7.7 pm

Mr. Nigel Forman (Carshalton and Wallington)

On 12 July, following more than 150 hours of debate in Committee, I still believe that this year's Budget and Finance Bill were good. I especially like the fact that the legislation introduced the first instalment of a sensible three-year programme on corporate taxation. I also take it to be the first instalment of what I hope will be a four-year programme on personal taxation.

I shall devote a few brief remarks to the subject of personal taxation, because it involves the future course of the Government's economic policy. I should like the Government to bear very much in mind the fact that the strategy of moving to a broader tax base and lower rates of tax by tackling the problem of tax expenditures and achieving lower rates of taxation should take account of the need to ensure that the benefits of that approach are fulfilled at the same rate as costs are incurred.

Clearly, benefits will be obtained. The first instalment has already come in the shape of raised tax thresholds on income tax, but we must see to it that the two other forms of benefit—lower rates of income tax and a gentler gradient of those rates through the income tax bracket—are steadily implemented during the four-year period. Otherwise, we shall discover that the Government have introduced the cost side of the reforming programme without giving sufficient parallel benefits. If we are to take radical steps in removing relief for life assurance premiums and pension contributions and in limiting mortgage relief to the standard rate, the benefits of that strategy must parallel its costs. If we do not manage to do that, we shall find ourselves in the difficulty to which Brian Walden referred in a recent newspaper article. He pointed out that the public would not easily understand or support a one-sided approach to an otherwise imaginative two-sided policy.

The same cautionary words apply to the extension of the tax base, to which my right hon. Friend referred in his opening speech. That might be worth doing in specific cases to ensure that revenue is buoyant, but it should not be done simply for the sake of doctrine—especially if it involves extending VAT to essential fresh food.

We all know that the pattern of spending of the poor, the pensioners and the unemployed includes a large element of spending on fresh food. It would not be supported in the country if we were to adopt that idea as an aspect of our policy.

I very much welcome the abolition of the national insurance surcharge. As I said at the outset of our discusions some months ago, it was a tax on jobs. I hope that we will extend that principle to the positive side; we should think of introducing sensible labour subsidies wherever possible, for example by reducing national insurance contributions for younger employees or giving further support to the job release scheme, the community programme and the enterprise allowance. I hope that my right hon. Friend will think seriously about all those possibilities between now and his next Budget.

If we are to stick to the approach that macroeconomic policy is designed to control inflation—and as I said earlier, I hope to see inflation eliminated and stable prices achieved—and if we rely on microeconomic policies to boost employment and improve the prospects for employment, it must not be only a matter of the Treasury passing the buck to other Departments in Whitehall but of the whole Government being seized of the need to introduce sensible microeconomic policies, whether in the sphere of public procurement, housing policy, education policy or portable pensions. A whole range of microeconomic policies need to be introduced during the four-year period ahead.

We have a reasonable chance of offering not simply hope to the millions of British people who are now languishing in unemployment but a real prospect that they will join the ranks of those in work whose personal disposable income has increased by such a substantial margin in recent times.

I welcome the Budget. I am relieved that the Finance Bill is shortly to obtain its Third Reading. I wish my right hon. Friends well.

7.13 pm.

Mr. Richard Wainwright (Colne Valley)

In March, the Chancellor was buoyant, sparkling and playing up fully to the captive Conservative media. Today, he wore the air of a Minister administering a Government in decline. He also had the rather ashamed air of someone caught out in a double folly. As the House knows, the Chancellor has arranged that in this fiscal year virtually the whole of the Government's borrowing will take place in the first six months. What an extraordinary feat to destroy the Government's credit at the very time when they have decided to do their borrowing. Not only the Chancellor but the Government will pay dearly for that double folly.

Earlier in our debates, there was an interesting dialogue about the extraordinary, perhaps inadvertent, success of the United States economic administration. The Chancellor, not for the first time, attributed almost the whole of that success to what he described as the American people being willing to price themselves into employment. I wish briefly to point out the obvious—in order to price oneself into employment, employment must be available. That is certainly not the case in Britain because the Government refuse to run a counter-cyclical deficit of the proper size.

With regard to this business of people pricing themselves into employment, I take the example that is all too painful at the moment—the state of drought and restrictions on the use of water. The Chancellor says that people should price themselves into jobs, but were they to queue up outside the water authorities and say, "All we want is a pick and shovel and a subsistence wage," and to ask to be set on the repair of mains from which about one third of the nation's water is leaking owing to previous neglect, the water authorities could not take them on. There is no way in which large numbers of the unemployed can price themselves into employment in a country that is so badly administered that the employment opportunities are simply not there.

Reference has also been made to the Chancellor's remarkable Mais lecture, when he was still in confident mood and before he was so greatly deflated. He seemed to believe then that he was on his way to canonisation or possibly even divine status. He spoke of himself as: fighting, and changing, the culture and psychology of two generations. On the right hon. Gentleman's own suggestion, we have a second John Wesley, or, perhaps more accurately, a second Northcliffe on the Treasury Bench. However, it has all turned to ashes in this miserable and extremely lengthy Finance Bill.

All the excitement that was generated on Budget day by the rejigging of corporation tax has largely turned to ashes. As company accountants, finance directors and bank managers did their sums, they realised that manufacturing industry will have additional burdens under the new corporation tax regime.

