AMENDMENT OF THE LAW

HC Deb 13 March 1984 vol 56 cc306-31

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

1. (a) for zero-rating or exempting any supply;
2. (b) for refunding any amount of tax, otherwise than by a provision relating to supplies to, and importation by, a government department within the meaning of section 27 of the Value Added Tax Act 1983;
3. (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
4. (d) for any relief other than relief applying to goods of whatever description or services of whatever description.—[Mr. Lawson.]

[Relevant documents: European Community Document No. 10156/83, Annual Economic Report 1983–84, together with the final version as adopted by the Council.]

5 pm

Mr. Neil Kinnock (Islwyn)

The more I see of Budgets, the more I am convinced that they are ceremonial occasions.

In the weeks of nudges, winks and leaks that precede Budget dates, in the Sunday family photographs—they were rather nice this year, I thought—in the speculations on what tipple or tincture the Chancellor of the Exchequer will use in his flask, in the stroll that usually takes place before he presents his Budget, in the battered brief case, in all those collected traditions there is a certain choreography. Now, after the Chancellor has sat down, we move to the next act. Scene 1 is the departure of large numbers of hon. Members from the Chamber. Scene 2 of the traditional act—I persuade myself that it is irrelevant to the performance on the Opposition Front Bench, because it always takes place—is the response by the Leader of the Opposition.

First, I congratulate the Chancellor of the Exchequer on presenting his Budget. It is a traditional ceremony of congratulation, but I do it with more earnestness than is usual, because I think that it only took the Chancellor one hour and 20 minutes to present his Budget. If he deserves congratulations for nothing else, he deserves warm congratulations on the brevity with which he delivered his statement.

I am told that it is an ordeal to stand at the Dispatch Box and deliver a Budget speech, that it is a physical ordeal for Chancellors to be on their feet for such long periods, and I am prepared to believe it. Of course, millions of people who work an 8-hour day standing on their feet would not believe that it was such an ordeal, but I am sure we all understand that it is the apex of some strain and anticipation on the part of the Chancellor. Therefore we can accept that it is a strain. [Interruption.] Others may say, like Prospero, that the ceremony is an "unsubstantial pageant", and although it was shorter this year than previously, it was not so much—again, as Prospero said—"rounded with a sleep" as I have noticed on the Government Benches on previous occasions.

Like all previous Leaders of the Opposition, I am at the unique disadvantage in having to respond to the Budget without the benefit of the Red Book. As far as I know, no one—other than conceivably the Prime Minister, who told us a few years ago that she was speaking off the cuff—ever sought to crave the understanding of the House on that basis, and I do not believe that anyone should. However, it is a little like reporting a rugby match that one has left at half-time. It does not often bother sports commentators that they do not see much of the match, but it bothers us.

However, we have had the advantage—or disadavantage—of seeing the play over the past five years, and we have also had the ominous warning that the policies of those five years are to be continued by the Chancellor. Indeed, that was his opening remark. The unemployment and under-employment of labour, capital and skills and other resources that we have experienced in those five years are to continue. The five years that have resulted in a loss of our world trade share are to continue. The policies that have brought five years of cuts and closures are to continue. The policies of five years of waste—£40,000 million worth of North Sea oil revenues—are to continue. The policies of five years with allowances and concessions that have most benefited the rich but no concessions to benefit the poor in real terms are to continue. During those five years we have seen the income tax burden cut by £1.2 billion and the national insurance burden increased by £3.4 billion. Those policies are to continue. [Interruption.]

On that basis, and on the generality of what we heard from the Chancellor of the Exchequer this afternoon, I have to say that this Budget does much more for the City of London than it does for the country of Britain. [Interruption.] There are features—

Mr. Deputy Speaker

Order. The Chancellor of the Exchequer was given a very fair hearing, and I think that the House should extend the same courtesy to the Leader of the Opposition.

Mr. Kinnock

I think that the disturbance is largely due, Mr. Deputy Speaker, to some of the new boys who are not used to the felicities. I shall try to avoid felicities altogether in future.

The congratulations, or at least the commendations, extend to part of what the Chancellor said. It is true that last year my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) urged on the then Chancellor a further raising of the income tax thresholds and the abolition of the national insurane surcharge. So it is natural for us to commend those steps today. However, we had hoped that in changing the income tax thresholds the Chancellor would not do it in such a way as to confer further benefits on people earning, say, more than £20,000 a year. We happen to believe that what resources are available to him should be concentrated or targeted on people of modest and low incomes—incomes of around £20,000 and less. It is sad that he has used resources to reward those who already have. There may have been a much more efficient way of using the inducements—such as they are—of lowering income tax among people whom the Prime Minister has been known to call in the past the wealth creators in our society.

There are commendable steps. The introduction of the new procedure for the collection of value added tax is to be commended. Regrettably, I cannot say the same for what I consider is a quite indefensible extension of value added tax to take-away foods. They are not in competition with restaurant-served or cafe-served food. Indeed, the very act of taking away is generally used by people on lower incomes as a way to reduce their food bills.

Then we heard that VAT is to be charged on home extensions. It is extraordinary that the Prime Minister told us, just three or four weeks ago, that she wanted a do-it-yourself economy. Nevertheless, now the Chancellor is imposing VAT on home conversions and extensions, done either by the individual or by the construction industry. The construction industry, having lost 350,000 workers in the last four years, having lost such a lot of its trade, having lost public sector contracts and presiding over the lowest year for housing starts for many years past. cannot afford to lose any trade, including the home extension trade.

If we look further into the Chancellor's measures there are other areas worthy of considerable criticism. I am sure that my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley), who will speak tomorrow from the Opposition Front Bench, will take them up in detail, but some require immediate response.

First, I believe that the extension of the composite rate from building societies to banks will damage the interest of the small saver. It is an absolute evasion for the Chancellor to suggest that those small savers can be shoved out of the banks and into the national savings system. There is no question but that some people will be unfairly disadvantaged by that.

The abolition of the investment income surcharge is an equally partisan act, a deliberate act in favour of those who need no such further assistance. As the right hon. Gentleman knows, the threshold at which that surcharge became payable was in excess of £7,000 a year. It is extraordinary that the Chancellor is removing that surcharge of 15 per cent., while requiring that people on very low earned incomes still have to pay a 9 per cent. rate of national insurance charge. That, again, is typical of the Chancellor's distortion of values. The reduction in capital transfer tax and capital gains tax contributes nothing to the general welfare or production of our society.

One other point I wish to refer to has particularly damaging potential in a country where we must be stimulating, and trying to induce and encourage, investment in companies of all sizes as much as possible. It is folly to take the gamble of reducing capital allowances, or any of the other allowances, in order to try to induce people to increase their investment in buildings or in machinery. The Chancellor did not give an overall figure for the kind of losses to the Exchequer that will be so sustained, but, given that our private investors show little enough appetite already for undertaking investment in manufacturing production in the country, in my view it would be foolish for a Chancellor even to take the chance that this change might militate further against the possibility of their spending money on developing and improving our productive potential in this society.

This was—so we were told—supposed to have been a broadly neutral Budget. Perhaps in general terms it will turn out to be broadly neutral, but the phrase "broadly neutral" has an air of benevolent inactivity about it. The impression conveyed by the use of the phrase is that it was assiduously offered weeks before the Budget to mitigate or to take the edge off any protest that might be building up, and to try to blunt the reception that the Chancellor might receive. It is the kind of phrase that is intended for those purposes. Although it does not entirely succeed— as in the case of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), for instance—I am sure that it does have an effect on the kind of pressures that could be imposed on the Chancellor by Conservative Members. However, it conveys the idea that, if a Budget is not actually going to do any good, at least it will not do too much harm.

