§ [Relevant documents: European Community Document No. 10277/84, Annual Economic Report 1984–85 and the Unnumbered document Annual Economic Report 1984–85 (final version as adopted by the Council).]5.10 pm
§ The Secretary of State for Employment (Mr. Tom King)
I welcome the decision to focus today's debate on the subject of employment and unemployment. The Budget makes the creation and tackling of unemployment a top priority. Following the announcements on Tuesday, I am now able to give the House the details of the proposals on which we have been working in recent months. They cover training, deregulation and employment.
The essential precondition of all that work has been the maintenance of a sound economic policy, with public expenditure and inflation under firm control. The record is clear. Shortly, we shall be entering the fifth year of economic recovery, the most sustained period for 40 years. Investment and exports are at record levels. Manufacturing output rose by 3.5 per cent. in 1984, the biggest increase in any year since 1973. Inflation has been around 5 per cent. for over two years, something which we tend to take for granted now, but an achievement which, a few years ago, seemed impossible. In terms of employment, after years with hundreds of thousands of jobs being lost, now at last again more jobs are being created. Half a million more jobs have been created in the past two years, but that has not yet been enough to reduce unemployment.
The first benefits of our strategy are coming through, but within that strategy there are several further steps which we can take, and have taken, both to encourage the creation of more jobs and to help those hardest hit by unemployment. I refer first to the youth training scheme. The first of the steps is the expansion of the YTS. Since 1979 we have instituted what is nothing short of a revolution in education and training, particularly for those 1014 in the vital 14 to 18 age group. We are now seeking to carry that revolution forward by offering two years' training for everyone leaving school at 16.
The YTS was launched in 1983 as a successor to the old and much less satisfactory youth opportunities programme. Since then the YTS has provided up to a year of work-based training for over 700,000 young people. That in itself has been a tremendous achievement. It is almost as if in the past two years we had set up an entire new scheme of further education. That system has already proved its merits. It is popular with youngsters themselves and, most important of all, it has shown that it can get them into jobs. The latest indications are that nationally about 65 per cent. of the trainees are going straight into jobs and further education. In many areas, and in many individual schemes, the figure is more like 90 per cent.
We now intend to build on that success by launching a major new initiative to develop and expand the scheme further. From April 1986 our aim is to offer a second year of training to 16-year-old school leavers and a one-year place to 17-year-old school leavers. As a result, for the first time ever all our young people leaving school at 16 will have the chance to get vocational qualifications. Once the new scheme is fully in operation, everyone under 18 will be able to have a job, education or training, so unemployment need not be an option for them.
§ Mr. Mark Fisher (Stoke-on-Trent, Central)
Will the Secretary of State clarify his statement? It is noticeable that he is using exactly the same words as the Prime Minister used when she replied to me this afternoon. Will the right hon. Gentleman make it clear that there will be no enforcement of the YTS and that if a young person chooses not to go on the YTS, and is not in a job or full-time education, he will still be entitled to supplementary benefit?
§ Mr. King
I am grateful to the hon. Gentleman. If he tells me that I am using exactly the same words as my right hon. Friend the Prime Minister, that seems a wise step on my part.
I heard the hon. Gentleman's interesting question. The point that he made was based on a fallacy. He observed that the figures quoted by my right hon. Friend the Chancellor of the Exchequer were net of savings on supplementary benefit. Obviously, we hope that a considerable number of young people will go on the YTS. We have made an estimate of up to 200,000 in the first year. If they do, inevitably there will be savings on supplementary benefit. For that reason, the hon. Gentleman should not believe that there is a sinister plot that conceals within the figures the fact that it ceases to be a voluntary scheme. That is not so. I should like to make that absolutely clear. My right hon. Friend the Prime Minister made it clear in her answer to the hon. Gentleman, and I think that the hon. Gentleman will accept that. I heard my right hon. Friend's answer, and have a note of it. She said that there would be no change in the arrangements for the YTS. In an intervention in the speech on Budget day by the Leader of the Opposition, my right hon. Friend the Chancellor made the same point:Had I any new proposals to make on that front, they would have been contained in my speech." —[0fficial Report, 19 March 1985; Vol. 75, c. 807.]I make it clear that we have no proposals for changes in the arrangements for supplementary benefit. The scheme will continue on the voluntary basis about which 1015 the hon. Gentleman asked, but we are anxious to get the new scheme accepted. I say this in all seriousness to Opposition Members, many of whom have supported the YTS. I hope that they will recognise that in the proposals that my right hon. Friend the Chancellor announced in his Budget speech is something which many of us have been keen to see for a long time. It somewhat depresses me that the focus of interest among Opposition Members has been entirely on that point about benefit, when surely no one wants to see young people with no option but to take the dole. There has been little recognition of the real achievement and breakthrough, and of how important it is that a united voice goes out from the House that all of us want to see that opportunity for young people. I hope that we can get that spirit of support, because it will be a challenge to launch the scheme, not least because of the contribution that we are looking for from employers. I hope that the House will speak with one voice on the importance of the two-year YTS.
§ Mr. John Prescott (Kingston upon Hull, East)
I take the Secretary of State's assurance that there is no intention to change the regulations. However, will he assure the House that, as at present 1,000 people a month have their benefits cut by 40 per cent. for refusing to go on or for leaving the YTS, that principle will remain?
§ Mr. King
The Prime Minister said in answer to the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) that there would no change in the arrangements for the YTS. As the hon. Member for Kingston upon Hull, East (Mr. Prescott) knows, it is only for a short period that the benefit is affected. I am grateful for the opportunity to clarify that point. Having done so, I hope that we can focus on the positive approach to YTS and not on that particular aspect of it.
It has been an ambition of myself and I know of many of my right hon. and hon. Friends to see the two-year YTS launched. I am delighted that it is possible. I pay tribute not only to the constructive discussions that I have been able to have with my right hon. Friend the Chancellor, but to the work of my noble Friend the Minister without Portfolio and the Minister of State in my Department, who is not able to be with me today. I have asked the Manpower Services Commission to begin discussions immediately with all those concerned, with the aim of launching the new scheme from April next year. I have asked it to make recommendations to me by the end of June this year.
Employers will have a particularly important role to play in making a success of the new development, as they have had in the latest scheme. When we launched the original YTS, the Government met much the greatest share of the cost, although it was understood from the beginning that employers, too, would contribute. Since then it has become clear that employers have benefited substantially from the scheme, and I have been deeply impressed by their enthusiasm and commitment to it.
We now wish to develop the scheme further in partnership with employers. The second year's training will provide even greater benefits for them because of its greater occupational relevance. Therefore, we shall be looking to them to make a substantial contribution to the costs of the new scheme. Provided that satisfactory arrangements can be made, the Government are prepared to make additional resources available, £125 million in 1986–87 and £300 million in 1987–88, in addition to the 1016 £800 million that we were already intending to spend on the YTS in each of those years. I have asked the MSC to begin immediate consultations on that basis.
It is right that the Government should concentrate their resources for the under-18s on the extended YTS. To ensure the maximum encouragement to employers to participate in the scheme, we have decided that the young workers scheme will close for new applications on 31 March 1986. That will leave the way clear for the new training scheme when it is launched in April 1986.
Of course, we must not view training in isolation, but as part of a process of preparation for life and work that begins at school. My right hon. Friend the Secretary of State for Education and Science has already done much to develop a school curriculum better geared to the needs of the future. We have also developed a technical and vocational educational initiative which is opening up a whole new range of practical and educational courses for schools. Many of my right hon. and hon. Friends and other hon. Members have seen the new approach to TVEI and I know that it has warm support.
We believe that further progress is needed, and I can announce two important new measures today. First, we will reinforce TVEI and the similar initiatives in schools with a special programme of in-service teacher training, specifically aimed at supporting the new approach. I have authorised the MSC to spend £5 million in 1985–86 on getting the programme under way. I have advised the commission that it will receive a further £20 million for that purpose in 1986–87. These arrangements will enable the programme to make an effective start in advance of their being carried forward under alternative arrangements by my right hon. Friend the Secretary of State for Education and Science.
Secondly, we need to ensure that the system of vocational qualifications is better able to cope with the demands of the technological change and the mobility of skills. I have therefore asked the MSC to carry out a comprehensive review of vocational qualifications with the aim of ensuring that we have a system which people can readily understand, which they can join at any stage, which is based on achieving recognised standards rather than time serving, which provides proper opportunities for people to progress to higher skills and which is really relevant to the world of industry and commerce. It is a key element in our proposal that the two-year YTS should give our young people an opportunity to gain such qualifications.
§ Mr. Ian Wrigglesworth (Stockton, South)
I welcome the right hon. Gentleman's remarks, but I wonder whether the proposed consultations will take account of the quality of training in the YTS. I am sure the hon. Gentleman must be aware that grave anxiety has been expressed about that in some quarters. Will he ensure that the qualifications gained at the end of the course are worth something and, perhaps, lead to further qualifications?
§ Mr. King
I am grateful to the hon. Gentleman. As he knows, we are devoting increased resources to trying to improve and upgrade the YTS. It has been a massive undertaking—something not always recognised by some of the critics, who choose to pick on the difficulties and problems. We have sought progressively to eliminate the worst aspects and to upgrade the scheme.
It is important to recognise that it is not just an announcement of a two-year YTS. It is an intention to 1017 develop a new scheme which goes beyond the one-year YTS and genuinely provides young people with a vocational qualification at the end of the course. That is a vital additional component to making a real success of the YTS.
We want to ensure that every young person is in education, has a job or is receiving training that will lead to qualifications. With the help of all parties in the House, employers and trade unions—and I pay tribute to the role of the unions in launching the scheme — I am confident that we can achieve exactly that objective.
Training is not the only area that affects employment and where change is essential. Our approach has been to take every possible opportunity to encourage employers to take on people and to remove obstacles in the local market which prevent them from doing so. Therefore, I come next to the changes announced by my right hon. Friend the Chancellor to national insurance contributions. Of course, the most important announcement was the intention to reduce the cost to employers of taking on new employees. That is why the change that my right hon. Friend announced to the structure and level of national insurance contributions is such a central part of our approach. The reduction in the cost to employers of national insurance contributions for wages below the national average will make it easier and cheaper for them to offer more jobs, especially to the unskilled and the young, who are traditionally on the lowest wages.
At the same time, the raising of the tax threshold by 10 per cent. and the reduction in national insurance contributions for employees on lower than average wages should make it easier and more worthwhile for those currently unemployed to take jobs that become available. It is an important measure. I do not think that the merit of the proposal has yet been fully recognised, but it will become increasingly apparent. I do not mind disclosing to the House that in the work carried out in my Department we identified this as the most helpful of all the measures that could lead to an improvement in the employment position. I was delighted that my right hon. Friend the Chancellor decided to make the proposal a central part of his Budget.
There are other obstacles in the labour market which deter employers from taking on more people. I doubt that I am the only hon. Member who in recent years has had the frequent experience of meeting employers who have admitted, perhaps in private, that they could take on more employees but that for various reasons they were not prepared to do so. The reasons were many and varied. In many cases they used to be faced with problems of tax, the feeling among senior management and business owners that there was not sufficient incentive and encouragement, the concern of older owners that because of the problems of succession tax and inheritance there was not the incentive to provide for their families for the future.
Those problems have been significantly alleviated by the actions of both the present and the former Chancellor of the Exchequer. However, there are still significant complaints about obstacles to employment. Two of the complaints that I most frequently come across relate to wages councils and the operation of the Employment Protection Acts. No Government can ignore those complaints if they care about unemployment. The Government's job is to strike a proper balance between 1018 protection for those in jobs and improving the opportunities for the minority without jobs. If the voice of the unemployed is to be heard, a new balance must be struck.
That is why the Government believe that some changes in the regulations are now necessary. Wages councils lay down minimum rates of pay and detailed conditions for 2.75 million workers in 26 industries. The system was first introduced in 1909, since when economic conditions have changed dramatically, the welfare state has been established, real average pay is much higher and the hours worked are much lower. There is an extensive framework of legislation protecting the welfare, health and safety of individual employees. The changes in the circumstances have significantly altered the position in which wages councils now operate. Two out of every three of the employees whom they now cover work only part time. At present about 1 million of the workers covered earn minimum rates or just above them. Therefore, there is reason to suppose that the councils set wage levels which have a harmful effect on employment, especially those for young people for whom the councils sometimes set percentage minima above the going rates for other industries, and above the level for apprenticeships and the YTS.
At the same time, employers complain that the councils' awards are complex and lengthy, and that in many cases they simply add to the red tape and bureaucracy of employing people. Many people argue strongly that the only way to tackle this fundamental problem is to abolish wages councils and that the councils harm job prospects for all the unemployed. Others say that the faults in the system could be dealt with by reform, that councils could be limited to setting a single hourly rate, that their ability to award retrospective wage rises could be stopped, or that young people could be taken out of the system.
On either view, action is essential and urgent. I am therefore today issuing a consultative document on those two options — reform or abolition. I am asking for comments by the end of May so that we can move quickly to decisions on the next steps. The consultative document also deals with our obligations under international labour convention No. 26 on the fixing of minimum wages. The rules of the International Labour Organisation provide an opportunity for Governments to reconsider their positions on convention No. 26 every five years and, if they wish, to deratify the convention. The next period for reconsideration runs from June 1985 to June 1986. In the consultative document I propose, subject to the formal consultations required, to take the next opportunity to deratify convention No. 26. In my view, the convention is now restricting our flexibility in a crucial area of policy. If we are to help the unemployed, we must regain our freedom to take whatever action we think is necessary in the light of consultations.
§ Mr. Prescott
That must be the most deplorable announcement that the House has heard for some time. The Government have now decided to attack really low wages, the average of which is approximately £63 a week. As the Secretary of State is determined to take the action because it will reduce wages and create jobs, will he tell the House why the Government did not renounce the agriculture wages board, which should have been done last year?
§ Mr. King
That matter must be addressed to my right hon. Friend the Minister of Agriculture, Fisheries and Food, who is responsible for it. The hon. Gentleman will have a chance to debate all these matters, because I have issued a consultative document. We shall undoubtedly debate the matter again. Because there is clear evidence, and because it is important that we deal with the issue of employment, I am putting a consultative document to the country today.
§ Sir William Clark (Croydon, South)
Will my right hon. Friend tell the House the sort of time scale that he is considering for the consultative document? How long will the consultations take, and when does he think we shall get some action on wages councils?
§ Mr. Ron Leighton (Newham, North-East)
As the Secretary of State launches into his consultations, does he notice that most of the most vociferous critics of wages councils have high salaries and are protected by good employment contracts? Is it not morally repugnant to see people on high salaries who want incentives for the rich thinking that the way to create economic expansion is to remove the institutional regulation for our poorest people? Is that not morally repugnant?
§ Mr. King
I recognise the interest which the hon. Gentleman and his colleagues in the Select Committee are taking in this matter. He knows that there has been an extremely significant change in, for example, the groups covered by wages councils. When the councils were originally set up they covered manufacturing industries, but now they work more in the retail area. It is fair to draw attention to the point made earlier, that the whole welfare system and the floor that it provides makes the position different. A further overwhelming and significant difference is that two thirds of people covered by the councils are part-time workers. Therefore, the decision is right. [Interruption.] I am not trying to walk away from the issue. The House knows that I am issuing a consultative document today. I am sure that there will be ample opportunity for right hon. and hon. Members to raise the matter, and that we shall have ample time to discuss these issues. The issues are serious, and I make no apology for bringing them before the House in this way.
§ Mr. Nicholas Budgen (Wolverhampton, South-West)
Will my right hon. Friend point out that many Conservative Members and people in employers' organisations do not want wages councils abolished because they believe that there would be an extension of trade union activities in the industries formerly governed by wages councils? If the councils were abolished, might not many Opposition Members be pleased, because it would lead to an extension of trade union activity?
§ Mr. King
I listened to what my hon. Friend said. I am aware that in the trade union movement there are divided views about the role and efficacy of wages councils. That may reinforce some of my hon. Friend's points. On the understanding that we shall have a healthy debate on the matter in the weeks ahead, I shall, with the permission of the House, now move on to the other area of complaint. Employment protection legislation, especially the unfair 1020 dismissal provisions, causes small employers anxieties about the difficulties of such procedures and makes them reluctant to take on more employees.
§ Mr. King
I apologise to the hon. Gentleman, but the House will recognise that I have given way frequently. I am aware of the time factor, as we have had three statements today, and many hon. Members wish to speak.
We have already since 1979 taken some major steps to make the industrial tribunal system simpler for employers, but I accept that despite the changes the burden of this legislation can deter employers from recruiting more people. At the same time, I firmly believe that after a reasonable period of service people should be entitled to protection against arbitrary unfair dismissal. I make no apology for the fact that a Conservative Government introduced the specific proposals for protection against unfair dismissal, and I emphasise that, before Opposition Members get too excited in defence of the measure.
I have, therefore, decided that the right step to take to achieve the right balance is to bring the law for large and small employers into line, and to raise the qualifying period for claims in all cases to two years. About a quarter of all unfair dismissal claims come from employees with less than two years service. Therefore, the change should significantly lighten the burden on employers, without removing the protection for longer serving employees.
I have described the major steps that we are taking to improve training, and to remove the obstacles to the creation of new jobs. At a time of high unemployment we must also, however, provide direct and immediate assistance to those hardest hit by unemployment. I have spoken about the extension of the YTS, which, as well as reforming our training system, will provide new opportunities for one of the worst affected groups—the young unemployed.
I come now to the Government's proposal to expand the community programme. That programme has proved successful in providing opportunities for the long-term unemployed. Many excellent projects of real benefit to local communities have been carried out. In addition, it has an encouraging record of helping people into permanent jobs. We now intend to make a major expansion of the programme, from 130,000 to 230,000 places by June next year. The programme will then be able to help some 300,000 long-term unemployed people per year.
In addition to that expansion of the existing scheme, I am proposing three new approaches. It has so far been difficult for industry and commerce to play a major part in the programme. I believe that they could well make a real contribution to this work and that many companies would be ready and willing to do so. I have therefore invited the MSC to investigate immediately ways in which the private sector can be involved in the programme.
The second approach that I wish to launch is that I want to see charities and voluntary organisations being able to play a much bigger part in helping the long-term unemployed. In the past, a number of them have been deterred by the community programme's rules. I have now asked the MSC to see how we can make it possible for them to employ the long-term unemployed in their valuable activities.
I believe that many hon. Members will understand that that may be a valuable approach, which I hope can be a 1021 real benefit to the charities and voluntary organisations and to many long-term unemployed people who would like to play a part but who, due to the previous arrangements, have not been able to do so. I hope that I shall have the support of both sides of the House for this new approach.
Thirdly, I am anxious to see how we can develop the voluntary projects programme. It has already helped some 55,000 unemployed people in the past year, including some of the most disadvantaged, to undertake useful voluntary work. I have therefore asked the MSC to consider ways in which it can provide further help for the long-term unemployed through that programme.
To carry forward the expansion of the main community programme up to the figure that I mentioned of 300,000 people being helped per year, which will be the new figure when the new scheme is at its highest, and to make possible the further new initiatives that I have described, my right hon. Friend the Chancellor has agreed to increase my Department's programme by £140 million in the coming year and £460 million for 1986–87, in addition to the £592 million already set aside for the programme in the coming year.
From April we shall also be expanding the enterprise allowance scheme by a quarter to help 62,500 unemployed people to set up business in 1985–86. My hon. Friend the Parliamentary Under-Secretary has already announced changes that we are making to the job-splitting scheme and the part-time job release scheme to make them more attractive to employers. We are continuing the full-time job release scheme. We are aiming to double to 250,000 places our provision for adult training in 1986–87. We shall include for the first time training for 50,000 people under the community programme. The open tech programme will be doubled by 1986–87 to provide distance learning for 50,000 people. We are also considering an experimental scheme of training loans to give people the chance to take retraining opportunities.
As I listened to one or two speeches in the Budget debate, including those of the Leader of the Opposition and the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), which implied that we were making no efforts to tackle some of the most difficult and intractable problems of unemployment, I wondered how many hon. Gentlemen realised that by 1986–87 we shall be spending more than £3 billion providing help for over 1 million people in the programmes that I have described.