Substantial distortions have been introduced in the Bill. On Budget day the Chancellor spoke of being a crusader against distortions in the tax system, but the way in which he is altering capital allowances produces some of the greatest distortions of all time. I shall quote a random example from today's edition of the Yorkshire Post, in which the correspondent on industry writes: Changes in the tax laws relating to industrial buildings are due to come into effect next spring … The difference in tax saving to a company considering the merits of moving into larger premises, dabbling in the rental market or simply wanting to get off the ground will be so large that it is essential to make the decision now before time runs out. A great army of industrialists will be converging on a relatively small number of competent architects, expecting that at the end of the day they will all get well planned buildings. A Gadarene rush has been precipitated by the structure of the Finance Bill. In future, industry will pay dearly for the distortion that has been introduced, rushing industry into capital expenditure.

Part of the trouble is that there is no one in the Cabinet with real industrial experience to tell the Chancellor to come off it, and to point out to him the negative effects of destabilising corporation tax in this dramatic but unproductive manner. I commend the work of the Institute for Fiscal Studies, which assumed a realistic rate of inflation over the next few years and showed that most manufacturing sectors will be more heavily taxed.

I refer to the personal side of taxation and benefits. The Finance Bill, like the Budget, ignores the needs of the poor, those with large families, those who have been unemployed for more than 12 months and school-leavers who are without benefits. The Government's motto seems to be that as they are creating misery, they will lose fewest votes by concentrating all the misery on certain sections of the population rather than sharing the burden throughout the country. The Finance Bill is grossly unfair in the way in which it concentrates the burdens on those least able to bear them. All that may be good psephology, but it is poor patriotism. My right hon. and hon. Friends and I will vote against the Bill.

7.19 pm

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

The policies of the Government and, in the past year, of the Chancellor have brought our industrial economy to its knees. The country is now racked by unemployment, industrial underinvestment, spare capacity, disastrous loss of skills, record numbers of bankruptcies, huge deficits in manufactures and the self-destructive cuts in public investment and public expenditure, all of which contribute to a constant widening of the gap between those like us who are lucky enough to have and those in our society who have not. It is the people of this country who are suffering as a result of the Government's policies.

Even after the last disastrous fiasco of a week, the Chancellor today showed no flicker of self-doubt, no glimmer of self-criticism. In his view, everything was fine. It was fine for the Government to have no view on the exchange rate or on interest rates and to allow investment to be determined solely by market forces. In effect, it was fine for the Government to disown their responsibility for the economy and industry of this country. The right hon. Gentleman's speech was wholly unworthy of his high office and utterly unconvincing. Instead of an analysis of what was wrong and a coherent programme to show what the Government intended to do to put it right, we sat through what was no more than a loud—mouthed, braggart Back Bench performance, slagging off the miners and the Opposition but doing nothing constructive about the problems facing the Chancellor.

The right hon. Gentleman's Budget speech, admittedly, was different. At that time he tried to court popularity to establish his personal reputation. He claimed then, as he claimed today, that the Budget was a radical reform Budget. As the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) has said, no one would deny that it was a well-performed and vigorous Budget speech and the Chancellor's right hon. and hon. Friends cheered when he finished. In Committee, however, under the longest scrutiny of any Finance Bill, the right hon. Gentleman's proposals crumbled to nothing. The claims of reform proved to be largely a shuffling of cards. Moreover, to our surprise and disgust, such redistribution as there was tended to be from those who did not have advantages in society to those who did.

The Chancellor was right to recognise the need for reform of both corporate and personal taxation. We believe that such reform is necessary to create a vigorous industrial sector and a more just society, but the right hon. Gentleman's proposals failed to address the problems and indeed had the opposite effect. The right hon. Gentleman raised personal taxation thresholds, but he knew that this would not deal with the poverty trap. For the first time ever, he refused to include child benefit. When it was finally increased in May, the increase was far too small. It should have been 95p. He acknowledged that it was a difficult problem, but he chose the least effective, the least targeted and the least efficient route to a solution. Changes in child benefit would have been the right way at least to try to give a fair deal to the deprived in our society. By raising thresholds, the right hon. Gentleman wasted millions of pounds of taxpayers' money.

The right hon. Gentleman was quite right to hold that corporation tax with all its allowances and exemptions had become a fiasco. It now accounts for only 2.7 per cent. of tax revenue and it is complex and ineffective. Reform would have been welcome, but the Chancellor bungled it. The transition period will have the opposite effect to that which he intended. It will create tax artificialities, which he sought to eradicate. The ending of capital allowances will be a positive disincentive to investment, especially in manufacturing industry. When investment has already fallen by 42 per cent. in the past four years, that is a disaster.

As the hon. Member for Carshalton and Wallington (Mr. Forman) said, the Chancellor's real target should have been tax expenditures, but with the exception of life assurance relief the right hon. Gentleman has failed to do that and I very much doubt whether he will have the courage to grasp that nettle in the future despite his hon. Friend's comments. The Budget postured and promised a great deal, but it has only tinkered with the economy. This country remains just as economically unjust on a personal level and just as much in industrial decline. The Budget failed the unemployed, it failed the young people leaving school this year and searching for jobs, it failed the deprived, it certainly failed industry and, in so doing, it failed the country.