The problem is that, for the effects of an allegedly "neutral" Budget to be truly neutral, the country and its people must begin from a standard of equity and a parity of treatment, of justice and of opportunity, and obviously the people of this country do not begin from that standard. Neutrality that relieves the obligations of the rich while maintaining the obligations of the moderately well-off and the poor is not a neutral Budget. Neutrality in the face of a 13 per cent. fall in manufacturing output is not neutrality; it is abdication. Neutrality in the face of a 40 per cent. fall in manufacturing investment is unforgiveable inertia. Neutrality in the face of a rise of 2 million in unemployment, and in the face of the existence of 1 million long-term unemployed, is not neutrality; it is plain bare-faced malice. Neutrality when the number of people poor enough to claim supplementary benefit has doubled in the years of this Government's life is not neutrality; it is disdain for the needs of the poor of this country. What we have witnessed in the last five years is not neutrality, and nor is what we have heard this afternoon. It is a conspiracy against the basic interests of the British people, their needs for development, for expansion, for employment, for care and for opportunity.

We are told that the Prime Minister, against all that background, is batting for Britain. I believe that the Chancellor of the Exchequer is battering Britain, and his Budget this afternoon changed none of my views about the general direction that he wants to follow, and the disadvantages that it will impose upon the people. The inflation rate that they say is worth all of this history of contraction, of reduction, of stagnation, of public expenditure cuts and of disadvantage is their jewel in the crown. I begin to think that that jewel is actually made of paste. Everybody is in favour of lower inflation rates. We welcome them. [HON. MEMBERS: "Do something about it."] Hon. Gentlemen say, "Do something about it." We ask where it has come from. We are frequently told that the slump and the difficulty are a product of the world environment of depression, but inflation rates have been falling elsewhere, a product of the deflation that is afflicting other similar countries. We have a lower inflation rate, not because of any effective actions of this Government or the one before them. We have a lower inflation rate that is similar to, if not precisely the same as, the fall in inflation rates of all the other members of the OECD. [Interruption.] If hon. Members wish to check this, I will cheerfully furnish them with all the figures that they could possibly want from authoritative sources that they cannot possibly deny. We have at most a slight margin of lower inflation, and a slight improvement on the general OECD average. The price that we have paid for that 0.5 or 1 per cent. margin is a massive contraction in our capability to produce, to invest, to develop and to employ.

We listened to the Budget, and we listened to what the Government said. We are told again, as the Chancellor of the Exchequer said this afternoon, that there is a great recovery in process that can be encouraged only by the kind of measures that he offered this afternoon. I say that that is absolute rubbish.

What we have is a recovery that goes more to the date of the last general election than does any contrivance of this Government, or any stimulus that they have given to the economy, a recovery based entirely on a credit boomlet. As to the major components of expansion, in 1983 consumer spending rose by £6 billion and Government consumption and investment rose by £3 billion. Of that consumer expenditure £4 billion was financed by credit, by hire purchase, by overdrafts and by credit cards, and all the Government's expenditure was financed by borrowing.

Here we have a recovery, so-called, coming entirely from that extension of borrowing, that increase in credit, from a Government who are headed by a woman who repeatedly tells us that borrowing is an activity that has descended directly as one of the devil's works. If it was such a devilish contrivance and if we had a regime in which, as the Prime Minister says, no one spent more than he earned, the current system of commerce would come crashing to the ground. But we do not have such a regime. We have a Government who actually got elected on tick by taking credit from a consumer boom that they sponsored by a temporary relaxation of credit raising. That was par for the course. It has been the same with all the Prime Minister's favourite nostrums. She was supposed to be helping middle managers. What will the Budget do for them? Those earning more than £20,000 have been the only ones to benefit from a tax reduction in five years of Tory Government. Today's shifting of the thresholds may add a few more, but it will not bring in the great army supposedly waiting with pent-up energies and enterprise to be released from the Labour Government by the Tories who would lift the burden of tax from them. Anyone earning less than £20,000—middle managers and everyone else—has paid more tax under the Tories, not less.

The people at the top, as the Prime Minister used to call them—the wealth creators—have received plenty of concessions, reliefs, bonuses and inducements. The only people to benefit significantly from any of the Government's tax concessions up to and including today's budget have been those on very high incomes. They have not rewarded the Prime Minister's faith or the country's hopes by doing anything that has actually subscribed in any dependable fashion to the continuing prosperity of the country. Last year those people shifted £10,000 million worth of desperately needed investment capital out of this country. They have ignored the blandishments, the encouragement and the exhortations of five years of Tory Government and have presided over the collapse of manufacturing investment. No Government who put their trust in the very rich will obtain much reward because even the CBI and the Institute of Directors are asking for tax cuts paid for by public expenditure cuts. The Institute of Directors makes no bones about being a reverse Robin Hood. From every other source and every other lobby, however, the call is to expand the economy, to put in more money, to ensure that demand makes production more worth while so that we can forestall continued import penetration and build for the future.

The Government have some questions to answer arising out of the Buget and the fact that they have had five years to correct the economy in their terms. Those questions must be asked. When do they expect to get production back to a stable, steady growth rate of 3 per cent. per year? When do they expect to get back the 1.6 million manufacturing jobs and the 700,000 service and construction industry jobs that they have lost in their period of office? When do they expect to restore investment to the 1979 level? When will they ensure that Britain once again sells more manufactured goods to the rest of the world than it buys from the rest of the world? When will they restore our share of world trade to where it was in 1979? Those questions demand answers from a Government who presume to hold office for the next three or even four years and who say that they intend to stick to the same policies which have brought many parts of the country over the lip of ruin. Governments have to answer those questions, and this Government especially must answer them.

I envy the Government their power—power which they could use to do good, to provide care for the needy and help for the helpless. I envy them their power to sponsor production, to induce investment and to generate employment. I envy them all that power from the bottom of my soul—and from the bottom of that same soul I despise their utter failure to use that power for the advantage of the people of this country.

5.24 pm

Sir Kenneth Lewis (Stamford and Spalding)

The Leader of the Opposition always has a difficult task to perform in opposing the Budget as soon as the Chancellor has sat down, but his task is easier than mine in that he can simply oppose the Government root and branch whatever Budget has been produced. I did not expect to be called immediately, so I must collect my thoughts very quickly in supporting my right hon. Friend the Chancellor in what I believe is an excellent Budget. I am pleased to be called so soon, however, as my right hon. Friend the Chancellor is one of my colleagues, with a constituency in the east midlands. I appreciate that he has had to leave to attend a meeting upstairs, but I shall prompt him to read my comment that both in the style of his presentation and in its content his first Budget has been a triumph. I only hope that he can keep up in successive Budgets the high standard and fast pace that he has set for himself. I hope that this Budget will be the first of several which will allow him to get rid of the devil of excessive taxation that this country has suffered from for too many years.

There were only two aspects of the Budget that I did not much like. As a smoker, I was upset to hear that I shall have to pay a good deal more for the small panatella cigars that I smoke. [HON. MEMBERS: "Change to a pipe. "] I understand that pipe tobacco has got away scot free and I am glad about that because many pensioners smoke pipes. I do not propose to change to a pipe, so I shall just have to suffer the tax.

I was also somewhat disappointed as I have just bought and sold houses. Clearly, I did that too soon as I have given my right hon. Friend the Chancellor and the Government tax that they would not have had if I had waited a little longer. Nevertheless, I am glad that there has been a cut in stamp duty, on both house and share sales. I believe that this will help the City to earn more money. It is not a matter of simply helping the City, as the Leader of the Opposition suggested. Of course it helps the City, but it helps the City to earn more money. The City is a very high earner for this country, but it has been losing business because of the stamp duty. My right hon. Friend the Chancellor has thus cut taxation to gain revenue, which must be a good thing.

I thought that my right hon. Friend would abolish the national insurance surcharge, but I did not think that he would have the nerve to do so at a stroke. The fact that he has done so pleases me especially as I and some of my hon. Friends, as well as a couple of my right hon. Friends, had a battle with the then Chancellor in the last Parliament on this very matter. We succeeded in convincing the then Chancellor that there was a need for cuts, but he never quite got rid of the surcharge. He led the field, however, in reducing it and now my right hon. Friend has ditched it altogether. It was always a bad tax. It was brought in by the Labour party, not by us. It rose to the extent that it became a deterrent to the employment of labour. Therefore, it was a tax that cost jobs. With 3.5 to 4 million unemployed, we cannot afford taxes that cost jobs.