Those programmes represent a cost-effective use of available resources. I listened with interest yesterday to the right hon. Member for Sparkbrook talking about investment in infrastructure. I suppose that I have had an accelerated course of infrastructure. In the past two years I have been Secretary of State for the Environment, Secretary of State for Transport, and Secretary of State for Employment. I have had the chance to see the relative merits and cost-effectiveness of investment in sewers and the water industry, for which I was responsible, and, in terms of jobs, investment in housing, railways and roads.
Whaever the economic argument, I am not someone who would argue against the proper place for a good level of investment in infrastructure. Figures for public and private sector investment in the coming year are extremely encouraging. However, if the criterion is employment, and the issue is the tackling of unemployment and the 1022 provision of more jobs, there is no question but that the measures that I have described are the most cost-effective way to tackle the problem.
Measures on their own can never be an answer to the problems. They must always be part of a wider strategy. We have first to ensure that we maintain a sound and stable framework for the economy as a whole, because that is the foundation upon which all our other efforts to tackle unemployment depend.
Within that strategy we have to take action to help the labour market work and to ensure the creation of more jobs by removing obstacles such as wages councils and the Employment Protection Acts, to which I have referred, which may deter employers from taking on more people, and by tackling the regulations which prevent people taking advantage of the available opportunities. At the same time, we must help people acquire the training and retraining which they need to find employment in a rapidly changing economy.
We must develop practical, direct measures to help hard-hit groups among the unemployed cope with and adapt to change. The measures that I have described—the community programme and the enterprise allowance scheme — fit within that part of the strategy. Those measures take our policies several steps forward. They are part of a consistent, coherent and, I believe, essentially honest strategy that is based on economic reality — a strategy that takes account of the interests of all the people.
It is vital that we take into account the interests of all people, whether they be employed or unemployed. It is vital that we all understand the realities of the employment position and the part that we all have to play. That is why I can now tell the House that I shall shortly be publishing a White Paper on employment. Against that background, the Budget marks a course that we must follow. I commend it to the House.
§ Mr. John Prescott (Kingston upon Hull, East)
Now we have the truth—a Budget for jobs, we are told. The Chancellor is going. I would go if I were the Chancellor. The Budget has nothing to do with full-time jobs. It is to do with part-time jobs paid for by different schemes and financed by the lowest paid in our community—those covered by wages councils. That is the reality of the Government's employment policy.
The Secretary of State announced at the end of his speech that there will be a White Paper on employment. I do not know whether it will contain anything different from what he said, but I should like to remind him, as he reminded us, that it is the fifth year of economic recovery under this Government; that there are still more than 4 million unemployed. The measures announced in the Budget will not materially change the ever-increasing amount of unemployment arising directly out of the Government's policy.
The truest thing said by the Secretary of State was that the unemployment problem would not be solved q the schemes he described. It is the Government's strategy that determines the level of employment. I do not wish to spend a great deal of time upon the very powerful points that were made by my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) and by other hon. Members. I want to refer briefly to the straitjacket imposed by the Government's policy. The reality is that 1023 the Budget will increase the number of people on schemes. Very few full-time jobs will result from the measures announced in the Budget.
If one compares the Chancellor of the Exchequer's speech last year with his Budget speech this year one notices that the rhetoric has increased. It was clear from what he said when introducing the 1984 Budget that the Government believed that it would inevitably lead to an increase in employment. However, unemployment has increased since then by 138,000, despite the promise of the Chancellor that his Budget would create new jobs. Today the Secretary of State for Employment referred to the magic figure of 1 million; all he meant was that he would be adding another 300,000 to the 700,000 people who are already on various schemes. That gives us the magic figure of 1 million people on some form of Government scheme.
I am not against the various types of Government schemes. Because of the nature of the unemployment problem that we face, I believe that such schemes will have to form part of the attempts of all Governments to deal with unemployment. However, I dislike the quality of some of them. I must make the point that when the Prime Minister was Leader of the Opposition she carped constantly about the last Labour Government's introduction of such schemes because, she said, they did not create real jobs. On that analysis, the 300,000 jobs that the Government are creating by means of the Budget are not real jobs.
If one considers the censure debates on the performance of the last Labour Government and all the debates leading up to the 1979 general election, one realises that this Government are not doing very well by their own criteria. The Secretary of State has announced that the wages councils will possibly be abolished. He has not gone so far as to say that they will be, but he has indicated to the international community that we shall possibly renege on our international obligations. Of the 94 countries that ratified the ILO treaty, ours will be the only one to renege upon its international obligations. We are announcing to the world that our unemployment problem requires us to attack those who are low paid by means of the abolition of the wages councils. That is the gravest indictment that can be laid upon any civilised Government who are trying to deal with the unemployment problem facing all developed countries.
The Government have been unable to forecast the creation of real jobs by means of the fiscal changes that have been announced in the Budget. The Treasury says that if real wages are reduced by 1 per cent. real jobs can be increased by 100,000 or 200,000. The Treasury economic computer model often estimates the number of jobs that will be created by different policies. Did the Government obtain the estimates through the Treasury's economic model? Were they processed by means of the London Business School model? Various models are available. All of them give employment projections. It is peculiar that in a Budget that is supposed to be a Budget for jobs there is no such prediction. All we have been told is that 300,000 jobs will be created by means of various schemes.
This Budget has not achieved the objectives set for it by the Government's monetary policies. I shall not discuss that matter because my hon. Friend the Member for Sedgefield (Mr. Blair) is to deal with it in winding up. Instead I shall concentrate my remarks upon the proposals relating to the wages councils that the Secretary of State 1024 for Employment outlined in his speech. However, it is clear that the Chancellor has ignored the various suggested alternatives. Nobody can say that there are no alternatives. TINA — there is no alternative — no longer remains supreme. A remarkable number of alternatives have been put forward by various Conservative Members, the trade unions, the Confederation of British Industry, bishops—even by the newspapers. All have a common objective: to reduce the mass unemployment that has been directly created by the Government's policies. Therefore, we cannot accept that there are no alternatives.
This point was put very powerfully last night during the Budget debate by the right hon. Member for Cambridgeshire, South-East (Mr. Pym) who said:it does not look like a Budget that has been conceived with the stimulation of employment on a substantial scale as its main objective." — [Official Report, 20 March 1985; Vol. 7.5, c. 901.]This was before the Secretary of State for Employment, or perhaps we should say unemployment, announced the measures to be taken as a result of this Budget. Since the Secretary of State's statement, it is even clearer that the Budget will not stimulate employment.
Although the alternatives suggested by the Confederation of British Industry and the Trades Union Congress are starkly different, nevertheless they are clearly convinced that there are alternatives. Measures that are before the House now are designed to save public expenditure in one form or another, but the result will be a reduction in employment. The Transport Bill, which is in Committee, will reduce the level of subsidy for cheap fares leading to a loss of 50,000 jobs. The shipping industry has lost over 1,000 ships during the five years that this Government have been in power. We hear about the face that launched 1,000 ships. This Prime Minister has got a face that has sunk 1,000 ships and destroyed one of the most powerful merchant navies in the developed world. The result of that loss of ships is 30,000 unemployed seamen. By this Budget the Government are taking from seamen their tax allowance, and their wages have now been cut by £10 a week. The Government say that we have to compete with foreign ships employing Asian seamen who earn £40 a month. How can any seaman in this country compete against such a rate? My hon. Friend the Member for Wigan (Mr. Stott) asked earlier this week whether our coasts are to be reserved for our own coastal shipping. The Secretary of State for Transport said:The policy of this Government is to press for the opening up of foreign cabotage trades to British vessels." — [Official Report, 18 March 1985; Vol. 75, c. 373.]Therefore, not only will the North sea be lost to British ships and to British workers; we are now in the process of losing the trade around our own coasts, something which every other country in Europe keeps to itself in the name of preserving their merchant fleets and, therefore, their jobs.
In those two areas, therefore, the Government's policies have a direct and consequential effect upon employment. This Government lack an industrial policy. They believe that by reducing the public sector borrowing requirement and the level of inflation their monetary framework will lead to increased employment. Anybody who believes that in the sixth year of Tory Government we are in the middle of an economic recovery must be living in cloud-cuckoo-land. Therefore, the Budget has not achieved the targets set for it.
1025 In his 1984 Budget speech the Chancellor of the Exchequer said that the proposed tax reforms would create new jobs. We all know that the reality is that 12,000 jobs per month went down the drain. That is the success that is attached to that Budget. If we ignore the fiddling of the unemployment figures — which is what the youth training schemes are really about—[Interruption.] If the Secretary of State does not realise that one of the consequences of putting people on to youth training and community schemes is to reduce the unemployment figures he does not understand what is happening. After all, that is one of the consequences. What may be in doubt is whether he intends that as a matter of policy. However, I believe that he does intend it.
§ Mr. Jim Lester (Broxtowe)
The hon. Gentleman is being less than fair to my right hon. Friend the Secretary of State. The Department of Employment's gazette publishes all the figures and shows the impact on the unemployment register. People can calculate the difference themselves. It is not a question of trying to hide anything, because all the information is there.
§ Mr. Prescott
I am glad to have that confirmation. But when the Secretary of State comes to the Dispatch Box to give the unemployment figures, he talks not about the additional number of those on schemes, but simply about the registered level of unemployment. That is all that ever goes out on televison or in press statements. We know that that is the name of the game. Why do hon. Members think that only the registered unemployed appear in the figures? It is a fiddling of the figures.
§ Mr. Prescott
I shall not give way. I should not have thought that that issue was in doubt. These Budget statements clearly show — [HON. MEMBERS: "Give way."] All right, let us see how fantastic the hon. Gentleman's intervention is.
§ Mr. Eggar
Earlier, the hon. Gentleman quite reasonably said that he was in favour of the schemes, although he had some criticisms to make. However, he has now said that the schemes are all about fiddling the figures. That is a gross slur, and is very unfair to my right hon. Friend the Secretary of State. Will the hon. Gentleman care to withdraw or amend what he said?
§ Mr. Prescott
I confirm that the schemes are about fiddling the unemployment figures and under-playing the real level of unemployment. [Interruption.] We can leave the electorate to decide what the truth is. But of course those schemes are about fiddling the figures. A comparison can be drawn between the squawks of Conservative Members when I tell them what has been happening to the figures and their reaction yesterday when the Chief Secretary accused my right hon. Friend the Member for Sparkbrook of something totally untrue, and would not withdraw it. There was not a word of protest from them then.
§ Mr. Tom King
I think that the issue that has caused concern among my hon. Friends is a matter of some consequence. The hon. Gentleman began by making a helpful contribution. Unfortunately, we seem to have got into more difficult waters. Perhaps I can give him the 1026 opportunity to say that he supports the development of a two-year youth training scheme and that it is the Opposition's policy to support it. The remarks that he has just made could not have been more unhelpful in that respect.
§ Mr. Prescott
I was going to come to that point—[Interruption.] One cannot prepare one's speech knowing what the interventions will be. But the Secretary of State knows, because I have said it before, that we stand for a two-year scheme. That was in our manifesto. We have constantly said that. There is no doubt about it, and the right hon. Gentleman knows it. I accept that there may be different motives. But the differences are not only between myself and the Secretary of State. They go wider than that even within the Chamber.
I do not want to damage the principal provision of the youth training scheme. However, serious criticisms should be considered. The Budget seeks to continue the Government's policies, and after five years of them, unemployment stands at the highest level this century. It is at an historic level, and is higher even than it was in the 1930s. There has been a phenomenal increase in unemployment. The Prime Minister and her Ministers constantly say that unemployment increased under the Labour Government, as if it was anything like the same order of unemployment. Unemployment may have doubled under the Labour Government to 1.3 million, but this Government have trebled the level that they inherited, and the figure now stands at about 4 million. If the Secretary of State is shaking his head in disagreement, he cannot be counting the number of those in schemes, and that is the point that I was trying to make before.
During five years of Labour Government the population increased by 1 million. However, we still left office with 250,000 more people in work than when we were elected to office. During five years of a Labour Government, 1.25 million more jobs were found, which means 250,000 a year. But more than 400,000 jobs have been lost in every year since this Government came to office. That has happened despite their claim of five years of economic growth.
I hope that Ministers will not keep repeating these untruths—I am told that one cannot say that they are lies—when they come to the Dispatch Box. The facts are issued by the Department of Employment each year. As a result of the Government's policies, we have an industrial wasteland. Those who have visited the west midlands and the north in particular will understand the scale of the collapse. The Government keep talking about record investment, but there has not been record investment in manufacturing industry. There has been, instead, a massive decline in such investment. There has also been a massive decline in its earning potential. There has been a massive deficit in trade in the manufacturing industries. Many of the regions have suffered as a direct result of the Government's policies.
There has also been a huge decline in full-time work and an increase in part-time work. It is part of the Government's argument that the increase in jobs is reflected in the fact that about 350,000 extra part-time jobs have been created. Those people are not recorded in the figures, because they are in part-time work. The development of part-time work is an increasingly worrying factor. I believe that it is part of the Government's policy 1027 to develop a low-paid, part-time labour force that will undermine the working and wage conditions of the rest of the work force.
Let us consider the scale of the poverty that has resulted from the Government's policies. In preparation for the debate, I read a speech that was made on 1 November 1978 by the Prime Minister, who was then Leader of the Opposition. She said:Whenever there is a Labour Government there will be poverty, because Labour concentrates far too little on wealth creation and far too much on redistributing what there is."—[Official Report, 1 November 1978; Vol. 957, c. 24.]Under this Government there has been a massive redistribution of wealth the other way. The number of those in poverty and dependent on supplementary benefit has trebled. The number of those in the poverty trap has also trebled. The Prime Minister had the nerve to talk about Labour Governments creating poverty, yet her policies, which were designed to reverse those trends, are creating poverty on a massive scale. Unemployment and low pay are major factors in the increase in poverty.
Thus the Prime Minister has not achieved her aims. Any of the part-time jobs in Britain are covered by the wages councils. The Secretary of State may say that there are a lot of part-time workers and that they are on average wages, but he must know that that is not so. They get paid an hourly rate. We are talking about people who earn £1.50, £1.60 or £1.80 an hour. That is the sort of remuneration that they receive for their work. The new enemy—those who are holding us back from economic recovery — is apparently the waitress in the hotel or restaurant, the hairdresser, the hospital or school cleaner, the manual worker or the farm worker. On average, those people earn £60 or £70 a week, and all of them are covered by wages councils. Many of them are women and migrant labourers. Those people are the new often non-unionised enemy within. The Government are not only attacking those people through legislation but contemplating the possibility of renouncing their international obligations — the only Government to do so—in order to savage people in low-paid, high-poverty industries. That is the course upon which the Government have embarked.
This is an opportunity for us to look at the differences between Governments. While on the subject of wages councils, it occurs to me that Parliament is a wages council. We were in the position of a wages council when we were informed yesterday that the Duke of Edinburgh was to receive £192,000 a year.
§ Mr. Prescott
It is not cheap. That sum is equal to the average wage paid to 50 people in wages council industries.
The Duke of Edinburgh tells us to talk not about the unemployed but about the employed. If he makes such comments, he is likely to hear responses from some in this House which would show that we are very concerned about the level of unemployment.
I should like to quote from some Cabinet papers that have come into my hands. [HON. MEMBERS: "Oh."] I have some documents about wages councils that illustrate the difference in attitude between two Secretaries of State, the right hon. Member for Waveney (Mr. Prior) and the right hon. Member for Chingford (Mr. Tebbit). The present Secretary of State has nailed his colours to the Chingford mast. The right hon. Member for Waveney received the advice that if wages councils were abolished, 1028Young persons and part-timers (mainly married women who work part-time of necessity) probably account for about half the total number of employees covered by wages councils. They are amongst the lowest-paid in the workforce. The majority ale not trade unionists. A move to exclude them from minimum-level wage protection would be widely portrayed as an attack on those who are particularly vulnerable. Public sympathy would be readily enlisted on their behalf.That advice was given on 12 February 1981 to the right hon. Member for Waveney. He concluded by saying thatMy conclusion is that the exclusion of young persons and part-time workers from the scope of wages councils would be unlikely to lead to more than very marginal increases in job opportunities for these categories, and that largely at the expense of full-time adult jobs. I am in no doubt that the serious political legislative difficulties of such a course would outweigh any conceivable benefits.The right hon. Member for Waveney obviously persuaded the Cabinet of his view. No doubt that incident contributed to his moving from that job.
The next Secretary of State was that "semi-housetrained domestic polecat", the right hon. Member for Chingford. In July 1982, he obviously gave the Cabinet exactly the opposite advice. He believed that one could go ahead and abolish the wages councils. Presumably those recommendations, which originated in the think tank, are the ones that the Secretary of State has now brought before the House.
There is also the case of the unfair dismissal provisions — another international obligation arising from the social charter in Europe. The right hon. Member for Waveney said in a confidential memo dated 17 July 1981:My conclusion therefore is that there is insufficient justification to amend the employment legislation further in favour of the employers. Moreover, I believe that any attempt to do so would alienate large sections of the working population, trade unionists and others, and would therefore be politically damaging to the Government.I share the right hon. Gentleman's view. The right hon. Member for Chingford took a different view. He recommended to the Cabinet in a letter to the Prime Minister dated 20 December 1982 that not only unfair dismissal, but maternity provisions, redundancy payments and other matters should be considered as protection rights that could be taken away from the workers. He concluded that there was a case for the unfair dismissal legislation but that on industrial tribunals there should be aradical recasting of the system".We are witnessing a major attack on the rights of people in work—rights embodied in the employment protection legislation. The situation adequately displays the real differences between the hard right of the Tory party now in control and those who would wish to change the party's present thinking.
Another good example of that is the Chancellor's proposals for national insurance and tax changes. Those changes are welcome for low-paid people but are geared towards forcing wages down and encouraging employers to turn to the lower wage bands. The Government are encouraging the growth of part-time employment. In their press notice of 15 March they say that they intend to encourage part-time working, as the Secretary of State has confirmed, and that they will pay employers £840 in three instalments so that those employers can create two new part-time jobs. A new part-time labour concept is developing. [Interruption.] The period may be two years.
§ Mr. Prescott
The argument must be about real jobs, not part-time jobs. I recognise that the hon. Member for 1029 Enfield, North (Mr. Eggar) knows more about part-time than full-time work, but we are concerned about the development of full-time work and real jobs.
I welcome the development of community schemes, although I assume that the Secretary of State is now reassessing the question whether people may make profit out of those schemes. That used not to be the case, but I would not set my face against it.
I welcome any improvement in the redefinition of social need. However, I cannot accept that at the same time as the Secretary of State is increasing the number of places for the long-term unemployed—and the number of long-term unemployed now is greater than the total number of unemployed in 1979—the Government are making thousands of workers unemployed through the local authority cuts and the housing allocation programmes such as in Hull where 200 are to be made redundant in the housing department. While the Government are making people unemployed, the Secretary of State is stepping in with community schemes providing lick-of-paint jobs rather than the real building jobs that a housing programme would offer. That is the major cause of our disagreement with the approach of the Secretary of State to the creation of jobs.
§ Mr. Max Madden (Bradford, West)
Does my hon. Friend agree that there is considerable concern about the extent of racial discrimination in the YTS? Is he confident that the Government will be more successful in ensuring that there is no unacceptable racial discrimination in the expanded community programme?
§ Mr. Prescott
That is a matter of considerable concern. I have talked to YTS trainees. There are some very good schemes and some very poor ones. There have been complaints from Youthaid and other bodies about the 20 per cent. of trainees who leave the schemes. We should address ourselves to the criticisms of the schemes, and I am glad that the Select Committee is considering some of those aspects.
The most crucial matter to those joining the schemes is the work that they will do when they leave. The training aspect is crucial. The extension of the scheme to two years is an important development. In adopting that policy, we are joining our European colleagues. The Opposition endorse and support the development. However, the quality of the scheme is important. We might be more convinced that the Government were extending the scheme solely to improve the quality of training if the same Secretary of State had not announced the closure of 29 skillcentres. We would have been more convinced by the Secretary of State's reasoning in saying that employers must pay their share of the schemes if the right hon. Member for Chingford had not abolished the levy schemes for 16 of the industrial training boards where apprenticeships have collapsed.
On the one hand, the Government are destroying quality training. On the other, they are running in with schemes and begging the employers to find different ways of providing different types of training, not all of it of high quality. That is what the Opposition cannot accept. Ultimately, it is the type of jobs into which trainees go that matters. Our quibble about the scheme concerns safety 1030 cover and pay. If trainees were now paid the equivalent of what they were paid in 1978, they would receive much nearer £40 a week.