The Chancellor's failure in his Finance Bill and Budget are trivial compared with the failures in the real economy which were taking place while the Bill was in Committee. Broad money—M3—was rising rapidly, and the real marginal rate of interest rose to a historic and disastrous high of 7 per cent. The fact that the economy will be a black hole when North sea oil runs out is ignored.

It was clear from the Chancellor's failure to rise to the occasion this afternoon that he does not have the first idea what to do. It was a hack speech. Chunks of it, indeed, were taken almost word for word from the Mais speech. The Chancellor had nothing new to say. He had no response to make to the events of the past week. He repeated words that he had already circulated in a public press release.

Today the Chancellor was glib. He could not—or would not—rise to the occasion. The people and industry of this country will suffer as a result of his failure to do so. The Finance Bill and the Chancellor have failed the country miserably. The Opposition condemn the Finance Bill.

7.26 pm

Mr. Jeff Rooker (Birmingham, Perry Barr)

Unfashionably, I propose to talk a little bit about the Bill. The other day I advised my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) that on Third Reading he could not talk about what is not in the Bill—he could talk only about what is in it. It appears that there has been a change of which I was not aware, and that I was wrong. I have learned a lesson for another day.

Our proceedings end as they have progressed—without The Guardian being present. I hope that we shall hear no more complaints from that august newspaper about our efforts in this Chamber to scrutinise finance legislation.

I shall not refer in detail to the scrutiny by the Committee. It showed the fraudulent nature of the image which the Chancellor presented when he presented his Budget. I shall give two small but important examples. First, when the Chancellor raised the tobacco tax, he gave the distinct impression that he was doing something for the health of the nation. There were headlines about it. However, it was made abundantly clear in Committee that there was not a shred of evidence to support that claim. Secondly, the Chancellor grossly misled hundreds of thousands of people who are disabled and who drive motor vehicles. We spent many hours in Committee trying to put right the misleading impression in the Chancellor's Budget speech. That was done by means of the analysis of the clauses and the transmission of long letters from Ministers to members of the Committee.

The tax burden is now heavier. It does not matter how Ministers try to juggle the figures; in real terms, the tax burden is £22.5 billion greater this year than it was in the final year of the Labour Government. That is the Government's figure, and it can be found in the Official Report.

The tax burden is heavier for the married couple with average earnings. They would have required an income tax reduction of 3.7p in the pound, after the measures in the Finance Bill came into effect, to restore their income tax payment to the same proportion of their earnings as it occupied in the final year of the Labour Government.

Had we had an opportunity to debate amendment No. 10—to reduce the basic rate by a penny in the pound—we would have made that case in greater detail. Even with the 12.5 per cent. increase in the threshold, the income tax burden has increased for a family on average earnings by 3.7p in the pound.

No hon. Member could deny that the Bill contains an attack on charities. Between the hours of 8 and 10 this morning, we heard a sustained critique—from hon. Members on both sides of the Chamber—of changes to VAT on building work, as they affect charities. We hope that that will be corrected, but we shall have to wait either for the third Finance Bill this year or for next year's Finance Bill.

The Bill provides massive tax handouts for the well-off. The Chief Secretary approves of that because his starting point is different from mine. However, if we add the changes in capital transfer tax, capital gains tax, development land tax, investment income surcharge and income tax, it is possible to find £1 billion that has been given to the well-off. The Chancellor had the brass neck to tell us that he was doing a good turn by the pensioners when he abolished investment income surcharge. He forgot to tell us that a person needs about £80,000—though not necessarily in the bank—before he pays that surcharge. The Chancellor could not bring himself to admit on Budget day that that was the sort of pensioner he was speaking of.

The hon. Member for Carshalton and Wallington (Mr. Forman) warned us about future changes in VAT. We have still not been told why the clear, commitment in the Conservatives' 1979 manifesto not to impose VAT on food, fuel, housing and transport was not repeated in the 1983 manifesto. We are entitled to know the status of that clear 1979 commitment. The Chancellor is on record as saying, shortly after the Budget in a radio interview that was reported in the financial press, that he does not feel bound by the 1979 commitment because it was not repeated in 1983. We do not know whether there is to be a distinction between fresh food and inessential fresh food. Nevertheless, the Government will widen the VAT base next year.

I should like to make as strong a plea as I can to Treasury Ministers, if any of them are still at the Treasury next year. When he moved the Second Reading—the day that the Government passed a closure motion on the debate for the first time in 60 years—the Chief Secretary said that the Budget was a reforming one in respect of corporation taxes. We are warned that we might get a reforming budget next year in respect of personal taxation. Today, there has been published the latest report of the Institute of Fiscal Studies on the reform of the social security system. I know that the institute has held private seminars for civil servants, Ministers and Back Bench Conservatives. Some of my hon. Friends have also participated. Before there is any substantial messing around with the income tax or the social security system, the aims that are implicit in that report should be examined in detail by the Government.

I am not suggesting that the Opposition rubber stamp those proposals but we welcome the report because the national insurance system is a fraud and does not work as intended. The income tax system could be acceptable. It is widely accepted because of its security, confidentiality and inherent fairness. Nobody regards it as a means test although, by definition, it has to be one. It contains a proposal that would enable us to get to those whom we represent the money that we vote them in the House. The present interaction of the tax and social security systems does not fulfil that function, and it should be examined before the Government start looking at one part in isolation, with an eye on next year's Finance Bill.

