HC Deb 17 March 1987 vol 112 cc837-900

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

5.11 pm
Mr. Donald Stewart (Western Isles)

The hon. Member for Harwich (Sir J. Ridsdale) seems to be perturbed at the thought that the next Parliament might be a hung Parliament. That does not augur well for the sunshine forecasts of a great Conservative majority next time round. He may be taking a more realistic look at the situation than many of his right hon. and hon. Friends. He also mentioned inflation. I remind him that at a time during this Government, inflation reached 26 per cent. It was put up by this Government slapping on VAT at 15 per cent. The Chancellor takes a great deal of pride in reducing income tax, but it is clear that the lower-paid have lost out because of the imposition of 15 per cent. VAT against the reductions made in income tax.

The Minister of State, Treasury (Mr. Peter Brooke)

Perhaps the right hon. Gentleman would write and tell me the year in which VAT reached 26 per cent.

Mr. Stewart

Inflation was at 26 per cent. As far as I recall, I did not say that VAT had reached 26 per cent.

Mr. Brooke

I meant inflation.

Mr. Stewart

I will do that.

The Budget, taken as a whole, was an unfortunate, dull, mechanical exercise. It reminded me of an exercise in an imagined situation in an accountancy examination rather than a Budget dealing with the reality of life in the United Kingdom.

There is no doubt that the kitty for income tax relief has been amassed by drastic reductions over the past few years in the quality of life and essential amenities and services in Britain. The Secretary of State for Social Services replies to accusations about reductions in the quality of those services by quoting figures about increases that the Government have made. One can only ask: are the doctors, nurses and patients in the hospitals under a delusion when they claim that services have been reduced, that many hospitals have empty wards, that many wards have empty beds, that the waiting lists are increasing, and so on? That is the reality with which the Government have to grapple.

In education we have had a series of attacks on the universities and schools. We have not yet reached the stage of burning books, but the books are becoming so scarce that there may not be books to burn if it ever got to that stage.

Local authority services have deteriorated, with cuts in rate support grant, and so on. The picture of a country returning from a depressed state into a state of affluence is a lot of nonsense for most people in this country. It is regrettable, too, that there has been no improvement in old age pensions in this Budget following the severe winter that old people have just experienced.

The Chancellor said that unemployment is falling. The figures for unemployment certainly are falling, but we know that that is due to changes in the methods of calculation in the past few years and the introduction of training schemes, however useful, which were dismissed by the Prime Minister in her days in opposition as not being real jobs.

I welcome the change in VAT collection on the basis of cash received and the requirement that a single annual return for VAT is all that will be required. That is of great assistance to the small business man and will be of real use in increasing business and production. I must say that I was rather amused by the Chancellor's explanation that it all depended on getting permission from the EEC. That is another piece of evidence of the way in which this country has lost its sovereignty as a member of the EEC.

I welcome the VAT relief for charities, ambulances, drugs and medicines. We regard that as some advance. However, if one looks at it in a compassionate way, the charges should never have been included in the first place. I welcome the fact—it is an extremely useful move—that unleaded petrol is now the same price as four-star leaded petrol. I welcome also the increase in the blind allowance. I am sure that that will be welcome all round.

In my view—I think it is widely shared—income tax relief should have been used, if at all, for taking the lower-paid out of the tax system altogether.

The Chancellor claimed that the Budget was built on success. I would say that the Budget was built mainly on the misery of the unemployed. The Chancellor, like the Government, appears to assume that the unemployed, like the poor, are always going to be with us. That is a terrible defeatest attitude and the Government have no solution to achieve any real reduction in the numbers of unemployed.

The Scottish National party, because of the oil, calls for an oil fund which would deal with unemployment in Scotland. We see that a number of European countries are able to keep unemployment under 5 per cent. That would be a realistic aim in an independent Scotland. Until we achieve that, even in a United Kingdom context, the Government could have made a much more sensible and compassionate stab at improving the situation than they have done today.

5.18 pm
Sir Kenneth Lewis (Stamford and Spalding)

I have to say to the right hon. Member for Western Isles (Mr. Stewart) that I have seen many Budgets in my time, and he has seen a few, but I do not think that either of us will ever see a Budget presented by the Scottish National party.

I suppose, if I have my years right, that I have seen 28 Budgets, but there have been some years in which we have had two or three Budgets so I suppose I have probably seen nearer 38 if one counts those extra Budgets over he years. They have been of all colours. There have been red Budgets from the Opposition, blue Budgets, grey Budgets and black Budgets. This one was bound to be blue. I thought that it was going to be bright blue, but it is a slightly pale blue. I do not think it is as expansive in its give aways as some people expected. I do not think that anybody can say that it is an election-bribing Budget. The Leader of the Opposition was prepared to say that—I could not hear him all the time—and I think that he tried to say it, but without much conviction.

It is a reasonably good Budget. It has half an eye on reality and half an eye on a general election. At least we can crow about the Budget. If the Opposition had been in government they would probably have had to postpone a possible election because they could not have provided a sufficiently attractive Budget. At least we are in a position where, because of the state of the economy—in certain directions—we are able to have this reasonably good Budget. The Opposition are full of promises, but the one thing they do not promise is that after the election they will give us a give-away Budget.

Both the alliance and the Opposition have told us that they will take back some of the tax reductions that we have been given today.

Mr. David Maclean (Penrith and The Border)

That was yesterday.

Sir Kenneth Lewis

Oh, they have changed their minds, have they? [Interruption.]

Mr. Deputy Speaker

Order. We are having a little too much audience participation.

Sir Kenneth Lewis

We cannot hope for much from the Labour party, and I would guess that the country can hope for still less from the alliance parties, even if they were to do a deal with the Labour party.

The Budget has to be taken together with the autumn statement — a give-away announcement in which my right hon. Friend the Chancellor surprised many of his hon. Friends by pushing several billion pounds into the economy at a stroke. I think it was during the autumn statement that my right hon. Friend got rid of his hard man image. Today he has a new image as a cautious Chancellor who has not taken too many risks. Probably his long period of driving on those financial motorways — the M1 and the M3 — has taught him that he had better not be a hostage to fortune and that he must be cautious.

I hope that my right hon. Friend will give the £4 billion that he pushed into the economy in the autumn time to have its effect. Money in the pockets of the people and in the public purse takes time to fructify. Some of us wanted that £4 billion to be made available perhaps six months earlier. It might then have had more time to affect the electorate. Budgets, too, take time to have their effect. I doubt whether the charges that this was an election-oriented Budget will stick now. We should let it have time to take effect and allow the Opposition the benefit of a long hard summer in which to get politically tanned. My right hon. Friend the Prime Minister should think again about going to the country too quickly.

It is always difficult to react immediately to proposals such as these, and I have a certain amount of sympathy with the Leader of the Opposition in that respect. I believe that he tried to put too much into his speech today.

I relate my brief remarks about the Chancellor's proposals first to the PSBR. I know that there is a great deal of merit in keeping the PSBR down, but I wonder whether it needs to be kept quite so low. My right hon. Friend the Chancellor talked about the buoyancy of the economy, and it was his great success story, but said that he had to keep the PSBR down to £4 billion. If he could have let it rise to £5 billion we should have had another £1 billion available for what was needed. My right hon. Friend sitting on the Front Bench knows perfectly well, because of the hat that he wore before, that increased spending is needed on higher education, industrial training, and so on. Just that little extra, added to what he did in the autumn, would have been a help. I believe that the Chancellor is being over-cautious in screwing down the PSBR to £4 billion.

But even if my right hon. Friend did not want to increase the PSBR, why could he not have taken other action? The fact that there was no increase in excise duty on cigarettes and alcohol was probably the biggest surprise in the Budget. I was delighted. I drink a little and smoke too much, and I have got off the hook completely. However, a modest increase, at least on drink, would have given the Chancellor a little to spend on other things.