It is interesting that the Secretary of State is anxious about the youngsters who are paid too much. I assume that he considers them to be a factor in the wage market in regard to wage councils and wants wages reduced there. The right hon. Gentleman wants to split jobs in wage council industries, and I do not suppose that full-time pay will be paid for half-time work, even with subsidy given by the Secretary of State. He is beginning to develop part-time work which is geared up to absorb people leaving YTS into low-paid dead-end jobs. That is the sum of the skill being acquired in these schemes. When increasing the input of YTS trainees, the Secretary of State will be under pressure not to allow the percentage going into jobs to fall. If he does nothing about expanding the economy and the real level of jobs, he must find more jobs for them.
The Chancellor has said that there is resistance to work because benefits are too high or pay is too low. The Secretary of State is gearing the system up so that he can force those leaving YTS into part-time jobs in wage council industries. That is the type of work that many women now do merely to make some contribution to keep them out of the ever widening poverty that the Government's policies have put them into.
The Budget was apparently designed to deal with jobs and was billed as a Budget for jobs. It cannot claim that. The mouse that the Secretary of State has produced goes no way to justifying that claim. The Budget was never intended to create jobs and to reduce poverty and injustice as a result. It is committed to increasing unemployment and worsening the employment conditions of those in work. It goes in the opposite direction of every other civilised European Government who give greater priority to employment and do not rat on their international obligations to maintain minimum standards.
The Budget has been designed at a time of mass and growing poverty to make the rich richer by making the poor poorer, and to make the employee weaker and the employer stronger. The Budget is acclaimed on the financial markets as clever and sophisticated, but it has an obnoxious smell which will enter the nostrils of the civilised people of the country, who will expel it and the Government to make way for a new Labour Government who will reverse present policies and take us back to full employment and a fairer society.
§ Sir Ian Gilmour (Chesham and Amersham)
The hon. Member for Kingston upon Hull, East (Mr. Prescott) has been very combative and I shall endeavour to reintroduce an element of consensus to our proceedings.
The hon. Member for Kingston upon Hull, East said that he was not against special schemes. I am strongly in favour of them and I should like to congratulate my right hon. Friend the Secretary of State on the wise things that he said about them this afternoon, especially YTS. My right hon. Friend has the advantage of being able to elaborate on the most welcome and praiseworthy parts of the Budget, and he did so wisely and encouragingly. In last year's debate on this day, I chided my right hon. Friend for describing the Budget as a Budget for jobs. This year, correspondingly, I congratulate him on studiously avoiding that phrase.
1031 With unemployment in mind, some of my right hon. and hon. Friends and both Opposition parties have criticised the Budget for not expanding the economy and for not increasing borrowing. That criticism understates what is happening. The Government's financial deficit is a much more significant figure than the PSBR, which is distorted by sales of assets and other matters. Table 6.5 of the Red Book shows that that financial deficit is estimated to be £13.9 billion for 1984–85 and that it is forecast to be £9.8 billion for next year. The difference of £4.1 billion is miles larger than any imaginable cost of the miners' strike and therefore represents an unmistakable tightening of the fiscal stance.
Some of my hon. Friends might say that the forecast of the deficit or of the PSBR always turns out wrong anyway, so what is £2 billion or £3 billion between friends? I am inclined to agree, but wish that the £2 billion or £3 billion had been in the expansionary rather than the contractionary direction. I am also inclined to agree with what Professor Desai said in The Guardian recently — that the chief purpose of setting a precise figure for the PSBR seems to be to see by how much that figure has been overrun one year later. It is wrong that the Government should set such store by the PSBR when the Chancellor's predecessor, my right hon. and learned Friend the Foreign Secretary, described it as a fickle and delusive statistic. Nevertheless, the Government set great store by it, so presumably the considerable tightening of the fiscal stance is intended and is meant to be significant. In that event, the tightening seems to be an extraordinary confession of failure that, after six years of this policy, the supply side of the economy is so weak that a cut has to be made to avoid inflation.
The tightening is also a mistake. The Budget is billed as a Budget for jobs—as was last year's—but we are not likely to get a great budget for jobs by cutting demand. My right hon. and learned Friend the Chief Secretary to the Treasury said yesterday that there is no evidence of a lack of demand. What an extraordinary claim. What matters for real output and real jobs is real demand, and there is plenty of evidence that there is a lack of that. One might ask what my right hon. and learned Friend would regard as evidence of lack of demand. Does he not regard the fact that taxes have increased from 40 per cent. to 45 per cent. of gross national product from 1979 to 1983 or that there are 3 million or 4 million unemployed as evidence of lack of demand? How many millions do there have to be before the number shows lack of demand?
At the same time, there are only 150,000 vacancies. If we multiply that by three, as we are told we should by my right hon. Friend's Department, we still get to only 450,000—a small fraction of the number out of work. Earlier this year, the Confederation of British Industry asked firms whether they were working at full capacity and 54 per cent. said that they were not. It seems to me that the evidence of lack of demand is overwhelming. If we really want a budget for jobs, we must increase demand and improve supply.
I strongly welcome the employment measures in the Budget, but I do not believe that they go far enough. Some key ingredients are missing in the strategy for jobs. There seems to be no viable strategy for tackling unemployment in the medium term, for example. The necessary and sufficient condition for getting unemployment down is that real output should rise substantially faster than it has in the past few years. On previous figures, it seems that a 1032 reduction of only 1 per cent. in the level of unemployment —some 250,000 jobs—would require sustained growth of output of at least 3.5 per cent. per year. Indeed, it would probably have to be 4 per cent. or more, year in, year out. On the Chancellor's own figures, the chances of that happening are negligible.
The projections for growth at table 2.4 in the Red Book are 3.5 per cent. for 1985–86—that is very good—but 2 per cent. for the following three years. Those rates of growth cannot possibly reduce unemployment; they cannot even hold it at the same level. They are bound to generate increased unemployment.
I am not suggesting that the requisite rates of growth can be achieved by tax and expenditure policies alone, however cleverly they may be designed. Fiscal expansion is of course necessary, but by itself it would soon run the economy up against the three major constraints that it has suffered from for a long time: inadequate productive capacity, our inability to pay for imports on the scale required by much faster growth, and the renewed onset of inflation at unacceptable rates.
I am no crude expansionist. The possibility of achieving sustained growth turns on the relaxation of these constraints. I know that my right hon. Friend has these in mind. Only then will fiscal expansion be feasible and a faster growth rate sustainable.
The essence of a growth strategy — which is necessary if we are to get unemployment down—must therefore consist of interrelated measures to improve the competitiveness of British industry combined with an international initiative to encourage our trading partners to pursue compatible policies.
The recent fall in the sterling rate of exchange coupled with expansion of output in the United States should have been getting us off to an excellent start. British exports have been doing well and rising at a very satisfactory rate since the summer. In the past three months the volume of non-oil exports was 10 per cent. up on the previous year and the value of non-oil exports was up by no less than 19 per cent. It is a great pity that these favourable factors have not been exploited to achieve a higher rate of growth, but as things are we should have quite a good year this year, although the underlying constraints on a sustained high rate of growth are still there.
Charts 3 and 4 of the Red Book, which show our declining share of world exports and the ever-growing import penetration ratio of manufactures into this country, are deeply alarming, as I am sure my right hon. Friend would agree.
It is therefore vital that the breathing space which we are now afforded be used to strengthen the competitive position of industry when the constraints are most likely to present themselves again in an acute form—that is, in 1986 and subsequent years. The Government should give much higher priority to giving direct assistance to industry by fiscal and other means.
Unless we are prepared to accept a further devaluation, or several further devaluations, the most promising course of action is to achieve now a national agreement to limit incomes and prices. That would simultaneously improve the competitiveness of British industry and insulate the recovery from inflation. The choice, of course, is not between having an incomes policy and and not having one; it is between having a bad incomes policy and having a good one. At present we have an incomes policy based on 1033 three elements: high unemployment, discrimination against the Government's own employees, and a great deal of tireless ministerial exhortation.
Monetarism was meant to make all this unnecessary, but unfortunately it has not quite worked out like that. Indeed, as Professor Phelps Brown put it a shade ironically a year or so ago:Monetarists urge trade unionists to make monetarism work.Not surprisingly, they are not wildly enthusiastic about doing that.
If, instead of an unsatisfactory incomes policy based upon exhortation and discrimination against a background of rising unemployment, we had an incomes policy based on negotiated consent as part of a deal which included substantial growth in employment, we should be likely to be much better off.
Incomes policies have acquired a bad reputation in this country because they have always been introduced in the past at times of national crisis as part of restrictive packages. They have also invariably borne the seeds of their own destruction by simultaneously interfering with differentials. It would be an entirely different matter to introduce an incomes policy at the beginning of a real recovery and as an indispensable part of the strategy to achieve it.
§ Mr. Budgen
Will my right hon. Friend explain how any incomes policy, particularly a long-standing one, can avoid interfering with differentials?
§ Sir Ian Gilmour
I could if I wanted to go into detail. These have often been put forward. In particular, one of the main features of the last Labour Government's incomes policy was to interfere with differentials. But I do not think that my hon. Friend is right in saying that it is an integral feature of incomes policies.
Anyone who sniffs at the suggestion of a rise in output fast enough to reduce unemployment by hundreds of thousands over the next four years and a national consensus comprising the strict limitation of money incomes and prices should reflect very earnestly on the likely consequences of continuing without any strategy at all to deal with the alarming situation that confronts us. Unless the expansion accelerates, real unemployment will not fall but will continue to rise. Unless agreement is reached on incomes, inflation too may well rise again.
§ Mr. Dennis Skinner (Bolsover)
I have listened to these arguments about incomes policies both in the House and before I became a Member. There have been about seven since the end of the war. I have no doubt that the right hon. Gentleman supported most of those ideas because they came from the same consensus as that to which he has been addressing himself in the past few minutes. I am not against his attacking the Government as he did in the early part of his speech, but I hope that he realises—for God's sake, he is supposed to be a clever man—that this Government have an incomes policy and have always had one. It is based upon having a reservoir of unemployment in order to try to depress the wages of the workers. The fact is that, despite all efforts, the business men, whom he probably favours, managed to get a 20 per cent. increase.
§ Sir Ian Gilmour
I do not blame the hon. Gentleman for not listening to me, but I specifically made the point that the Government had an incomes policy. I understood the hon. Gentleman to say that I had missed it out.
§ Sir Ian Gilmour
It may well be. All I am saying is that the difference is not between having an incomes policy and not having one but between having a bad one and having a better one.
The Chancellor has stuck to his policy of cuts in income tax, although at a much lower level than was previously trailed. Everyone likes having his taxes cut, but I think that it is generally agreed that these tax cuts are just about the worst way of relieving poverty and the poverty trap and the worst way of creating jobs. To relieve poverty and the poverty trap the Chancellor should have made a substantial increase in child benefit, and to create jobs he should have spent money on increasing public investment. Instead he has chosen the worst possible option.
The basic error of this Budget is that it is more of the same. And more of the same policies leads to more of the same results. The Budget confirms that what the Chancellor has called the "British experiment" is nothing of the kind. An experiment is a test of whether something works. The reaffirmation in this Budget of a six-year-old strategy which is still manifestly failing to achieve its objectives makes it plain that such a test is not being applied.
Changes are needed, but, alas, they have not been made. That is the fundamental error. That is why, despite the Chancellor's brilliant presentation and conciseness, this Budget, like last year's, is a disappointment. It fails to deal with Britain's fundamental problems and therefore represents yet another missed opportunity.
§ Mr. James Callaghan (Cardiff, South and Penarth)
The right hon. Member for Chesham and Amersham (Sir I. Gilmour) congratulated the Chancellor on the "brilliance" of his presentation. When replying to yesterday's debate, the Financial Secretary to the Treasury congratulated his right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) on the "brilliance" of his presentation. That must be a new code word in the Conservative party. In other words, if Conservative Members cannot agree on anything else, they can at least agree that a case—a totally inaccurate one, a case flying in the face of all logic and reason—can be presented in a brilliant manner. I assure my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) that he, too, presented his case in a brilliant manner. What is more, I agreed with it.
I can well understand why the Prime Minister found the right hon. Members for Chesham and Amersham and for Cambridgeshire, South-East tiresome. They present their facts and criticism to the House in a totally dispassionate way, not only disagreeing but giving the reasons why they disagree. In a Government who require of Ministers that they be not only passionate acolytes of the Prime Minister but also cheer-leaders, it must have been extremely distasteful to have had those grains of sand irritating in the Cabinet. I have no doubt that they were expelled for the greater unity of the Cabinet. Their expulsion was, 1035 however, for the greater interest of the House, for we have enjoyed the contributions that have been made in successive Budget debates by former members of the Cabinet who found themselves unable to agree with the policies being followed.
It would be tedious of me to repeat the arguments that have been put eloquently today and yesterday by my hon. Friends; tedious also because this is an utterly forgettable Budget. Indeed, it was forgotten this afternoon until the right hon. Member for Chesham and Amersham brought us back to the need to discuss the real problem, that of unemployment and how to match the nation's unused resources of manpower with the human needs that are unmet.
The test of the failure or success of the Budget must be whether the Chancellor has made as a centrepiece the paradox, as it has been described, of the question that is in desperate need of answering but which the Government have failed to answer. The question is how we are to match the vast unused resources of manpower in Britain with the unmet needs which have been referred to time and again and which speak for themselves. One need only talk to one's constituents on a Saturday morning to hear about, for example, their desperate need for council housing. In recent years the housing lists have increased by 150,000.
I mention that because it has been pointed out time and again by hon. Members on both sides of the House that the construction industry does not employ imported material to any great extent. Here is a human need that is unmet, with human resources available to meet it. That should have been the centrepiece of the Budget, and my hon. Friend the Member for Kingston upon Hull, East brought us back to that central issue.
Like others, I fully support the training scheme that the Secretary of State for Employment has introduced and I trust that every effort will be made to make it work. However, as the right hon. Member for Chesham and Amersham pointed out, it is not correct to talk of this as a Budget for jobs. It may be a Budget for increased training, and that is to be welcomed, and it may even be a Budget for the rehabilitation, if that were possible, of the Chancellor's credibility and reputation—I do not believe that it has succeeded on that account—but it is not a Budget for jobs. It does little harm and precious little good.
Being a Budget for training, the Government have still to answer the major question of where the jobs are to come from when the training period is over. In other words, when the youngsters have their qualifications, having undergone their training — we have spoken time and again of the need for training—where will they find jobs?
What is the view even of the Government's friends? Sir John Hoskyns wrote a powerful series of articles in The Times—he was the Government's chief think tank adviser—admitting that the policies of the Government in the medium term had failed, and he thought that they were not likely to succeed. It is not good enough simply for Ministers to come to the House and say that they have met great success. In his peroration, the Secretary of State said today that investment had gone up, that growth had increased and that new jobs had been created. All of those aspects depend on the point at which one starts.
After six and a half years, the Conservatives are still way behind the position reached by the Labour Government in 1979, before we left office. That is true in 1036 many respects. I will cite a few. The Government seem now just about to be catching up in terms of growth compared with the position in 1979. Investment in manufacturing is now lower than it was then; unemployment is far higher; and our balance of payments has deteriorated to the point where, without oil, the country would be in an impossible position.
I do not know what the value of sterling would be were it not for oil. No doubt exports are increasing, but that is because of the value of sterling against the dollar, and there is no doubt that our competitive position has declined seriously in the past few years.
How are we to reverse the trend? First, until the Government admit that that is the position, we shall not begin to reverse it, yet they are still endeavouring to persuade the country that the situation is not serious and that we are improving. Any dispassionate examination of our position reveals not only that the long-term decline has not been reversed by the Government but that it has continued to deteriorate under Conservative rule. I take no pleasure in saying that, but it is necessary to correct some of the untruths—
§ Mr. Callaghan
No, I do not want to start what we had from the Chief Secretary yesterday and a debate lasting 29 minutes on that issue. It is necessary to correct some untruths that are spoken.
One of the consequences of the serious decline in our economic position is the impact on our social benefits structure. We are trying to carry a first-rate social benefits system on the back of a second-class economy, and we cannot do it. Nor can we avoid the problem because it affects hon. Members on both sides of the House.
After all, when, after the next general election, my right hon. and hon. Friends form the next Government, they will have to face that serious problem. [Interruption.] There is a good chance that we shall regain power. Indeed, present Tory policies and attitudes are giving the Labour party the opportunity of having our biggest majority since 1945. I only hope that we shall take advantage of it, but that will be a problem to us. We shall have the chance of gaining a large majority at the next election because the people are beginning to understand what is happening.
The nation's social benefits system is operating from hand to mouth. The people working it are living from hand to mouth and the citizens who should be benefiting from it are also living from hand to mouth. The continuation of present Government policies will mean that the resources will simply not be available to meet the needs of the elderly, the sick and the poor at their present levels. A crisis is looming in our social benefits structure.
That is why, no doubt, the Secretary of State for Social Services is casting round for ways to push the crisis back as far as he can. But it will come upon us unless the Government find ways and means of escaping from the present dilemma in which they find themselves. They are training, but the jobs, at the end of the period of training, are not in view.
The Government's utter reliance on market forces to solve our national problems has failed and will continue to fail. Hon. Members were greatly impressed yesterday by the speech of the right hon. Member for Cambridgeshire, South-East. He said that he had failed to discern a coherent strategy in the Government's policies.
1037 The right hon. Member for Chesham and Amersham said the same today. I agree with them. Does it not follow that a Government who believe that the blind operation of market forces, acting in aggressive competition, will provide the growth, the prosperity and the employment that we seek are by definition unable to produce the coherent national strategy that the right hon. Member for Cambridgeshire, South-East was asking for yesterday? If they had such a strategy that would indeed contradict their basic approach.
The right hon. Gentleman asked why, when conditions for growth had been supposedly created—"supposedly" was his word, not mine—the output of manufacturing industry is lower than it was six years ago. Modesty forbids me from reminding the House who was in power six years ago. The right hon. Gentleman also asked why an increase in company profits had been accompanied by a decline in investment, which is now, I may add, lower than it was six years ago. That was a rhetorical question. The right hon. Gentleman knows the answer well. In one way he gave the answer in another part of his speech. It is that the Government are artificially restricting demand. Demand is what is needed. Because it is restricted artificially costs per unit increase inevitably. That makes us less competitive, not more. As the right hon. Gentleman said, demand should be stimulated through increased public sector investment. It is the Government who are keeping unemployment higher than it need be. In the judgment of many of us, the Government could increase demand without incurring the penalties of higher inflation that they so much fear.
The need for a coherent strategy is felt not just in the overall management of the economy. I should like to take four examples that strike me particularly in vital sectors of our industry and national life—energy, agriculture, and, in the newer areas, our inadequate thrust in biotechnology applications and high density technology in information technology.
Energy and agriculture are vital to the nation, as everyone must agree. Yet in agriculture there is more and more uncertainty. The common agricultural policy has been an obvious failure. Probably it would be a good thing if the Government could summon up the courage to abandon it completely and go back to a system of national deficiency payments. We should examine the prospects for abandoning the common agricultural policy. Cereal stocks are high and there is a danger of livestock producers being flooded out by cereal growers who in their turn will produce an excess of foodstuffs. There should be a clear policy, and we do not have one. There is more uncertainty in agriculture today than there has been for many years.
Then there is the hesitation in regard to energy. The supply division between coal, gas, nuclear energy and oil has been abandoned. I see no sign of it now. The right hon. Member for Guildford (Mr. Howell) will correct me if I am wrong, but it seems to me that the pattern that was once fixed has been departed from. We are producing too much oil, much more than was anticipated during the time when I presided over the Cabinet. We then intended to produce sufficient to meet our needs and to leave the reserves in the ground so that they could be used by later generations. We thought that that made sense. Now, at a time when there is serious overproduction, our production of oil is far 1038 higher than was originally intended. That in itself must depress oil prices in the world as a whole, with consequences for the structure of the market.
There should be new statements of policy by the Government on both energy and agriculture. I do not care whether the Government produce Green Papers or White Papers, so long as we have a statement of policy that can be debated. In that way we could get a clear idea of where we are going. For heaven's sake, let us get away from the belief that market forces will provide a solution. They never solved the problem in agriculture and they will not solve it in energy. Let us get away from the belief that the Government can abdicate from their responsibility in some matters because they believe that market forces will solve the problems for them.