In the statement that the Chancellor made today he said that this was to be a tax reform Budget, helping industry and helping jobs. Certainly it is the beginning of tax reform. The corporation tax cuts that have been announced will be helpful to small businesses in particular. Perhaps it is not realised by many people that a lot of small businesses do not have the chance to take advantage of the 100 per cent. capital allowances. They do not make the amount of profit that would enable them to spend in order to claim 100 per cent. capital allowances. But at the end of the year they still have to pay tax because they need to plough back in order to build up reserves. They need to do this to strengthen their capital base, to expand the business, and a man cannot plough back in a small business unless he first pays his tax. I believe that there is a case for exempting altogether from tax the first £20,000 or £30,000 of profit in a business. But short of this, at any rate the reduction in corporation tax which my right hon. Friend has announced today will be particularly beneficial to small businesses.

The assistance on capital transfer tax will also be helpful to small businesses because the problem about capital transfer tax as it affects small businesses is that it is too often imperative for small businesses to be sold. They are then swallowed up by larger businesses. Anything that can keep small businesses on the ground, active and employing people, growing and employing more people must be good. Therefore, I am pleased that the Chancellor has taken that point.

I know that the Opposition will feel justified in making a good deal of party capital out of the fact that investment surcharge is being got rid of—indeed some of them may genuinely feel that getting rid of the investment surcharge is simply helping the rich. But the right hon. Gentlemen on the Opposition Front Bench have got to recognise that there are many people who have no extra pension from their employment, because pensions from employment have only started to take off in the last 20 years. Before and just after the war, many employers did not provide pensions—in fact, pensions by companies started, I suppose, only in the middle 1960s. So many people are not getting very large pensions and some are not getting any pension at all from their employment. They have saved a little. Therefore, the investment income they are getting, which is at present surcharged, takes the place of a pension, and they have to pay an extra 15 per cent. tax on that.

I thought that my right hon. Friend might halve the investment surcharge. I was not sure that he would take it away altogether. I make no objection to his doing away with it, however, because it is a tax on savings. Furthermore, it is a tax on comparatively modest savings. The right hon. Member for Islwyn (Mr. Kinnock) is shaking his head. One can get an income of about £7,000 a year on about £70,000 of capital. That is not a very large amount of capital. There are people who get that by selling a house and, when they are very old, going into smaller accommodation. In that way they add to their pension.

It is true that this will help some people who are quite well off, but the balance of advantage must lie in giving support to those people who depend upon their investment income to take the place of the pension which they have not got.

Then there is my right hon. Friend's value added tax on take-away food. I suppose we could call this a takeaway Budget. When I come down the Ml, I go in to one of the motorway service areas for a break and a cup of coffee. If I take the cup of coffee out to my car, I do not pay VAT on it. If I have the coffee sitting down in the premises, I do pay VAT. So the Chancellor has gained revenue and at the same time done away with what is a rather stupid anomaly. It is a little wider than that. A range of food has also been brought into VAT.

The best action my right hon. Friend has announced this afternoon on VAT—and I am surprised that this has not been taken before and glad that it has been done now—is to make certain that countries importing into this country are covered by the same rules as we are when we are exporting to their countries. I was amazed to hear my right hon. Friend say that we would get as much as 1.2 billion income from this. It is probably a once-for-all income but it will certainly help in the present year. There certainly is a great need—and some of us have been saying this for some time—for a get-together of what were once thought to be the terrible twins, the Chancellor of the Exchequer and the Secretary of State for Trade and Industry, to deal with imports, because this country is suffering from a heavy sucking-in of imports, destroying our manufacturing base. We really are no longer in a position to countenance playing according to the rules while other people play according to their own rules. We have to see that British industry is given a fair deal, not only on exporting but on its ability to compete in the home market against the cheap imports that we have been drawing into this country for too long.

Finally—and this is the main emphasis of the Budget—there is the switch of tax, so that a large number of people are taken out of tax altogether. This is what we wanted the Chancellor to do; this he has done. We have been in a ridiculous situation in this country in which people at the lower end of the scale have been picking up benefits and at the same time having to pay tax. My right hon. Friend has taken twice the number of people out of tax as might have been justified if he had simply played it on the basis of the rise in inflation. That is good. I hope that he can do more in subsequent Budgets. If we do not get a large number of people at the lower level out of tax we shall continue to be in trouble in the way our social security system works. Furthermore, we shall continue to be in a situation in which there is a disincentive to work.

So what the Chancellor has done in resisting giving further handouts up the scale among higher earners and in taking the lower-paid out of tax has the full support of those of us in the Conservative party who believe that at the lower end of the scale there should be no tax and that social security benefits should be equally geared to those who are in the lower income brackets. At present social security benefits go too high up the scale. They should be adjusted so that we can give more to those in real need. The starting point of that is to get the people at the lower end out of tax. That my right hon. Friend has done. I commend him for an imaginative and realistic Budget, a Budget that is fair and a Budget on which he can build for the future.

5.40 pm

Mr. Ian Wrigglesworth (Stockton, South)

My hon. Friends on the alliance Benches will want to judge the Budget by the answers to three questions. First, will it buttress the growth that we have seen over recent months? Secondly, will it improve the competitiveness of British industry? Thirdly, will it help the least well-off members of our society who have borne the greatest burden of the recession over the past few years? The judgment that we would come to in answering those three questions is that the Budget is a bit of a curate's egg—good in parts and rather bad in others.

We are disappointed by the macro-economic and growth aspects of the Budget. Although the Budget will probably become known as the beer, chips and baccy Budget, the main message contained within it is that there is little hope for those who are unemployed that they will be able to find employment in the year to come and be able to get out of the poverty trap that many of them face. The growth that we have seen—I take issue with the Chancellor here—is not, as he said, a recovery whose underlying strength is now beyond dispute". I and my hon. Friends do not accept that for one minute. The recovery that has started is not firm or of great strength; it is slender. It is a weak sapling and it needs to be nurtured and strengthened by Government action if it is to be sustained.

We want to see British industry thriving. We want greater wealth to be created and we want to reduce unemployment. But the Chancellor's forecasts in the early part of his Budget do not encourage us to think that that will be achieved. As the Leader of the Opposition has pointed out, the growth of recent months has substantially come from a boost in consumer expenditure that has been financed largely by increased personal borrowing and the reduction in the savings ratio. It is unlikely that that consumer boom will be continued. Indeed, it was a consumer boom of that sort that the Chancellor's predecessor condemned roundly at the time of the 1979 election. The consumer boom needs to be sustained by increases in capital expenditure which have not been forthcoming in the Government's expenditure White Paper that we debated last week. There has been no reference to such capital expenditure in today's Budget.

We should like to have seen selective increases in capital expenditure that would justify some of the asset sales that the Government are making. The Chancellor will be able to keep down public sector borrowing by the massive sale of public assets which will be spent not on reinvestment in capital projects but on the Government's current expenditure. As I have said before, here we have a Government who are selling the family silver to pay the grocery bills. That is not good accounting. It is not good for the economy and it will not underpin the growth that has begun. Therefore, on the macro-economic policy that the Chancellor has announced this afternoon he gets very low marks indeed. Nor has he encouraged us to think that he has sustained the growth that has begun.

The Chancellor has fared somewhat better on improving competitiveness. We welcome the abolition of the national insurance surcharge, on which we have previously asked the Government to act. He has reduced the tax burden on businesses, and that will help their competitiveness and help them to grow. It will also help them in the export markets. We welcome the fact that the burden of taxation on the business sector has been reduced. We look now to industry to increase its productivity further and to increase its share of markets abroad so that some further growth can be forthcoming from industry.

