The Economy (Hansard, 12 November 1984)

§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
With permission, Mr. Speaker, I should like to make a statement. As is now customary, I am laying before the House today an autumn statement which contains the Government's outline public expenditure plans for 1985–86, proposals for national insurance contributions next year and the forecast of economic prospects for 1985 required by the Industry Act 1975.
The Government remain committed to reducing taxation, and therefore to keeping firm control over Government spending. Following this year's public expenditure review, the public expenditure planning total for next year, 1985–86, has been set at £132 billion. As the House will recall, this is within the provisional figure for 1985–86 published in the public expenditure White Paper in February. The Government have thus succeeded for the third year running in holding the planning total to the level announced in previous White Papers.
After allowing for inflation, public expenditure next year is planned to be broadly the same as was planned for this year, and below the likely outturn for this year, which has been inflated by the cost of maintaining electricity supplies during the coal strike. With the economy continuing to expand, public expenditure as a percentage of national output should fall next year to its lowest level for six years. The revised plans contain a reserve for contingencies of £3 billion. This is £¾ billion less than the provisional reserve for 1985–86 allowed for in the February White Paper, when departmental spending plans for 1985–86 were less well defined, but £¼ billion more than this year's reserve.
The allocation of this £¾ billion to specific expenditure programmes, coupled with an increase in forecast receipts from the privatisation programme, has enabled most, though not all, programmes to show an increase in spending over the White Paper figures.
But to contain these increases to dimensions compatible with the overall £132 billion planning total has required some hard decisions. Thus, there will be increased spending on the National Health Service, but individual health authorities will be expected to become more efficient and to absorb any pay and price increases within the money made available to them. In addition, my right hon. Friend the Secretary of State for Social Services has already announced important measures to cut costs by limitations on NHS prescribing, and there will have to be increases in charges.
Again, spending on social security will increase, but to contain the scale of the increase my right hon. Friend will be announcing a number of new measures, including substantial savings in supplementary benefit provision for board and lodgings claimants. The 5 per cent. abatement of invalidity pension which has applied since 1980 will, however, be restored from next November.
Yet again, there will be increased provision for education, partly offset by a reduction in spending on student grants.
By contrast, because fewer young people than expected have needed to take up places on the youth training scheme, my right hon. Friend the Secretary of State for Employment is able to apply some of the consequential savings to expand other employment and training 416 measures, including the enterprise allowance scheme, within a reduced overall total. My right hon. Friend will be announcing his new proposals to the House later this afternoon.
Other programmes to have reduced provision include domestic assistance to agriculture and housing.
Fuller details of these and other changes are contained in the autumn statement itself. — [HON. MEMBERS: "Now."] Hon. Members will have an opportunity to ask questions in a moment.
I should add that the Treasury will be making its own contribution to the need for savings. The £1 coin has 50 times the life of the note, yet costs less than twice as much to produce. Accordingly, I have instructed the Bank of England to cease issuing £1 notes after the end of this year, although the note will continue to be legal tender for at least a year. This will save £3 million of public expenditure in the first year alone.
It may be for the convenience of the House if I take this opportunity to announce two other changes in the currency —[Interruption.]

§ Mr. Speaker
Order. I ask the House to give the Chancellor of the Exchequer a fair hearing. All these matters are debatable later on today and tomorrow.

§ Mr. Lawson
First, and subject to approval by the Privy Council, the ½p, which has not been issued since 29 March this year, will cease to be legal tender after 31 December. Secondly, on Thursday of this week the Bank of England will be issuing a new version of the £20 note which should be more difficult to forge—[Interruption.]

§ Mr. Speaker
Order. The Chancellor has several more pages of his statement to get through—[Interruption.]

§ Mr. Lawson
The Opposition may well laugh now—

§ Mr. Speaker
Order. Lest that last remark of mine should be thought to have been any reflection on what the right hon. Gentleman was saying, I hasten to say that I made the comment simply because I did not want too much of the time of the House taken up by interruptions of this kind.