I am delighted with the announcement about the proposals for relating pay increases to profit. The Government should build on that after the general election. I hope that employers will support the provision because it will need their support to make it stick. I am pleased, too, that small business has been assisted in the provisions relating to the handover from one generation to another. The increase from £100 million to £125 million will be very helpful. The VAT changes will also be helpful to very small business. We have all had letters about the subject, and at last notice has been taken of it.

No one can do other than applaud the reduction of the standard rate of tax from 29 per cent. to 27 per cent. It means that since 1979 we have reduced tax from 33p in the pound to 27p in the pound. However, I am disappointed that the Chancellor did not raise the thresholds a little above the normal rate of inflation. One of the biggest deterrents to hard work today is that when a young man comes into a reasonable salary he loses one third of his income when national insurance is taken into account. That is a tremendous disincentive, and I wish that something would have been done to deal with it.

We started to consider portable pensions a year or two ago, and the provisions announced today will be of great benefit. I support the proposals that people should be allowed to opt out and do their own thing and that they should be able to add to their pensions. On the basis that I would not come away with a large pension when I left this place, I took out some additional pensions myself some years ago. That did not cost me much. Over a period of years I paid in a few hundred pounds each year, and I am now picking up the benefits. I found that the money that I was allowed to draw as a capital sum was in fact more than I had paid in, plus the pensions. That does not happen with the House of Commons pension, and I doubt whether it happens anywhere else in the public service. Of course, public service pensions are index-linked, as is the House of Commons pension, whereas mine are not. My right hon. Friend the Chancellor has done something very useful indeed in encouraging people to add to their company pensions by buying in for themselves out of savings.

This is a good, but cautious, Budget. It is a responsible Budget. I do not think that it is a vote-seeking Budget. I doubt whether the general election will be called on the basis of this Budget. The election will be about people's view of whether the economy in general is better run by this Government and this Chancellor than it would be by the Labour party or the alliance. I believe that the public will vote in favour of what they have got rather than what they might have.

5.29 pm
Mr. Roy Hughes (Newport, East)

The hon. Member for Stamford and Spalding (Sir K. Lewis) was not exactly ecstatic in his praise. The Chancellor delivered his Budget this afternoon. It contained few surprises. As usual, there were whispers beforehand. Some were accurate, and a few were not so accurate. I regret that there was nothing in the Budget for the ordinary pensioner. I reiterate the sentiments expressed by my right hon. Friend the Leader of the Opposition. He pointed out that the Government had previously broken the link between earnings and pensions. Pensions are now merely indexed in line with the retail prices index, with the result that the value for a single person is £8.05 per week less than under the old rule, and for a married couple it is £12.75 per week less. That drop has meant a considerable loss to pensioners, particularly those in real need. In that sense, the Chancellor fluffed his opportunity.

There is nothing in the Budget about child allowances. Their value has been cut by about 3 per cent. since the Government were elected in 1979. Families with children have certainly fallen behind, and again the Chancellor has missed his opportunity to do something about it.

What is the overall thinking behind the Budget? The answer is that the so-called popular Budget is calculated to try to influence the result of the next general election. At the same time, the Chancellor has attempted to maintain a veneer of prudence. The essential part of the popularity aspect, of course, was to cut the basic rate of income tax by 2p, from 29 to 27 per cent. Throughout their eight years of office the Government have congratulated themselves on cutting taxes. The facts diverge from the rhetoric. When the Government came to power the average person paid 35p in the pound, including VAT and income tax. Until today the figure was 38p in the pound. All that we can do now is to thank the Chancellor for at least giving us back some of our money.

I perfectly understand that no one likes paying tax. Nevertheless, if opinion polls are anything to go by, the majority of people in Britain today say that the handouts that were announced this afternoon would be better used in the creation of jobs and the improvement of social services. The British people are wise in their reasoning. The greatest problem facing our country today is that of unemployment. Every study on the subject shows that public expenditure is a far more cost-effective way of generating jobs than are tax cuts.

Instead of tackling that great social evil the Government seem to pretend that it does not exist. That is why, since 1979, when the Government came to power, there have been 18 or 19 changes in the way in which employment statistics are compiled. The latest report is that the Government are proposing to drop the publication of Britain's registered unemployment figures. Incidentally, that has since been denied by the Secretary of State for Employment, Lord Young. Perhaps we could repeat the famous words of Mandy Rice-Davies, "He would, wouldn't he?" It is time to restore some credibility to such vitally important statistics, so that we can then better assess how the Budget and other Government policies relate to them. I am glad that the Labour party has pledged to re-establish an objective basis for the calculation of the jobless total.

Yesterday, we heard the latest crime statistics. They certainly reflect no credit on the Government. Recorded offences are up 7 per cent. and the clear-up rate is down 5 per cent. The Conservative party has always publicised itself as the party of law and order. That claim looks a bit shabby today. We are all aware that there are many reasons for the rise in the incidence of crime. There is the permissive society, easy divorce and the subsequent breakup of families. There is a lack of family and community sanction against wrongdoers.

I go along with the old adage that the devil finds work for idle hands. When shop windows are full of goods and many people have time on their hands, the tendency towards crime is greatly increased. That is why the Budget should have given the highest possible priority to getting people out of the dole queue. Give them work to do. Many of them have now lost the discipline of a work schedule. They should be given a stake in society. When that is done, there will be less tendency to engage in crime, whether it be burglary, mugging, rape or other crimes.

In the run-up to the 1959 general election, which some of us are old enough to recall, Mr. Harold Macmillan, the late Lord Stockton, told us that we had never had it so good. At least unemployment then was less than 2 per cent. According to the questionable official statistics now, it is over 13 per cent., yet Britain is in the throes of a consumer boom. Tax revenues are buoyant. They are boosted by high consumer spending and corporation tax receipts.

The Chancellor told us that the public sector borrowing requirement is set to the end of 1986–87 at around £3 billion lower than the £7 billion original Treasury forecast. Yet, because of the Government's earlier policies, British industry is in no shape to satisfy the consumer. A recent comment by the reputable National Institute of Economic and Social Research gave the game away. It said: The economic strategy based on neo-classical economics, which was introduced at the end of the 1970s, resulted in an increase in unemployment from 1 million to 3 million. It has now been almost entirely abandoned. Our principal trading rivals—Germany, Japan, and so on — are deriving much benefit from Britain's consumer boom. Meanwhile, there has been a marked deterioration in our manufacturing trade balance, from a surplus of £2.4 billion in 1982 to a deficit of £5.8 billion in 1986. In that economic experiment on the British people a great deal of our manufacturing industry was razed to the ground. The present consumer boom is overshadowed by the fact that our manufacturing base is still about 15 per cent. below the 1979 level.

It is not only manufacturing industry, however, that has suffered under this Government. Central Government grants to local authorities have been cut from 59.6 per cent. in 1979–80 to 44.3 per cent. in 1986–87. Meanwhile, our councils have struggled manfully to maintain services. I receive evidence of that almost every day from the Newport and Gwent councils.

Overall, Britain has become a shabby society, as the article in the Sunday Telegraph of 8 March by Paul Barker so clearly revealed. Thirty years ago Professor Galbraith referred to private affluence and public squalor. That is the state of Thatcherite Britain in 1987. The leading article in The Observer last Sunday said that the Budget would throw money at the wrong people. How right it was.

Today's Budget should have been more about rebuilding Britain's industrial base and drastically cutting the dole queues. Likewise, it should have been less about the Government's short-term popularity. The continuing presence of the 3 million or so unemployed is a waste of economic resources and potential skills. There is a need to invest wisely in Britain's future, particularly in its greatest resource — its people. The Government should concentrate on building a fairer society. They should seek to eliminate the north-south divide and the division between the haves and the have-nots.

This Budget is essentially about cutting taxes. What justification is there for that when our schools in Gwent and elsewhere are so badly in need of textbooks and equipment; when the queues for our National Health Service seem to stretch to eternity; when our hospital buildings, and so many other public buildings, are crying out for a coat of paint; when countless numbers of homes lack basic amenities and are really unfit for human habitation; when so much of our infrastructure needs attention, modernisation and development? These problems will not be solved by an appeal to private greed. It is by those standards that this Budget is a failure.