However, the Chancellor has been unable to introduce the changes in the taxation system that he set as one of his objectives. He wanted reforms in savings, business and personal taxation that would be his mark and would benefit the country. In a number of ways the Chancellor has failed to achieve his objectives. He has not helped the less well-off in our society. Indeed, he should have given them the highest priority, but instead, even though some of the changes that he has announced may have been justified in different circumstances, he has helped the better-off again in this Budget. The reduction in capital gains tax and the abolition of the investment income surcharge might have been justifiable if the economy were better, but when we have over 3.5 million unemployed and millions of people below the poverty line it is unacceptable that the Chancellor should be going out of his way to help the better-off sections of our society in this Budget. The Chancellor has got the balance wrong. He should have moved to help the less well-off rather than those with substantial capital and incomes behind them. We shall seek to amend the changes that the Chancellor is proposing in those spheres in order to switch the balance in the direction that I have described.

The Chancellor has also increased the income tax threshold. While that is welcome in many respects because it takes more people out of the tax net, nevertheless it helps all taxpayers, many of whom, like hon. Members and others in our community, do not need that tax relief at present, although it is always welcome. We have many less well-off in our society and it is to them that any tax relief should predominantly be directed. It is for that reason, that, instead of the Chancellor's adopting his broad-brush approach, we have proposed a system of amalgamating the tax and the benefits system so that the relief that the Chancellor can give is directed much more effectively at the poor within the community. Generally speaking, they consist of those who have families, and we look forward to hearing how large an increase the Government will introduce in child benefit after May. We hope that that will be substantial because it is towards child benefit and families that any relief that can be given should be directed.

During my time in the House I have often heard talk of the thousands of people who are being taken out of the tax net. It is a wonder that anyone is left in the tax net. However, people go back into the tax net during the course of the year. It is much better if revenue is available for the relief of poverty, that it should be directed to those families who are really suffering from poverty rather than we should have the broad-brush approach that the Chancellor has adopted on this occasion.

Through the indirect tax burdens, such as the extension of VAT, the Chancellor has taken a retrogade step. We cannot be entirely critical because it is a broad-brush approach. The decision to extend VAT to take-away foods will be a tax on those who use that service because they cannot afford restaurant prices. Certainly people from the north make great use of take-away food facilities. and will deeply resent the burden now being put on fish and chips and the other take-away foods that sustain many members of our community.

The Chancellor has also extended VAT to building alterations, yet the construction industry is the last industry upon which the Chancellor should place burdens. One in five of the unemployed are from the construction industry. We wanted to hear the Chancellor say that he would take steps to help the industry and to help get some of its unemployed workers back to work. There is a great benefit in helping the industry because it is labour intensive with a low import content. The industry uses home products for its bricks and other materials, so any growth in the industry would not damage our balance of payments. We are disappointed that the Chancellor has imposed the VAT burden on the industry.

We are prepared to accept the other excise duties. It is now accepted by both sides of the House that the Chancellor virtually indexes the excise duties on drinks and other such items. I shall not comment on the balance between beer and wine—[Interruption.] Some hon. Members tempt me to do so. We welcome, even though with slight surprise, the fact that the Chancellor has not gone all the way on beer duty. Those of us in the north feared that there would be a 3p or 4p increase. We recognise the burden placed on the Chancellor by the European court, but he has increased the duty by only 2p, which is a relief. However, that increase will not please many of our constituents.

I have dealt with the main points that concern us. I wish to emphase what I said at the beginning of my speech, which is that the major disappointment is that there is no change on the macro-economic front. The demand in the economy is not being increased. Our hope that the Chancellor would underpin the recovery that has now begun by introducing proposals for capital expenditure—to get people back to work and to increase the wealth of the country—has not been fulfilled

We condemn the Budget on those macro-economic grounds, although we are grateful for the help being given to industry. We regret that the Chancellor is not helping the poor in our society. We hope that during the coming year he will realise that the policies on which he is intent will maintain unemployment at 3.5 million. We hope to demonstrate that that is unacceptable to the people of this country. We want him to return to the House with proposals for capital expenditure increases that will start getting people back to work.

5.54 pm

Mr. Robert Banks (Harrogate)

I am most grateful for the opportunity to make an early intervention in the debate, to express a reaction to the statement of my right hon. Friend the Chancellor of the Exchequer.

I wish first to congratulate my right hon. Friend on the manner in which he made his statement and also on its content. Many journalists have been speculating during the last few weeks leading up to the Budget about what sort of budget it would be—as is usual. Many were saying that it would be a standstill Budget—perhaps a touch here and a touch there. Others were saying that there could be a new fundamental reformist Budget on the way. My right hon. Friend has managed to combine the two. In many cases, simply by use of the index, he has altered certain of the tax rates; on the other hand, he has instigated a reformist campaign.

I want to take one or two points from the Budget and comment on them. When my right hon. Friend referred to MI as being replaced by MO, I found that difficult to follow. We shall need some elucidation on that later. I shall have to study carefully the implications of that statement.

I especially congratulate my right hon. Friend on reducing stamp duty. That is a valuable step towards making it possible for many more people, especially small investors, to enter the share market. That market should be open to all investors, small and large. It will also be immensely valuable for house purchase. It will provide a great incentive to those, especially first-time buyers, faced with considerable expenditure when buying a house.

I agree with my hon. Friend the Member for Stamford and Spalding (Sir K. Lewis) on the importance of the abolition of the investment income surcharge. That is an important step in encouraging people to conserve their savings and their capital. It is something that we must extend to all parts of the community in order to encourage people to put more of their money and their savings to one side to provide for the extras that they will need in their retirement.

On the subject of capital allowances, all in all it is a step in the right direction. What is absolutely right is that businesses should make their decisions on the basis of their business expertise, and not be unduly influenced by the allowances available to them. In many cases those allowances distort their decisions and can be counterproductive in the longer term.

What is important in the way in which that question has been dealt with by the phasing down of capital allowances is how it has brought forward investment. This is the time, if ever there was one, to invest in business. We have heard a glowing statement from my right hon. Friend on the progress that our economy has made during the past few months. Growth in production is up by 6 per cent. With the confidence that industry now has in itself to perform, we stand at a point in our history when we can use that to invest in new plant, new ideas and, in particular, new companies.

In order to do that, we need all the expertise available to us. For that reason, I regret that my right hon. Friend has withdrawn the tax concessions for foreign nationals employed in this country. We need those people in our industry. If they have the expertise, it is as well for them to be here rather than in their own countries or another country where they can compete with us. We need all the people that we can draw to this country to make our economy work.

I especially congratulate my right hon. Friend on his bold step in abolishing the national insurance surcharge. I am sure that that will be welcomed by hon. Members in all parts of the House because it will be a huge incentive to industry. More money will be available for the investment that I have described.

On the changes on tobacco, spirits and petrol, I think that my right hon. Friend has it absolutely right. Exactly the right decisions are being made. I do not think that anybody in his right mind could quibble with the small increases that have been made or, indeed, with the decreases that will be made on table wines.

The question of VAT and building work alterations is, I think, a difficult one. Undoubtedly we all want to see many old and dilapidated buildings restored and improved. This obviously will be a hindrance to it. Nevertheless, there has been an anomaly in the sense that VAT was payable on some building works but not on others. Of course, it would have been nicer, better and more encouraging for the construction industry if VAT had been taken off both sides, so to speak, but I regret that VAT at this juncture has now been imposed on the alterations that will be made to buildings.

I can to a certain extent counteract that by welcoming considerably the imposition of VAT to be payable within a month on imports. This is really long overdue and it will be a great benefit. I understand that about £1.2 billion will accrue to the Exchequer in this financial year as a result.

Above all, one has to welcome the raising of the tax threshold. This is something that I think has come as a surprise because my right hon. Friend the Chancellor of the Exchequer has taken a larger step than many of the pundits would have predicted. I particularly welcome this move. I do not think that we can deny, however rosy the picture we can present of our present situation, that this country has huge problems to contend with. We must take into consideration the problems that we have had to contend with in inflation, a depressed economy and everything else. We have, of course, the problem of long-term unemployment. This is not peculiar to our country, because it is happening to all countries in the western world.