§ Mr. Lawson
This year's review of expenditure plans has, as usual, also covered the Government's public spending plans for the two later years, 1986–87 and 1987–88. The details will be published in the usual way, in next year's public expenditure White Paper. They will show that total public spending is planned to remain broadly constant in real terms right up to 1987–88, which implies a continuing steady reduction as a proportion of the gross domestic product.
I now turn to national insurance contributions. The Government have conducted the usual autumn review of contributions in the light of advice from the Government Actuary on the prospective income and expenditure of the national insurance fund.
As last year, we have decided to reduce the taxpayer's contribution to the fund—the so-called Treasury supplement—by 2 per cent., bringing it down to 9 per cent. But this will not require any corresponding increase in contribution rates. Thus, the full class 1 rate will remain unchanged at 9 per cent. for employees and 10.45 per cent. for employers. In addition, employers will be relieved of 417 the burden of contributions on payments under the statutory sick pay scheme, which in due course will be extended to cover the first 28 weeks of sickness.
As usual, the earnings limit will need to be increased broadly in line with inflation. From next April, the lower earnings limit will rise to £35.50 a week and the upper earnings limit to £265 a week.
Next year, of course, employers will enjoy the full benefit of the abolition of the national insurance surcharge, which took effect only last month. Taking this into account, the total burden on employers in 1985–86 is expected to be significantly less in real terms than in the current year, 1984–85, despite a rising labour force.
My right hon. Friend the Secretary of State for Social Services will this afternoon announce details of the changes in the Social Security (Contributions, Re-Rating) (No. 2) Order 1984, and will lay before Parliament the accompanying report by the Government Actuary.
Finally, I turn to the Industry Act forecast. Since the Budget, the economy has had to endure a number of testing developments, both at home and abroad, of a sort which not so long ago would have driven it off course. This time, they have not done so.
Monetary growth has been in line with the targets I set at the time of the Budget, and inflation has remained low: perhaps 4.75 per cent. in the last quarter of this year.
Total national output, which reached its highest level ever last year, looks set to rise by a further 2.5 per cent. this year. Had it not been for the coal strike, growth this year would probably have been 3.5 per cent.
Investment has been rising particularly strongly. Indeed, over the economy as a whole, I expect it to reach a new all-time high this year.
Employment has been rising at a brisk pace since early 1983, but not yet strongly enough to check the rise in the numbers of those registering as unemployed. The outlook for jobs will, however, have been helped by the recent fall in interest rates which largely reverses the increase during the summer. Provided we stick firmly to present policies, the prospect is of further interest rate cuts ahead.
This year's PSBR is likely to turn out higher than the £7.25 billion I envisaged at the time of the Budget, chiefly as a result of the coal strike. If the strike were to end at Christmas, it would add some £1.5 billion to borrowing this financial year; and the public expenditure planning total would be exceeded by about the same amount. On that basis, as I indicated to the House on 30 October, I estimate that the PSBR for 1984–85 will be some £8.5 billion, subject to the usual margin of uncertainty at this time of the year. A PSBR of this size would still be comfortably the smallest proportion of GDP for well over a decade.
For next year, with continued firm monetary and fiscal policies, inflation is expected to edge down slightly to 4½ per cent. by the fourth quarter. Output and employment will continue to rise, with total output expected to be up by a further 3½ per cent. in 1985, of which about 1 per cent. represents the assumed recovery from the coal strike. Within this total, the forecast suggests that 1985 will be another good year for exports and industrial investment. Indeed, investment by non-North sea businesses is expected to rise in real terms by 7 per cent. next year, following an 11 per cent. rise this year.
The House will wish to know what all this means so far as prospects for next year's Budget are concerned. The forecast makes the conventional assumptions that income 418 tax and excise duties are both indexed in line with prices and that the PSBR is held next year to the £7 billion. or 2 per cent. of GDP, indicated in the medium-term financial strategy published at the time of the last Budget. It also takes into account the changes made in this year's Finance Act, which will take full effect next year and reduce taxation in 1985–86 by some £1¾ billion. Beyond that, the margin of uncertainty at this stage is very considerable, and the House will understand that the prospects for 1985–86 will need to be reviewed again. in the light of more up-to-date information, before I came to make my Budget judgment next year.
On this basis, I am glad to say that it does look as if there will be scope for some further net reductions in taxes in next year's Budget. I am sure that the whole House will welcome this prospect. The best figure that I can put on it at the present time is about £1½ billion.
The autumn statement is now available from the Vote Office and the House will no doubt wish to take it into account when we debate the economy tomorrow. It shows that for the third year running—that is, for every single year since the Government introduced cash planning for public expenditure—spending plans have been held at or below previous White Paper totals. It shows, too, that we are now in the fourth year of steady growth, with a further year of investment and export-led growth in prospect, and with no sign whatever of a resurgence of inflation. And the numbers in work are rising strongly for only the third time since the sixties.
The statement that I have published today sets the background against which further reductions in taxation should be possible, to help further stimulate the enterprise and dynamism of the British economy and thus produce more jobs for our people.