5.43 pm
Mr. Michael Shersby (Uxbridge)

I am sorry that the hon. Member for Newport, East (Mr. Hughes) takes such a gloomy view of what I consider is an excellent Budget. Like many of his colleagues on the Opposition Benches, he must have had a very disappointing and unhappy afternoon. One only had to look at the sad faces of Opposition Members as my right hon. Friend the Chancellor of the Exchequer was speaking to realise how many of them wished that they were hearing their own Chancellor making similar proposals.

This Budget confirms the continuing success of the Government's economic policy. It consolidates the Chancellor's achievements in encouraging industry and commerce and it will stimulate confidence and the creation of more jobs. I am very glad that it gives a welcome boost to industrial training and that it creates a climate in which training today will result in more solid job opportunities. I believe that the industrial training that is provided in this country is very substantial. I have a good deal of practical experience of seeing it in operation. The proposals of my right hon. Friend the Chancellor of the Exchequer to carry it forward will consolidate that substantial achievement.

I welcome the reforms relating to value added tax. They will be of great help not only to small businesses but to large ones. I am particularly glad about my right hon. Friend's announcement that value added tax will not have to be paid until the bills have been paid. Hon. Members on both sides of the House know only too well about the problems that are caused by slow payers and the difficulties that they have created for the cash flow of small businesses. The change in VAT to take account of those problems, which will enable VAT to be paid on an annual basis at the end of the year, will be very widely welcomed.

One of the interesting features of today's Budget concerns the Chancellor's proposals relating to performance-related pay. I was particularly glad to hear him announce the scheme for tax relief on PRP. I believe that it is significant, because it will forge a much closer link between the profit of an enterprise and the pay of its employees. I hope very much that in future there will be opportunities for further extension of the PRP tax relief scheme. I look forward to seeing the detailed proposals in the Finance Bill.

Any hon. Member who served on the Standing Committee that considered the Social Security Bill will be well aware of the lengthy discussions in Committee on the proposals for money-purchase pensions. Today the Chancellor has announced the bringing forward by three months of the arrangements that will enable individuals to make additional provision for their retirement. The greater scope for transferring from one pension scheme to another will make a very useful contribution to the mobility of labour. The provision that will enable employees to make extra contributions to pension schemes, with full tax relief, will be a great step forward. It will be of particular interest to the younger members of the working population. They will now be able to look forward to a very much more flexible scene and to greater opportunities to top up pension schemes with the results of their own labour.

One of the proposals that drew a certain amount of criticism today from Her Majesty's Opposition, and even a few jeers, related to inheritance tax. Those critical remarks were directed mainly at the increased limits, but those hon. Members who heard my right hon. Friend speak about the effect of the proposal on family businesses will, on reflection, perhaps come to the conclusion that it is very welcome. It will certainly be welcomed by a number of small firms in my Uxbridge constituency and by the people who have built up those businesses. They wish their children to follow them into those businesses—and their grandchildren, too — and they wish to expand employment opportunities in the town. It was a very important announcement. It is one of the many steps that my right hon. Friend has taken along this road, and I hope that in future years he will keep up the good work.

There are to he no significant increases in excise duty. The British people have waited a long time for this happy day. There is to be no increase in vehicle excise duty—the very substantial tax that we all pay on our motor cars. There is to be no increase in the tax on alcohol and tobacco. At last the British people are to enjoy relief from the taxation of these old favourites by successive Chancellors of the Exchequer. It is a very lucky day for the British people. They might care to reflect on what they would have heard had a Socialist Chancellor been standing at the Dispatch Box. I am sure that he would have imposed swingeing increases in the tax on all those items.

The Chancellor has shown himself to be compassionate in listening undoubtedly to the many representations about the blind allowance that he has received from many hon. Members. I welcome those increases, as will, I am sure, every member of the blind community. The Chancellor has also increased the age allowance—a very significant and important improvement—and has made some useful additions to VAT exemptions for charities. All this shows that the Chancellor has been willing to listen to representations made by hon. Members.

I turn to the reduction in the standard rate of income tax. How many hon. Members who were present in the House in 1977, when the standard rate of income tax was 35p in the pound, would have thought that they would sit here today and hear the Chancellor announce that the standard rate is being reduced to 27p in the pound? And about time, too. I welcome the reduction because it will put another £3 a week into the pockets of average industrial workers in this country.

How many hon. Members would have thought that over several successive years we should have seen the tax thresholds increased by 22 per cent. more than the rate of inflation and by a further 3.7 per cent. today? These measures will bring relief to many low-paid workers in this country.

I would like to mention the nurses in whom I have long taken an interest. We all know that nurses are splendid, and many hon. Members have advocated that they should be paid more. In the Budget we see their taxation being reduced quickly, which will be very welcome to them and a very useful interim boost to their income pending the review of nurses' pay which is under way.

I think the Chancellor has been prudent and has not gone too far. He has not gone for a dramatic 4p or 5p reduction in the standard rate of income tax. He has produced a Budget which will generate further confidence, not just in the City of London but around the world, by keeping the PSBR down to 1 per cent. of GDP at £4 billion. Those who study the British economy surely must come to the conclusion that it is now firmly on course and that they have every confidence to continue investing in Britain.

Today we heard the Leader of the Opposition — I thought rather a sour and disappointed man — present his Socialist proposals for repatriating capital to this country. He gave the impression that, despite the proposal to abolish the Exchange Control Act, the Labour party had other ways of persuading people, but he did not say anything about inward investment in Britain. This is a two-way business. Inward investment in Britain will be encouraged only if our borrowing requirement is under control and interest rates are sensible.

This is a consolidating Budget, prudently organised, tackling the main problems which most people in this country want to see dealt with. The Budget also has a few fun items which will be welcome to those who enjoy putting a small bet on the horses. I wonder whether it will also affect the queue of people who appeared in JAK's cartoon in The London Evening Standard yesterday who were putting £5 bets on the Tory party winning the next election. Those of us who saw the cartoon will recognise a few familiar faces. [Interruption.] As has just been said, the Chancellor's proposals today apply only to off-course betting. [AN HON. MEMBER: "On-course betting".] Perhaps the hon. Gentleman will come forward with proposals during proceedings on the Finance Bill to extend it so that his colleagues can place those bets on a Tory victory at the next election. I do not think this is an electioneering Budget; rather it is a consolidation of eight years in office by this Government. I welcome the Budget of behalf of my constituents.

5.54 pm
Mr. Malcolm Bruce (Gordon)

We have heard a number of speeches from Conservative Members, not all of them quite as enthusiastic as that of the hon. Member for Uxbridge (Mr. Shersby). I did not detect a great upsurge of enthusiasm or very convincing cheering from Conservative Members when the Chancellor sat down. I wonder whether the Chancellor had lost that page and never found it. Some of the expressions on the faces of his hon. Friends gave the impression that they felt that something was missing from the Budget that they had been led to expect; that there would be more, but it has not actually arrived.

Those are the aspirations of Tory politicians looking to the election, not the aspirations of the British people looking to a Government who are prepared to face the problems which, according to all the indicators, they feel the Government ought to face. This Budget deepens the inequalities that have been aggravated by eight years of Conservative rule. There is nothing in this Budget for the unemployed, the poor or the low-paid. There is nothing in this Budget for the regions and nations of the United Kingdom, or for manufacturing industry. An opportunity has been missed, because the Chancellor indicated that he had potentially a considerable amount of room to manoeuvre and he chose to concentrate nearly all his resources on keeping down public sector borrowing to a record low level and giving a 2 per cent. cut in the standard rate of tax.

The Chancellor did not even choose to target taxes in a way that could have benefited the low-paid. Two or three weeks ago I was on a Channel 4 programme with Lord Young, who was arguing that the reason why the Government were coming forward with proposals for tax cuts was that many low-paid were still paying too much tax on their income. If he and the Government really believe that, they know that cutting the standard rate is not the way to target tax cuts to give those people the most benefit. The Government could have increased the thresholds proportionately, but chose not to do so.