The Opposition do not like the Bill and will vote against it. Anyone who is listening to our proceedings should be aware that it is not worth the £9.75 that is printed on the cover. Do not buy it—it is a bad buy. We are the Labour party and we fight bad Tory Bills.

7.34 pm

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

It is three months and two days since we had the Second Reading of the Bill. In a sense—speaking for myself and perhaps for some of my hon. Friends and some Labour Members—I have lived with this Bill.

Dr. Oonagh McDonald (Thurrock)

What about the hon. Ladies?

Mr. Rees

I beg the hon. Lady's pardon.

I never develop an affection for any legislation, but this one has become part of our life. I have encountered many Finance Bills, and I do not think that the House would welcome it if I went back over their history. It is remarkable how the theme and structure of the Bill—[Interruption.] Hon. Members should give me a chance. I have been on my feet for only a few seconds.

The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and my right hon. Friend the Chancellor have tried to set the Bill in its economic context, and that has been helpful for the debate. The right hon. Member for Sparkbrook obviously wanted the Bill to go out 'with a bang and not a whimper, but I do not know whether he has succeeded. He does not have a particularly good track record as a Cassandra. After all, he forecast a doubling of inflation by the end of 1983, and mercifully we are still waiting for that.

The right hon. Member for Sparkbrook made an interesting speech which perhaps at times was a little cavalier with the facts. As my right hon. Friend the Chancellor said, it is undeniable that the rise in interest rates is an unattractive phenomenon. How long it will last remains to be seen, and it is impossible to forecast the consequences. However, this rise is supportable if, as we confidently assert, the economy is sound and the lines of the Government's economic strategy are firm. As a country, we shall be well capable of surviving the fevers of a feverish July. I shall remind the House of some of the factors that lead me to make that prediction. After all, we have a combination of 3 per cent. growth and 5 per cent. inflation, which is the lowest since the 1960s.

The gross domestic product is at the highest ever level. GDP growth is the highest in the European Community in 1983, and the OECD forecasts that this year our growth will be among the highest in the Community. That growth is broadly and soundly based. Business investment is up 8 per cent. in the six months to March, compared to the previous six months. Non-oil export volume is up 9 per cent. over the past year. About 200,000 new jobs were created between March and December last year.

To me, those facts do not show an economy on the point of collapse. I know that the right hon. Member for Sparkbrook, having spent his formative years in Government at a time when an annual crisis was a regular political and economic phenomenon, tends to view our performance through slightly distorted lenses. Those are the facts, and they are the reasons why we assert with confidence that the recent interest rate increase is not heralding, as the right hon. Gentleman forecast, the collapse of our economy or our economic strategy.

Nor do I detect any reasonable alternative. The right hon. Gentleman, in one of the bursts of candour that are one of the more endearing features of his Ruskin lectures, emphasised that in the country as a whole there is doubt about the Labour party's apparent inability to offer a convincing alternative counter-inflation policy. He sketched lightly the possibility of a prices-incomes policy that would have sat a little uneasily with his loudly proclaimed loyalty to the Labour party and trade union institutions. I shall leave him, on some other occasion. to reconcile those strands in his thinking.

If politics is about choice, the Labour party in the 12 months since the last general election has offered the country precious little choice. This was evident in its approach to the Finance Bill. I do not know what we are to make of the Labour party's priorities when we spend four hours debating the fiscal implication of subsidies to employers who provide nurseries for employees. That may be a laudable objective, but to spend four hours on it when so many other aspects of the Bill could have been examined shows a curious set of priorities. What, too, are we to make of amendment No. 10? The right hon. Member for Sparkbrook did not refer to it, but it was dealt with by his hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker). I agree that the hon. Gentleman did not have political reasons for deciding not to move the amendment. It was done in deference to the time already taken up by other amendments. The principle underlying that amendment—a cut of 1p in the basic rate of income tax—was extraordinary.

If the hon. Gentleman is joining the Conservative party in our move towards a better balance in the tax structure, I welcome him as our newest recruit. That would be a massive conversion beside which the conversion of St. Paul would pale into insignificance.

Mr. Rooker

Perhaps I did not make clear in my brief remarks that we tabled the amendment to give the House the first opportunity in more than 150 hours to debate personal taxation. That was not discussed on the Floor of the House, nor could it be discussed in Committee.

We could not table an amendment to chop 3.7p in the pound from income tax, to reduce it to its level when Labour was in power, because we could not table the necessary amendments to find the extra money. We could have tabled an amendment for a token penny, as I made clear in my reference to the £1 billion tax handout to the well-off.

Mr. Rees

I am touched by the hon. Gentleman's fidelity to the rules of order and relevance. They were not very apparent to me or to my right hon. and hon. Friends when we were discussing the Bill in Committee Room 10. [Interruption.] The House and the country can judge my contribution from Hansard rather than from prejudiced sedentary interventions of the hon. Member for Birmingham, Hodge Hill (Mr. Davis).