§ Mr. Roy Hattersley (Birmingham, Sparkbrook)
May I first ask the Chancellor of the Exchequer a specific question about one item in his autumn expenditure review about which I suspect the House expected to hear and was disappointed not to hear? Is there, or is there not, to be a cut in the aid budget? Is the Chancellor aware that to cut overseas aid by any amount at this time would be to do more than demonstrate callous insensitivity? Cutting the aid programme while men and women are starving in Ethiopia would be to flaunt the Government's inhumanity.
May I, or rather may we—this is a matter of concern to the whole House—be given a categorical assurance that there is to be no cut in the aid budget and that the Chancellor has not, as many of us suspect he has, simply left the dirty work to the Foreign Office to leak or give out the news next month or the month after?
As always, the Chancellor counterfeited confidence in the eventual success of his policies. We were told exactly the same story last year.

§ Mr. Lawson
And it came to pass.

§ Mr. Hattersley
As the right hon. Gentleman shouts that his confidence has been justified, will he confirm that industrial output is lower than it was before last year's autumn statement and remains 8 per cent. lower than it was during the last year of the Labour Government? Will he also confirm that in September we simultaneously endured the worst balance of payments figures, the lowest value of sterling, the highest level of taxes and the highest unemployment in the history of this country?
419 Will the right hon. Gentleman describe the definition of success by which he justifies his assertion today? Let me tell him this: whining about the effects of the coal strike comes very ill from a Chancellor of the Exchequer who only four months ago described it as a good investment for Great Britain. Nor is the dispute the fundamental cause of the failures which I have just described. Why, despite the record of failure, does he still pretend that the economy can be rescued by manipulation of the PSBR and the money supply?
In today's statement the right hon. Gentleman has attempted, with rather less than complete success, to keep faith with the arbitrary targets for those two indices that he set himself. But while he has attempted to keep faith with those figures he has wholly betrayed the unemployed —both the 3.5 million men and women now out of work and the many more workers who will join the queue of the unemployed because of the additional deflation which the public expenditure programme now represents. Let the House and the country remember that the deflation would, of course, have been very much worse had the Chancellor not been deserted by the Prime Minister last Thursday in the Cabinet and had he been allowed to plunge us into an even greater slump than that which we face during the next 12 months.
Let me ask the right hon. Gentleman a question about unemployment, around which he skated with such an absence of dexterity. Has the right hon. Gentleman the courage to tell us now what the Government Actuary estimates as the increase in unemployment next year? The Government Actuary's figure is a statistic upon which much of the Government's planning is based. Will the right hon. Gentleman now tell us what that figure is? Is it true that the Actuary anticipates an increase in unemployment of about 400,000 men and women? If so, why did the Chancellor not have the courage to tell us so during his initial statement? Perhaps the real reason is that he knows, as we know, that responsibility for that increase lies in no small measure with him and the policies that he has outlined today.
In two specific areas the economy's deflation is both obvious and intentional. The Government are now pushing up energy prices, both through the imposition of corporation tax on the gas and electricity industries and through an increase in the surreptitious fuel tax as imposed through the external financing limits. Why has the Chancellor not told us today what those increases are to be—or must the Secretary of State for Energy make that announcement in payment for opposing the Chancellor's suggestion that they should be even higher and an even greater burden on industry than that which the Chancellor was able to impose on his reluctant colleagues?
May we be told the proposed increase in presciption and dental charges, or is the Chancellor ducking that one as well? Last year the right hon. Gentleman tried to bolster up his counterfeit enthusiam by giving us dubious figures. This year he has tried to maintain his position by giving us virtually no figures at all. That does nothing to encourage our confidence either in him or in the policies that he outlines. I think that the Chief Secretary will tell him the answer to my question almost immediately.
Has an estimate been made of the effect on the construction industry of the further cutback in public sector housing? We are told that the Secretary of State for 420 the Environment believes that in some way he has resuscitated the housing programme. In fact, he has simply arranged for it it bleed to death more slowly than the Chancellor intended. In their first five years of office the Government halved the housing building programme, and this year both public and private housing building has further declined, yet the Chancellor proposed massive cuts, and has implemented substantial cuts.
How many more construction workers has the Chancellor condemned to unemployment by today's statement? Why do the Government assault the construction industry yet again, when everyone—even the CBI and, indeed, the Daily Mail—calls for more construction expenditure as a sure way of reviving the economy?
Will the Chancellor confirm that the whole object of his manipulation is to obtain £1½ billion, for distribution next year? Of course, part of that £1½ billion, if the Chancellor has his way, will be for cuts in direct taxation and will be financed by increases in indirect taxation. On the basis of previous records, indirect taxation will rise more than direct taxes fall.
That £1½ billion could be used in two ways. A reduction in direct taxation will create few jobs. If that £1½ billion were spent in the public sector, it would put about 250,000 men and women back to work. Why does the Chancellor, in every aspect of his policy, always choose the high unemployment option? I fear that the answer is that a permanent pool of 3 million unemployed is no longer simply the consequence of Tory policy but is an essential ingredient of it. That figure, that target, that objective and that intention is carefully planned and callously calculated. It represents a heartless disregard for millions of families, which the people will not tolerate.