The most objectionable thing about the Budget is that it has been targeted on a sort of synthetic creature, which is the standard Central Office-specified Conservative voter, at which essentially the tax cuts are aimed — nothing to do with the national interest. The arguments used to support that do not add up to the way that they have actually been applied.

I take up the point made by the hon. Member for Harwich (Sir J. Ridsdale). We regard as excessively cautious the public sector borrowing requirement being kept down to the low figure of £4 billion. If the reasoning behind that is to placate certain institutions in the City in the hope that this measure will help to bring down interest rates — which I concede it may do — I would have commended to the Chancellor the recommendation, which the alliance has been supporting throughout this Parliament, that we should become a full member of the European monetary system. In so doing we could bring down interest rates by about 2 per cent. The PSBR figure in the Budget is unlikely to bring it down by more than 1 per cent.

Secondly, as I think the Chancellor knows, although his Back Benchers do not, the factors that affect interest rates are diverse and include many other international factors, so they may not even work. In the process, opportunities have been ignored and lost to deal with the problems of the unemployed, to give something to the poor and to tackle the problems of disparities within the regions. I suggest that that is a very serious lost opportunity.

I noted in the Chancellor's introduction to his Budget — it is becoming repetitive, but it is still a star performance—his ability to select statistics that present a picture of us living in an economic nirvana and suggest that it is rather disloyal and unfair of Members of Opposition parties to point to the realities of our society. The Chancellor talked about sustained steady growth, but ignored the enormous collapse that took place in 1979 and 1980, with the effect that manufacturing output is at least 3 to 4 per cent. less than when this Government came to power.

That is hardly an unmitigated success. Indeed, with oil prices weakening, it has contributed to the fact that, on the Chancellor's own forecast, we have a balance of payments deficit that will get significantly worse. Last year the right hon. Gentleman forecast that we would have a balance of payments surplus this year of £3.5 billion, and we actually achieved a deficit of £1 billion. I wonder what a £2.5 billion deficit forecast will turn out to be if we follow the Chancellor's track record in forecasting. I suggest that some uncomfortable indicators have yet to come home to roost.

The Government have not indexed customs and excise duties. Most people know that when that happens it only means that when the Government get round to indexing them later the increases will be that much more painful. I do not think that people will really expect to have got away with it indefinitely.

Nevertheless, I welcome some items within the Budget. Although I do not agree with the right hon. Gentleman's economic analysis or with his policy objectives, I think that he gives considerable attention to detail on many aspects of reform that are welcome and worth while. We would be churlish not to recognise that. The extension of profit-sharing in particular is very close to alliance hearts. Although it is relatively small and its impact will not be great, we welcome it. There are many more proposals to do with industrial democracy, profit-sharing and worker-share ownership that we hope will be developed in future.

As an environmental matter, 5p off the price of a gallon of unleaded petrol is welcome, not least because the leaders of the alliance will be travelling the country during the general election in a bus using this fuel. We much appreciate that contribution to our election fund. The only problem will be finding enough unleaded pumps around the country, but perhaps this move will help to speed up that process.

The measures introduced to help small businesses are welcome and are worth while. There are more substantial and fundamental things that we would like to see, such as the abolition of inter-business VAT transactions, because that would obviously save a great deal of administration as well as the capital that is tied up for small businesses.

There should have been regular increases in the allowance for the blind, but we are glad that it is being caught up. I see the hon. Member for Monklands, West (Mr. Clarke) waiting to catch your eye, Mr. Deputy Speaker. No doubt he would have liked to see more funding to enable his worthwhile Bill to take full effect. I make a personal plea for other sections of the disabled community, such as the deaf, who do not have the benefit of any such allowance. The time may come when they should be included in a similar benefit.

The extension of personal pension provisions will introduce flexibility and portability, which will help mobility, and certainly we welcome that.

As a Scottish Member, I wish to address some comments to the impact of the Budget in Scotland. The Government have talked traditionally over the past few months of a fall in the underlying trend of unemployment. Many of us are less than convinced that such a fall is taking place. The last jobless figures did not bode well for the Government. When we take account of the various job training schemes, the real jobs that the Prime Minister talked about when she was Leader of the Opposition are no more apparent now than they were then.

I must remind the House that in Scotland the underlying trend of unemployment, on the Government's own figures, is rising sharply. This causes great concern. There is nothing to make the people of Scotland believe that that will be turned round.

Mr. John Butterfill (Bournemouth, West)

Does the hon. Gentleman not agree that the tax relief proposals for oil exploration will be of considerable benefit to Scotland?

Mr. Bruce

The hon. Gentleman anticipates a point that I was coming to.

There are two factors within the Budget that will be of help within Scotland. The first is the proposed changes in the allowances for oilfields. These changes fall a long way short of what I would have liked and what will be necessary to stop the jobs haemorrhage, particularly in my part of Scotland. However, I do not wish to be ungrateful. That contribution is welcome, but more help is needed to bring on development. I wait to be convinced — I can put it no higher than that—that that adjustment will bring on a significant amount of additional development and so stop the slide in job losses in the oil industry. I sincerely hope that I am wrong and that the Government's calculations are right.

On the non-increase in customs and excise duties, the Scotch whisky industry will be pleased that it will not have to face that burden, but it would have preferred something else. The main burden of complaint of the Scotch whisky industry, as distinct from the makers of other spirits, is the discrimination against Scotch as a product that requires by law a three-year maturation period. The cost of holding those stocks is considerable. The abolition of stock relief, which the Government brought in a few years ago, continues to hit the Scotch whisky industry extremely hard. The industry's proposal for a statutory maturation allowance, which is essentially the reintroduction of stock relief, would help put the Scotch whisky industry back on its feet. I commend that to the Government for consideration.

Mr. Brooke

The hon. Gentleman referred to a statutory maturation allowance. I am sure he would be honest enough to agree that the maturation allowance under statute was something for which the industry itself asked in the first place.

Mr. Bruce

Yes, I agree absolutely, but my point is that the industry has not got it. I welcome the fact that the industry has put the application to the Government properly, but if I am not mistaken the point is that it is a statutory requirement that Scotch whisky should mature for three years. That is a major factor in the marketing of Scotch whisky. It is statutory, even if it was requested. The fact that that cost is incurred should be taken into account. The industry is looking for something reasonable. I do not regard it as unfair discrimination in favour of Scotch, but a recognition of the cost of making Scotch whisky over three years as opposed to the production cost of gin and vodka, which can be made in three hours and put straight on to the market.

The essential point about any Budget is that it gives an indication of the priorities of the Government. I for one regard the whole ethos round Budget day as nonsensical. Many things happen on the economic front throughout the year that are far more important than the Budget. I wonder whether this ritual serves any purpose. What has been revealed in one hour's speech on one afternoon is an indication of the Government's priorities, but we knew what they were. They have not changed, which is regrettable, because with the onset of an election and the fact that the Government will have to test their policies, many people outside the Chamber were looking for action on unemployment and action to help the poor — [interruption]—not because it would bribe the electorate, but because it is right and it is what the people want.

People know that the Government will not change course and that, if they want different policies, they have to make sure that they throw the Government out. I and my colleagues look forward eagerly to the opportunity to do just that in the near future. The Budget is in accordance with the Tory Government's record. It does not offer hope to the poor or the jobless, or to the regions and nations of the United Kingdom. Many Tory Members may feel that it will please the City. I am not sure that it will please their constituents.

6.9 pm

Mr. David Knox (Staffordshire, Moorlands)

I want to start by congratulating my right hon. Friend the Chancellor of the Exchequer on his fourth Budget speech. Like his previous Budget speeches, this was well constructed and commendably brief. The House is indebted to my right hon. Friend for the style with which he presents his Budgets and for making what could so easily degenerate into a tedious repetition of dull economic facts an interesting parliamentary occasion.