The Government want to move to a new high technology society. There is no doubt that progress is being made in the application of biotechnology to industrial and agricultural processes. We have some first-rate people working on that. They are well up to the standard of the rest of the world, but by comparison we are lagging behind Japan and America. I welcome the statement in the Budget that the sums to be devoted to technology training are to be increased by £40 million over three years, but that does not begin to match the effort that is being made by the Japanese or by the Americans. We know from the available figures that Japan is devoting twice the resources that we are to technology training. The Americans are devoting 50 per cent. more of their resources than we are. The provision of £40 million over three years is not enough to meet the needs.
We are also wrong in our approach to research. The Japanese are restructuring their research by placing more emphasis on basic scientific research as well as keeping up with applied technology. On the other hand, we seem to be shifting our resources away from basic research. Indeed, the resources being devoted to basic research that is vital to the country have been curtailed over the past four or five years. I shall not dwell on this except to say that Government rhetoric is not matched by their performance. Britain will be a laggard in high technology. I quote these illustrations to point out the deficiencies of our reliance on market forces and our inability to construct a national strategy or even to thrust policy in the direction in which it should be going.
My hon. Friend the Member for Kingston upon Hull, East told us about what is happening on bus deregulation and on shipping. That made me think again that this country is passing through a phase where a number of bright young men are rediscovering all the fallacies that we abandoned 40 years ago; they are palming them off on the Government and on the people as though they were newly minted wisdom.
I now have more time for reading and the other day I was reading a work of J. M. Keynes, not "The General Theory of Employment, Interest and Money" because I never got far with that, but "Essays In Persuasion". I ask hon. Members on both sides of the House whether the quotation that I am about to make at least awakens some echoes in their minds. Let me quote what Keynes said in 1931:The Government's programme is as foolish as it is wrong. Not only is purchasing power to be curtailed, but road-building, housing and the like are to be retrenched. Local authorities are to follow suit … What are we releasing resources for today? To stand at street corners and draw the dole? When we already have a great amount of unemployment and unused resources of 1039 every description, economy is only useful from the national point of view in so far as it diminishes our consumption of imported goods. For the rest its fruits are entirely wasted in unemployment, business losses and reduced savings.Pretty well everything in that short paragraph is being argued about once more in 1985.
On the Government's half-stated intention to abolish wages councils for the low paid, we have not heard that they intend to put anything in their place. They have already abandoned the fair wages clause, which was a mistake. It is unpleasant to think that the Government believe that the solution to our problems is to impoverish the lower paid even more and to suggest that they should be reliant upon family income supplement if they are not earning sufficient in wages. I believe that I shall bitterly offend the Secretary of State for Employment — no doubt he will mutter something—when I say that the Government's economic policy during the past six years can be summed up in one sentence: tax cuts for the rich and pay cuts for the poor.
The poor have the weakest bargaining power of all. They tend to be non-unionised. Some of them are from ethnic groups. The Government have weakened the unions and their power to represent those people. I admit that the wages councils have had a mixed history. They have not done the job as well as they should have. All hon. Members—Front Benchers as much as Back Benchers—have a responsibility to protect the weakest in our society in employment. The Government will not fulfil that duty if they abandon the wages councils. [interruption.] That is my view. I hope that we shall all—I hope that we are joined by Conservative Members—fight this tooth and nail.
The labour movement has often considered the idea of a minimum wage. Because of the impact on differentials, interference with voluntary collective bargaining, and so on—I have heard all the arguments adduced over many years we have not adopted that idea. The Trades Union Congress is not opposed in principle to wages councils. After hearing what was said yesterday, last night I looked up what the TUC said in 1982. The TUC said:The general council have never been opposed in principle to the concept of a statutory national minimum wage … they said that they would reconsider the question of a statutory minimum wage in the light of progress on the TUC target.The workers will not get that target. The Government's actions require us all to make up our minds. The time has come for the TUC, and the labour movement in particular, to declare in favour of a national statutory minimum wage system and to campaign for it. If the wages councils go because of Government action, only in that way will we be able to protect the weakest and least organised in our society.
A minimum wage, like every other system, has its disadvantages, although I dispute the argument which is often put that it will mean the loss of wages. We shall, no doubt, hear that argument during our debates on this matter. As far as I know, there is little evidence in countries with a national statutory minimum wage — France, Canada and the United States—to show that it means a loss of jobs. It means that many small employers have to invest more, modernise and bring themselves up to date.
§ Mr. Budgen
Can the right hon. Gentleman explain approximately how much above the level of supplementary benefit he thinks a national minimum wage should be fixed?
§ Mr. Callaghan
I cannot. I have not gone into it in such detail. No doubt, as the argument develops, we shall all have views on this matter. I would object strongly if it were suggested that we could get rid of the wages councils and then allow the least unionised, the poorest and the weakest members of our society to rely on family income supplementary benefit, and so on.
The system will have to be phased in. There is a similar system already for health. We must accommodate part-time workers. I could not see the point made by the Secretary of State for Employment that we have too many part-time workers. That is a case for saying that hon. Members must have greater responsibilities to those workers, because they are least able to bargain. They cannot organise or be organised easily.
The time has come for us to make up our minds that, even with its deficiencies, a national minimum wage, phased in so that part-time workers can be accommodated within it, should be a matter not only for discussion but for campaigning by the trade union movement, the labour movement and many others. Their consciences will be outraged if they feel that the statutory protection that the low paid have had for 70 or 80 years will be removed and nothing will be put in its place by the Government. I would regard that as a disgrace. I hope that my colleagues will support this idea and will pursue it.
§ 7.5 pm
§ Mr. Julian Critchley (Aldershot)
What, after all, is a Budget? It is an annual ritual; an infertile mating dance in which Stravinsky has replaced Vivaldi as our springtime composer.
What are my impressions of the Budget? It should please the Government Whips, but they are essentially simple men. Clearly, the wets and whingers will not be appeased. We had hoped for something more relevant and robust. On the other hand, the Thatcherites, so-called, cannot hide their anguish. The cry has gone up that the counter-revolution has been betrayed, which is the theme of the leader writers of The Times and the Daily Telegraph. It is not for me to intrude upon so public a display of grief. After all, it should be a matter of no little satisfaction to discover, at last, that Thatcherism is no longer infectious. Even so, I do not look forward to a period of harmony on economic policy among those who sit on our Benches — far from it. The Chancellor may have postponed the advent of the brave new world until safely after the next election, but the differences between Amersham and Croydon will remain. We shall still be able to distinguish between Sir William Gilmour and Sir Ian Clark.
As for the Budget itself, it is much more interesting for what it left out than for what it put in. Faced with an army of letter writers with special interests to defend, the Chancellor, who in the past was plainly a man of substance, has become a man of straw. A trained economist, to whom the arcane notions of the money supply were an open book, and who could discuss financial matters on equal terms with Sir Alfred Sherman, he has been routed by "Disgusted, Tunbridge Wells". No one has so flattered only to deceive since the Duke of York left Britain for the Low Countries.
Whatever the rights and wrongs of the extension of VAT to newspapers, books and children's shoes, or of the taxation of pensions—I have no enthusiasm for any of them, save perhaps for the extension of VAT to 1041 newspapers whose owners' names begin with the letter "M"—the Chancellor got the message, namely, that in politics it is important to be loved, even by one's own supporters.
From 1979 to 1983, and for as long as the Government's targets remained the great institutions, and especially the great working-class institutions like the trade unions, all went well, but an attack mounted against the privileges of the middle class is a different matter. We have stumbled, if only upon our own supporters.
The victors of this Budget are the lobbyists, the exponents of single-issue politics, the pressure groups and our constituents with a gleam in their eyes. It is not for me to look them in the mouth. So many gift horses are a welcome reinforcement in what has been a long-running and uphill task to curb the zeal of the ardent ones in our great party. The victims of the Budget remain the unemployed. The Chancellor's measures are unlikely to do much more than stabilise unemployment in the short term, while any slowdown in the economy next year will see a further rise.
An overwhelming majority of our people see unemployment rather than inflation as the main problem facing this country, and the same majority favour higher spending to reductions in taxes. Another opportunity, alas has been missed, but at least some of the shine has come off the ideology.
§ Mr. Ken Weetch (Ipswich)
I find it difficult to follow the speech of the hon. Member for Aldershot (Mr. Critchley). All I can hope to do is to make my contribution as short as his.
This Budget has been received with little enthusiasm in any quarter. The only comment that I have read, which is a consensus of all that has been written and said, is that we must be thankful that the Budget was not a lot worse. The nation is wasting its economic substance in heavy unemployment, and most people agree that something bold and imaginative was needed to come to grips with the basic problems. There was no change in the Chancellor's strategy, even though that strategy has proved to be totally ineffective.
I read in the newspapers that the Chancellor is excessively orthodox. I find nothing orthodox in his economics, but I can find a good deal that is perverse. His strategy is of aiming to impose stringent limits and to reduce public expenditure at a time when we are in the teeth of a serious business recession. There is no orthodox economic sense in that, and there never has been. All this is happening at a time when we have considerable under-used industrial capacity, 3.5 million people out of work and a strong balance of payments. All that put together is an economic proposition which I find incredible.
I shall first make a number of general comments about the Budget, but the bulk of my remarks will relate to the area that I know best, East Anglia. The strategy is wrong because it is excessively cautious in the face of the quite daunting problems facing the British economy. Any Budget—and I have listened to 12 in this Chamber—has to do two things. It has to make short and medium-term changes, but, more important, it has to make a contribution to the long-term restructuring of the economy. The long-term problems that we have to face 1042 arise from the fact that our economy is in a long-term decline. It has been so for the best part of 100 years. There has been a long-term decline in the management and cost-efficiency of the economy. We have become perceptibly less efficient than our main economic competitors.
The Chancellor has made little attempt to make any inroads into solving the problem. If it were not for the revenue and the industrial production of the oil industry, the economy would be in a worse mess. The problem that we have to solve is to develop other industries and services ready for the time when oil production becomes a less important component of our industrial framework. The Chancellor has not made any start in this at all.
I have never believed that massive reflation through printing paper money and creating credit in the short term is any answer either. It has already been said in the debate that the infrastructure of British industry is in no shape to respond to such a move. It would be like trying to get more steam out of an old engine, and it would not work. We should be making a start with a gradual reflation, which should be well thought out, planned and selected. Again the Chancellor has made no start on that.
East Anglia is one of the areas which have great potential for growth. Its population is growing at a faster rate than that of any other area. It has geographical proximity to the EEC and there is great promise for industrial and commercial expansion. However, this potential is being wasted by policies which are wrongly conceived. East Anglia has had a bad deal from this Budget and from preceding ones for the following reasons.
In the first place, East Anglia is an area of low pay. Although that has improved slightly in recent years, the position still leaves much to be desired. I shall quote one sentence from the East Anglian Consultative Council report on the last financial year. It says:Men in East Anglia need to work more hours per week than their counterparts elsewhere for earnings that are 94 per cent. of the national average.The threat to abolish the wages councils will make the position in East Anglia much worse.
Secondly, in so far as they have lower incomes, the move from direct to indirect taxation has hit people with low pay proportionately harder than anybody else.
§ Mr. Jeremy Corbyn (Islington, North)
As East Anglia is a low-wage economy, has this been reflected in the last few years on the rate of unemployment? Does my hon. Friend believe the Government's argument that lower wages create jobs?
§ Mr. Weetch
I am sorry that I created all that excitement.
There has been no perceptible improvement in the number unemployed in East Anglia, which directly contradicts the proposition that low wages and more jobs go together. It simply is not true.
When in 1979, the rate of VAT went from 8 to 15 per cent., people on low wages in East Anglia bore the brunt. If it is part of the Government's strategy to move from 1043 direct taxation to an increased base of VAT at 15 per cent., I am against that strategy, because it harms the poor more than the rich. It is wrong in principle.
In addition to the change in the centre of gravity in taxation, there are such measures as the increase in prescription charges by tenfold over the same period and, through the Government's tampering with the borrowing requirement, the increase in gas prices by more than was necessary, and other such moves. This is not called taxation in a formal way, but in its practical effect that is what it is. The essential principle to grasp is that it hits people on low wages more than anyone else. If we believe, as I do, in the virtues of progressive taxation, it had better be said here and now. That is why I put it on the record.
I welcome the adjustments that have been made in the Budget, as far as they go. They are a help. I am referring to the changes in both tax thresholds and national insurance contributions. However, the adjustments have led to other problems. Those at the other end of the scale will lead to real difficulties.
Let me give the House an example. The port of Ipswich is important for the prosperity of south-east Anglia, but the changes will be costly. It will cost us between £80,000 and £100,000 more to run that port this year, with the changes, than it did last year. Felixstowe, similarly, will be affected. Industry in East Anglia has given the measures, for the most part, the thumbs down because the changes make only marginal adjustments.
The Confederation of British Industry has been mentioned several times. Mr. Michael James, chairman of the eastern region of the CBI, said:The new initiative for YT is only a palliative.What I suspect as I go up and down East Anglia looking at industry is that there is a prevailing feeling that the measures might mean cosmetic changes to the unemployment statistics, but that they will not provide any foundation so that young people can find a job after their two-year period on the YTS.
Every day when I go into the centre of Ipswich I see many young people hanging about the bus station. They are there in large numbers. They are full of energy and want to do some work. There is not very much work. When I ask them about the YTS and the scheme before it, I receive two answers more frequently than the rest. First, they believe that they have been taken for a ride as cheap labour. Secondly, they have no confidence whatever that after the period of industrial and commercial experience is over they will get a real job with any future in it.
Not much has been said about the increased duty on petrol. In East Anglia we regard petrol going up in price as inevitable as the plague was in the middle ages. However, East Anglia is an area in which public transport has undergone an almost continuous collapse in the past five years. The motor car is more important in East Anglia than elsewhere because there are more motor cars per family than in any other region. The increase will cost people a good deal of money. Both the changes—the increase in the duty on petrol and in vehicle excise duty—will have a serious effect in a rural area where public transport is very bad. That will increase social problems and the cost structure of the area.
This Budget is a disappointment. My right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan) said that it was instantly forgettable. He was absolutely right. I do not know whether the Chancellor is treading water so that he can have more of a 1044 swashbuckling attempt next year, but certainly this Budget has been a disappointment in the House and outside it, especially in eastern England.
§ Mr. Julian Amery (Brighton, Pavilion)
I would not presume to try to compete with the hon. Member for Ipswich (Mr. Weetch) on the particular problems of East Anglia. However, as the volume of our trade with Europe increases all the time, as against the trade that we used to have with other parts of the world, based on Liverpool and so on, it seems that the future of East Anglia is likely to be improved. Whatever else may be said about the common agricultural policy, I should have thought that it very much favoured, the great cereal producers of East Anglia. However, I must leave that matter in the hon. Gentleman's hands.
The hon. Gentleman talked about the Government's economic strategy. It has to be seen against the international and domestic background. The international background is dominated by the American scene. People argue and disagree about whether the American growth will continue. I am inclined to think that it will. It is not just the high interest rates that have attracted foreign money into the United States and domestic investment on a vast scale, but the return on capital, healthy industrial relations and, above all, the commitment of the Federal Reserve to make sure that inflation does not take off again. Both Americans and foreigners feel that if they put their money in America it will be safe.
I would not presume to overcriticise the deficit financing. After all, a great part of it is spent on defending Europe and European interests overseas. There are tactical advantages that are not open to us in this country. If an Administration incurs a deficit, the legislature is a little reluctant to press for extra expenditure, whereas if there is not a deficit the field is wide open, as it is over here. That is one of the problems that my right hon. Friend the Chancellor will be conscious of.
I do not believe that the American economy is drawing money away from this country. Our interest rates are higher than those in America. It is not a serious problem. Plenty of money is available here for any worthwhile project in which people want to invest. Nevertheless, there are dangers in the present situation. There could be a revival of protectionism in the United States. The banking system could be affected by the overhang of foreign and even domestic debts. Therefore, I think that we would be wise to use the time of general world recovery—sometimes we talk here as if there were a crisis, but things have been going much better than they have been for some years—to try to break down the barriers to trade and payments that still exist in the European Community.
In 1931, after the great crisis that affected not only the United States but the world, we came out of it through Empire preference and the creation of the sterling area. We cannot do that again. However, we could make the European Community a better trade and payments area than it is today. I urge my right hon. Friends to make that a matter of urgency. I do not know whether it involves joining the EMS. It would be easier to do these things now while things are relatively good than it would be if we ran into rough weather.
One might not think it from what has been said in the debate, but the overall picture of the British prospect is pretty good. Growth, at 3½ per cent., is well above the 1045 average over the past 20 years. Living standards for those at work and on pensions have either gone up or remained in keeping with inflation. Profits and investments have been good and exports have been boosted by the weak pound. Our domestic manufacturers have benefited from what one might call tariff protection as a result of the weakness of the pound. Above all, inflation has been kept more or less under control. I say "more or less" because 25 years ago we would have been shaken rigid at the idea of inflation at 5 or 6 per cent. It is not a bad picture. But world markets do not quite appreciate that.
What was the reason behind the fall in the pound? We exaggerate the argument that other countries see sterling as a petro currency. I believe that, despite the end of the coal industry strike, they are still suspicious of our industrial relations. Our unit labour costs remain a great deal higher than those of our competitors, despite our relatively lower wage levels, much higher indeed than those of any of our competitors.
Above all, there is the fear that we might embark upon a reflationary policy. That is not surprising because Opposition Members have pressed for reflation, and so too have a number of my right hon. and hon. Friends. My right hon. Friends the Members for Old Bexley and Sidcup (Mr. Heath) and for Cambridgeshire, South-East (Mr. Pym) have both urged increases in public expenditure. My right hon. Friend the Member for Cambridgeshire, South-East said that the Government's bogeyman was borrowing. I do not agree, and I hope that the Government do not agree. The real bogeyman is inflation, which could lead to a collapse of the currency. I am not dramatising that. It has been evidenced during the past few weeks. We have seen what the markets can do to sterling when they suspect possible reflation.
My right hon. Friend the Chancellor was right to be cautious in the light of what has happened during the past few weeks, which was possibly sparked off by imprudent speculation by my right hon. Friend in November that he could do better than he has in fact done. Of course, what the House decides must not be determined by market forces, but they must be taken into account.
Criticism of the Budget has fastened mainly on inadequate provision for the creation of jobs. Unemployment appears to fall into two categories. Last year 1.75 million registered unemployed people found new employment within a year, and more than half of them within six months. I appreciate that it is painful to be out of work, even if some people have received redundancy payments. There are domestic upheavals such as moving home and transferring children from one school to another. However, that should not cause despair. In the United States, people readily accept such changes. Although we do not hear much about it, there has been tremendously heavy unemployment in the United States, with the transfer of resources from declining to growing industries.
Unemployment in the United Kingdom is higher than it is in most European countries largely because our overmanning in industry has been worse than theirs. It is part of the cost of modernisation, but the country should bear that burden cheerfully. I should certainly support a move to improve conditions for people transferring jobs.
It is generally agreed that hard-core unemployment stands at about 1.2 million, which is not a great deal more than Lord Beveridge egarded as the norm. However, I do 1046 not think that we regard it as the norm. Although unemployment is unacceptable, we must accept that there has been a technical revolution and that unemployment will be with us for a long time. The problem is how to deal with it. Mr. Scargill's recipe was to keep alive uneconomic industries. I do not think that the House would accept that. We could, of course, create jobs as President Reagan has done. We could increase the intake into the Armed Forces or the defence industries. We could make a contribution in such industries as construction, although I am not sure how practical that would be. Training is important. But I feel a little disquiet about the ideas put forward by the Leader of the Opposition about the right of youngsters from 16 years of age to live at the expense of the taxpayer. There is room for subsidies—they were available in Lancashire with the running down of the cotton industry. The National Coal Board has tried to start new industries where it is closing pits.
The right hon. Member for Birmingham, Sparkbrook, (Mr. Hattersley), my father's old seat, asked for a £5 billion injection into the economy, to be raised by taxes and borrowing. My right hon. Friend the Member for Old Bexley and Sidcup put forward a similar proposal. Hon. Members may have read an interesting book called "Poor Britain", which shows that, although most of those surveyed would be prepared to pay 1p in the pound to relieve poverty or unemployment, they were not prepared to pay 5p in the pound.