§ Mr. Lawson
The right hon. Gentleman asked a large number of questions. Aid and the whole of the Overseas Development Administration is included in the budget for Foreign and Commonwealth Affairs, which is unchanged.
The right hon. Gentleman referred to last year's autumn statement and to my predictions then. He poured the same scorn on my predictions then as he did today, but those predictions were borne out entirely by events.
The balance of payments on current account is expected to be roughly in balance this year because of the substantially increased imports of oil as a result of the coal strike. We expect it to be in surplus by about £2½ billion next year. If a Labour Government had achieved anything like that, they would not have been able to believe their good fortune.
The right hon. Gentleman asked me about the unemployed. I have to tell him that the answer to unemployment is to create a more vigorous and enterprising economy. That is why it is essential to reduce the burden of taxation. The right hon. Gentleman also asked about the Government Actuary's assumptions. I stress that they are assumptions, not forecasts. The assumption is that unemployment in Great Britain, excluding school leavers, will average 3 million this year and 3 million next year—1985–86.
I can assure the right hon. Gentleman that there is no question of any sort of energy tax. Price increases are a matter for the industries concerned. I have no reason to believe that price increases will not be broadly in line with 421 the rate of inflation. Prescription charges are a matter for my right hon. Friend the Secretary of State for Social Services.
The right hon. Gentleman is mistaken in suggesting that substantial cuts in housing investment are to be made. He has confused the net expenditure line with the gross expenditure line. The net expenditure line has come down significantly as a result of a considerable increase in council house sales The success of that programme is one of the Government's most important achievements. The reduction in gross expenditure is very small indeed.
The reduction in taxation indicated, with a margin of uncertainty, for the next Budget is £1½ billion net, not gross. There will be a net decrease of about £1½ billion. There is no point in going into the right hon. Gentleman's phoney figures for job estimates and so on. It is not the Government who are banking on unemployment. It is the Opposition who are doing that and who are exploiting the plight of the unemployed for cheap party gain.

Several Hon. Members
rose—

§ Mr. Speaker
Order. I remind the House that, important though the statement is, there is an important debate to follow. What the Chancellor has said is debatable today, as it will be tomorrow. I propose to allow questions from Back Benchers to continue until 4.30 pm.

§ Sir William Clark (Croydon, South)
Is my right hon. Friend aware that Conservative Members welcome his statement and congratulate him on keeping the public expenditure total this year within the target set last year? Does he agree that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) made cheap party points simply to get unanimity within his party? I suggest that my right hon. Friend ignores his strictures and stays on course.
Is my right hon. Friend aware that industry will welcome his statement about the national insurance fund, which will keep down labour costs? The sneering remarks of the right hon. Member for Sparkbrook about a reduction in taxation will not help unemployment. It shows that the right hon. Gentleman does not understand how an economy works. If that money is left in the hands of the taxpayers. they will spend it in a better way than the Government will. We congratulate my right hon. Friend.

§ Mr. Lawson
I am grateful to my hon. Friend for his remarks. He is right to say that this Government's strategy is to maintain public expenditure at a constant level in real terms, which means that as the economy steadily grows there will be progressive scope for further reductions in taxation. That is the strategy and we are well on course. That is the way to create more employment.