I believe that the less said about the contribution by the Leader of the Opposition the better. Let me offer the Leader of the Opposition some friendly advice. If he wants to indulge in the role of historian, would he please do the House the courtesy of checking his facts rather more carefully because he was completely wrong about Mr. Butler's Budgets in 1955? The facts do not bear out the remarks of the Leader of the Opposition.

Mr. Nicholas Fairbairn (Perth and Kinross)

Is it not rather strange that the Opposition Front Bench is unrepresented?

Mr. Knox

I am not sure whether my hon. and learned Friend believes that I have some responsibility for that, but I can assure him that I have not. However, I agree with him that that is very strange.

Hon. Members on both sides of the House would wish to give a warm welcome to a number of the measures in the Budget. The change concerning VAT will be particularly warmly welcomed by businesses. Easing the rules for the payment of VAT should help to overcome the problems which firms experience with late payers. For some time that has been a considerable problem for many firms in my constituency and elsewhere. My right hon. Friend the Chancellor has made a real contribution to overcoming that problem and easing the lot of many people who contribute a great: deal to the economy of this country.

I also welcome the tax reliefs that will affect profits-related pay. Profits-related pay has an important part to play in strengthening the economy. If we can move along in that direction, that will encourage greater flexibility in pay bargaining and will also help to relate the level of pay more closely to the prosperity of individual companies. The lack of flexibility in pay bargaining has caused immeasurable problems in the post-war era in Britain and is largely responsible for the situation that has arisen so frequently of income-cost inflation in conditions where there was no demand-pull inflation. Although I do not expect miracles—and no doubt my right hon. Friend does not expect miracles—I am sure that this is a step in the right direction.

I warmly welcome what my right hon. Friend the Chancellor did with regard to excise duties. My hon. Friend the Member for Uxbridge (Mr. Shersby) referred to this point. I am sure that in the pubs tonight smokers and drinkers will welcome the fact that probably for the first time in living memory there was no increase in this Budget in the duty on cigarettes and alcoholic beverages.

Mr. Maclean

I will drink to that.

Mr. Knox

My hon. Friend has said that he will drink to that. Some of my hon. Friends will smoke to it as well, although I shall not.

Mr. Dafydd Wigley (Caernarfon)

In view of the fact that the Government have been unable to raise the £150 million to implement immediately the Disabled Persons (Services, Consultation and Representation) Act 1986, does the hon. Gentleman not think that the indexation of drink and tobacco would have raised more than that amount of money and would have been a worthwhile way of providing for disabled people who are not being provided for by the Government?

Mr. Knox

The hon. Gentleman is far too intelligent to think that such matters are interchangeable. There are other means of raising the money to which he referred.

People in the rural areas will warmly welcome the fact that there is to be no increase in excise duty for petrol arid other fuel and no increase in car licences. The duty on those items bears particularly heavily on those who live in rural areas. Many of my constituents will be delighted that there has been no increase in the duty on those items.

I welcome the fact that the thresholds on income tax have been increased again, although only by the rate of inflation this year. There were substantial real gains in recent years, so I suppose that we could not have expected much more. I also strongly welcome the additional help for the over-80s and the blind. I am sure that that at least is a change that will commend itself to both sides of the House.

The Budget will not be judged in the medium and long term by the specific measures that it contains because, alas, they will be forgotten very quickly. It will be judged on the consequences of my right hon. Friend the Chancellor's Budget judgment and on the consequences of his decision to go for tax cuts rather than for higher public spending. More specifically, the Budget will be judged by its effects on the two inter-related areas of unemployment and manufacturing output. I will consider those two points in a few moments. First, I want to consider the Budget judgment and tax cuts. Of these, the former is immeasurably the more important.

My right hon. Friend the Chancellor has decided to reduce the public sector borrowing requirement as a proportion of GDP in the hope, presumably, that that will have a downward effect on interest rates. I regret that. I believe that that is no more than an appeal to a fairly primitive form of monetarism. I do not think that there will necessarily be any effect on interest rates, which can and should fall anyway. However, I believe that the reduction in the public sector borrowing requirement will deflate demand in the economy as a whole and may result in higher unemployment.

We have been here before. In 1981 the then Chancellor of the Exchequer reduced PSBR from 5.4 per cent. of GDP to 3.3 per cent. Although interest rates fell straight away from 14 to 12 per cent., by the autumn they had moved up to 16 per cent. In addition, the demand deflation of that reduction in the PSBR resulted in a rise in unemployment to more than 3 million for the first time since the 1930s. I am sorry that my right hon. Friend the Chancellor has done as he has done today. Had he decided, on the other hand, to increase the PSBR, that would have resulted in an increase in the demand for goods and services, private or public, and eventually in an increase in the demand for labour and so a reduction in unemployment.

I have little doubt that tax cuts will be popular with the recipients and in principle I have no objection to tax cuts. In principle, I have no objection to higher public expenditure either. However, I do not see either of those in the ideological terms in which some hon. Members view them—Conservative Members in favour of tax cuts and Opposition Members in favour of public expenditure. I believe that there are substantial advantages in both tax cuts and higher public expenditure. If there is to be a choice between the two, that should be taken on a pragmatic basis, and a pragmatic decision should be based on what is most sensible, logical and desirable in the circumstances that obtain at the time.

For some years there has been a strong tendency for additional consumer expenditure to find its way into an increased demand for imports rather than for the products of our own domestic industry. Tax cuts, therefore, have involved a risk that some of the extra money released would find its way into imports. Some of this money would, of course, boost domestic demand and to the extent that that happens, it is to be welcomed. For as long as we had a very healthy balance of payments surplus—as we have had in recent years — it seemed sensible that we should go for substantial tax cuts. We could then afford to take the risk that higher consumer expenditure would go to imports. There was a substantial balance of payments surplus to act as a cushion if that happened although, of course, it was to be hoped that there would be an increase in domestic demand from such tax cuts.

Today, that balance of payments surplus has disappeared. We are now in a deficit, and in such circumstances it was not very wise to take the risks inherent in tax cuts because of the further strains that they might place on a weakening balance of payments position. Therefore, I would have preferred my right hon. Friend to confine himself to those public expenditure projects where the import potential was very low or non-existent. That would have seemed to me to be the cautious approach.

I mentioned that there were two inter-related problems of unemployment and manufacturing industry. We are now in our fifth year with unemployment over 3 million. From 1945 until 1974 we had full employment. The level fluctuated a little, but we managed to maintain employment at a high level throughout this period. Twice, briefly, unemployment exceeded I million and twice, also fairly briefly, in 1955 and 1965, unemployment was as low as 1.1 per cent. of the working population. It is a myth that unemployment started to rise under this Government. In fact, it started to rise under the Labour Government in 1974, and over the past 13 years it has continued to rise, although not at a regular rate. However, over that period, neither of the two Governments in office have had a good record on unemployment.

Alas, there has been a tendency in recent years towards a certain complacency about unemployment. Therefore, it does no harm for us to remind ourselves that for most of the post-war period the situation was better than it is now. The current level of unemployment shows how far we have moved from the high level of achievement in that 30-year period following the last war. The effects of unemployment are disastrous both socially and economically. Unemployment is socially divisive. It is difficult to have one nation when 3 million are out of work and l⅓ million people are long-term unemployed. The real division is between those in work and those who cannot find work, as the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) said about 10 years ago.

Unemployment is also economically wasteful. If we are not using all the available labour in this country, it means that we are not maximising output. It is nonsense to suggest that demand somehow has reached its peak and that there is no more work available. We all know as individuals that we could consume more goods and services if we had the opportunity, and, if we could not, our families, and especially our wives, could. We also know we could do with better social and public services. I believe that the Government have a good record on the Health Service and education, but no one is under any illusion that we could not spend more on these two things.

Potentially, there is plenty of additional demand for goods and services, both private and public, in Britain today. Consequently, it is nonsense in such circumstances for people to be out of work. It is merely a matter of releasing the demand for more goods and services. As one who believes strongly in the efficiency of the free market, I have no doubt that labour, capital and enterprise would come together to ensure that demand was met. However, if this is to happen and if there is to be a real attack on tile level of unemployment, my right hon. Friend the Chancellor will have to be rather more adventurous with the public sector borrowing requirement.