All the predictions from OECD, the EEC and elsewhere point to a rising trend and a hardening trend in the numbers unemployed. Therefore, we have to turn our minds most particularly to how we should handle this particular situation. It bears, of course, heavily on the young. I believe that the schemes that have been brought in to provide work opportunities have been immensely successful. Those whom I have spoken to who have partaken of those schemes have all spoken well of the instruction that they have derived from them and the value that they have obtained.

But it is the people at the other end of the scale, perhaps in the late fifties, who do not yet qualify for a pension, who are forced to live on social security, who do not have the benefit of long-term social security, and who really do not have a very strong hope of getting employment, who concern me most. I think that what we have to do in this area is not to pretend that there is hope for employment to the point of 65, to the retirement age, but to come to terms with the fact that there is a good possibility that these people may get part-time earnings. This is the area that I think we need to tackle by raising the level of part-time earnings which people in this particular age bracket can obtain before losing their right to benefits. This will improve their income considerably. It is a very difficult period for anybody in that time of life when he is called upon to adjust to a position of unemployment before reaching retirement age.

Of course, I recognise that a study is being undertaken on reducing the retirement age, and that I welcome. We shall look forward to hearing what that report has to say.

I spoke of the huge problems that face this country. One of the greatest problems is, of course, the long-term decay which we have experienced over the years and the effect that this has had on our infrastructure. We have to a certain extent imposed on ourselves our own sites of dereliction by demolishing buildings and then finding that there was nobody there to put up new buildings instead. I have particularly in mind, of course, our inner cities. Coupled with that are the areas of planning blight where grand schemes were proposed. The planners had to bear those schemes in mind but nothing was done to the property and it went into decay. We have those areas to consider. We have the central parts of our infrastructure, whether it be our Victorian sewers or our unfinished road network, which because it is unfinished causes all our congestion and the time and money that is lost through trade being held up.

Then there are the repairs that we have to consider to those buildings which were put up in the 1950s and even the 1960s, where there are leaking roofs. I can tell you, Mr. Deputy Speaker, of several schools, and certainly hospitals, in my constituency which were constructed on this pattern and which have proved to be very costly to maintain and have produced innumerable problems.

So the Government have a huge problem to deal with. I believe that they can deal with it in two distinct ways. One way is by marrying as much private capital as possible to dealing with some of the new developments that are necessary, and this is being done in the enterprise zones. Not least, for example, is the excellent work of the London Docklands development corporation. I hope that in time these enterprise zones can be replaced as they become developed by new areas in different parts of the country.

Clearly there has to be a very careful balance as to how many enterprise zones are established because the money is not available to deal with them all, but I think that private capital does have a major part to play in getting these zones off the ground. Local authorities themselves have a great deal that they can do, particularly in cases where there are rows of semi-derelict houses which could be auctioned off or even, for that matter, given away to people who will, in fact, bring them round, possibly with the aid of a grant and their own endeavours.

But it is the expenditure on maintaining our infrastructure that is of vital importance. If we maintain our infrastructure now, we shall be saving ourselves money in the long term. This brings me to the question of the borrowing requirement, which is set, as I understand it, at £7.5 billion. We may find it necessary—I would support this—to extend that borrowing requirement if it is necessary to use the money to maintain our infrastructure in such a way as to prevent us from storing up excessive expenditure in later years by not keeping our buildings and our structures up to scratch.

The expenditure generally has to be divided between capital projects, the maintenance of our existing buildings and, of course, our running costs. Our running costs include, of course, the cost of running the welfare state. That is a very difficult and expensive balance to achieve. However, I congratulate my right hon. Friend the Chancellor of the Exchequer on reducing the size of the Civil Service and establishing a new target which will, in fact, bring us to 590,000 civil servants by the end of the next six-year period.

My right hon. Friend the Chancellor of the Exchequer has given us a Budget which offers a stimulus to industry, and which will rejuvenate our industry on which everything else depends. Without a strong industry we shall never have the money to do all the things that we require to be done. I support all that my right hon. Friend has done, but in particular I would say that on the textile front there is an area where in fact he has the liberty to undertake measures to improve investment in new machinery to support the textile industry. The opposition in Europe has received considerable grants and, in particular, the grants in Belgium have increased dramatically in the last year from 6 billion Belgian francs to something like 40 billion Belgian francs.

I do believe that there is an unfair competitive element within our own EEC which my right hon. Friend could have taken some steps to rectify in this Budget to assist what is our third largest exporter in manufactures, Our technologies are doing well. Tourism is doing immensely well. There are 200,000 more people employed in the service industries. I made a note at this point to seek to persuade the Chancellor—as I have done in the past—to bring the hotel building allowances from 20 per cent. up to the 75 per cent. building allowances enjoyed by industries. With the measures that the Chancellor has announced, that point is out of date, but tourism must be placed on the same footing as industry.

The future of this country rests with our industries and, not least, on the new small businesses that are beginning to emerge. I personally give the fullest support to my right hon. Friend for the measures that he has announced and, in particular, the measures to give help and assistance to all those in business who are seeking to make this country once again an economic stronghold.

6.11 pm

Mr. Donald Stewart (Western Isles)

The hon. Member for Harrogate (Mr. Banks) says that this Budget will stimulate industry. That may be so, but, unfortunately, in many parts of the country there is no longer any industry to be stimulated. The Chancellor talked about the changes in share transfer duty, the abolition of the investment income surcharge, and cutting corporation tax, as if it was general practice in the country for everyone who is of age to dabble on the stock exchange. I was reminded of a remark made years ago by the late Lord Butler, when he was Chancellor. It was long before my time here, but I read it. During a freeze—though not a freeze on the scale to which we have recently become used—he said that the trouble with the country was that we had all been enjoying far too much pheasant and port. Unfortunately, that was far from being the staple diet of the inhabitants of the United Kingdom.

It is a cliché to say that the Budget is a curate's egg. That phrase could be applied to every Budget, and I may have been guilty of using it in the past. However, there are certain things in the Budget which will be welcomed on both sides of the House. The abolition of national insurance surcharge is extremely welcome. One wonders why that tax was brought in in the first place by a Labour Government, and why the Conservative Government retained it. Clearly it had no justification.

I welcome the 10p increase on cigarette tobacco. I bear no malice towards cigarette smokers—although I should declare an interest in that as a pipe smoker I feel some relief at the action taken by the Chancellor—but I welcome the increase on health grounds. The Government should be using this tax as a means to discourage people from smoking cigarettes. The increase is a wise move.

I am strongly opposed to the new tax on petrol and derv and the tax on cars, which will hit my constituency extremely hard because we have no other form of transport. The Western Isles are suffering from the loss of £2 million, which is causing severe difficulties in all aspects of the work of the local council. The money has been spent on defence and other matters of that kind. The petrol tax and the duty on cars will add to our difficulties. They will be extremely unpleasant medicine for my area, and similar rural areas.

I welcome the abolition of the duty on kerosene, which will help poor people who use kerosene to heat their homes.

The tax on a bottle of spirits, including 10p on whisky, is not as drastic as was forecast. I do not pretend that this is a shattering tax, but the Chancellor should have borne in mind the position of the whisky industry. The volume of whisky exported in 1983 fell by 9 per cent., and was no higher than the figure for 1974. In the next few years the sales of whisky both in the export and the domestic market will have to pick up considerably. Last year there were many lay-offs in the industry. In February this year, the Distillers Company announced its intention to lay off 800 workers at its 34 malt distilleries. The Chancellor might have remembered that before applying the extra duty.

The imposition of VAT on alterations to buildings is complete regression. It is an extremely bad tax in every way. As the hon. Member for Stockton, South (Mr. Wrigglesworth) has pointed out, one in five of the unemployed are from the construction industry. Something should be done about putting people back to work in that industry. As the hon. Gentleman pointed out, it could be done with materials bought on the home market which do not need to be imported. As the hon. Gentleman also pointed out, the Government are preventing the proper maintenance of the housing stock and going out of their way to impose 15 per cent. VAT on alterations to buildings. In my constituency, the number of houses which are below a tolerable standard is one of the highest in the country. The tax will be an appalling imposition on people who want decent homes.