I should like to speculate on how that cut, which would have cost £950 million this year and more than £1 billion in a full financial year, would have been financed. Who was it designed to benefit? We have been reminded ad nauseam about our tax reliefs by the right hon. Member for Sparkbrook and by his hon. Friends. They were referred to as handouts. I was reproved the other day for describing non-contributory social security benefits as handouts. Evidently it is a sensitive use of the phrase to describe tax reliefs as handouts. Perhaps we shall iron out that fine semantic point on another occasion.

How are we to evaluate the proposals of a party that would have given 30p a week to a person on half average earnings, £1.20 per week to a person on average earnings and £3 a week to a person with twice average earnings, or more? What sort of priorities can we extract from an amendment in those terms? When the right hon. Gentleman moved from his general economic theme to the details of the Bill, he had to scrape the barrel to describe the extension of VAT to take-away foods and home improvement grants as discrimination against the least well-off in our society. His evaluation was, I am afraid, as faulty as ever.

The hon. Member for Middlesbrough (Mr. Bell) persists in seeing public expenditure cuts in our policies. Perhaps he has not read the previous public expenditure White Paper or, indeed, our announcement last week that we are holding public expenditure broadly stable. That is not to say that some programmes will not be increased—for example, in the National Health Service. That means that there must be corresponding economies in other programmes.

To reassure the hon. Gentleman on one point, I am pleased to be able to tell the House that, following the agreement reached at the Fontainebleau summit, the European Parliament budget committee has today voted the release of our 1983 budget refund of £440 million net from the reserve chapter of the 1984 budget. I am sure that that news will warm the hearts of hon. Members on both sides of the House. Hon. Members will find a basic identity of view there.

I hoped that we would hear at least the contribution of an elder statesman from the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), but his contribution today was in marked contrast to that which he made in the Budget debate. I am unaware of what caused him radically to reassess his view. The structure of our policies is the same, and the Bill faithfully translates into law, or will do when it receives its Third Reading, the broad budgetary themes outlined by my right hon. Friend the Chancellor of the Exchequer. Perhaps it was because the right hon. Gentleman was surrounded by his erstwhile hon. Friends that just a touch of bitterness entered his benign and urbane character. That would make me sad.

Mr. Roy Jenkins

It may be that just a touch of disaster has entered the Government's management of the economy.

Mr. Rees

We respect the contribution that the hon. Gentleman made when he was Chancellor of the Exchequer and I am sorry that it did not receive in his party or in the country the appreciation that it perhaps deserved. I know that that is often the fate of Chancellors, but at least I can say that the massive contribution of my right hon. Friend the present Chancellor of the Exchequer is deeply and properly appreciated.

My hon. Friend the Member for Carshalton and Wallington (Mr. Forman) made an elegant and notable speech. He sat with admirable fortitude and self-restraint for many hours in Committee Room 10 and we deeply appreciated his speech today and wished that there had been more opportunities for such speeches.

Mr. Terry Davis

There were plenty of opportunities.

Mr. Rees

I wonder. If the hon. Member for Hodge Hill reflects on the record that the Opposition announced with such pride, he may not feel that the Opposition scrutinised the Bill with quite the care and constructive approach that I know he would like to characterise his every activity.

Labour Members did not concentrate sufficiently on the amendments made to the Bill. There was a concession on alterations to listed buildings and a concession on industrial life assurance policies caught in the pipeline on Budget day. I know that that was a matter of particular anxiety to the hon. Member for Hodge Hill. The Government endeavoured to meet his worry, and I am sure that he will agree that we did so in full measure.

Major help was provided for proprietors of furnished holiday lettings and for caravan site proprietors. There was the VAT improvement on aids for the disabled and we made further improvements to the share option scheme which I am sorry did not command the universal support of the Committee or the House. I believe that those improvements carried that imaginative concept a stage further.

Following wide consultations, improvements were made to the provisions on offshore funds and the control of foreign companies. The revision of capital allowances will be of great benefit to the shipping and film industries, among others.

There were also the amendments to the herd basis. My hon. Friend the Member for Banbury (Mr. Baldry) made a perceptive contribution on that matter, and details of the outgoers scheme will be announced soon by my right hon. Friend the Minister of Agriculture. Those who take advantage of the scheme will be able to take their receipts as capital receipts, because they are giving up part or whole of their business, in which case they will, admittedly, be subject to capital gains tax; but I hope that the threshold of over £5,000 will go a long way to mitigate the tax bill. Alternatively, the scheme will probably be able to be structured in such a way that payments can be taken as trading receipts and offset against accumulated losses. That provision will be made specifically in deference to the representations made to us.

The examination of the Bill was a long one. The hon. Member for Perry Barr complained, as he was entitled to do, that the Second Reading debate was closured. It gives me no pleasure to recall that the closure came after three Labour Members had made speeches aggregating four and a half hours. I leave them and those who study our debates in Hansard to judge whether the points that they made justified such long speeches. I am not absolutely certain whether we use our time entirely rationally. Sometimes there is an element of irrationality. [Interruption.] We should leave that to those outside. I am happy to stand by its judgment. [Interruption.] The hon. Member for Great Grimsby (Mr. Mitchell) is adept at making contributions from sitting and standing positions.

Mr. Austin Mitchell (Great Grimsby)

The House prefers it when I am seated.

Mr. Rees

I join company with the hon. Gentleman on that.