§ Dr. David Owen (Plymouth, Devonport)
Is the Chancellor aware that there will be certain scepticism about his figures because the Government Actuary's estimate of unemployment last year was grossly inaccurate? Is not the Actuary's assumption this year only 3 million, although we already have more than 3 million people out of work? Does the Chancellor accept that his statement will be judged by the action that he takes to reduce unemployment? Nothing that he has said today gives us any grounds for belief that what he is anticipating in public expenditure will do anything more than add considerably to unemployment. The cut in urban aid, the £600 million cut in local government capital account and the £65 million cut in the housing account will all work through to add to unemployment.
422 Did the right hon. Gentleman not say that he hopes to consider using £1½ billion for tax reductions? He gave no sign that he proposed to cut employer costs, which would provide an incentive for employers to engage more workers. Did he not give every sign that he intends to reduce direct taxation, as he has done in the past, to help those in jobs and on high incomes?
Will the right hon. Gentleman accept that the House expects him to use any money available to create more jobs, which means increasing capital spending —especially in the construction industry — and cutting employer costs through the restructuring of national insurance?

§ Mr. Lawson
The House will recognise that the spokesman for the Social Democratic party is not in favour of lower taxes. Of course this Government will do everything within their power to reduce the level of unemployment. However, it is an illusion to suppose that that can be achieved by an increase in public expenditure. Indeed, during the time of the Government of which he was a member the most rapid rise in unemployment occurred when public expenditure was rising fastest.

§ Mr. Terence Higgins (Worthing)
Is my right hon. Friend aware that much of what he has said will be welcome? However, the Treasury and Civil Service Select Committee will need to examine his proposals in detail before a final judgment is made.
Can my right hon. Friend confirm that, as spending plans roll forward, it is usual for the Contingency Reserve to be less in the year ahead than it was originally, because uncertainty is less? Will additional payments be made to the EEC under the so-called inter-governmental agreement? In what way were those appraised in relation to competing claims for public expenditure?

§ Mr. Lawson
I thank my right hon. Friend for his remarks and also for the important part that he plays as Chairman of the Select Committee. I look forward to its report on the autumn statement, which will be helpful to the House in its debates.
My right hon. Friend's remarks about the Contingency Reserve are correct. The figures involved in the inter-governmental agreement have been fully taken into account in the statement that I have given to the House.

§ Mr. Robert Sheldon (Ashton-under-Lyne)
Is this not the fifth year in which the Government have said that the reduction of taxation will lead to a reduction of unemployment? Why has that not happened? Has the Chancellor taken account of what the CBI said when it called for the regeneration of British manufacturing industry and assistance for Infrastructure projects? What will the right hon. Gentleman say to the CBI?

§ Mr. Lawson
Opposition Members fail to take into account the world climate, and they show a remarkably parochial view. Since the general election, when I took on the responsibility of Chancellor, unemployment in Britain has risen by 3.7 per cent., while in the remainder of the Community it has risen by 5.2 per cent. In Britain employment has risen by 1 per cent., while in the remainder of the Community there has been no rise in the number of people in work. In Britain gross domestic: product has risen by 3 per cent., while in the remainder of the Community it has risen by 1½ per cent

§ Mr. David Howell (Guildford)
Does my right hon. Friend agree that, despite his struggle to keep within his planning totals, nothing should now be allowed to stand in the way of the very substantial tax cuts that are required to create jobs — because they are the most powerful engine of job creation—to reduce the cost of hirings, to cope with the emerging and changing pattern of work in society and to encourage that pattern of work?

§ Mr. Lawson
My right hon. Friend has consistently advocated reductions in taxation, and he has been consistently right. It is a central plank of the Government's policy, which will bring about increasing employment opportunities for our people.

§ Mr. Richard Wainwright (Colne Valley)
Is the Chancellor aware that the economy could not—to use his words—be driven off course because, apart from North sea oil, it is stuck fast in the ice of the Government's persistent deflation, to which he announced no end? Why, when the right hon. Gentleman is willing to devote time in his speech to trivia about the halfpenny, did he say nothing about capital expenditure to maintain the nation's public assets? What percentage of the planned expenditure for 1985–86 will be capital expenditure?
Does the right hon. Gentleman realise that his interpretation of the Industry Act forecast is intolerably complacent? He announced a puny figure for future economic growth that will do nothing seriously to prevent a further rise in unemployment. Is he not ashamed to contemplate the success of other industrial economies in the world compared with the modest forecast of growth that he provided this afternoon?

§ Mr. Lawson
I am astonished at the hon. Gentleman, because the Liberal party always turns its eyes to the European Community. As I reminded the House a few moments ago, our performance in both growth and other indicators has been significantly better than that of other members of the European Community.
It is too soon to give a precise breakdown of public expenditure plans between capital and current investment. I am sure the hon. Gentleman will welcome the fact that this year we expect business investment— and that is non-North sea business investment—to increase by 11 per cent. in real terms, followed by a 7 per cent. increase in real terms next year. The level of investment in the economy has never been higher than it is this year.