The tax on take-away food is divisive in terms of area, and also divisive as between poorer people and the better off. A tax on food is most unwelcome in view of what the Chancellor has done for the better-off sections of the community.

I commend the Chancellor for the improvement in the tax allowances. This will be welcome, although we must not fall into the trap of thanking the Chancellor for taking less of our money than he has taken in the past. There is something to be said for taking the smallest incomes out of the tax bracket. However, although Chancellors try to do so from time to time, we never seem to be able to put an end to the poverty trap.

I am appalled that VAT on charities is to remain, and that there is no word about removing the surcharge on electricity, which is another tax that cannot be avoided.

The Chancellor took great credit for the balance of trade figures, but these are largely due to the trade in oil which last year brought in £6,924 million as against a deficit in the balance of trade in other goods of £7,878 million. The favourable balance is largely based on the Government's ability to corner the oil from the Scottish sector of the North sea—which we believe is Scotland's oil. Even in a British context, the oil has been grossly wasted. An asset has been squandered, when it should have been used to rebuild the nation's industrial base. Scotland has not derived much benefit from the oil.

Scotland's outlook continues to be bleak. The Fraser of Allander report for February 1984 concluded that business optimism in Scotland appeared to be less buoyant than for the United Kingdom as a whole. There is not much in the Budget that will change that.

This is a Budget for the better off. There is nothing to bring about substantial reductions in unemployment. There is nothing to give hope to young people on the dole. Despite one or two excellent moves, the Budget is on the whole—as the Chancellor said—designed to keep the Government on the path that they have marked out. That is the most chilling news of all.

6.19 pm

Mr. David Knox (Staffordshire, Moorlands)

It is always a pleasure to follow the right hon. Member for Western Isles (Mr. Stewart). He is one of the most popular Members in the House. I found myself in agreement with several of the points that he made. I shall return to them in due course. The right hon. Gentleman always sets a good example when he speaks in the House—the example of brevity. I hope that, to some extent, I shall follow him in that respect.

I should like to thank you, Mr. Deputy Speaker, for calling me at this early stage in the Budget debate. I congratulate my right hon. Friend the Chancellor on the manner in which he delivered his first Budget speech. It was commendably short and interesting and my right hon. Friend held the House throughout. That is an achievement that has not been the mark of the Budget speeches of all his predecessors, certainly not in the 14 years during which I have been here. I shall have some critical remarks to make later but much that my right hon. Friend has done is greatly to be welcomed.

I welcome the large increase in the basic thresholds for income tax. My right hon. Friend has increased them by more than double the amount required, although that is no more than the House has a right to expect, bearing in mind the fact that he was one of the authors of the Rooker-Wise-Lawson amendment less than 10 years ago. The change will take almost 1 million of the lower-paid out of income tax. That cannot be other than good for them and administration. Nobody likes to pay increases in excise duties but my right hon. Friend has proposed modest increases and made them reasonably acceptable.

I also welcome the abolition of the national insurance surcharge. It is a bad tax at any time and is even worse at a time of high unemployment, as it is a tax on jobs. I am glad that it is going—it should never have been introduced. I welcome, too, the changes and reductions in corporation tax. I have long felt that it was a tax on efficiency. It penalises success and any reduction can only be welcomed. I am pleased about the improved incentives for share schemes. For many years I have been a member of the Wider Share Ownership Council and believe that spreading ownership is beneficial economically and socially. I have some doubts about the proposals concerning life assurance. The changes that my right hon. Friend proposes may be technically correct, but I am not so sure that they are politically wise. I hope that he will think again about them.

This Budget, like all Budgets, will eventually be judged not on the "technical changes" it makes but on its general effect on the well-being of the British economy. It is in that respect that I find it most disappointing. My right hon. Friend has said that it is a broadly neutral Budget. I believe that it falls short of what is needed in present circumstances. The British economy is operating substantially below capacity—buildings and capital equipment in the private and public sectors are not fully utilised, more than 3 million people are out of work and we have under-utilised capacity of 15 per cent. and probably much more. Unfortunately, the Budget will do nothing to bring any of that unused capacity into use. The under-utilised buildings and capital equipment will increasingly be incapable of achieving their full productive potential if they are not used. Worse still, in the absence of rising demand, they will not be replaced. In other words, new capital investment will not take place on a large enough scale. We shall continue to have 3 million people out of work with all the economic waste and social corrosion that that involves. The situation might well get worse.

My right hon. Friend was quite bullish about economic growth. He rightly claimed that we have had 3 per cent. growth in the past 12 months and he forecast that we can look forward to another 3 per cent. growth this year. The growth of the past 12 months has not stopped unemployment rising. It is therefore reasonable to assume that, at the very best, with the same rate of growth this year, we can expect only a stabilisation in the level of unemployment and possibly not even that. We are told, however, that things are going well just now. What will happen when the economic cycle turns down again, as it will? When that happens, it is inevitable that unemployment will once again start to rise steeply. Even if we could have steady growth at, say, 3 per cent. for a few years, that provides no prospect of unemployment falling from its present disgracefully high level. There appears to be no prospect of the slack in the economy—there is at least 15 per cent., as I have already said—being taken up. That is politically and socially unacceptable.

We live in a country that once enjoyed the highest standard of living in the world. That is no longer the case. We are now well down the international league. Unless one believes that the appetite of the British people to increase their personal consumption has been satisfied—demands for wage and salary increases do not give that impression—there is great potential for increased demand in consumer goods and services, the production of which would use up the slack and provide jobs for the jobless. Unless one believes that our social and public services are perfect and that no one wants to increase or improve them—evidence of that is pretty thin—there is great potential for increased demand to improve social and public services, the provision of which would utilise the slack and bring the unemployed back into employment.

On the one hand, we have potentially a substantial increases in demand for goods and services and therefore for the labour to produce them. On the other, we have considerable spare capacity. The task of Government is to match the two. That is the way back to a high level of economic activity and a return to full employment.

I do not believe, never have believed and do not think that there is any evidence to persuade one to believe that that can happen on its own other than very temporarily and by sheer chance. It requires skilful management by Government to get right the balance between total effective demand in the economy as a whole and supply potential. The Government did that between 1945 and 1970 and I find it difficult to understand why so may people today no longer believe that it is possible. I include Opposition Members in that group. In practical terms what is needed now and what I believe the Budget should have provided is a steady increase in demand over and above the increase that my right hon. Friend believes will take place. I believe that that should be brought about partly by reducing taxes, so increasing personal consumption, and partly by an increase in investment in the public sector.

I know the argument that if we increase personal consumption further we shall merely suck in imports. There is much truth in that argument, but if we cannot take some risks in that respect now when we have North sea oil I shudder to think what will happen when the oil runs out. I believe that some of the increased consumer demand will find its way into the domestic market and encourage British manufacturing industry, which has been so badly clobbered in the past five years.

The argument for increased investment in the public sector is more clear-cut. Much of it would he in construction, which is not import-intensive. In parenthesis may I add that I regret the VAT change announced this afternoon affecting construction. An increase in investment in the public sector, particularly in construction, would not only bring into use some of the idle capital equipment and labour, but would add to our stock of housing, to our sewers, roads and so on, all of which have been allowed to deteriorate over the past 10 years, and all of which will have to be replaced eventually. Surely, at a time when there is so much slack in the economy, we should be pressing ahead with such investment.

Of course, tax cuts and increased public investment would involve an increase in the public sector borrowing requirement, and why not? At the moment, the PSBR seems to be the virility symbol of the British economy—as long as it is low, it does not seem to matter that there are 3 million out of work. Is it not time that we got this nonsense out of the system? The level of public borrowing should be determined by our position in the business cycle. In conditions of depression such as those at present, the Government should not be afraid to run deficits, even quite high deficits. In conditions of high economic activity, the Government should run surpluses, even quite high surpluses. By doing this sensibly and by managing the economy in this way, we would avoid both underheating and overheating the economy and we could also have a much more stable economy than we have had in recent years.