The impact on world markets and sterling of any major reflation at this stage would be not far short of catastrophic. It is only by creating new wealth that we can beat unemployment, overcome the hard-core, long-term unemployment and alleviate the poverty that still affects one in every seven or eight people. What can the Government do? The answer is, not much. They could cut taxes or they could encourage interest rates to fall. Those are the only two instruments available to them other than direct investment, which has been singularly unsuccessful in the past.
President Reagan appears to have had considerable success by cutting taxation dramatically, balancing that by slashing domestic expenditure—except on defence—and tightening the screw on credit to the Federal Reserve Bank to ensure that the result of his actions was not inflation.
However, there is a difference between the UK and the USA. I hope that I shall not be out of order if I reveal a confidence. I happened to lunch with my right hon. Friend the Chancellor and I noticed that he was being unusually abstemious. I asked him, "Are you trying to lose weight?" He replied, "No; I am trying not to put it on." That is exactly what he is trying to do with public expenditure. No one has been keener than my right hon. Friends the Prime Minister and the Chancellor to cut public expenditure, but they have not been able to do so. Therefore, they are trying not to increase it. That is not difficult to understand in view of the increased pressure of wages, and other inflationary pressures.
The right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) made an extremely important speech, and I agree with him on a critical point. The truth is that this Government, like previous Governments, are boxed in by the framework of Government expenditure that is heavier than our producers can bear. Of our population, one third are resting or retired, one third are learning and the whole burden falls on the one third who are working.
1047 I suspect—I do not want to be dogmatic about this—that the social services structure built by Beveridge, health by Willink and Aneurin Bevan, education by Butler and the nationalised industries by the Attlee Government, all of which have been amended and added to, were conceived 40 years ago in a different, much poorer Britain, although it was more optimistic about its chances of prosperity. As I think the right hon. Member for Cardiff, South and Penarth pointed out to his Front Bench, the only way to solve the problem is by a radical rethink about the structures of Government expenditure.
I welcome the idea of Green Papers on taxation and social services, both of which have been promised to us. However, I would not underrate the difficulties of the task. Those institutions, created more than 40 years ago, like the monasteries of the middle ages, are almost as worried about their own survival as the services that they provide. The vested interests that they represent will not easily be challenged. It will be a Herculean work of education to get public opinion to face up to the changes that may be necessary. We have witnessed that with university grants. We witness it in the United States over Mr. Donald Reagan's proposals for taxation.
I shall now address myself more particularly to the Government Front Bench. Obviously the Tapers and the Tadpoles will say, "Why bother? The position is not too bad. You have 3.5 per cent. growth, the Opposition are divided and the British people are not all that keen on getting rich. Why don't you settle for a quiet life?" The Tapers and the Tadpoles may be right. If so, Britain will decline in the world league, not only relatively but absolutely. Will the British people be content with that? I suspect that we are approaching Shakespeare'stide in the affairs of men",and that if we do not advance we shall decline.
The Government are encamped on a high plateau. Behind them they have the victory over Galtieri, Scargill and inflation. They have reasonable growth. My right hon. Friend the Prime Minister is in complete command of her team, as the right hon. Member for Cardiff, South and Penarth said. She has a substantial majority, a mandate to do what she likes and three years left to run. However, it is always dangerous to linger on the heights, as any mountaineer will know. The weather may break; night comes on; danger and death attend upon delay. Now is the time, if ever, to liberate the wealth-creating forces in the British economy. The process needs to be started now. The subjects that we must face must be debated in the House and up and down the country before we can even begin to legislate. I warn my Front Bench that it is later than they think.
§ Mr. Donald Stewart (Western Isles)
The right hon. Member for Brighton, Pavilion (Mr. Amery) gave a much rosier account of the economy than I would, but in the interests of time I shall merely place a question mark over his claims. I contest his thesis that one way out of our difficulties is to become more enmeshed in the European Community. He also said that because of the invention of robots there would be a lot of unemployment for a long time. I certainly agree, as would every hon. Member, that the invention of robots has had an impact on jobs, but we should not necessarily accept such a pessimistic outlook. We would have unemployment on such a level only if all amenities and the infrastructure had been completed and 1048 we needed only to work on care and maintenance. The country is a long way from that, and we should not accept unemployment as being a hard and fast development about which we can do nothing.
The Budget was much vaunted as the Budget for jobs, but that claim has been largely, if not completely, discredited. The Government's main strategy to reduce unemployment is to keep unemployment running at a high level. That may sound like a conundrum, but it is easily explained. By keeping unemployment high, the Government can rely on wage restraints to operate and, thus, hope that people will accept low-paid jobs. It is similar to operating an incomes policy, except that the Government are using the market forces to do their dirty work. It is as simple as that.
We are already used to low pay in Scotland. The Low Pay Unit, in a study of the problem throughout the United Kingdom in 1981, found that Scotland had a disproportionately high share of Britain's low-paid workers. In the United Kingdom as a whole, 16.9 per cent. of people were found to have earned less than £100 a week., but in Scotland the proportion was 18.6 per cent. Moreover, the Scots had to work longer hours. On the other hand, the south of England was found to be the least affected by low pay. I stress that these figures are not from the Scottish Nationalist party, but from the Low Pay Unit.
According to the Government's monetarist theories, unemployment is caused by workers pricing themselves out of jobs through excessive wage claims. If that were true, we would expect areas with the worst incidence of low pay also to experience the lowest incidence of unemployment. Unfortunately for the Government, the complete opposite is true, which blows a hole right through their precious theory. Scotland has the worst incidence of low pay and unemployment, whereas the south-east has the least low pay and the least unemployment. I should like to hear either the Chancellor of the Exchequer or the Minister explain that one away.
Despite the fact that the evidence is against the Chancellor on that, he is determined to abolish the wages councils. He says that wages councils destroy jobs. That is rich coming from someone whose Government have destroyed more jobs than any Government in living memory. There has been a form of minimum wage legislation since 1909, and wages councils go back a long way. They have given protection from exploitation to workers in various sections of industry and agriculture who could not rely on organised trade unions to negotiate on their behalf.
During the past few years, however, the Government have run down the service that the wages councils have been able to give. Because of cuts in finance and staffing, councils have not been able to carry out their task effectively. It is not that the need for their services has lessened. In a clamp-down in the west of Scotland a couple of years ago when 566 establishments were visited by wages inspectors, 47 per cent. were found to be underpaying their employees.
The Government do not seem to be bothered about such matters. Despite the overwhelming evidence of contravention of the wages regulations, they are determined to phase out the wages councils. Today the Secretary of State announced that he would either reform or abolish the councils. That is an ominous declaration about their future. It is clear that the Government are on the side of exploitation and sweated labour.
1049 That brings me to the youth training scheme. While genuine and adequate training apprenticeships are to be desired, a large question mark hangs over the schemes operated by the Government. Young people want real jobs, not something to keep them off the street for a year or two, for which they get peanuts.
Although the Chancellor has not indulged in large tax give aways in this Budget—his style was somewhat cramped by the effects on the PSBR of the coal strike—he said that he hoped to give way £3.5 billion in tax cuts over the next two or three years. That approach is all wrong. The wealth from oil revenues has been frittered away by this Government, just as it was by Labour. Scotland's wealth and future prosperity are being poured down the drain before our eyes on tax cuts, Trident, fortress Falklands and perhaps shortly even on some useless Channel tunnel.
That last development may end up as a blessing in disguise for Scotland, because one of the predictions of the Highland prophet, the Brahan seer, was that Scotland would be a free nation again when horseless carriages could travel from England to France. Most of his prophesies have come true, and perhaps that is a warning to me not to be so opposed to the Channel tunnel if it is likely to have such a desirable end.
I should like to say something about the whisky industry in Scotland. I welcome the Chancellor's decision to impose only a small increase in duty this year. That is useful, but I stress that it is not sufficient to solve the serious problems which the industry is experiencing. In 1981 the industry employed directly about 24,000 people in Scotland and about another 5,000 jobs relied upon the industry. The past four years have witnessed closure after closure. In February 1983, DCL, the largest company, closed 11 of its 45 malt distilleries, with the loss of 530 jobs. In the summer of 1984 the company had to lay off another 800 workers for two months of the summer. In January this year it closed another 10 distilleries and made a further 180 people redundant. In four years about 4,000 jobs have been lost through closures, redundancy and natural wastage.
§ Mr. Stewart
I should find that entirely excusable.
I shall tell the Chancellor of three measures which he could introduce to help the whisky industry. In last year's Budget he abolished stock relief. That cost the industry an estimated £50 million. He should reconsider that and take action to mitigate the losses suffered by the industry. He should introduce an extension of the deferment period for the payment of duty. That would put the whisky industry on an equal footing with the other spirit manufacturers. To help the industry work out a long-term marketing and sales strategy, he should give assurances that increases in duty over the next two or three years will be less than the rate of inflation. That would help to create a climate of stability in which the industry could plan for recovery.
I was pleased that the hon. Member for Kingston upon Hull, East (Mr. Prescott) mentioned the Merchant Navy. The Government's neglect of what is happening to the 1050 Merchant Navy in terms of employment and trade is disgraceful. It is above all disgraceful in an aspect which I should have thought would have appealed to this Government — national defence. They even had to charter foreign vessels during the Falklands war.
During the last war, 25 per cent. of merchant seamen were lost at sea. That was a greater proportion than the numbers of men lost in what we call the fighting services. The Government have seen the Merchant Navy virtually shrinking away and disappearing. If the Chancellor were to restore the allowance on foreign-going earnings, that would help to arrest that decline. The effect of removing the allowance is that merchant seamen want increased wages. The Prime Minister says that that is the cause of their lack of competitiveness, and the position will be made much worse.
On my constituency's behalf, I wish to protest against the petrol and vehicle excise duty increases. There is not one mile of railway in my constituency. It must be one of the few in the United Kingdom in that situation. We depend upon motor cars and lorries for all transport. Such an increase percolates through the economy. It will be added to food and everything that is used in the area. Like the hon. Member for Ipswich (Mr. Weetch), I feel that that is a drastic increase to the cost of living in our area.
The Government cannot say that this is a good Budget for Scotland. For the reasons that I have outlined, my party will oppose the vast majority of the measures which the Chancellor has outlined.
§ Mr. Gerald Malone (Aberdeen, South)
It is always a pleasure to speak after the right hon. Member for Western Isles (Mr. Stewart), particularly on this occasion because he has explained something of a conundrum that I have been trying to understand for some time. I understand that his party has, to some extent, had to disband its research facilities in Edinburgh. I was fascinated to learn that they seem to have been replaced by reliance upon the Brahan seer. It is an interesting point, which doubtless all my colleagues will bear in mind. It perhaps means that I shall face Scottish Nationalist opponents in the next election with greater trepidation than in the last one.
The first priority for Scotland, the Scottish people and Scottish industry and business was that nothing should be done in the Budget which might risk increasing interest rates. Representations have been consistently made to me in my constituency that that is the greatest problem that business faces. At a time when the level of interest rates is dictated largely by external factors it would have been unfortunate if we had had a Budget that had encouraged an increase in interest rates. I am glad to see that following the Budget there is a sign that interest rates are on the decline. I shall not suggest that yesterday's decline in interest rates was directly caused by my right hon. Friend's Budget. It had more to do with the state of the American economy.
If we had had an expansionary Budget of the kind called for by the Opposition and some of my right hon. and hon. Friends, interest rates would have been on the increase for internal, economic reasons.
Hon. Members who believe that we can increase the public sector borrowing requirement with scant regard to the market's response fail to understand the mechanism and that the market is sensitive to what my right hon.
1051 Friend does in his Budget. Interest rates would have increased if the Budget had been as expansionary as some right hon. and hon. Members have suggested.
With regard to slightly more localised issues, the right hon. Member for Western Isles mentioned the increase in duty on whisky. I congratulate my right hon. Friend on restricting that increase. I am sure that all Scottish Members are aware of the difficulties faced by the Scotch whisky industry for a wide variety of reasons. I am sure that Scottish Members are grateful that my right hon. Friend has recognised that the industry is a special case and has restricted the increase in excise duty on whisky in response to the representations that have been made to him. It would be mean-minded of Scottish Members not to take that point into account.
Oil taxation affects my constituency to a somewhat greater extent. I was somewhat surprised to hear in my right hon. Friend's Budget statement a dismissal of the fact that incremental oil developments in the North sea were to be ignored for taxation purposes. My right hon. Friend announced in his Budget statement last year that it was a matter that he considered to have some priority and about which he would consult the industry during the course of the year. I understand that those consultations have taken place. I was somewhat surprised to discover that to some extent they had been ignored in my right hon. Friend's Budget statement. I noticed also that he said very carefully that he did not intend to bring forward proposals at this stage. It is on that point that I should like to make some observations.
The announcement in last year's Budget was welcomed. We are reaching the stage in the North sea where the development of new fields is going on, we hope, in parallel with incremental investment to develop existing fields a stage further than they are being developed at the moment. The problem about incremental development is that, while it is important for the production of North sea oil, under the present taxation arrangements it is not at all an attractive investment. Indeed, it is estimated by the oil industry that the rate of tax that will apply to new oilfields after the taxation changes in 1983 will be within a range of 35 to 50 per cent., but for new investment in incremental developments the rate of tax is still about 80 per cent. If incremental development in oilfields is being ignored or put on one side simply because of the rate of taxation, that is regrettable. During the course of our deliberations on the Budget, either during the debate on these resolutions or at a later stage, I hope that we can find out why my right hon. Friend did not consider it to be appropriate to make any changes in taxation in order to encourage incremental developments of that kind.
Incremental developments would have two results. First, they would probably be highly capital intensive in terms of the investment that they would generate. It would also mean that there was an increased overall tax take from the North sea. It is estimated by the industry that there would be a substantial increase — of about 1 million barrels—if incremental development took place. That must be in the interests of the overall revenue that is collected from the North sea. It must also be in the interests of the industries that supply the North sea industry. Now that the stage has been reached where more and more of the investment that goes into the North sea is provided by British companies, and where they do more of the work, it would be regrettable if we passed over an 1052 opportunity that many of the oil companies believe is there to exploit, simply because the taxation level is unacceptable when an investment decision has to be taken.
I urge my right hon. Friend to make clear what the words "at this stage" mean. Do they mean that my right hon. Friend is prepared to look at the taxation of incremental developments on an ongoing basis? I hope that he will be able to make the position clear for the oil companies. My fear is that the window for making investment of that kind in the existing oilfields may be narrow. During their rundown there may come a time when their incremental development will no longer be effective. That argument has been put to me with some force by those who are engaged in producing North sea oil. I hope that my right hon. Friend will make a full rebuttal of the case that was amply and properly put to him by the United Kingdom Offshore Operators Association for considering a tax relief of this kind. This is very important for my constituency where there is an increasing amount of onshore investment. It is also increasingly important for the offshore industry as a whole, not only as it exploits the North sea but as it develops the technological base that it needs if it is successfully to exploit other offshore opportunities in foreign waters. It is an opportunity that must not be given up simply because there may have been an inaccurate assessment of the position.
I turn finally to an encouraging aspect of the Budget statement. I have always thought that one of the cornerstones of the philosophy of a Conservative party and a Conservative Government must be to encourage a share-owning democracy. I believe that the Budget statement has gone one slight step further towards that aim. The change in the regulations that will allow shares owned by employees to be disposed of after a five-year instead of a seven-year period is a step in the right direction. However, I suggest to my right hon. Friend that it is only a very small step. Should not the Government consider more radical steps to encourage what is becoming an increasingly encouraging trend? Those who purchased shares under these schemes used to dispose of them very quickly indeed. However, a new pattern of ownership has developed as privatisation has taken place. I believe that employees now hold on to their shares for a far longer period, and they should be encouraged to do so. Indeed, employee share ownership is one of the first and most important steps that we can take if we are to move not only towards a property-owning democracy but beyond that towards a share-owning democracy. I would encourage my right hon. Friend to be a little bolder and to consider proposals that would achieve that aim.
I believe that this is a sound Budget. For reasons well outwith these shores, it is a Budget that has not been so radical or reforming as I am sure my right hon. Friend and many Conservative Members would have liked. However, Conservative Members are very grateful that it will secure the firm foundations which have been laid by this Government since 1979 for the continued and solid growth that has taken place over an unparalleled period in this country's economy. To have sacrificed that great benefit would have been irresponsible. On that basis it is certainly a Budget which deserves our support.
§ 8.6 pm
§ Mr. Ian Wrigglesworth (Stockton, South)
I agree with the hon. Member for Aberdeen, South (Mr. Malone) that it is disappointing that the Budget is not more radical 1053 and reforming, although I may not want to see the same radical changes and reforms as the hon. Member would have liked the Budget to include. However, I agree with him about the need for more radical changes over share ownership. I look forward to hearing about the kinds of proposals which in due course he will press upon his right hon. Friends. I am sure that the general thrust of his plea for more employee share ownership will be supported by the alliance.
First, let me comment on the main proposals in the speech of the Secretary of State for Employment. I shall then deal with the proposals contained in the Budget. I begin by repeating an intervention that I made during the Secretary of State's speech. We very much welcome the expansion of the youth training scheme to two years and the introduction of a certificate at the end of the course which can be used when trying to obtain other qualifications and employment — if there is any available.
If I may emphasise what I said during my intervention, we hope that the Government will turn their attention to improving both the quality and the amount of training within the scheme. There is considerable evidence of dissatisfaction among many of the young people on the scheme and among many participating employers and others who are associated with it. I hope that the Government will recognise that fact and that with some vigour they will seek to ensure that the money spent on the scheme and the work done under it lead to proper and worthwhile training for young people and to a qualification that means something to educational and other institutions and to potential employers.
I welcome the expansion of the community programme. Both of these proposals were advocated by the alliance. We believe that the expansion of this programme will have a beneficial impact on unemployment. It will provide people with work, which is very much needed.
§ Ms. Clare Short (Birmingham, Ladywood)
Is the view of the hon. Gentleman's party on the community programme that it is desirable to have temporary schemes which create low-paid, marginal jobs rather than permanent jobs in the public sector? Which of those objectives would he prefer? Is the hon. Gentleman aware of the proposal by the directors of social services that they should be subsidised to employ permanent people to look after the old, the sick and the frail? Would he prefer that option?
§ Mr. Wrigglesworth
As the hon. Lady knows, at the last general election we advocated a scheme for taking more people into the personal social services to do necessary jobs, but the community programme provides worthwhile employment for many people. We know about the defects, and about the sceptism of many people, but in current circumstances the scheme should be supported in principle and hopefully, in practice, improved.
There were other aspects of the Secretary of State's comments which were not so acceptable, including, in particular, the proposal possibly to abolish the wages councils and to change the unfair dismissal proposals. We should be happy to look at any proposed reforms of the way in which the wages councils operate, but we believe that the Secretary of State and his colleagues have got the 1054 whole thrust of their policy in that area quite wrong. Indeed, I very much agree with the remarks of hon. Members on both sides of the House who have criticised the Government for attacking that end of the labour market. That is not where the major problems in our economy lie. Incidentally, before concluding my speech, I hope to come to some of the supply side things which the Government should be doing to increase employment. However, we do not believe that the Government should adopt such a policy as a priority, and we are sceptical about whether they are likely to bring forward proposals which will have a major impact on employment.
I turn to the general Budget strategy. I found the whole Budget very depressing, but it is even more depressing to hear Conservative Members and Ministers talking about the sustained recovery that is taking place, about the economy as though it was booming along, with a very low level of unemployment, and about our capacity being used to the fullest extent. This is not a Budget for jobs, but is, rather, a deflationary Budget, which will take further demand out of the economy. It is worse than it might appear on the plain, straightforward PSBR figures, because the Contingency Reserve is also being increased by £2 billion. In effect, the Government are reducing the PSBR to £5 billion. We need a 4 to 4.5 per cent. growth if there is to be a real improvement in the economy and if there is to be any impact on unemployment. That leads us to the certain conclusion that by this time next year we shall have once again seen a further increase in the number of those unemployed.
That is the main reason why I find the Budget profoundly depressing, but I find it depressing in another way. Indeed, an increasing number of people feel the same way about the Government's whole strategy. There is a black cloud hanging over the British economy. I refer to the diminishing supply of North sea oil and to the fact that the British people are worried about what will happen to their economy. If the international markets have pushed the value of the pound down so that it is almost on a par with the dollar, goodness knows what they will do if we do not have—as we will not have—the impact of North sea oil on our economy.