I commend the Bill to the House. It is a good and improved Bill. It will benefit individuals, companies and the economy. It forms part of a consistent tax strategy and will be worked out against a firm economic and fiscal framework, which involves a firm control of public expenditure. The Bill is consistent with our economic strategy, which is both sound and seen to be sound. I ask my right hon. and hon. Friends to support the Bill.

Question put, That the Bill be read the Third time:—

The House divided: Ayes, 331 Noes, 168.

Division No. 408]	[7.51
AYES
Adley, Robert	Alexander, Richard
Aitken, Jonathan	Amery, Rt Hon Julian

Ancram, Michael	Forth, Eric
Arnold, Tom	Fowler, Rt Hon Norman
Ashby, David	Fox, Marcus
Aspinwall, Jack	Franks, Cecil
Atkins, Rt Hon Sir H.	Freeman, Roger
Atkins, Robert (South Ribble)	Fry, Peter
Baker, Nicholas (N Dorset)	Gale, Roger
Baldry, Anthony	Galley, Roy
Banks, Robert (Harrogate)	Gardiner, George (Reigate)
Batiste, Spencer	Gardner, Sir Edward (Fylde)
Bellingham, Henry	Garel-Jones, Tristan
Bendall, Vivian	Gilmour, Rt Hon Sir Ian
Benyon, William	Glyn, Dr Alan
Best, Keith	Goodlad, Alastair
Bevan, David Gilroy	Gorst, John
Biffen, Rt Hon John	Gow, Ian
Biggs-Davison, Sir John	Gower, Sir Raymond
Blaker, Rt Hon Sir Peter	Grant, Sir Anthony
Body, Richard	Greenway, Harry
Bonsor, Sir Nicholas	Gregory, Conal
Bottomley, Peter	Griffiths, E. (B'y St Edm'ds)
Bottomley, Mrs Virginia	Griffiths, Peter (Portsm'th N)
Bowden, A. (Brighton K'to'n)	Grist, Ian
Bowden, Gerald (Dulwich)	Ground, Patrick
Boyson, Dr Rhodes	Grylls, Michael
Brandon-Bravo, Martin	Gummer, John Selwyn
Bright, Graham	Hamilton, Hon A. (Epsom)
Brinton, Tim	Hamilton, Neil (Tatton)
Brittan, Rt Hon Leon	Hannam, John
Brown, M. (Brigg & Cl'thpes)	Hargreaves, Kenneth
Browne, John	Harris, David
Bruinvels, Peter	Harvey, Robert
Bryan, Sir Paul	Haselhurst, Alan
Buck, Sir Antony	Havers, Rt Hon Sir Michael
Budgen, Nick	Hawkins, C. (High Peak)
Bulmer, Esmond	Hawkins, Sir Paul (SW N'folk)
Burt, Alistair	Hawksley, Warren
Butcher, John	Hayes, J.
Butler, Hon Adam	Hayhoe, Barney
Butterfill, John	Hayward, Robert
Carlisle, John (N Luton)	Heath, Rt Hon Edward
Carlisle, Rt Hon M. (W'ton S)	Heathcoat-Amory, David
Cash, William	Heddle, John
Chapman, Sydney	Henderson, Barry
Churchill, W. S.	Hickmet, Richard
Clark, Hon A. (Plym'th S'n)	Higgins, Rt Hon Terence L
Clark, Dr Michael (Rochford)	Hind, Kenneth
Clark, Sir W. (Croydon S)	Hirst, Michael
Clegg, Sir Walter	Hogg, Hon Douglas (Gr'th'm)
Colvin, Michael	Holland, Sir Philip (Gedling)
Conway, Derek	Holt, Richard
Coombs, Simon	Howard, Michael
Cope, John	Howarth, Alan (Stratf'd-on-A)
Corrie, John	Howe, Rt Hon Sir Geoffrey
Couchman, James	Howell, Rt Hon D. (G'ldford)
Cranborne, Viscount	Howell, Ralph (N Norfolk)
Critchley, Julian	Hubbard-Miles, Peter
Crouch, David	Hunt, David (Wirral)
Currie, Mrs Edwina	Hunter, Andrew
Dickens, Geoffrey	Hurd, Rt Hon Douglas
Dicks, Terry	Irving, Charles
Dorrell, Stephen	Jackson, Robert
Douglas-Hamilton, Lord J.	Jenkin, Rt Hon Patrick
Dover, Den	Jessel, Toby
du Cann, Rt Hon Edward	Johnson Smith, Sir Geoffrey
Durant, Tony	Jones, Robert (W Herts)
Dykes, Hugh	Kellett-Bowman, Mrs Elaine
Edwards, Rt Hon N. (P'broke)	Kershaw, Sir Anthony
Eggar, Tim	Key, Robert
Emery, Sir Peter	King, Roger (B'ham N'field)
Eyre, Sir Reginald	King, Rt Hon Tom
Fairbairn, Nicholas	Knight, Gregory (Derby N)
Fallon, Michael	Knight, Mrs Jill (Edgbaston)
Farr, Sir John	Knowles, Michael
Favell, Anthony	Knox, David
Fenner, Mrs Peggy	Lamont, Norman
Finsberg, Sir Geoffrey	Lang, Ian
Fletcher, Alexander	Latham, Michael
Forman, Nigel	Lawler, Geoffrey
Forsyth, Michael (Stirling)	Lawrence, Ivan