§ Mr. Reg Prentice (Daventry)
Is it the Government's intention that the overseas aid programme for next year will keep pace with inflation and represent the same real value as the programme this year? Does my right hon. Friend recognise that anything less than that will not be tolerable in the view of millions of people of all political persuasions, who were shocked by recent events?

§ Mr. Lawson
I thank my right hon. Friend for his comments. I know that there is a great deal of concern on both sides of the House over this issue. Total provision for the Foreign and Commonwealth Office, including the ODA, remains as in this year's White Paper and is up 4½ per cent. in cash terms over the previous year, which is roughly in line with inflation. The breakdown of the total budget of the Foreign and Commonwealth Office is a matter for my right hon. and learned Friend the Foreign Secretary. The House will be aware that overseas aid accounts for well over half the total budget of the Foreign and Commonwealth Office.

§ Mr. Bryan Gould (Dagenham)
We understand the Chancellor's continuing failure to deliver his much-mentioned cuts in the rate of taxation, but why does he have to make further self-defeating cuts in public expenditure and further increases in indirect and hidden taxation to make room for the cuts? What has he done with the £11,000 million which he now receives every year from the North sea revenue, which his predecessors never even remotely enjoyed?

§ Mr. Lawson
There is no question of a failure to cut direct taxation. If income tax had remained at the levels which we inherited from the Labour Government, and even if, which is highly unlikely, all the thresholds had been fully revalorised every year, the burden of income tax would still be £4 billion more than it is now

§ Sir Peter Blaker (Blackpool, South)
If my right hon. Friend's forecast of growth in output and the movement in prices is borne out, will we not have had steady growth in output for four or five years, accompanied by static or falling inflation? Would that not be something of a record for Britain in recent decades?

§ Mr. Lawson
My right hon. Friend is correct. That is something that has not occurred since the war. Sustained growth with no resurgence of inflation is something which Britain has long sought, including by my predecessors, and now it is coming about for the first time

§ Mr. Willie W. Hamilton (Fife, Central)
Despite two attempts to answer questions on the aid programme, will the Chancellor of the Exchequer now give a straight yes or no in answer to my question? Is the aid programme to be cut, or is it not? What savings does he expect to make as a result of the revamping of the regional policy? Those in high unemployment areas are deeply concerned about that.

§ Mr. Lawson
As I have made clear, total provision for the Foreign and Commonwealth Office is unchanged from the White Paper figures. The precise amount that is devoted to aid within that programme is a matter for my right hon. and learned Friend the Foreign Secretary. The revamped regional policy will be made known to the House towards the end of the month. One of its features —this was made clear in the White Paper—is that it will be more job-related than the old policy.

§ Sir Anthony Grant (Cambridgeshire, South-West)
Does my right hon. Friend agree that the preposterous claims of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and the public expenditure increases which he proposes offer no solution to long-term unemployment and were effectively refuted by a previous Labour Prime Minister, who presided over a Government of which the right hon. Gentleman was a member, when he said that it is not possible to spend one's way out of a recession? Is my right hon. Friend aware that his package would be much more acceptable to Conservative Members if he spelt out clearly that the £1.5 billion in tax reductions that he proposes will be in direct taxes and will be designed to encourage industry and enterprise in the spread of ownership of all sorts throughout the community?

§ Mr. Lawson
I thank my hon. Friend for his remarks, of which I shall take full account when I come to frame the Budget.

§ Mr. Norman Atkinson (Tottenham)
What sort of decadent morality is it for the Chancellor to reiterate his 425 commitment to reduce taxation when he knows that the poor are getting poorer and the rich richer? He knows that unemployment will remain the same in 1985 and 1986, and probably into 1987. How does he square his recent statements about reducing unemployment with the distribution of the £1.5 billion which he has announced, 85 per cent. of which will go to those with above average earnings?

§ Mr. Lawson
The hon. Gentleman claims to be able to forecast precisely what will happen to unemployment. I do not make that claim. The living standard of an average family with an average income has risen steadily during the Government's period in office and is now at the highest level ever.

§ Mr. Peter Tapsell (East Lindsey)
May I repeat to my right hon. Friend the basic question which I have been putting to him and his predecessor ever since it became clear in the winter of 1978–79 that the world was moving into serious recession? Does he agree that one of the main objects of British economic policy should be to increase our national wealth over and above the fortuitous and inevitably temporary bonus of North sea oil? If he does agree with that, how does he account for the fact that the two most succcessful economies in the world, Japan and the United States, have consistently run public sector borrowing requirements very much greater than our own, with the result that they have much higher levels of employment and lower rates of inflation? Is it not now time for the Government to launch a real campaign to bring down unemployment?