When one looks around the regions where manufacturing industry used to thrive, and when one sees the failure of the new technologies to match the growth taking place in Japan, America and other parts of the world, one becomes profoundly depressed about what will happen when the benefits of North sea oil run out. Of course, that will not happen until after the next general election. Indeed, this may well have been a Budget for the next general election, holdings things down now in order to come forward in a subsequent Budget, and perhaps in another Budget after that, with rather more rosy proposals than the Chancellor of the Exchequer was prepared to put forward this time. In the longer term, the damage to our industry will have a devastating impact on our economy unless the Government's strategy is changed.
This Budget must be given very low marks when it comes to helping those who have been hit hardest by the depression of the past three of four years. Its spending and taxation priorities are not the priorities that could most cost-effectively increase the number of jobs available, or help those suffering the greatest hardship. To spend £1,600 million on increasing the tax thresholds is not the most effective way of increasing employment. To spend that amount of money on increasing the tax thresholds is 1055 not the best way of targeting resources on those who are suffering the greatest hardship. We believe that the best way of doing that is to increase the rate of benefit to the long-term unemployed to the same level as the long-term supplementary benefit rate.
We also believe that the best way of helping those families who are suffering the greatest hardship and those on low pay is to increase substantially and to restructure family income supplement. Those are ways of cost-effectively achieving the targets of helping those suffering the greatest hardship and of getting people back to work. Unfortunately, the Government chose not to do that, and so we cannot support the Budget.
For some time Ministers and Conservative supporters have perpetuated myths. In the past few days another bit of Government propaganda has emerged. It is that, together with the so-called enormous growth in the economy, there has been a tremendous growth in employment. We hear figures trotted out of the number of people who have obtained jobs over the last year, but do the Government not understand — because surely the people do — that the important figure is that for the number of unemployed, whose idleness is damaging both to them and to the economy? Do the Government not realise that they cannot excuse themselves by saying that the number of people available for work has grown and that, therefore, they have not been able to provide them with jobs?
Those who are available on the job market are those who are the means of potential economic activity. If the Government pursued the right policies they could expand the economy and reduce the real unemployment figures. To argue that by increasing the number of people in work one has succeeded is to ignore the facts, and particularly the facts affecting those on the dole.
The other major lie which the Government have pursued and persuaded people about in recent times is that any expansion of the economy is bound to lead to inflation. They throw around references to the French experiment and to the policies of the Mitterrand Government who came to power in 1982, and seek to associate those policies with the proposals of the right hon. Members for Old Bexley and Sidcup (Mr. Heath), and for Chesham and Amersham (Sir I. Gilmour) or with those of the alliance. They seek to associate those policies with any proposals for an expansion of the British economy. What a farce. In 1982 the Mitterrand Government expanded expenditure by 25 per cent., made an immediate dash towards a 35-hour week and introduced a massive programme of nationalisation, so I am not surprised that that did not work. That was pie in the sky and is miles away from what we, and some of the Chancellor of the Exchequer's Back-Bench colleagues, have been advocating. Our proposals do not bear any resemblance to what happened in France. We must nail some of those lies to the effect that any expansion is bound to lead to inflation.
Unlike the Government and the Labour Opposition, we have proposed — and as pay increases continue the Government will find it necessary to accept this—that a coherent anti-inflation package should accompany the expansion which we believe to be necessary and possible. The House will know, from the proposals that we have published, what the package consists of. First, we must maintain firm control over monetary policy and, in order to contend with the higher levels of interest rates that that 1056 will imply, introduce an industrial credit scheme to form the basis of a two-tier interest rate system to help to protect industry and investment.
To assist that policy it would be necessary, secondly, to join the exchange rate mechanism of the European monetary system. If the Government had done so in the past few months, they could have done so on much better terms than are likely to be possible at present or in the near future. I hope that Ministers will seek to begin negotiations with the Council of Ministers with the aim of joining. If they had already done so, they would, because of the existence of that discipline upon our policies, have had the confidence of the markets, a more stable exchange rate and more stable interest rates than we have recently had.
As the Chancellor implicitly acknowledged in his Budget speech, some of our interest rate difficulties are the result of the Government's own uncertainty about their policy on exchange rates — the Government's own incompetence. However, there is no doubt in my mind, in that of the governor of the Bank of England, or in that of the CBI and many other commentators that we would have had a more stable exchange rate and interest rates if we had joined the exchange rate mechanism of the EMF.
The third element of our package would be an incomes strategy. That has also been advocated by the right hon. Member for Chesham and Amersham. I am sorry that the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan), after his experiences over the past two decades as Prime Minister and Chancellor, made no reference to the need for an incomes strategy. Recent history shows that that is necessary. One needs a back-up policy to help to ensure that the results of expanding the economy are not frittered away in extra pay increases and imports so that an immediate brake has to be applied to any further expansion.
What is the Government's policy on pay? They exhort firms to reduce pay settlements from the present level of 8 per cent. in the private sector. What do the Government have to say about the 4 per cent. increase in unit labour costs which the Chancellor mentioned in his speech? What do the Government propose to do about that? It will make our industry less and less competitive in world markets in the forthcoming year. What is the Chancellor's strategy for dealing with such pay increases and for dealing with the increasing head of steam that is building up in the public sector as a result of the Government's unfair policies towards public sector workers? We do not know. Neither the Government nor the Opposition have any policy to deal with the acceleration in pay increases that might follow an expansion of the economy.
I welcome the changes made to help bio-technology and information technology. However, the Government's support for the new technologies through direct investment and grants is chicken-feed in comparison with what our major competitors — Japan, America and also some European countries—are doing. We need more support, and a clear strategy to help to support the new technologies. However, we must also make our existing and older industries more competitive. I wish that Ministers would spend a little more time on the development of existing products, on research in that field, and on the whole area of design. It is wrong to think that the future of our manufacturing industry will depend entirely on the new technologies. Like Sweden and Italy, we must learn that we could gain export markets by dint of imagination and innovation in design. We should 1057 consider household products. Our kitchen equipment market has been overtaken in a devastating fashion by imports from Germany and other European countries. That has happened partly, or largely, because of the design work done on old products, for which there will be a continuing demand.
I also hope that the Government will do more to encourage industrial investment. The introduction of the industrial credit scheme could help to encourage industries, as the capital allowances are phased out, to invest more in new equipment and new plant so that we can achieve the higher rates of productivity and competitiveness which we so desperately need.
§ Mr. Charles Morrison (Devizes)
Early in his speech, the hon. Member for Stockton, South (Mr. Wrigglesworth) said that the Budget strategy was depressing and deflationary. He certainly made it sound depressing and deflationary, and what worries me is that I have a nasty feeling that he may be proved right. However, I start by saying that it is as pleasant to be able to express gratitude to my right hon. Friend for not including in his Budget some of the more hair-raising ideas floating around in recent months as it is to be able to congratulate him on what he has included.
I know that some commentators believe that if my right hon. Friend had introduced radical tax reforms such as widening the scope of VAT and changing tax regimes on pension arrangements he would have given himself more room for manoeuvre to act on unemployment. However, as I believe that he has more room for manoeuvre than he has allowed himself in any case, I am relieved that he has forborne from radical tax reform.
On the other hand, the Budget contains a plethora of measures that are welcome. Foremost amongst them are the extension of the youth training scheme and the enlargement of the community programme. I am somewhat concerned about one aspect of the expansion of the youth training scheme. According to the Chancellor's proposals, referred to by my right hon. Friend today, it seems that employers will have to bear a considerable extra cost imposition. It may well be that they will be able to bear it but we shall have to watch events carefully. I hope that the MSC will be successful in its negotiations with employers on that point.
In the longer term, I imagine that the changes in national insurance contribution may have a most beneficial effect on real jobs, and that further ahead—presumably in the next Parliament — the application of the conclusions to be drawn from the Green Paper on personal taxation should bring great benefit and make much better sense of our tax and social security system. There is nothing new in the world; we travelled along this track in the early 1970s. The Government could refer to what was said and thought at that time instead of covering all that ground again.
I share the doubts expressed about the proposals to abolish the wages councils. I am prepared to accept that some reform may be necessary, but I do not believe that the abolition of wages councils will create more jobs. More jobs will be created only through greater demand. On the other hand, I believe that the abolition of the wages councils could have the effect not only of reducing the 1058 wages of the lowest paid but also of creating much doubt, worry and fear in the minds of those whose wages are now covered by wages councils. That subject must be approached with the greatest possible care.
None the less, the Budget contains several enticing crumbs and a few more succulent morsels, but I fear that they are not enough to create a cake adequate to make the country feel more prosperous, more optimistic or more content, although my right hon. Friend the Secretary of State for Employment said that we are now entering the fifth year of economic recovery. In certain respects that might be so, but the economic situation still gives rise to the greatest concern.
My right hon. Friend the Chancellor tries continually to reassure us by quoting figures for economic growth, investment and low inflation. For the latter at least, the Government can continue to take credit, but behind the bald figures matters are nothing like so rosy. Output has grown, but for two years after 1979 gross domestic product fell. Even in 1984, the index of output stood at only 105.9 as compared with 103 in 1979. If oil and gas are excluded, the comparison is more odious — 103.1 in 1979 and 103.9 in 1984.
Investment has increased since the low in 1981, but table 3.9 of the Red Book forecasts that the increase in investment will now tail off, when it should continue to grow if our infrastructure is to be improved and our industrial competitiveness is to compare favourably, or more favourably, with that of other countries. Furthermore, Government capital spending is still about 40 per cent. below what it was 11 years ago.
There are more people in employment than in 1979, and there are proportionately more in work than in any comparable country, but there are nevertheless 3.25 million unemployed—2 million more than in 1979 and 150,000 more than at the time of last year's Budget for jobs. Nor can it be a matter of anything but the greatest concern that, in 1984, the year almost of greatest benefit from oil, our current balance of trade showed a surplus of only £51 million whereas there was a non-oil visible deficit of well over £11 billion, as the hon. Member for Stockport, South (Mr. Wrigglesworth) noted.
In my judgment the situation is not rosy and the Government must think again. Perhaps the first thing that they should do is to see things as they are rather than as they like to believe they are. Secondly, they must break out of what my right hon. Friend the Member for Cambridgeshire, South-East (Mr. Pym) yesterday referred to as their self-imposed straitjacket. For that, the City might have to take a little of the blame. Nothing will detract from my admiration for what the City does for the country, most notably for our balance of payments, but it does a disservice by putting the fear of God into the Chancellor about what would happen if he expanded his borrowing requirement when, as my right hon. Friend the Member for Cambridgeshire, South-East, said, there is no evidence that anything will be wrecked by an increase in the public sector borrowing requirement.
On Tuesday, my right hon. Friend the Chancellor said:The great mistake of post-war demand management, which still has some devotees today, was to react to rising unemployment by injecting more money into the system, whether through the Budget or through the banks. So far from halting the upward trend of unemployment, this simply generated runaway inflation."— [Official Report, 19 March 1985; Vol. 75, c. 789.]1059 I do not think my right hon. Friend remembers his modern history very well. Quite apart from anything else, he disregarded oil price increases. If he believed what he said in that paragraph, it is not in the least surprising that he adopts his policies.
Nobody is asking my right hon. Friend to throw money at the problem or to use it as confetti. If, sometimes in the past, demand has been raised too high, that is no reason now to keep it too low. If, for the current year, it is possible to overshoot the PSBR without disaster by £3 billion, mostly to cope with the consequences of a destructive series of events in the shape of the miners' strike, it is perfectly possible to have a PSBR of a similar £10.5 billion to be used for constructive purposes. After all, it is not the banks that put up interest rates, but the Chancellor. In any case, we know that interest rates are influenced far more by those in the United States and oil prices.
Someone infinitely greater than me recently asked how it was possible to have production unless one borrowed to produce. He who borrows can end up heading a great publishing house or some such. He who does not borrow will be lucky if he ends up with a corner shop. Indeed, he might have to find another job. The Government should have a little more courage, a little more faith and a little more confidence. If they demonstrate those characteristics, I have no doubt that the country will respond.
Let us have something approaching a U-turn. In industry, commerce or any other walk of life, if one set of policies fail they are ditched in the interests of the owners, the self-employed, shareholders and employees. Why therefore should the same not be so in politics? Is it fear of being laughed at by the media? It might be frightfully brave to continue to head for the rocks, but I do not think it very wise.
We should now have some changes in direction. We should remember a few more of the lessons of the past 100 years of our national history and that of the Tory party. In the end, we shall have and must have a larger programme of infrastructure investment because it is needed for the health of our economy. Why not now when there is so much slack in the economy? In the end, we must have a major housing improvement programme as, if we do not, much of our housing will deteriorate beyond the point at which it is repairable. So why not now? Possibly most important of all, as and when required, the Government must give more help to industry to enable it to compete at home and to develop new export opportunities.
To take another point from the hon. Member for Stockton, South, even if economic arguments have to be forgotten, we must for political reasons join the European monetary system. We almost missed the bus on the European Community and are in danger of doing so with the EMS. Like it or not, it is within the European Community that our destiny, hopes and future must lie. If we do not do those things, I fear for the future of our economy, for employment, for our balance of payments and for the social fabric of the country.
§ Mr. Ron Leighton (Newham, North-East)
It is a great pleasure to speak after the hon. Member for Devizes (Mr. Morrison). I only wish that he would bring more pressure to bear on the hon. Member for City of Chester (Mr. Morrison), the Minister of State, Department of Employment.
1060 This is the sixth Conservative Budget for jobs. The first thing that struck me about it was the revelation of the prodigious multi-billion pound cost of the miners' strike —the cost of making war on our own people, styled as the enemy within—and what the Chancellor called a worthwhile investment. Paying that bill left no resources for anything else. That is why we have a timid, cautious non-Budget which will do nothing to boost industry and nothing for employment.
Last year's Budget was unveiled as a Budget for jobs and now, 12 months later, 150,000 more people are unemployed, interest rates are five percentage points higher and mass chronic long-term unemployment continues to grow. How many more of these mendaciously described Budgets for jobs can the unemployed take? The Chancellor's only contribution has been to strike at employment protection, making it easier to dismiss workers unfairly. That is a mean, contemptible and unnecessary sop to the hard Right. There is no evidence to suggest that those rights which were introduced by the right hon. Member for Old Bexley and Sidcup (Mr. Heath) have deterred recruitment. On the contrary, they improved disciplinary procedures in industry and thereby improved industrial relations.
No one can assert that one year is not more than sufficient to assess the performance of an employee, and setting the clock back in this way, giving employers power to sack unfairly, will not create a single new job. It is a disgraceful reversion to Victorian values.
This is really a Budget for low pay. That is the theme that runs through it. Despite that, we all know that across the economy unemployment has grown much more rapidly for the low-paid groups than for the higher paid. In Hansard of 21 February, the game is given away. My hon. Friend the Member for Dunfermline, East (Mr. Brown) put it rather well. He asked the Chancellor of the Exchequer why employment was continuing to rise and he got the reply:Unemployment is still rising because the majority of pay settlements are still too high.Yet my hon. Friend the Member for Walthamstow (Mr. Deakins) asked the Secretary of State for Employmentwhy the reduction in real earnings in the motor vehicle industry relative to the economy generally in recent years has not led to an increase in employment in that industry.The reply was:The cost of labour is an important determinant of employment, but it is not the only one. Other elements such as productivity, international competition and the design and reliability of the final product also play a part."—[Official Report, 21 February 1985; Vol. 73, c. 516 and 563.]The truth was blurted out there that there are other reasons—for example, cutting public expenditure in a recession, engineering an increase in interest rates. The high exchange rate over these years has destroyed British industry and our competitiveness. The exchange rate is far more important for our competitiveness than marginal movements in wages. These and the lack of investment are the things that have caused unemployment.
Let us look at wages councils. The far Right pressure groups wanting what they euphemistically call "more flexibility" have turned their attack on wages councils. These councils cover the most vulnerable, the weakest, the lowest paid of our people. Apparently, for the rich to work harder they need more incentives; the poor have to have lower pay.
1061 I notice that the most vociferous critics of the wages councils all have very high salaries. They all enjoy very good employment contracts; and from that privileged position they all attack the weakest and the poorest. I find that morally repugnant because there is not a classical free market in wages. Wages, earnings and pay are not decided by the laws of supply and demand. The laws of supply and demand do not decide the pay of Members of Parliament, politicians, civil servants, the Armed Forces, the generals, the admirals, and the judiciary; and throughout industry we have collective bargaining. It is only the people at the bottom of the heap, who have no institutional machinery except the wages councils, who are to be hit. It is thought that if only we hit those at the bottom we shall catapult the country into some sort of economic recovery. I find that a morally reprehensible point of view.
However, there is no basis for this in fact. I put down a parliamentary question which was answered on 15 January this year. I was told that wages council rates 10 years ago, in 1974, were 73 per cent. of all industries and services. By 1984 they had gone down to 65 per cent. So there is no truth in the idea that wages councils are forcing up wages or are inflationary. It is all very well to have opinions and prejudices. Opinions are two a penny. We want the facts.
The Department of Employment commissioned a group of Cambridge economists and researchers to look into the question of wages councils. The report has not been published and I demand that the report be published so that we can see what that committee said. Let me quote a sentence from its conclusions:There can be no strong presumption that the retail wages councils have had an important independent employment effect.Those are the facts; that is the truth.
Inquirers asked why firms had cut back on labour or reduced hours and they were told that the reason was a decline in trading positions. Firms were asked in what circumstances they would employ more staff. They replied, if there was an increase in sales and an increase in profits and if they had an increased share of the market or an expansion of business. They did not say it was because of wages councils. There is no point in trying to make a scapegoat of wages councils. If small firms are asked what is the cause of their problems, they say it is VAT or rates. They do not mention wages councils.
Nor is there any logical reason for young people to be excluded from wages councils. It would be against the whole spirit of the legislation. If adults need protection, why do not young people? They are the weakest and most vulnerable of all. Any increase in employment of young people brought about by a fall in their wages relative to adults, especially in wages council industries where they do similar work, would be largely at the expense of adults, who would be displaced. If employers were induced to employ more young people because of their low pay, the same inducement could lead to their dismissal on reaching adult age.
I should like to ask the Minister about the Auld report, with which he will be very familiar. The Auld committee was set up by the Home Office to look into the hours of shops and it was recommended that the hours should be relaxed. The committee was not asked to look at wages councils, but in the area it looked into this stuck out a mile. The committee said: 1062Shopworkers need their protection in this respect as much as ever, in fact more so now when jobs are harder to find.It said that it had been struck by how poorly paid many retail workers were, and said:We set great store by the preservation of the role of Wages Councils in fixing statutory minimum weekly rates, holidays and holiday pay for the retail trade.It also said:Although it is not directly within our terms of reference, we strongly urge the retention for retail workers of the machinery of the Wages Councils for the fixing of satisfactory wages and premium rates.It asked that their orders be properly enforced and wanted an adequately staffed wages council inspectorate.
That is the recent report of the committee set up by the Home Office. That is its recommendation and I should like to hear tonight that the Government will accept the recommendation of that reputable committee, not that of the various loony ideological think tanks which sometimes put forward their prejudices. We want the facts, not people's prejudices.
The Select Committee on Employment has been conducting an inquiry into this and we had evidence from the CBI. Perhaps the Minister would like to know what the CBI said to the Select Committee:There was little enthusiasm for the suggestion that all young workers should be excluded from coverage by wages councils.In the appendix the CBI said:The question is whether youth pay and particularly the rates paid to young workers in the wages council sector have had an especially detrimental effect. In general, this does not appear to be the case.So there is no rational or reasonable case at all.
I have pressed the Government for an extension of the community programme, as did the Select Committee last year. I am pleased to see this proposed, but I do not want the Government to spoil this for a ha'p'orth of tar. I want an upgraded scheme with more full-time jobs and an increase in the average payment of £63. The Government must obtain the approval and support of the trade unions, particularly those in local government. I wish the scheme well. But even with the numbers mentioned, the increase will represent only one in six of the long-term unemployed.
With the Select Committee, I have urged an extension and improvement of the youth training scheme and, therefore, I welcome the two-year scheme. However, the Government must be careful not to get it wrong. After all, the motives of many in the Government are suspect. People feel that it is a device to reduce the unemployment figures cosmetically, to keep youngsters off the streets and to reduce youth wages.
At present, the YTS is like a curate's egg. The latest reports of the Select Committee showed that one third of the schemes were unsatisfactory, that 56 per cent. of trainees left before the end of the scheme, and that one fifth—an extremely high number—of trainees left the scheme before the end.