I am deeply concerned about the decline in manufacturing industry that has taken place in recent years. Until 1973, output in this country had risen strongly since the end of the war. In 1973, manufacturing industry was producing more than twice what was produced in 1948. Alas, this progress has not been maintained. Worse than that, between 1973 and 1981 there was a severe drop Fortunately, there has been improvement since 1981, and I welcome this strongly. The Government should be commended for their part in it. However, the level of output today in manufacturing industry is still lower than it was in 1973. In the last quarter of last year, it was almost 10 per cent. lower than it was in the last quarter of 1973, and that was more than 13 years ago.

Mr. Butterfill

What my hon. Friend has just said is completely contradicted by a research note produced by the Library, which is currently being issued, which shows that output is 0.2 per cent. higher over the same period. Perhaps my hon. Friend would like to refer to that.

Mr. Knox

If my hon. Friend refers to the official statistics, he will find that my figures are correct. They are published by Her Majesty's Government's statistical service. I repeat that in the last quarter of last year, manufacturing industry was almost 10 per cent. lower than it was in the last quarter of 1973, and that was 13 years ago.

Mr. Butterfill

What about these Library figures?

Mr. Knox

These statistics from the Government are more reliable than some that my hon. Friend may have got from the Library.

That decline in the past 13 years compares with an increase in output of almost 50 per cent. in the 13 years between 1960 and 1973. To illustrate further the seriousness of the situation, I point out that manufacturing output in January this year was about the same as it was in January 1974—the lowest point in the three-day week. No party has any right to try to make any political capital or mileage out of that. Both Labour and Conservative Governments have presided over a decline in manufacturing industry, and as the alliance was connected, in one way or another, with the Labour Government, it cannot dodge its responsibility either.

I accept that in a modern economy, manufacturing industry tends to employ a smaller proportion of the working population and it produces a smaller proportion of the GDP. At the same time, the service sector increases. However, this assumes an increase in GDP and a continuing rise in the output of manufacturing industry as new productive techniques are introduced and developed. Unfortunately, this has not happened in the past 13 years, although I hope that it will happen in the next 13 years.

For a nation such as Britain. a strong manufacturing base is essential because we are dependent on it to pay for essential imports of raw materials and foodstuffs. It is particularly important because the export potential of manufacturing industry is so much greater than that of the service sector. If we are to continue to expand our economy in the future, we must have a much stronger manufacturing base than we have had in recent years and it must expand more quickly, and, if we are to have a much stronger manufacturing sector, my right hon. Friend the Chancellor will have to provide more demand to enable it to expand. Again, that means that he will have to be more adventurous with the PSBR.

To sum up, I believe that my right hon. Friend the Chancellor deserves considerable credit for many of the specific measures that he has introduced today. However, I have some doubts about some of his macro-economic decisions, in particular relating to the PSBR.

6.28 pm
Mr. Jim Craigen (Glasgow, Maryhill)

Before the hon. Member for Staffordshire, Moorlands (Mr. Knox) reached his peroration I was about to say that I agreed with many of the concerns that he expressed about unemployment and the need to remedy the decline in manufacturing capacity. In this Budget the unemployed have been forgotten and one of the few references that the Chancellor made to them was that there would be a threefold increase in the number of job clubs. I am sure that that will give great heart to the millions who are out of work. Even the references to improving vocational training incentives seemed to brush aside the recent report from the National Audit Office about value for money in respect of adult training programmes which the Government have been operating in recent years in an effort to try to reduce the unemployment statistics.

The hon. Member for Moorlands was correct in saying that this was not a dull Budget, but that was only because there was considerable laughter in the House at one stage when it looked as if the Chancellor had lost one of the pages of his statement. In some respects, one felt that something was missing from the Budget. Perhaps it was in that missing page. Perhaps it would have been a reference to unemployment, which was otherwise ignored, or a reference to reducing interest rates, to which I am sure many businesses were looking forward. [HON. MEMBERS: "Wait and see."' Conservative Members say "Wait and see" but the trouble is that we have been waiting for eight years for the Government to do more of the things that have been suggested.

One of the things that is clear from the Chancellor's statement is that he is keeping his options open. There was a considerable build-up in the weeks before this Budget about just what would he distributed by today's statement. The Chancellor made every effort this afternoon not to displease anybody. It is not clear how he will actually improve the economic and social fabric of this country. However, it was quite clear that he did not want to offend or upset any particular group. It was also noticeable that he spent a considerable amount of time giving away little titbits to some of his more influential supporters. It was just as well that he spent the first three quarters of his speech on that, because when he came to the end of his statement I thought, "Is that it? Is that the great give-away in terms of lowering the thresholds for taxation and reducing the basic rate?" I thought that because there had been a tremendous build-up of expectations.

The Chancellor had one eye on polling day, but he certainly did not have an eye on the prosperity, far less the posterity, of this country. One suspects that the situation may be worse at the Treasury than we realise —especially as I look at the Minister of State—because it is the consumer boom that has financed a substantial part of today's handout. That spending boom has given the Treasury revenues that were not expected at the time of last year's Budget. Those unexpected revenues come from extra VAT and corporation tax receipts. [Interruption.] It is just as well that the hon. Member for Penrith and The Border (Mr. Maclean) represents an English constituency, because he would never be elected in Scotland, and indeed one Scottish constituency sent him packing.

The reason for the unexpected windfall is that more consumers are getting goods on tick. The plastic card has played into the Treasury's hands. Consumer expenditure has risen because more people are getting into debt, as my hon. Friend the Member for Monklands, West (M r. Clarke) pointed out last week in the debate on the Debtors (Scotland) Bill. The Chancellor is benefiting because more people are living on tick. Therefore, he is able to hand back money which, as has been pointed out, has been paid to the Treasury anyway by those same taxpayers.

What a pity that the Chancellor could not have said more about interest rates, because their high prevailing level in this country has been one of our impoverishments in terms of investment. If the Chancellor had been able to announce some good news on the interest rate front, that would have sent up a far greater cheer from many of the small businesses which he is, understandably, so anxious to assist.

The Budget will not really get more young people or adult unemployed into meaningful work. One can alter pension schemes as much as one likes, but one of the things that the pensions companies must hope for is that more people will be in jobs and can therefore contribute to pension schemes. Apart from requiring contributors, pension schemes also look for areas in which to invest.

I should like to mention briefly the Government's proposals for profit-related pay schemes. One must look beyond the superficial attractions here and not forget that the competitive position of some firms will inevitably squeeze their profitability, especially if they face considerable overseas competition. It remains to be seen — perhaps this will unfold in the later stages of the Finance Bill—whether the Government's proposals will be most beneficial to those paying the higher rates of income tax. It is easy to get lost in the superficial attractions of that.

Finally, I cannot see the Budget strengthening the social, industrial or economic position of Scotland at present. The Budget will not do anything of great significance to help the manufacturing sector, or even the service sector, in Scotland.

When one considers the favourable winds that the Government have had at their back during the past eight years, in terms of North sea oil revenues, the profits from the privatisation of public assets, the higher revenues from indirect and direct taxation and their attempts to reduce public expenditure, one says, "What a dim-witted lot have been in charge of this country's Treasury during those years." We have ended up worse off than we were when that shower were first elected.

One must treat the Budget warily. What was significant was what the Chancellor left out, rather than the people whom he tried to appease, assuage and please this afternoon.

6.38 pm
Sir Anthony Grant (Cambridgeshire, South-West)

It is always a pleasure to speak after the hon. Member for Glasgow, Maryhill (Mr. Craigen), but this is also a sad occasion because I understand that he will not be with us in the next Parliament. I for one will miss him because I remember what a good colleague he was at Western European Union and on the Council of Europe. I do not agree with a word that he says. I am surprised to find that he is so puritanical about credit cards and spending. No doubt, he would like to have a much harsher regime. However, it is always pleasant to debate and argue with him.