§ Mr. Lawson
I share my hon. Friend's concern about unemployment. Given the views which he has expressed elegantly over a number of years, I am sorry that he gives no credit to the Government for their success in reducing inflation. He need not worry too much about North sea oil being a temporary phenomenon, for it will certainly see out his active life. It is patently wrong to suggest that the United States has consistently run a higher public sector borrowing requirement than our own. Over the years it has consistently run a lower borrowing requirement than we have. It is only recently that its borrowing requirement has exceeded ours.
My hon. Friend is right to point to Japan and the United States as being the most successful economies in the Western world. It is striking to note that they are the economies which have the lowest proportion of public expenditure to gross domestic product, and the lowest proportion of taxation to GDP.

§ Mr. Nigel Spearing (Newham, South)
Will the right hon. Gentleman come out from behind the Foreign Secretary on the aid issue? Is it not a fact that, even if total funds increase by 4½ per cent. to cover domestic inflation, a significant proportion of the expenditure of the Foreign and Commonwealth Office is on sustaining services abroad? If the value of sterling and the rate of inflation differ, those services will have to be sustained. Is it not a fact that the amount available for aid could be reduced? Surely it is the Chancellor's responsibility to see that it is retained at no less a level than that for the current year.

§ Mr. Lawson
Implicit in the hon. Gentleman's question, as we are talking about 1985–86, there seems to be the view that the dollar is likely to continue to rise in 426 1985–86. I do not know what will happen to the dollar, but most observers regard it as more likely that the dollar will fall.

§ Mr. Michael Grylls (Surrey, North-West)
As my right hon. Friend has said, 11 is not his responsibility to fix the level of prices in the nationalised industries, particularly the price of electricity. However, can he nevertheless give an assurance that, as Chancellor of the Exchequer, he will not increase the rate of return on capital, which in turn would force the industry to put up electricity prices, which could be serious for the steel and chemical industries?

§ Mr. Lawson
I am aware of the sensitivity of electricity prices for the chemical and steel industries. It is necessary for the electricity industry to earn a rather better rate of return than it has been earning hitherto, hut, nevertheless, I see no reason why that should require price increases in excess of inflation.

§ Mr. James Callaghan (Cardiff, South and Penarth)
As this is the first time within my recollection that the Government have failed to give a separate figure for overseas aid, is the Chancellor aware that unless he does so he will be regarded as concealing something? Why can he not tell us now what the figure is and why the Government are leaving it undetermined in this way?

§ Mr. Lawson
I assure the right hon. Gentleman that I should not dream of concealing anything from him. The plain fact of the matter is that the global figure that was agreed for the total expenditure of the Foreign and Commonwealth Office, including the ODA programme, and the division of that into the various component parts, is a matter for my right hon. and learned Friend the Foreign Secretary.

§ Mr. Ian Lloyd (Havant)
My right hon. Friend will doubtless have made his comments on the dismal relationship between the many efforts made to save a few hundred million here and there over the whole range of public expenditure—I refer particularly to fundamental British science—and the addition of £1.5 billion to the coal cost, bringing it to a total of £2.8 billion, to finance Mr. Scargill's takeover bid? Is it not essential that the country should realise the result of these figures? The country does not understand what a billion means, but It is about £56 per head, or £140 per family

§ Mr. Lawson
My right hon. Friend is right to draw attention to those substantial figures, and I am sure that the House will welcome the continuing increase in the number of miners returning to work.

§ Mr. D. E. Thomas (Meirionnydd Nant Conwy)
What is the precise reduction in the urban programme, and what hope is there for local authorities in inner cities and in old industry communities as a result of the reduction in real terms of 3 per cent. in local government spending?

§ Mr. Lawson
The urban programme will still be running at a substantial level, despite the reductions that have been set out.

§ Mr. Nicholas Budgen (Wolverhampton, South-West)
Will my right hon. Friend give the House further details of the reduction in domestic support for agriculture? Es he aware that there will be widespread support throughout the House for these reductions, as there is little argument in favour of having a second stimulus in addition to high EEC 427 prices at a time when agricultural policy is creating little extra employment and changing for the worse the face of the British countryside?