We want proper arrangements made for the training of our young. Britain's record in this sphere is abysmal, we are way behind our competitors, and time is running out. Training the young must receive priority, but the first principle of any scheme is that it must be voluntary. There must be no compulsion. Any compulsion would kill the scheme stone dead.
That means that the Secretary of State must not succumb to the blandishments or pressures of his colleagues—we heard the Prime Minister on the subject 1063 today—and we want to end the meagre benefits that are available to the young who prefer to seek work. There must be no what might be termed compulsion through empty pockets. The scheme's success depends on its attractiveness and quality so that people want to join it.
Some hon. Members would pefer another form of compulsion. They want to remove young people from the ambit of wages councils and make youth earnings so low that there is no alternative to the YTS; in other words, to deny work to youngsters, so forcing them on to the YTS as the only option. If that were to happen, the YTS would be seen as a form of forced cheap labour. That would destroy the prospects of the nation having a decent training scheme for its young. We need major investment in the younger generation. We must devote the necessary resources to that task. Nothing could be more important for the future of the nation.
Is that what the Government intend? They originally said that they would spent £1 billion in the first year of the YTS. In the event, that was not spent. What do they propose to spend in the second year? The second year must be more ambitious, with more and better quality training, more training specifically related to jobs and higher allowances so that the scheme is attractive and is not seen as a second rate form of cheap labour.
How much, then, do the Government propose to spend on the scheme now? If they proposed to spend £1 billion in the first year, how much do they intend to spend on an improved second year scheme? When I saw the figures I was so astonished that I thought there had been a misprint. I read that, instead of £1 billion plus being spent in the second year, the Government intended spending a derisory £125 million in 1986–87 and £300 million in 1987–88. That is hopelessly inadequate, and one is bound to ask whether the Government are taking the matter seriously.
I spent two hours yesterday taking evidence in relation to the YTS from the CBI. The representatives of that organisation are shocked over what is proposed and it is clear that they remain worried, and that is why I remind the Government that the YTS is also voluntary for the employers. There is no reason why employers should not contribute to the scheme. After all, trainees work and contribute added value. Account should be taken of that.
That is also why trainees should have an adequate allowance. But for the Government to think that they can get off scot free and have a second year of the YTS for nothing—to have two years for less than they proposed to spend in the first year—is fatuous and asinine and casts doubt on their motives.
Do the Government want simply to massage the unemployment statistics, or are they serious about training the younger generation, our most precious possession? If they are serious, they will accept that if they could spend billions of pounds fighting the miners and more billions in the Falkland Islands, similar sums can be spent on our youngsters. That is what they must do and what I shall press for. We want a proper, high quality scheme with real training, adequate allowances and the prospect of a job at the end of training. The country needs and should settle for nothing less.
§ Mrs. Edwina Currie (Derbyshire, South)
I wish at the outset to extend a warm welcome to all the efforts that are being made to improve the training of young people and the retraining of older people. It is tragic that so many 1064 youngsters should have been leaving school virtually unemployable when in many parts of the country—for example, in my constituency—there is a shortage of skills.
Schools and industry have drifted much too far apart and, as a former teacher, that makes me uneasy. It is an odd situation when young people who cannot get jobs at the age of 16 can join a good youth training course, such as that run by Rolls-Royce in Derby, and a year later 70 per cent. of them are first-class and welcome employees. That is probably an indictment of our schools system, and the efforts announced by my right hon. Friend this afternoon to improve the awareness of teaching staff about the needs of employers are appropriate and valuable.
One crucial problem concerns the rigidities and costs of employment, which have changed the patterns of employment under our noses without anybody having planned it. It is also an odd situation that when Mrs. Average takes her son for a job interview, not the lad but the mother gets the job these days. In the year to September 1984, 153,000 net new jobs were created, and 152,000 of them went to ladies working part-time. There is nothing wrong with that, but it is obvious that in many parts of the country the jobs are there and that the work force, to acquire them, will have to be more flexible, more skilled, more competent and cheaper.
It is sad to reflect that in many parts of the country the worker is, in far too many cases, not worthy of his hire and, as a result, he does not get hired. Thus, I support the end of wages councils. So long as we have a supplementary benefit system, there is, in economic terms, a minimum wage below which at least full-time wages cannot fall.
As for long-term unemployment, I welcome all the proposals in regard to the community programme. An imaginative set of measures has been set out today and I am particularly pleased to see, in view of my interest in health and social services, the proposals to help charities and voluntary organisations and the voluntary projects programme—a sensitive and valuable idea.
The Budget will also be welcome in the east midlands. It is clear, for example, that we have put far behind us the Socialist policies about which we have heard today from Opposition Members, many of whom have been talking absolute humbug. When in power, they imposed a tax on jobs which was called the selective employment tax. We have got rid of that. They had another tax on jobs called the national insurance surcharge, and we have got rid of that. That had price controls. The first time that I came to the House I was sitting in the Strangers' Gallery 19 years ago in 1966, and I heard Mr. Frank Cousins putting forward part V of the then Prices and Incomes Bill. I remember thinking then, "What an absolute shambles, and what a way to run a country; there has to be a better way." The Labour Government also had an incomes policy. We have heard about an incomes policy this afternoon. One or two of my right hon. and hon. Friends are in favour of one. An incomes policy of the kind that we saw under Governments of all colours destroyed initiative, diverted effort into perks and into avoidance, and drove our best people overseas, including many of the people with whom I was at college in those years. Those were our best people, in the sense that they were the creators of employment. They have taken their ability to create employment elsewhere.
1065 We also heard from the hon. Member for Stockton, South (Mr. Wrigglesworth) about the alliance's income strategy. He did not actually say what the strategy of the alliance would be. As I understand it, at least part of it is to tax any pay rises over and above a certain level associated with inflation. The only country in the world that I know of which has a programme like that is Hungary, which I do not think is a model of economic probity. The only modern politician suggesting that, apart of course from the odds and sods in the alliance, is Senator Gary Hart of the United States, and we all know what happened to him.
The results of the Socialist policies in the five years of the Labour Government were miserable rates of growth of under 2 per cent., awful productivity with ¾ per cent. improvement, and a rapid rise in unemployment to the tune of it doubling within months. The last Chancellor who gave a forecast of what unemployment would be was the Labour Chancellor in 1975. He was desperately wrong and it has never been done since.
We had a level of inflation of over 20 per cent. I was a teacher when the Houghton award was given in 1974. We thought that we were doing well. We got a pay rise of 30 per cent. The following year inflation was 28 per cent. and we discovered we had been paid in paper money. Raising taxes to pay for the sort of pay rise that was then awarded throughout the public sector simply took money from companies in the private sector and put other people's work in jeopardy. How much better it is to approach the whole problem by saying to employers, "We will take less tax from you. We will give you fewer allowances and grants and let you decide how to invest the money. You can decide how to employ staff and pay them. You know better than Whitehall. You share the investment in the training scheme." It is about time we said that to employers. If they expect the benefits they should share the cost in a much more direct way than by taxing them and handing them back the benefits, as we have tended to do so far.
Whether or not this is a Budget for jobs we will find out. I think that it is. As has been said by the Opposition, it is certainly a Budget for the low-paid worker. I suppose that there is one sense in which it is a Budget for the little man. Given the comments that the Chancellor made about the importance of the family and getting the wife back into the kitchen, I guess that it is a Budget for the little woman as well.
We have 8½ million people earning less than £130 a week. The assistance that is being given to the individual and to his employer through changes in the income tax threshold, by raising thresholds by twice the level of inflation, and by changing the rules on national insurance contributions will be immensely useful. I am delighted that at last the Treasury has recognised that national insurance contributions are a tax. They are a nasty, regressive form of tax on the lowest paid. As a result, they are a deterrent to work, because so many people become better off at the margin by not working and making that a rational choice for themselves and their families.
I commented at Question Time this afternoon that some 260,000 people who are over working age will be taken out of tax. I had better make it clear that I welcome that. It is a good thing that pensioners should not have to pay tax on their hard-earned personal pension. Of the 800,000 1066 people who will be helped by the tax rules, just over 500,000 will be of working age. That shows how difficult it is to change the rules to assist those who are at work.
Many of those who work and pay tax will still be paying national insurance contributions. The calculations show how hard it is to remove the poverty trap. If a man earns £80 per week, he will pay 5 per cent. in national insurance contributions in future and, taking benefits into account, he will achieve a net receipt of £95.33. If he gets a better job and earns £91 per week, he will pay 9 per cent. in national insurance contributions and he will be worse off because he will end up with a net receipt of £93.45. He will be almost £2 worse off by going for a job that brings in £11 per week more.
My right hon. Friend wants to shift the burden to the higher paid, but I am not sure that he was thinking of the £91 per week man as being higher paid. Perhaps we cannot eradicate the poverty trap. Perhaps all that we can do is shift it around. It seems to me completely wrong that a man cannot improve his position in life by working harder. I do not feel that we will have fulfilled all our Tory pledges until we have put that matter right.
What these measures should do is to shift attention to employing more men at lower wages instead of having people on overtime at time and a half and double time. At the end of 1984 the overtime worked in manufacturing industry — we have heard a lot about manufacturing industry today — was working out at over 12 million hours per month and was rising fast, with an average of 9 hours per man per week. That is equivalent to 300,000 extra jobs in manufacturing. I hope that some of the changes in the Budget will encourage the creation of those new jobs.
Altogether, nearly £1.25 billion in a full year will be spent on improving the employment prospects and initiatives for those on less that £130 a week. I should have thought that if the Labour party was really the party of the poor and the downtrodden, as its members claim, it would welcome the Budget.
I welcome the comments yesterday of my right hon. Friend the Chancellor about how the system discriminates against the family. It is surely an anomaly that a married man with a working wife gets two and a half times the single man's tax allowance, but a married man with a non-working wife gets only one and half times the single man's tax allowance. I shall watch with interest a change in the system such as the proposal at which my right hon. Friend was hinting yesterday that they should both have allowances of the same amount so that the married man with the non-working wife does not lose out.
There is one particular problem. If the Chancellor proposes to adopt the ideas of the Institute for Fiscal Studies—which would cost about £3 billion a year—although 2 million people would come out of tax, about 2 million ladies who currently are not paying tax will have to pay it in future, and they will not like it. We have a long way to go before it pays women to stay at home. I therefore welcome the Green Paper, which will look at the interaction of the tax and benefits system. It might well be better to look at the way in which the French tackled this problem in the post-war years and the ways in which we might better use the £4.25 billion of child benefit, perhaps making it payable only to women who stay at home with small children.
We heard much from the hon. Member for Kingston upon Hull, East (Mr. Prescott) about real jobs, and, no 1067 doubt, we shall hear more from the hon. Member for Sedgefield (Mr. Blair). Three thousand coal miners in my constituency have real jobs. Much more could have been done in the Budget had it not been for the miners' strike. Right at the beginning of the strike, a year ago South Derbyshire miners took a vote and 83.5 per cent. voted to go to work. They have worked throughout. They have just voted to lift the overtime ban, and I am pleased to hear that. Yesterday, they refused to ballot on the 50p levy for dismissed miners. The general secretary of the NUM in south Derbyshire said that his men would murder him if any such suggestion were implemented in south Derbyshire. He said that the notion would be to pay these people who "threatened and abused" his workers. He said that, as far as south Derbyshire was concerned, they could "stuff it". That strike was expensive, destructive and pointless. All it did was slow down our growth to 2.5 per cent., which would have looked very nice during the Labour years.
Labour Members supported that strike, and the docks strike and the train strike. They support the teachers' strike and every strike going. We have yet to hear Labour Members say in the House, "There is a strike on, and we disapprove. We think that they should go back to work." Labour Members are more interested in disruption and disaffection than in the growth and development of our industry and country. All that that approach will do is to advertise to our customers all around the world British industry's unreliability. The result is that we lose customers, trade and jobs for ever. In that context, therefore, the measures of my right hon. Friends on the Front Bench are wise, workmanlike and worth while, and I am glad to support them.
§ 9.8 pm
§ Mr. Martin J. O'Neill (Clackmannan)
I suppose that after 12 minutes of listening to the hon. Member for Derbyshire, South (Mrs. Currie), we have had our £5 worth of her. That was probably quite expensive at the time. We heard a unique speech from the hon. Lady, because she was the only Government Member to have been in any way supportive of the Government's policies. One can only hope that the hon. Lady's loyalty will be rewarded by a job in the Whip's Office, so that we may be denied for some time the privilege of listening to any more of her interventions.
I am sponsored by the National Graphical Association, so I wish to refer to the imposition of VAT on advertising in periodicals and journals. This is an unfortunate and unnecessary piece of taxation which is made no more palatable by the fact that it will not be imposed on books and the cover price of journals and newspapers.
The idea that journals and periodicals should be treated in the same way as radio and television is based on a misunderstanding of the economics of the media, which is likely to endanger many of the free sheets and to cause an increase in the price of newspapers. It is likely to result in a 3 per cent. decline in the volume of advertising, according to studies carried out by Price Waterhouse. It will have serious consequences for the print industry because free sheets have been a means whereby excess capacity and expensive new equipment has been taken up. Firms have invested in the new technology and have been encouraged by the printing unions to do so outside London. The provincial presses will be put into jeopardy, and many of the proposals for improvements in industrial 1068 relations could be jeopardised by this paltry taxation. Such is the poverty of the Government's thinking that their capability to raise taxation leads them to seek £50 million by a measure of this nature.
The disproportionate burden of this new form of VAT will be imposed on small advertisers, people who make use of classified advertisements and wish to get rid of equipment and so on. Such advertisements allow the poorest people the opportunity to sell things through the press. As charities are not in a position to claim VAT back, they will have to carry the burden right the way through. About £2.5 million a year is spent on advertising by the charities such as Oxfam and War on Want to bring to the attention of the public the significance of their case. Such an imposition on them, at a time when the Government are providing assistance in other forms to the charities, through the community programme—a move that we welcome—means that the Government are giving with one hand and taking away with the other. This tax is unnecessary and unwelcome. The amount of money that it will collect will be out of all proportion to the dissatisfaction that it will cause to the community.
§ Mr. Tony Blair (Sedgefield)
It is with some diffidence that I wind up this debate, given the high quality of the speeches that have been made. In particular, I am glad to welcome back my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan), who was in excellent form. It must be comforting for the Government to appreciate that, although they have the less than total support of the right hon. Members for Chesham and Amersham (Sir I. Gilmour), for Cambridgeshire, South-East (Mr. Pym) and for Old Bexley and Sidcup (Mr. Heath) and of the hon. Members for Devizes (Mr. Morrison) and for Aldershot (Mr. Critchley), they at least have the unstinting admiration of the hon. Member for Derbyshire, South (Mrs. Currie).
This Budget is significant only in its utter insignificance. To call it a "Budget for jobs" is to add the insult of a lie to the injury of mass unemployment. If it marks anything, it marks an end of pretence by the Government that they can fulfil their responsibility to the unemployed, and a consolidation of their strategy to disclaim responsibility for the unemployed. We have not a Budget of solutions but a Budget rich in excuses.
From now on, we shall be told two things ad nauseam by the Government. First, as the Chancellor put it in a broadcast in October last year, we shall be told that unemployment is not an economic but a social or human problem. In other words, the Government have nothing to offer the unemployed but their condolences. Secondly, Government strategy will, to an ever increasing extent, blame unemployment on the unemployed. Those in work will be congratulated, those out of work will be told that the fault is theirs for failing to take advantage of the new enterprise culture that the Government have visited on us and for their greed in asking for high wages. In other words, masochism will be elevated into a principle of public policy.
Central to that strategy is the lie frequently touted by the Government— we heard it again today—that the Government have done all that they can. We used to be told that unemployment would fall when recovery arrived. Looking back to the speeches that were made before the Government came to power in 1979, one sees that the 1069 Conservative party's constant refrain was that the Labour Government caused high unemployment, and its policies would reduce it. Now the Government realise that in fact unemployment will not come down and that it will not be substantially less at the end of their period of power than it is now. However, that has resulted in the Government not changing their policies but changing their definition of "recovery". I should like to examine in a little detail exactly what substance there is in the claim that the British economy has recovered.
The Chancellor said that his speech set out the economic background to the Budget. It did not. It set out the economic performance of Britain in 1984 in the abstract. I should like to set Britain's economic performance in its proper context. The Chancellor laid great stress on output, investment and exports, and in particular he emphasised all those things in relation to manufacturing industry. It is true that in all those areas there was substantial improvement in 1984, but now let us consider the entirety of the Government's period of office — not just 1984, not just 1981 to 1985, as the Government are fond of doing, but the years 1979 to 1984 as a totality, in other words including the 'period 1979 to 1981, which is fact, and excluding the year 1985, which is forecast. When that is done and the figures for 1984 are put relative to the total years of the Government's period of office, particularly when the extent and depth of the recession in the late part of 1979 to 1981 is considered, a rather different picture emerges. It is right that output is up 2½ per cent. in 1984, but due to what happened in 1980 and 1981, average output under the Government is actually less than 1 per cent. per year. Let me put it another way. If output had continued at the level that it was at from 1974 to 1979, it would be some 6 per cent. higher today. In fact, the output for 1984 is average trend growth in a fully employed economy, and is wholly inadequate to deal with the depth of the recession that we were plunged into in 1980 and 1981.
Let us take investment. Total investment this year is up 6½ per cent. which, by itself, is attractive. Let us put it in context. In fact, 1984 is the first time that total investment has even achieved its 1979 level. It only now begins to compensate for the fall in investment of 5 per cent. in 1980 and of 8½ per cent. in 1981. Indeed, I have taken the most favourable assumption on investment because the truth about the 6½ per cent. figure is that to a large extent it is made up of firms using the changes in capital allowances to bring up their investment. If one looks at the Government's own forecast for total investment, one sees that it drops to 2 per cent. next year and to 1 per cent. in the first half of 1986.
§ Mr. Blair
I shall give way in a moment, but I should like to finish this part of my speech.
Let us consider non-oil exports. They are up 9 per cent., says the Chancellor, but during 1984 the sterling index depreciated by some 10 per cent. There is no secret of competitiveness here. There is no magic cure that has been worked by the Government upon the economy to achieve that. Let us consider the opportunities. In the United States there has been an expansion of industrial production of about 15 per cent. in some 18 months, yet Germany, Italy and France all did better on exports to the United States 1070 than ourselves in that period. Of course, what picture of exports would be accurate without recording the non-oil trade deficit reached in 1983 for the first time? In 1984 it will be £4 billion, and in 1985 the Government forecast that it will actually rise.
§ Mrs. Currie
I have listened to the hon. Gentleman with great interest. Does he admit that business investment last year rose by 12 per cent. to an all-time high, as did investment in the construction and service industries? Will he tell the House during which year in the last Labour Government growth in the economy as a whole reached 2.5 per cent., which it did last year despite the miners' strike?
§ Mr. Blair
With great respect, the hon. Lady does not understand the point that I am making. It is not enough to look only at this year—we must look at the entirety of the Government's term of office. It is meaningless to say that recovery is happening now unless it is set in the context of what took place in the first years of this Government's term of office. That becomes even plainer when studying manufacturing industry.
Let us set the Chancellor's Budget claim in context. He said that manufacturing output was up by 3.5 per cent.—so it is, but it is still 9 per cent. below its level when they took office. He said that exports were up 10 per cent. Yet the Budget statement itself shows that the growth of manufacturing exports is no more than the world growth in manufactures for the entire year—and that with the current trade deficit. We have been told that investment in manufacturing industry is up 13 per cent.—yet it is still 30 per cent. below its 1979 level.
Even if we take 1984 in isolation, we must compare the output of this country with the average output of OECD countries. Their average this year was 4 per cent. to 5 per cent. compared with 2.5 per cent. for the United Kingdom. Even making allowances for the miners' strike, industrial production in the United Kingdom is the lowest of any OECD country. This is supposed to be the year of recovery. The truth is that over six years, measured by any sensible standard of success, this Government have failed.
All this has taken place at the same time as North sea oil has come on stream. Conservative Members do not like to hear too much about North sea oil or the waste of the revenue from it. By 1988–89, this Government will have received about £74 billion to £76 billion. This year alone, revenue is expected to be about £12 billion, and probably £13.5 billion next year. Let us suppose that that bonanza to the Government's revenue was not available—what would the private sector borrowing requirement be then? The truth is that we could never have managed without massive tax increases. We have had the revenue from North sea oil over and above what other countries have had, and viewed in that light the scale of the Government's failure is even greater.