I am afraid that my remarks about the economy in general are somewhat gloomy, but I do not see anything in the Budget that will raise the level of economic activity, other than marginally, and help to reduce the level of unemployment. In the debate on the Gracious Speech last June, I expressed the view that the Government should, in this Parliament, give the same priority to the reduction in unemployment that they gave to the reduction in inflation in the previous Parliament. I see little evidence in today's Budget that there has been this change in priority.

6.33 pm

Mr. Roy Hughes (Newport, East)

This is the Chancellor's first Budget and we would all agree that he has an awesome task. Before the Budget there was speculation, which was confirmed by the Chancellor, that this would be essentially a neutral Budget. How such a proposition could be seriously considered when there are 3 million to 4 million unemployed is beyond belief. Perhaps it is a sign of the Government's new cynical approach to this greatest social evil of our time. We know that the Chancellor has tinkered with taxation and some of the results are beneficial, but some are not. It is not true to say, as he did, that recovery is well under way.

Many predicted that, with such a high level of unemployment, there would be violence on the streets. By and large, fortunately, that has not happened. Nevertheless, our young people have become part of the lost generation. Even the Prince of Wales has come to realise that delinquency is associated with unemployment. There is an old saying that the devil finds work for idle hands, and that is true today. In generations to come, we shall reap the whirlwind for trying to solve Britain's economic problems by the maintenance of a large pool of unemployed.

What applies to youth applies equally to elderly people. What a soul-destroying experience it must be when a man of 50 is faced with the fact that he is unlikely to work again. We have seen the wasting of the bonanza of North sea oil. It has been squandered on unemployment benefit. What a tragedy this is, as the right hon. Member for Western Isles (Mr. Stewart) has already pointed out. That money should have been spent on regenerating the British economy. Our people should have been put back to work to build a new Britain. At the same time, they would regain their self-respect.

Admittedly, as a result of the Government's policies and general deflationary policies throughout the world, inflation has come down, but it is becoming clear that this trend in itself does not necessarily produce jobs. The Government's monetarist experiment has proved to be a disaster, as the alternative Conservative Front Bench, led by the right hon. Member for Old Bexley and Sidcup (Mr. Heath), readily acknowledges.

This Budget should have been about steps to reduce massive unemployment. It should have been about ironing out the inequalities in our society, which have become so much more marked, particularly with our low level of economic activity. For example, the pensioners should have been given a far better deal. They tend to spend the addition that they receive and so give an immediate stimulus to the economy. We should have rebuilt the infrastructure of the United Kingdom. Surely a period of economic recession is the time to tackle this. We could make a start by replacing our Victorian sewers, for instance. Many new roads are required, as is railway modernisation, housing, schools and hospitals, but what do we have?

In the past couple of days I have had a news release from the South Wales region of the National Federation of Building Trades Employers. It contains a statement by the president, Mr. John Richards, who says: Building contractors in Wales are still looking for the light at the end of the recession tunnel. Even the hitherto buoyant repair and maintenance sector is now suffering … Public sector expenditure plans already announced by the Welsh Office point to a further decline in the building industry. He went on to call for action in this Budget. Instead, the Government have put VAT on home extensions, modernisation and so on, at a time when there are literally hundreds of thousands of building workers standing in the dole queue. In view of the standard of some of the housing in areas in Wales such as the town that I represent, much more needs to be done. All that we have seen from the Chancellor is additional taxation. We should appreciate that the message that I have quoted from the president of the NFBTE comes from people who are normally great supporters of the Conservative Government.

Our publicly owned industries are also crying out for investment. For instance, the south Wales coalfield with all its rich seams of anthracite, which is in such great demand in markets of the world, should be developed, and now is the right time. Had it been developed, we might have avoided the present conflict in the industry.

Charity begins at home. At Llanwern, the steel industry is crying out for new investment, yet, despite that basic need for new investment, there is accelerated movement towards investment overseas as a result of the Government's policies.

It is reckoned that 11 million people subscribe to pension funds, with accumulated savings of £60 billion. That wealth is essentially created in this country, yet much of it is invested overseas. The amount involved has doubled since 1979, when the Government were elected. This afternoon, the Chancellor should have announced measures to ensure that those funds, or the best part of them, would be invested in British industry. Likewise, measures to stimulate the economy tend to suck in imports, as the hon. Member for Staffordshire, Moorlands (Mr. Knox) said.

Last week, I went to Turin to visit the Fiat motor industry. The first factory that I visited in Turin employed no fewer than 44,000 people, and another factory within the same organisation just down the road employed a further 10,000 people. My estimate was that the cars produced there have 95 per cent. local content. Fiat supplies more than 55 per cent. of the Italian home market. We witnessed evidence of the introduction of advanced technology. Vehicles like dodgem cars with no drivers were going to and fro taking an engine here or dropping it there. The so-called woodpeckers were popping out at a preordained time to fix a screw here and a nut there, yet, as the vice president of Fiat told us, the company will remain labour-intensive.

A successful motor industry is vital to this country, too. I was glad to hear of the investment plans by the Talbot Motor Company. At least that French multinational seems to recognise that British workers can be efficient producers of motor cars. The behaviour of the Ford Motor Company and Vauxhall Motors annoys me, however, and I should have liked to hear the Chancellor announce action to be taken about that. Those companies are playing fast and loose with Britain. Vauxhall places glossy advertisements in the Sunday papers with the slogan "Better by Design." They do not tell the British people, of course, that the cars are wholly designed in Germany.

The Ford Motor Company at Dagenham is a further example. Company representatives boasted to me when I visited the Dagenham plant about the small quantity of British steel being used in their vehicles. It is even more criminal that Ford and Vauxhall are supposed to be British motor manufacturers, yet each year they import thousands of motor cars into Britain. I shall give an example of an hon. Member who bought a new Ford Grenada car, the parts of which were all made in Germany. He was able to unearth all the paperwork, and it included the statement, "Please ensure that Dunlop tyres are fitted to this vehicle", presumably to give the impression that the car was of British manufacture. Such mass imports distort our economy as well as deceive the British people. The Chancellor should have done something about that.

The Budget holds out no hope for me or for people without a job, living in poor circumstances. The country needs a new Chancellor and a Government with policies to tackle the terrible problem of unemployment.

6.46 pm

Mr. Peter Bottomley (Eltham)

The country would do rather better with a new Opposition than a new Chancellor. The reception that the House gave to my right hon. Friend's Budget statement shows that much of what was said came as a surprise to the Opposition, who were not quite sure what to say. My view was confirmed by the speech of the right hon. Member for Islwyn (Mr. Kinnock), the Leader of the Opposition.

There are serious concerns about this country's economy, and both my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox) and the hon. Member for Newport, East (Mr. Hughes) touched on the critical importance of creating the conditions under which unemployment will start to fall. That requires output to rise faster than the rise in productivity. We need to create effective demand within this country and make sure that we can produce goods and services so that we start meeting the demand from this country and overseas.

There is no shortage of demand in this country. The problem of effective demand can be met by effective supply. I recall the years when Government support to nationalised industries, including British Leyland, was rising year after year, yet the number of cars produced per employee was falling year by year. There is no point in leading ourselves into cloud-cuckoo-land by arguing that an ever-increasing money supply or level of public subsidies to ailing industries will do any good.

This morning's news about the dairy side of the common agricultural policy showed that it is possible to analyse a problem and make proposals to deal with it and that there are simple solutions to simple but tough problems. My right hon. Friend showed the same attitude this afternoon by removing distortions in our tax system, which I thoroughly support.

I would have gone a stage further, however. The absence of any mention in the Green Paper about the cost of mortgage interest relief on house purchase leads me to hope that my right hon. Friend will come forward next year with proposals to bring common sense into the mortgage interest relief system, so that help is concentrated at the time of family formation, when people need it.

The Chancellor has proposed measures on life assurance premiums. The question whether they should all be introduced at once and what will happen to existing life policies in the future can be taken up in further debates on the Budget and the Finance Bill. The way in which the Chancellor showed that he was willing to tackle some of the flotsam and jetsam of tax reliefs and allowances and concentrate help where it is most needed and will be most productive deserves the support of hon. Members on both sides of the House and, indeed, on both sides of the Conservative party.