Lawson, Rt Hon Nigel	Rees, Rt Hon Peter (Dover)
Lee, John (Pendle)	Renton, Tim
Leigh, Edward (Gainsbor'gh)	Ridley, Rt Hon Nicholas
Lennox-Boyd, Hon Mark	Ridsdale, Sir Julian
Lester, Jim	Rifkind, Malcolm
Lewis, Sir Kenneth (Stamf'd)	Roberts, Wyn (Conwy)
Lightbown, David	Robinson, Mark (N'port W)
Lilley, Peter	Roe, Mrs Marion
Lloyd, Ian (Havant)	Rossi, Sir Hugh
Lloyd, Peter, (Fareham)	Rost, Peter
Lord, Michael	Rumbold, Mrs Angela
McCurley, Mrs Anna	Ryder, Richard
Macfarlane, Neil	Sackville, Hon Thomas
MacKay, Andrew (Berkshire)	Sainsbury, Hon Timothy
MacKay, John (Argyll & Bute)	St. John-Stevas, Rt Hon N.
Maclean, David John	Sayeed, Jonathan
McNair-Wilson, P. (New F'st)	Scott, Nicholas
McQuarrie, Albert	Shaw, Giles (Pudsey)
Madel, David	Shepherd, Colin (Hereford)
Major, John	Shepherd, Richard (Aldridge)
Malins, Humfrey	Shersby, Michael
Malone, Gerald	Silvester, Fred
Maples, John	Sims, Roger
Marland, Paul	Skeet, T. H. H.
Marlow, Antony	Smith, Sir Dudley (Warwick)
Marshall, Michael (Arundel)	Smith, Tim (Beaconsfield)
Mates, Michael	Soames, Hon Nicholas
Maude, Hon Francis	Speller, Tony
Mawhinney, Dr Brian	Spencer, Derek
Maxwell-Hyslop, Robin	Spicer, Jim (W Dorset)
Mayhew, Sir Patrick	Spicer, Michael (S Worcs)
Mellor, David	Squire, Robin
Merchant, Piers	Stanbrook, Ivor
Meyer, Sir Anthony	Stanley, John
Miller, Hal (B'grove)	Steen, Anthony
Mills, Iain (Meriden)	Stern, Michael
Mills, Sir Peter (West Devon)	Stevens, Lewis (Nuneaton)
Miscampbell, Norman	Stewart, Allan (Eastwood)
Mitchell, David (NW Hants)	Stewart, Andrew (Sherwood
Moate, Roger	Stewart, Ian (N Hertf'dshire)
Monro, Sir Hector	Stokes, John
Montgomery, Fergus	Stradling Thomas, J.
Moore, John	Sumberg, David
Morris, M. (N'hampton, S)	Tapsell, Peter
Morrison, Hon C. (Devizes)	Taylor, John (Solihull)
Morrison, Hon P. (Chester)	Taylor, Teddy (S'end E)
Moynihan, Hon C.	Tebbit, Rt Hon Norman
Mudd, David	Temple-Morris, Peter
Murphy, Christopher	Terlezki, Stefan
Neale, Gerrard	Thatcher, Rt Hon Mrs M.
Needham, Richard	Thomas, Rt Hon Peter
Nelson, Anthony	Thompson, Donald (Calder V)
Neubert, Michael	Thompson, Patrick (N'ich N)
Newton, Tony	Thorne, Neil (Ilford S)
Nicholls, Patrick	Thurnham, Peter
Normanton, Tom	Townend, John (Bridlington)
Norris, Steven	Townsend, Cyril D. (B'heath)
Onslow, Cranley	Trippier, David
Oppenheim, Philip	Trotter, Neville
Ottaway, Richard	Twinn, Dr Ian
Page, Sir John (Harrow W)	Vaughan, Sir Gerard
Page, Richard (Herts SW)	Viggers, Peter
Parkinson, Rt Hon Cecil	Waddington, David
Parris, Matthew	Wakeham, Rt Hon John
Patten, Christopher (Bath)	Waldegrave, Hon William
Patten, John (Oxford)	Walden, George
Pattie, Geoffrey	Walker, Bill (T'side N)
Pawsey, James	Wall, Sir Patrick
Peacock, Mrs Elizabeth	Waller, Gary
Pollock, Alexander	Walters, Dennis
Powell, Rt Hon J. E. (S Down)	Ward, John
Powell, William (Corby)	Wardle, C. (Bexhill)
Powley, John	Warren, Kenneth
Prentice, Rt Hon Reg	Watson, John
Price, Sir David	Watts, John
Prior, Rt Hon James	Wells, Bowen (Hertford)
Proctor, K. Harvey	Wheeler, John
Raffan, Keith	Whitfield, John
Raison, Rt Hon Timothy	Whitney, Raymond
Rathbone, Tim	Wiggin, Jerry

Winterton, Mrs Ann	Young, Sir George (Acton)
Winterton, Nicholas
Wolfson, Mark	Tellers for the Ayes:
Wood, Timothy	Mr. Carol Mather and Mr. Robert Boscawen.
Woodcock, Michael
Yeo, Tim