It is very different with the Liberal party. As I listened to the Liberal party spokesman, the hon. Member for Gordon (Mr. Bruce), I was reminded of a remark by the late Earl of Stockton that the Liberals are full of sound and original ideas but their sound ideas are not original and their original ideas are not sound.

This is a thoroughly responsible Budget, and I welcome it. It must be seen in the context of an increase in public expenditure of about £4.75 billion on such items as health and education in the autumn. That coupled with a reduction of £3 billion in the PSBR and the reduction of £2 million in taxation is a remarkable achievement by any standard, especially when at the same time our growth rate is the envy of many of our competitors abroad.

I support the tax reduction. I find the attitude of some people to tax reductions extraordinary and ambivalent. I always get irritated when it is assumed that the Government will give away something. They do nothing of the sort; they merely allow people to retain more of the money that belongs to them. The sooner we get that point clear in our minds, the better. It is also odd that, while many people are, rightly, deeply worried about the gross incomes of the low paid, they disregard the net take-home pay which pays the bills and maintains families.

Last week, at Question Time, my right hon. Friend the Prime Minister pointed out how much tax a nurse had to pay from her small income. I think it was about £43 a week out of £155. I heard a Labour Member shout, "Then pay 'em more." I find that astonishing. It shows the muddled thinking that prevails, not merely on the Opposition Benches, where we expect it, but through the country. In other words, such people are saying, "Give nurses more taxpayers' money so that they can pay more taxes to pay more money to people who are too heavily taxed on a low income who can then pay more taxes in order to pay more money to others and so on." It is a case of: Great fleas have little fleas upon their backs to bite 'em, And little fleas have lesser fleas, and so ad infinitum. I suppose that it can be said that that creates jobs for the Inland Revenue, so there must be some benefit in it, but what it has to do with national wealth creation, fairness or efficiency is beyond me.

It is odd that some members of the public are for ever criticising politicians, bureaucrats and civil servants, not always entirely without justification, and wanting them to control more of our activities, lives and finances. That seems paradoxical. There is even more ambivalence over the brain drain. I have been worried about that and have criticised the Government's attitude to research, which is important, especially at Cambridge. I am not convinced that the Government have fully taken on board the importance of that, and I look for some reassurance from Ministers during the Budget debate.

A lack of research facilities is only one factor in the brain drain; taxation is another. Direct taxation is lower in most European countries and particularly in the United States for those people than it is here. I keep hearing of bright young men and women, especially in science and medicine, who are lured abroad because of the better net financial prospects that they will enjoy. It is in everybody's interests that this brain drain should be stopped, and the reductions in taxation should help.

There is a fashionable theory which we hear bandied about that direct tax cuts do not promote harder work. I do not know whether the theory is right, but, if it is, it is surprising that an increasing number of people have been working increasingly hard in what is called the black economy where they do not pay tax. In any event, higher taxation can hardly be said to he an incentive to greater effort. The Opposition may well ponder on that before they finalise their election manifesto.

I am pleased that the Chancellor recognised the problems of old pensioners. It is a mark of a civilised nation to care for its old folk and we have an increasingly aged population. In considering taxation, it is interesting to reflect on the many complaints that we receive from those who are taxed on their small additional earnings over and above their pensions. That is another aspect that should be pondered on.

It is always the well-heeled who moralise on the wickedness of taxation. I have a suggestion for them. They should give away any tax benefits that they receive to a charity or deserving cause, thereby saving the cost of a bureaucracy collecting it and doling it out. If they are anxious to take up that suggestion, I remind them that the Chancellor has made concessions on vehicles for hospices. I hope that that will help Cheshire Homes, of which I am a great supporter. That is a way in which all those high-minded people can dispose of their tax benefits.

My hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox), whose views I greatly respect, drew attention to the tax versus public expenditure argument. I agree that this is not a dogmatic, doctrinaire issue. I also agree that this is the time for taxation reductions rather than public expenditure in view of what has already been done. I notice that the five economic advisers to Governments between 1970 and 1979 take a different view and, incidentally, they are not short of a bob or two. I accept full responsibility for the period when I was a Minister, but the latter part of that decade was noted for high inflation, low growth, increasing unemployment and deteriorating services. I doubt whether the advice of the famous five is any better now than it was then.

Mr. Stuart Randall (Kingston upon Hull, West)

I read the Financial Times letter to the editor, but I thought that it said from 1948 to 1979.

Sir Anthony Grant

If that was the case, their record is even worse because in that period we had low growth and rising inflation, particularly in the latter stages from 1974 to 1979 when the economic situation was undoubtedly deplorable. This morning Radio 4 pondered on a suitable collective noun for those advisers. I would suggest that "a folly of advisers" would be appropriate.

We have often been too obsessed in our taxation considerations with the highly paid and the lowly paid. We should not spend so much time worrying about the highly paid unless we are completely eaten up with envy. The tax they contribute is a relatively small part of the whole, and they are quick and smart enough to nip abroad or otherwise to avoid taxation. We should not forget the people in between who often make the biggest contribution to the nation's economic welfare. Direct taxation bears hard on them and they are all too often neglected. As Hilaire Belloc said: The rich arrived in pairs and also in Rolls-Royces And talked of their affairs in loud and strident voices. The poor arrived in Fords, whose speeches they resembled And laughed to see so many lords and ladies there assembled. But the people in between were underdone and harassed And out of place and mean and horribly embarrassed. That illustrates the difficulties that we face. The people in between are hard hit by high interest rates and include small business men, professional people who rely on an overdraft for financial capital and home buyers who depend on mortgages. They are often cruelly affected by high interest rates. All too often they are forgotten by the advocates of higher public expenditure through Government borrowing. Therefore, a fall in interest rates would he the best news for small and medium-sized businesses and the property-owning democracy. I shall be surprised if the Chancellor's responsible handling of the PSBR over the years and in this Budget does not lead to a further reduction in interest rates in the near future.

I am glad that the Chancellor seems to be so splendidly converted to wider share ownership and I am delighted at the Government's record of an increased number of shareholders. I was a pioneer and founder member of the Wider Share Ownership Council with the late Maurice Macmillan and my hon. Friend the Member for Croydon, South (Sir W. Clark). For years we were crying in the wilderness, but now our desires are coming to pass. It is not only a question of increasing the financial wealth of people, but also of increasing independence and responsibility for the individual. The more people own shares and have a part in the ownership of our nation, the greater the responsibility and the more sturdy the bastions are against the ever encroaching power of the state. I welcome anything that is done in that respect, and the Government's record is the best that I can conceive.

This is an excellent Budget which is designed to help those who most need it while maintaining the stimulus in the economy. I want to end with a quotation from a distinguished source—

Mr. Michael Brown (Brigg and Cleethorpes)

Is it Belloc again?

Sir Anthony Grant

No, it is not Belloc again. It is a much more distinguished quotation than that. It reads: If you want to retain power you have got to listen to what people …say and what they want. If you talk to people in the factories and in the clubs, they all want to pay less tax. They are more interested in that than the Government giving money away in other directions. That was said on 14 March 1978 in advice to Labour's national executive by no less a person than the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan). He is often quoted these days, apparently, but his words are as true today as they were then.

I do not know whether this is an electioneering Budget, and I do not care. If it is, I thank God, because it will save the nation from the horrors of a hung Parliament and Socialist rule.

6.51 pm
Mr. Dafydd Wigley (Caernarfon)

The hon. Member for Cambridgeshire, South-West (Sir A. Grant) is the first Member to show some enthusiasm for the Budget——

Mr. Brooke

indicated dissent.

Mr. Wigley

I have no doubt that the Minister has a professional interest in the Budget and some enthusiasm for it.

The considerable divide between the two sides of the House has become evident in this Budget. One divide that has become apparent is that every Conservative Member who has spoken represented an English constituency, and every Opposition Member who has spoken represented a Scottish or Welsh constituency. That might underline the considerable divide. I accept that that divides between the north-west—north-east and the south-east of England. This Budget may have been acceptable and caused some enthusiasm in south-east England, but it has done nothing to solve the basic problems that face my community, where there is 22 per cent. unemployment and considerable worries about the future.