§ Mr. Lawson
My hon. Friend never lacks originality. The biggest contribution to such reductions is a decrease in capital grants, and I believe that my right hon. Friend the Minister of Agriculture, Fisheries and Food is putting out a press release, or perhaps has already done so, setting the matter out in more detail.
I have just been reminded, and I am sure that the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) would like to know, that this is not the first occasion on which a combined figure has been given for the Foreign and Commonwealth Office and the ODA.

§ Mr. John Evans (St. Helens, North)
Why has the Chancellor one again rejected the argument put forward by his right hon. and hon. Friends from the wet end of the Conservative party that an increase in public expenditure and capital infrastructure projects will do far more for employment than a reduction in direct tax for many of his rich friends? What happened to the Prime Minister's promise that the pound note was sacrosanct?

§ Mr. Lawson
My right hon. Friend the Prime Minister made no such statement and never used the word "sacrosanct" or anything like it. As for unemployment, the House has already been reminded that the right hon. Member for Cardiff, South and Penarth, who is a former Prime Minister, made it clear to a Labour party conference that there was no way that one could spend oneself into higher activity. The only way to create more jobs is by having a more competitive and enterprising economy. That is what we are on the way to achieving, and tax cuts are an essential ingredient in that.

§ Mr. Robert Rhodes James (Cambridge)
My right hon. Friend said that the budget of the Foreign and Commonwealth Office was to be held at the present level for 1985–86. Does this not mean, even on the United Kingdom inflation figure, a reduction of 5 per cent. in real terms? Furthermore, if we add to that the impact of much higher inflation rates abroad and the continuing weakness of the pound against the dollar, does this not represent a further reduction in the real value of the foreign and overseas budget? Where is the money coming from? Is it coming from the closing of embassies, the dismissal of staff, the reduction of the British Council, reductions in the BBC overseas service, or from the overseas aid programme?

§ Mr. Lawson
My hon. Friend has misread the columns of figures in the autumn statement. The provision for the Foreign and Commonwealth Office for this year, 1984–85, is £1,800 million. Under the revised plans for 1985–86, the provision is £1,870 million, an increase of £70 million, or approximately 4½ per cent. As for the foreign currency element, it is difficult to say what will happen to foreign currencies in the future. I have no reason to believe that sterling will fall in relation to the dollar over the year to 18 months ahead.

§ Mr. Dave Nellist (Coventry, South-East)
The Chancellor thinks that unemployment will be reduced by further cuts in taxation. How is it that under his stewardship tax cuts of £4,500 million have taken place, 428 £2 billion of which have gone to the top 1 per cent. of the population earning more than £20,000 a year and only £135 million of which has gone to the bottom quarter of the population, but unemployment has now reached real levels of 5 million? What further tax cuts can reduce unemployment?

§ Mr. Lawson
The overwhelming proportion of the reductions in income tax that there have been have gone to people with below average or slightly above average incomes and not to the rich. As to the total burden of taxation, during the first Parliament of this Government we were not able to reduce taxation overall because we had inherited a substantial, grossly excessive budget deficit or borrowing requirement, which had to be brought down. All our efforts had to be directed towards that. Now that we have achieved that during our first term, we are in our second term of office and can really get down to the business of reducing taxation.

§ Mr. Jonathan Aitken (Thanet, South)
Is my right hon. Friend aware that the feebleness of the Opposition's attack shows that he has made an autumn statement of impregnable virtue and prudence? In particular, will my right hon. Friend accept congratulations on increasing the enterprise allowance, which has done much to stimulate jobs, and is he aware of the welcome that we have given to his decision to cut back the widespread abuses in the DHSS allowances for board and lodgings?

§ Mr. Lawson
I am grateful to my hon. Friend for his support. I know that he will be especially interested in the details of the improvements to the enterprise allowance scheme and other employment and training schemes, which my right hon. Friend the Secretary of State for Employment will be able to announce shortly.

§ Mr. Hattersley
As the Chancellor has argued all afternoon that his statement represents a sovereign cure for the economy next year, why was he arguing for quite different packages as late as Thursday last week?

§ Mr. Lawson
There is no truth whatsoever in either part of the right hon. Gentleman's assertion.

§ Mr. Tim Yeo (Suffolk, South)
Will my right hon. Friend join me in condemning the outrageous Opposition slur that unemployment is in some way an instrument, or possibly even an objective, of the Government? Does he agree that two of the most important factors in reducing unemployment are lowering the rate of inflation and maintaining a steady rate of economic expansion?

§ Mr. Lawson
My hon. Friend is right. The Opposition tried to blame the increase in unemployment on the Government at the time of the general election. The people did not believe them then, and they do not believe them now.