NOES
Adams, Allen (Paisley N)	Hart, Rt Hon Dame Judith
Alton, David	Hattersley, Rt Hon Roy
Anderson, Donald	Haynes, Frank
Archer, Rt Hon Peter	Hogg, N. (C'nauld & Kilsyth)
Ashdown, Paddy	Holland, Stuart (Vauxhall)
Atkinson, N. (Tottenham)	Home Robertson, John
Bagier, Gordon A. T.	Howells, Geraint
Banks, Tony (Newham NW)	Hughes, Dr. Mark (Durham)
Barnett, Guy	Hughes, Robert (Aberdeen N)
Beckett, Mrs Margaret	Hughes, Roy (Newport East)
Bell, Stuart	Hughes, Sean (Knowsley S)
Bennett, A. (Dent'n & Red'sh)	Hughes, Simon (Southwark)
Bermingham, Gerald	Janner, Hon Greville
Bidwell, Sydney	Jenkins, Rt Hon Roy (Hillh'd)
Blair, Anthony	John, Brynmor
Boothroyd, Miss Betty	Jones, Barry (Alyn & Deeside)
Boyes, Roland	Kilroy-Silk, Robert
Brown, Hugh D. (Provan)	Kinnock, Rt Hon Neil
Brown, N. (N'c'tle-u-Tyne E)	Kirkwood, Archy
Brown, R. (N'c'tle-u-Tyne N)	Lambie, David
Brown, Ron (E'burgh, Leith)	Leighton, Ronald
Bruce, Malcolm	Lewis, Ron (Carlisle)
Buchan, Norman	Lewis, Terence (Worsley)
Caborn, Richard	Lloyd, Tony (Stretford)
Callaghan, Jim (Heyw'd & M)	Lofthouse, Geoffrey
Campbell-Savours, Dale	McDonald, Dr Oonagh
Carter-Jones, Lewis	McKelvey, William
Cartwright, John	Mackenzie, Rt Hon Gregor
Clarke, Thomas	McWilliam, John
Clay, Robert	Marek, Dr John
Clwyd, Mrs Ann	Marshall, David (Shettleston)
Cocks, Rt Hon M. (Bristol S.)	Martin, Michael
Coleman, Donald	Mason, Rt Hon Roy
Conlan, Bernard	Maxton, John
Cook, Robin F. (Livingston)	Meacher, Michael
Cowans, Harry	Meadowcroft, Michael
Cox, Thomas (Tooting)	Michie, William
Craigen, J. M.	Mikardo, Ian
Crowther, Stan	Millan, Rt Hon Bruce
Davies, Rt Hon Denzil (L'lli)	Miller, Dr M. S. (E Kilbride)
Davies, Ronald (Caerphilly)	Morris, Rt Hon A. (W'shawe)
Davis, Terry (B'ham, H'ge H'l)	Morris, Rt Hon J. (Aberavon)
Deakins, Eric	Nellist, David
Dewar, Donald	Oakes, Rt Hon Gordon
Dixon, Donald	O'Brien, William
Dobson, Frank	O'Neill, Martin
Dormand, Jack	Orme, Rt Hon Stanley
Dubs, Alfred	Owen, Rt Hon Dr David
Duffy, A. E. P.	Park, George
Dunwoody, Hon Mrs G.	Parry, Robert
Eastham, Ken	Patchett, Terry
Edwards, Bob (W'h'mpt'n SE)	Pavitt, Laurie
Evans, John (St. Helens N)	Pendry, Tom
Fatchett, Derek	Penhaligon, David
Faulds, Andrew	Pike, Peter
Fields, T. (L'pool Broad Gn)	Powell, Raymond (Ogmore)
Fisher, Mark	Prescott, John
Flannery, Martin	Redmond, M.
Foot, Rt Hon Michael	Rees, Rt Hon M. (Leeds S)
Foster, Derek	Richardson, Ms Jo
Foulkes, George	Roberts, Allan (Bootle)
Fraser, J. (Norwood)	Robertson, George
Freeson, Rt Hon Reginald	Rogers, Allan
George, Bruce	Rooker, J. W.
Gilbert, Rt Hon Dr John	Ross, Ernest (Dundee W)
Godman, Dr Norman	Sedgemore, Brian
Golding, John	Sheerman, Barry
Hamilton, James (M'well N)	Sheldon, Rt Hon R.
Hamilton, W. W. (Central Fife)	Shore, Rt Hon Peter
Hancock, Mr. Michael	Short, Ms Clare (Ladywood)
Hardy, Peter	Short, Mrs R.(W'hampt'n NE)
Harrison, Rt Hon Walter	Silkin, Rt Hon J.

Skinner, Dennis	Wardell, Gareth (Gower)
Smith, C.(Isl'ton S & F'bury)	Wareing, Robert
Smith, Rt Hon J. (M'kl'ds E)	Weetch, Ken
Snape, Peter	Welsh, Michael
Soley, Clive	Wigley, Dafydd
Spearing, Nigel	Williams, Rt Hon A.
Stott, Roger	Winnick, David
Straw, Jack	Woodall, Alec
Thomas, Dafydd (Merioneth)	Wrigglesworth, Ian
Thorne, Stan (Preston)	Young, David (Bolton SE)
Tinn, James
Torney, Tom	Tellers for the Noes:
Wainwright, R.	Mr. Allen McKay and Mr. Austin Mitchell.
Wallace, James

Question accordingly agreed to.

Bill read the Third time, and passed.