When historians look back at this period of Government, they will do so with amazement and anger. How could a country be given such a windfall during recession, at a time when traditional industries were changing structurally and at a time when the world was coming to terms with the demands and advances of new technology, and used that windfall not to build growth, not to invest in new technology, not to finance industrial development, but to squander on the dole queues? I do not think that there are words adequate to describe the 1071 Government's failure. That is the true economic background of the Budget. Measured against that, we must decide whether the Budget is a Budget for jobs.
My hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) dealt with the community programmes and the YTS. The two main items that are supposed to bring about the supply side revolution in the British economy—the national insurance contribution changes and the tax allowances—must be set in context. For the purposes of argument, let us assume in the Government's favour that those two measures could, in principle, have the effect that the Government claim.
The net effect of national insurance contributions on employers' costs is £80 million. The total net effect of national insurance contributions would be £450 million. That is half, or less than half, of what was taken off last year in national insurance surcharge contributions. It was a good idea to do that, but unemployment rose during that year. The idea, therefore, that a measure that equals about half the benefit of those national insurance contributions will bring about a great revival in jobs in British industry is risible.
According to Treasury figures, tax allowances above the rate of inflation give about £2.32 a month to a single person and about £3.58 a month to a married couple on basic rates. The 1 per cent. rise in mortage rates in January and again today put £10 on repayments on a £10,000 mortgage and £20 on a £20,000 mortgage. In other words, these tax allowances have not nearly compensated for the rise in building society rates.
The notion, therefore, that as a result of these changes the economy will take off and the recession will end is laughable. That cannot possibly happen and, with respect, I do not believe that the Government think that it will happen. That is the economic background of an economy which is nowhere near coming out of recession and of a Budget which cannot honestly be called a Budget for jobs.
Why have the Government got themselves into this state? They are a victim of their own obsessions. It is often said that the Government are radicals, but in truth they are reactionaries. It is just that the life experience of most of us does not go back long enough to remember the time when such views were prevalent. My right hon. Friend the Member for Cardiff, South and Penarth said that the Government were applying the remedies of the 1930s. I wonder whether they are not in fact the shibboleths of the 1830s. Their belief in the sanctity and wisdom of market forces would gladden the heart of a 19th century Liberal, never mind someone of the 1930s.
The folly of their faith in the sanctity of markets in the modern world is best illustrated by the exchange rate crisis. One week the Prime Minister told us, and the press was briefed, that the market would decide the rate of exchange, and that there was no doubt about her resolution and steadfastness in that matter. The market did decide. But then, of course, there had to be a humiliating about-turn and intervention on a massive scale to restore the Government's credibility because of their initial position that market forces would operate. The outcome of this fiasco was a £1 billion extra load on the costs of industry's borrowing, and the highest real rate of interest in the Government's history. Yet they are a monetarist Government who told us that monetarist policies would reduce interest rates. Six years later interest rates are the highest that they have ever been.
1072 We are in the same position with the question of investment versus tax cuts. I do not doubt that tax cuts may have an impact on jobs, although mainly through boosting consumption a la Ronald Reagan. The supply side argument to tax cuts seems to be extraordinarily remote. If I understand it rightly, it is that tax cuts replace wage demands, which ease the pressure on employer's unit costs so that with the extra money they can either recruit more employees or become more competitive and, thus, the economy is lifted out of recession. The assumptions behind that are questionable, if not bizarre.
In any event, the evidence shows that any effect of those tax cuts, or of even greater tax cuts than are in the Budget, is minimal. It is especially absurd that we should consider tax cuts as the engine of recovery, when a perfectly good means of attempting the process of recovery exists, that is, by investing in programmes of construction and in manufacturing industry. That would have a major and direct impact on jobs. As the right hon. Member for Chesham and Amersham said, the notion that, with 3.5 million unemployed, there is no shortage of demand in the economy is ridiculous. Infrastructre work, for example, can and must be done. If it is not done now it will have to be done later. We impose, in effect, a tax upon future generations by not doing it now. Delay in repair makes the remedy more expensive. Infrastructure work improves the efficiency of industry. The case on the grounds of necessity is overwhelming. The job creation impact is direct and immediate.
But there is not simply the case of the infrastructure. There is Government funding in other ways. Let us take what has happened — some of my hon. Friends who represent Scottish constituencies will be aware of this—to the Scottish Development Agency. It has brought together the electronics industry in Scotland. That is not dogma. It is common sense. The agency marries the community's resources for the benefit of the community. It is the Government enabling people by providing expertise and resources to release ideas and initiative within the community and build the economy. There is no magic in that. It rests upon ordinary human common sense. The Government reject that because it offends against the divine rule of the market.
§ Mr. Gerald Malone (Aberdeen, South)
Perhaps therefore the hon. Gentleman will congratulate the Government on supporting the SDA and encouraging its role.
§ Mr. Blair
It gives me great pleasure to congratulate them on that, but why do they not learn lessons from that? The lessons to be learnt are that the state and the Government have a role in the economy.
Allied to the myth of market infallibility is the equally absurd obsession with public spending. People treat public spending as if it were all the same. There is no idea of why we want public spending and what it should be used for. Let us look at where that obsession led the Government. It has often been said about the Budget that the Chancellor was boxed in by the market. He was not. He was boxed in by his own talisman—the PSBR. He has solemnly to assure us that the PSBR must keep to its stated target in 1985 or dire consequences will follow. He says that in a year when he sacrificed the talisman to the defeat of the miners' strike.
The point about the miners' strike in this context is not whether the Government were right or wrong to do what 1073 they did. We will disagree about that, and I do not have the time to persuade Conservative Members. If it were a sufficient priority to raise the money to defeat the miners, why is it a lesser priority to defeat unemployment? That is the issue.
Our economy could easily accommodate a more relaxed fiscal stance provided that the money was used to finance expansion. Our financial balance, as measured by the OECD, is tighter than Japan's and Germany's—countries whose economic growth will outstrip ours in 1985. The trick is not to set illusory targets based upon mistaken dogmas but to allow balance. The Government's great fault is that they are absolutists. They are attached to the money supply or the PSBR with the fever of medieval schoolmen with their metwands. When the Government fail to attain the targets they are surprised that they leave around them not confidence but confusion. That is the background to the Budget.
We are left with a mixture of empty compassion and exhortations to people to price themselves into work. The Government say that that will be aided by measures designed to reduce the protection that people have against exploitation. In place of the jobs which are being cut from manufacturing, the aim will be to push into work in low-paid, no-tech jobs those who to the Government will represent a token reduction in the unemployment figures. It is a policy of the most contemptuous cynicism. It is difficult adequately to describe the hypocrisy of those who advocate solutions for others that they would never dream of accepting for themselves.
The tragedy is that unless we alter the economic agenda that the Government have set we will not deal with the problems that the country faces. What are those problems? They are the structural changes in our traditional industries, the impact of new technology and how we integrate the new technologies into our traditional industries. I was appalled to see that the trade deficit, for example, in information technology is now some £2.3 billion. In electronics and electrical engineering, it is about £8.3 billion.
How do we maintain adequate research and development? How do we ensure that the training of people in these new disciplines is adequate? Above all, how do we deal with demographic change and mass unemployment? These are tremendous problems. They are too important to be left to the whim of market forces. We need a Government policy not of abdication but of action. We need the partnership of Government, industry and people in order to provide resources and enable the ideas and initiative of people to prosper. I believe that it was the right hon. Member for Brighton, Pavilion (Mr. Amery) who said that there are resources within the community that are not liberated. The crime of this Government is that they do not liberate the resources of the community.
People refer to the immorality of unemployment. What about the waste of unemployment: the waste of the vitality and energy of our young people? This is a Government of waste and, above all, of inefficiency in the use of resources, personified by a Prime Minister who enjoys exercising power and who wields power like an ancient despot but who refuses to use power creatively for the benefit of the people in the community. The Prime Minister is concerned more with demonstrations of autocratic behaviour than with dealing with these real 1074 problems. Where is the determination to combat mass unemployment? Where is the conviction that poverty must be eradicated? Where is the courage to recognise that we shall not solve the problems of the present by gazing resolutely into the past?
The challenges that we face are considerable. We can and should face them as a community, not as individuals in competition with each other in the race for survival. If we do not begin to tackle mass unemployment the casualty will be not merely those who are unemployed but, I fear, democracy itself. This Budget has been hailed by the Chancellor as a Budget for jobs. So were all the others. We can attach no more credibility to this Government now than we did then. We shall not truly begin to make a start on rolling back mass unemployment and creating jobs in industry for our people until this Government have gone.
§ The Minister of State, Treasury (Mr. Barney Hayhoe)
I begin by welcoming the participation of the hon. Member for Sedgefield (Mr. Blair) in our debate. I believe that it is the first time he has spoken from the Opposition Front Bench in a Budget debate. We shall look forward to many more contributions from him during the proceedings upstairs on the Finance Bill.
There have been many distinguished contributions and contributors to our debate today. I recall what was said by the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan)—that the "buzz" word is presentation and that one should be congratulating hon. Members on presentation. It would be churlish of me not to congratulate all the Privy Councillors on both sides of the House who spoke from the Back Benches on the very adequate presentations that they made, but if one were to choose a man of the debate there is no doubt in my mind that on a free vote of the House the award would go to a parliamentary gem of wit and brilliance from my hon. Friend the Member for Aldershot (Mr. Critchley). Those hon. Members who were privileged to be in the House will remember his contribution, I suspect, rather longer than many of the others, including my own.
Budget debates tend to highlight the differences between the parties. Therefore, I was particularly pleased that a consistent theme throughout nearly all of the speeches today and, indeed, throughout the Budget debate has been support for the Government's proposal to extend the youth training scheme. The two-year scheme, with a recognised qualification at the end, is an extremely important development. This was recognised by the hon. Member for Stockton, South (Mr. Wrigglesworth), who spoke on behalf of the alliance. I assure him' that the quality of the training element within the extended scheme is of considerable importance. Attention will be paid to it by my right hon. Friend and his colleagues at the Department of Employmemt.
I was also particularly glad that the hon. Member for Kingston upon Hull, East (Mr. Prescott) positively endorsed these plans. However, I was a little sorry that his political spleen forced him into questioning our motives and that he should talk of fiddlng the figures. It is important that the message should go out from the House that all hon. Members support this endeavour to extend, deepen and improve our youth training scheme, and I am delighted that they have done so in our debate today.
The restructuring of the national insurance system has been given a more guarded welcome. When the Leader of 1075 the Opposition rose immediately after my right hon. Friend the Chancellor of the Exchequer had introduced the Budget, he claimed paternity for the idea and said that it was in the 1983 Labour manifesto. But having checked the manifesto, we now realise that it was not there at all. The only thing stated there was that the upper earnings limit should be removed for employees. But I do not quarrel too much with the Leader of the Opposition. I have always been told that that is the hardest speech that the Leader of the Opposition ever has to make, because he is expected to rise just after the Chancellor of the Exchequer has sat down and to make an impromptu speech on the Opposition's view of the Budget. In those circumstances, he is allowed some poetic licence.
But there can be no doubt that restructuring brings considerable benefit to the lower paid. Indeed, I was sorry that the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) spoke of the Government's policy as being—I think that I got his words right—to impoverish the lower paid. That description cannot be applied in any way to the restructuring of national insurance contributions. Indeed, I shall give some figures shortly.
Some Opposition Members have criticised the new steps at £55 and £90 and have claimed that they widen the poverty trap. Of course, it is true that the big poverty trap, where there is a high marginal rate of tax under the existing system, will be reduced and replaced by smaller traps that are less severe further up. The hon. Member for Great Grimsby (Mr. Mitchell) suggested that the lower earnings limit should be turned into a threshold like the one we have for income tax. But that would be enormously expensive, and would cost about £6.5 billion to tackle both employer and employee contributions at present contribution rates, and with a starting point of £35.50.
It has also been suggested that we should increase the lower earnings limit to £50. But that is a very odd solution to propose, because it would replace the present "cliff edge" of £3.71 for employers and £3.20 for employees with an even bigger one of £5.23 and £4.50 respectively. It is open to the same criticism as hon. Members have made of the Government's proposals. It would reduce contributions for about 1 million employees earning between £35.50 and £50 a week, and they would be better off. But they would be faced with a far greater disincentive than at present to increase their earnings. Moreover, it would remove about 1 million people from entitlement to national insurance benefits and would leave them to rely on the means-tested safety net.
Last night, the hon. Member for Great Grimsby suggested that we should give new jobs a national insurance holiday. I take it that he meant—
§ Mr. John Evans (St. Helens, North)
The Minister is supposed to be answering today's debate, not yesterday's.
§ Mr. Hayhoe
These points were raised, but were not dealt with last night. I think that they were referred to again during the debate, and it is useful to respond to them.
The idea is to exempt for one or two years workers taken off the unemployment register. There could be real difficulties at the end of one or two years. The employers might seek to avoid paying the extra 10.45 per cent. by replacing that worker with another fresh from the unemployment register, who would also qualify for the holiday. There are real difficulties in the idea of a restructuring based upon a holiday from paying national insurance contributions.
1076 Last night, the hon. Member for Denton and Reddish (Mr. Bennett) talked about the problem of piece-rate workers manipulating—[Interruption.] I want to deal with this point in connection with the points made by the hon. Member for Thurrock (Dr. McDonald). We have replaced the sharp graduation at £35.50 by two smaller steps. The Opposition seem to dismiss as irrelavent the fact that those under the new limits will have significantly higher take-home pay. They will be better off. With the changes in the tax thresholds, a single person earning just under £90 a week will be almost £3 a week better off. For a family where the husband is on average earnings and the wife earns, say, £50 a week, there will be an improvement of nearly £5 a week. A young married couple both in employment and both earning just under £90 a week will benefit, with the changes in tax and the restructuring of national insurance, to the tune of £6.50 a week.
The right hon. Member for Cardiff, South and Penarth suggested that those measures, which give a significant cash advantage in real terms to the lower paid, amount to a policy of impoverishing them. If my tax was reduced by such an amount, I would not mind being impoverished myself.
§ Mr. James Callaghan
The hon. Gentleman should get his quotation right. What I said was very simple and clear. I said that the Government's policy as a whole appeared to be that of tax cuts for the rich and wage cuts for the poor. I stand by that.
§ Mr. Hayhoe
The effect of raising income tax thresholds is to give the largest advantage in percentage terms to the lowest paid. When one adds the national insurance restructuring, the improvement for the lower paid is very significant indeed. To describe that as a policy of tax cuts for the rich and lower wages for the poor is an absurd invention.
All that the Opposition have proposed in connection with national insurance contributions is to abolish the upper earnings limit, as I understand it, for employees as well as employers. The Government's action involves a massive redistribution of £800 million towards improving the cost-benefit position of employing the lower paid and will lead, by any standards, to future improvements in job opportunities for that group.
If the upper earnings limit were also abolished for the employees, there would be additional taxation for those earning £13,700 a year or more. The amount of tax that they pay on their incomes above that level would be increased by 9 per cent. For a very large number of people working in industry and commerce and earning between £15,000 and £20,000 a year, that would be a severe disincentive. I hope that people in that salary band will realise that the Opposition have made it abundantly clear that they would want such people, as well as those on even higher incomes, to pay more tax.
As I am responsible in the Treasury for indirect taxes I should like to say something about my right hon. Friend's promise to propose legislation this year to implement the recommendations of the first and second volumes of the Keith report on VAT. I hope that they receive general support. The House is traditionally the guardian of the British people against the depredations of the tax collector. The details of our proposals will be examined with great care by the House. The Government aim that the revenue authority should be given the powers necessary to do the 1077 job that Parliament has assigned to it—no more, no less. Many of my hon. Friends have been worried about the proposed limitations on appeals to independent VAT tribunals, especially when the taxpayer feels that he has a reasonable excuse for failing to comply with the law. I recognise the importance of this matter and assure the House that full account is being taken of those representations.
In considering the proposals, I am sure that the House will bear in mind the sizeable amount of money involved. The average outstanding arrears on VAT are £1.2 billion. We hope to halve that figure by 1988–89 as a result of implementing the Keith recommendations. Speeding up the collection of that revenue will have a material effect on Budget making in the next three years. Those who deliberately delay payment of their VAT are getting an interest-free loan from the Revenue. That is unfair to taxpayers who pay their tax on time and to competitive traders who have to get their loans commercially and pay interest on them. I hope that Lord Keith's report, which was designed as a balanced package and should be seen as a whole, will be agreed to.
§ Sir William Clark
The whole House accepts that those who deliberately hold back payments of VAT should be penalised. May I take it from what my hon. Friend has said that there will be a right of appeal if a taxpayer is fined? According to the present clauses, there is none.
§ Mr. Hayhoe
I hope that my hon. Friend will read with great care what I said in which the words "reasonable excuse" appear. He will see what I said about the representations that are now being received. The clauses have yet to be tabled in the Finance Bill. The recommendations of the Keith committee have already been the subject of enormous public consultation since they were published in 1983. As my hon. Friend knows, the draft clauses were published in the autumn of last year. It is now for the House to examine the clauses which the Government will table. I assure my hon. Friend that account is being taken of those representations in amending the draft clauses which have previously been circulated.
I should like to say something about the relief of goods temporarily imported for process or repair. Since the withdrawal of postponed accounting for import VAT, my Treasury colleagues and I have received many representations from all parts of the House about the burden of financing import VAT on the full value of goods temporarily imported for repair. It was argued that this burden is often out of all proportion to the value of the processes and could place the United Kingdom company concerned at a disadvantage compared with our competitors overseas. This was certainly not what my right hon. Friend intended in withdrawing postponed accounting last year.
We have therefore undertaken an urgent review and concluded that there should be relief for goods imported temporarily for repair, or for processing which does not change their identity, and reexported, providing ownership is not transferred. The processors concerned are exporters of their services and the relief will enable them to regain competitiveness in their markets, to the benefit of the United Kingdom economy and of the workers in those firms and companies.
1078 As an additional relief, re-importers of goods temporarily exported for process or repair will pay import VAT only on the cost of process or repair carried out abroad.
§ Mr. Hayhoe
From the number of representations and letters which I have had from hon. Members on both sides of the House I know that this is an important concession which will be welcomed, particularly by the firms and workers in the companies concerned.
Without getting too deeply involved in the very broad context of the arguments about public expenditure and tax cuts, in the whole of the Budget debate—which I am sure my right hon. Friend the Chancellor will be addressing when he winds up on Monday—there really is no consensus, as the hon. Member for Sedgfield suggested in a television broadcast in which I was participating on Tuesday night, on the relative merits of tax cuts and public expenditure. Time and again in this debate hon. Members on both sides of the House have suggested that we solve our problems by greater public expenditure.
I can only say to them and to those people who have said that there is a shortage of demand within the economy that paragraph 3.21 of the Red Book tells a very different story. It shows import volumes, excluding oil, up by 10.5 per cent. last year and the import of manufactured goods up by the same amount. Hon. Members in all parts of the House have been making the point that we now have a deficit on our trade in manufactures. In fact, last year, as I have said, imports were up by over 10 per cent. and there was a 5 per cent. growth in domestic demand, which means that there was greater import penetration.
It is not lack of demand that is leading to the situation in which nearly half the cars in this country are imported. The demand is there. The problem is that British manufacturers are not producing goods of the right quality, at the right price or at the right time. As an engineer before I became a Member of the House, I look at the British engineering industry and remember its dominance and the number of products of which we were great exporters to the rest of the world. It is not a question of Government public expenditure; it is a question of all concerned with those industries — management, workers, designers, salesmen and everyone else—having failed to meet the challenge. As a result, jobs have been lost, but I am delighted to see that in many parts of the British economy, as a result of restructuring, of new investment, of getting rid of overmanning and of a better attitude among the trade unions, we are now becoming more competitive. We shall then be in a better position to produce goods that our own people and people abroad want to buy.
Opposition Members bemoan higher interest and mortgage rates, yet they call for increased borrowing, which would make matters worse. They search out statistical comparisons to try to prove that taxation is higher now than it was in 1979. At the same time, they demand increased spending, which would inevitably mean higher taxes or higher borrowing, or a mixture of both. They regurgitate the words and promises that they 1079 swallowed after their self-admitted failure to convince the electorate in 1983, and as with any other regurgitation it is unattractive.
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed on Monday 25 March.