I would deal with measures that would lead to greater employment, but my hon. Friend the Member for Moorlands has ably done that already. I echo his plea that the Government should show the same effective concern for that, even though they may not have the same indirect power as they have been shown to have over the level of inflation. As I said in the public expenditure debates a week or so ago, there are limits to what the Government can effectivly do to the economy. There are limits to the effect of financial changes on people's behaviour. The Government should make fiscal and tax changes where possible and be willing to tackle many of the vested interests not tackled in the past and brought out into the open because it was thought to be politically unwise.

I rest my general principles of taxation on the idea that the tax base should be as broad as possible and the rates of tax as low as possible. That is why I am willing to talk about matters such as mortgage interest relief, and go along with the Government's proposals on take-away food and VAT on building alterations.

Speaking as one who has seen a number of take-away food shops brought into his constituency in the past few years, I believe that putting VAT on take-away food will stop the artificial incentive to customers buying food, taking it into the street to eat it, and being rather careless about where they leave wrappers. It is worth while to encourage people to eat their food inside the place in which they bought it. That provides greater employment for those inside, who are paid to clear up afterwards, and is better than leaving it to the public services to clear up in the street.

There are difficulties for every affected group. They apply just as much whether we are dealing with the milk surplus, people in the life assurance industry or many other professions and trades that are beginning to find that their practices are being examined more carefully by the Government, who are trying to introduce greater competition. Throughout trades and services, we should leave the people a more unfettered choice on how they use their money. My right hon. Friend the Chancellor is absolutely right to deal with the distortions of the various opportunities for people to save money. I should like to see, in time, not a great Professor Meade approach to taxes on spending, but more rationality in the way in which we deal with savings.

It is also right to be willing to say openly, as I do, that by giving help to people to become prosperous we are more likely to start generating the increase in employment seen in the United States not only over the past year or two, but over the past 200 years. I have always believed that it is right, in opposition to Labour Weekly, which normally believes that it is wrong, that someone should be able to take a wartime gratuity, build up a business that employs hundreds of people, make hundreds and thousands of pounds, but pay a good proportion in taxation. That is worth while and right. It is not exploitation of one person by another. What I regard as exploitation is what Labour Weekly used to do. On page 13 it would tell people how to win £500,000 in the football pools using Labour Weekly's perm No. 47. I think that I have used that example often enough for Labour Weekly to have dropped its football pool forecasts.

We must encourage people to do what will help themselves most and will also help others. The general thrust of the Budget is to get rid of artificial distinctions between investment income and earned income. It should be openly stated that, whether on the company or personal side, high rates of taxation are counter-productive, lead to distorted decisions and should be eliminated.

In the past, I have spoken about the importance of child benefit. I am not in a position to talk much about that, nor has the matter been raised in the debate, because those announcements will be made by my right hon. Friend the Secretary of State for Social Services in June. It is important to realise that child benefits should be regarded as a tax allowance and should be seen on the right side of the public expenditure estimates.

As long as the Government make proposals, however spaced out over the years, which radically tackle all the distortions in the economy, I for one am willing to defend them to the interested groups that might be offended. The general thrust of what the Government are doing is a necessary reversal of much of what has happened in the past 20 years. It is possible to create prosperity. The Government are approaching the matter in the right way, and I give them my whole hearted support.

6.55 pm

Mr. Austin Mitchell (Great Grimsby)

I shall not follow the hon. Member for Eltham (Mr. Bottomley) in his attempt to praise the Budget with faint damns. The essential nature of the Budget it that is is moving deckchairs on the Titanic. It does nothing about the fundamental problems of the economy. As with the curate's egg, there are parts of the Budget that we can praise and parts that merit condemnation.

In that context, I cannot follow the hon. Gentleman's remarks on take-away food, representing, as I do, a constituency that provides the fish, surrounded by a county that provides the chips. In imposing VAT on take-away food, the Chancellor has made a monstrous attack on working people. What he has also done with regard to manufacturing industry shows a serious weakness. Industry has been badly battered by the way in which the Government run the economy. The cuts in the allowances for new building and equipment will create a serious difficulty for that industry, which needs investment and stimulus to grow.

VAT is also being imposed on building improvements. When improvement grants are being cut, to tax those improvements adds insult to injury. That will cause a serious setack to attempts to modernise our housing stock.

It is difficult to justify the measures that are being taken when the Chancellor is handing out considerable sums to the Government's friends and the better-off sections of society, particularly with regard to investment income surcharge, stamp duty on stocks and shares and the changes in capital gains tax and capital transfer tax, all of which are wrong, when the right hon. Gentleman should be spreading the burdens of taxation evenly and fairly and 7 million people are on benefit, many below the poverty line.

Conservative Members have been desperate in their attempts to find something to praise about the Budget. The real problem is that it focuses attention on the conjuror's balls in the air. The conjuror's trick is to keep the balls in the air, but now the conjuror's feet are sinking in the mud—indeed, he is sunk in the mud up to his knees. The basic economic difficulties of the country have become worse rather than better. The Budget does nothing about that.

The right hon. Gentleman has prevented himself from doing anything about those problems because of the tight constraints that he has put on himself through the medium-term financial strategy, which was his own invention and which, masochistically, has been tightened in the Budget, but most of all he has done so because of his curious obsession with the public sector borrowing requirement, as if one could measure an economy and the effect of Government measures on the economy in that one index. The Institute for Fiscal Studies makes this point. It is as if a company chairman came to the annual shareholders' meeting and talked only about the company's new borrowing. He would not be chairman of the company for long if he ignored all the other factors—output, employment and the shape of the real economy. The Chancellor is concentrating on just one measure. His obsession with public sector borrowing and getting down the PSBR have distorted his approach in the Budget.

We are in a disastrous economic situation, for which Government measures are largely responsible. The pound has been put up to an unrealistically high level, affecting our exports and bringing in a flood of imports, because of the way in which interest rates have been kept unnecessarily high and, most important, because of the contractionary stance that the Government have taken in their fiscal policy, when it is essential to maintain an expansionary stance. That has made our economic difficulties worse than they should have been. Employment in manufacturing, because of the contraction of manufacturing, largely forced by the Government's measures, is down 20 per cent., almost entirely accounting for the increase in unemployment that has taken place. That increase—

Dr. Alan Glyn (Windsor and Maidenhead)

rose—

Mr. John Browne (Winchester)

rose—

Mr. Mitchell

I shall not give way. I am keeping a close eye on the time.

That increase in unemployment will continue, because there is nothing in the Chancellor's Budget to tackle that major social and economic problem that besets the country. The Chancellor seems to think that recovery comes automatically with the decline of inflation. No other advanced industrial country seems to be obsessed with that. What is there, once inflation is reduced even to nil, to bring about the recovery that we all want? That recovery must be invested for, planned for, organised for, worked for and indeed deficit-financed for, because one has to produce to increase demand for the products of industry. Without that increase, there can be no recovery. Because the Chancellor is maintaining a deflationary stance, and once expenditure on unemployment is allowed for, one sees that the right hon. Gentleman is taking a contractionary stance towards the economy. Thus there can be no genuine recovery.

What the Chancellor cites as recovery is essentially a candy-floss recovery that is going on in the high streets but not in the factories, in the shops but not in employment. It cannot happen in the those places, because the people are raiding their savings and taking advantage of the relaxation of credit to buy more, mainly imports. That can have no effect on output.

The recovery that we see cannot be sustained. The Chancellor has done nothing to sustain it by doing nothing about the fundamental problems of the economy. That is a tragedy which reduces the performance of the Budget, although we talk about its different aspects, essentially to moving deckchairs on the Titanic. I shall conclude with that thought, because I am anxious that my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) should start with a clean slate tomorrow and with the wisdom of having read my speech, for his edification and that of the House.

Debate adjourned—[Mr. Neubert.]

Debate to be resumed tomorrow