In many ways, the Budget has given us a sign about the election, because we will have a minimalist Finance Bill which can be rushed through rapidly. I suspect that that heralds an election on or around 11 June, and everything in the Budget has been geared to that.

We had been hyped-up to expect a substantive and imaginative Budget. It may be that that over-hyping led to the sort of headlines that we had in yesterday's Daily Telegraph— Growing fears over Budget 'giveaway'''. I wonder whether, with that missing page from the Chancellor's speech, there has been a change of direction by the Government in response to those who have expressed such fears.

The Budget is a tinkering one. It is more concerned with changes in minutiae rather than with overall strategy. That may be expected as we come to a general election, but it has not answered those of us who have criticisms of the direction of general strategy.

Before I deal with those criticisms, I shall acknowledge some of the improvements and benefits from the Budget. The changes in VAT on small businesses are to be welcomed. The changes in VAT in respect of disablement equipment are to be welcomed, as are the changes in the blindness allowance, which was long overdue.

The encouragement of profit-sharing schemes is a step in the right direction, although many Opposition Members took offence when the Chancellor said that one of the greatest liabilities or problems that we had in that context was the work force. That was an unfortunate remark to say the least, and should be discouraged.

I welcome the clampdown on corporation tax, which will bring in much-needed revenue. The North sea oil proposals may be helpful if they develop and increase the scope of new oilfields. The business expansion scheme changes are to be welcomed.

I welcome one of the negative matters—that there is to be no increase in the cost of petrol or vehicle licensing duty, which have a considerable adverse effect on rural areas where transport is essential and not a luxury. I fear, as do other hon. Members who represent rural areas, Labour party thinking on this issue. Perhaps Labour Members can respond to reports that the Labour party may be thinking of doing away with vehicle licences and putting the cost on to petrol. That would not be acceptable in my area.

The Budget says next to nothing about unemployment, which worries us. The hon. Member for Staffordshire, Moorlands (Mr. Knox) was worried about the lack of strategy to reduce the 3 million — or perhaps 4 or 5 million if we take those on artificial schemes—who are unemployed.

There is nothing in the Budget about benefit rate increases. I realise, however, that those are now dealt with in a different manner. Representations have been made to the Government by various bodies, such as the Child Poverty Action Group, which strongly stressed the importance of child benefit, for example. I realise that these statements may not be made in the context of the Budget these days, but it is important to consider the relevance of matters such as child benefit when considering factors such as the poverty trap. It is worth quoting what the Child Action Poverty Group said in its Budget submission: At a time when the divisions in our society are growing ever wider, there can be no justification for squandering billions of pounds on tax cuts which will benefit the highest paid most. Instead, the Chancellor should announce a programme of tax reforms designed to help the low paid and families with children and commit the Government to increasing the resources available to those living on social security. Such a Budget would be a fitting memorial to the `one nation' policies advocated by the late Lord Stockton. That is central in the divide between the two sides of the House.

There is little in the Budget about interest rate reductions. I take the point that has been made already that perhaps we shall hear more about that in the next few days, but if it is only an extra half a per cent. that will not be enough.

There is little on the question of social legislation. In an intervention, I referred to the Disabled Persons (Services, Consultation and Representation) Act 1986 and a number of other items of social legislation that need money spent on them—money which would be better spent on such provision than on giving it back to those who perhaps do not need it quite as much as those who need the services that are provided under the disabled persons legislation.

The Budget has not taken enough people out of taxation. If there was money available for reducing income tax levels—reference has been made to the position of nurses on low pay—the way to use it was to take out of taxation people on low pay who are paying income tax. In the Budget, £700 million has been used for that purpose, compared with £2,000 million for spreading it thinly over the standard rate of taxation. That can have an increased benefit for those who are on the higher rates and above the standard rates. The raising of the threshold should have been twice the level required by indexation. The Government had their priorities wrong in not doing that.

I want to take up one point with the Opposition. I found the speech of the Leader of the Opposition difficult to swallow when he criticised the Government because their taxation level was now higher than it was in 1979. I take the view — I was under the impression that Opposition Members generally did so, too — that we need high taxation to sustain the services that we perceive as being needed to help those who are most dependent on state services. We cannot have it both ways. We cannot criticise a Government for maintaining high tax levels if we believe that they, or even higher ones, are necessary to maintain the services that we need. We need to be straight on this matter. If we believe in services, we must believe also in the means of sustaining them. We must bite the bullet, and sometimes bite hard. The two sides of the House may have different views on this issue, but we must be consistent in our arguments. Most Opposition Members believe that priority should have been given to increased services, which would in themselves provide more jobs than will be provided by a reduction in the standard rate of income tax.

The Budget is something of a damp squib. It reflects a lack of vitality, vision and ingenuity. Certain commentators have referred to the Chancellor of the Exchequer's ingenuity. That ingenuity has not emerged today. I do not know why it is not apparent. There is a lack of content in the Budget. It gives the impression of a tired Budget that has been introduced by a tired Chancellor. It is less than we were led to expect, and I do not understand why this has been allowed to happen, unless there was a change of course fairly late in the Budget development programme.

There has been the squandering of a massive opportunity, and the Chancellor of the Exchequer's incredible statement about the work force has brought that home. I find it difficult to accept that the policy of keeping the public sector borrowing requirement at £4 billion should be sacrosanct. The Government were talking only a year ago of a PSBR of £7 billion, and the difference of £3 billion could have been invested in infrastructure, including roads, hospitals and schools. Jobs would have been provided in taking that course.

I believe that we could live with a PSBR of £8 billion or £10 billion, but let us for the moment accept the £7 billion that the Government were working to only a year ago. That sum, together with the £2 billion give-away, could have provided many jobs and improved services. I know that those who will receive the benefits of the Chancellor of the Exchequer's give-away will appreciate them, and perhaps when it comes to voting, but our vital resources have not been used to the best effect.

Interest rates are running at about 11 per cent. at a time when inflation has been running at about 3 per cent. or 3.5 per cent. Interest rates are far too high and a real interest rate of 7 to 8 per cent. cannot be justified. There are difficulties for manufacturing industry. My background before coming to the House was on the finance side of it. If interest rates are running at about 11 per cent., manufacturing industry will be looking for a return of 20 or 25 per cent. before it takes a risk. Why should it take a risk when it can obtain good returns from money placed in secure investments?

The interest rates that have been running under this Government have been 10 to 10.5 per cent. on the one month rate. That compares with 4 per cent. in Germany, 4.5 per cent. in Switzerland, 5.5 per cent. in Holland and 3.5 per cent. in Austria. I realise that there are difficulties due to oil money movements, for example, but after eight years it should be possible to engineer circumstances in which the interest rate is substantially lower.

Perhaps the Government believe that a PSBR of £4 billion will be enough to start reducing interest rates. There is no evidence that that will happen, but I hope that that will be the result. Interest rates should be coming down to 7 or 8 per cent. if inflation is running at 3 to 4 per cent. Indeed, that must happen if we are to have a change of course that leads to significantly greater investment in manufacturing. It is critical to reduce interest rates, and not only for manufacturing industry, though that is important.

A reduction in interest rates is important for agriculture. Many farmers in my constituency extended their bank facilities to expand in the dairy sector only to be clobbered by the quotas that have been imposed. Many of them are being foreclosed by their bank managers and lower interest rates would be significant to them. In many instances it would make the difference between surviving and not. A reduction in interest rates would make a substantial difference also to home owners.

A high interest rate is no incentive for new ventures and enterprise. Nor is it a help to secure investment at a cost that can be afforded by the community to provide much-needed community facilities. In eight years in office the Government have not succeeded all that well with their interest rate policies. I am not a supporter of a policy that plays into the hands of the money lenders and causes so many problems for the groups to which I have referred.

The comments of the economic advisers to the Government that appeared in the Financial Times yesterday have been referred to by those who have talked about jobs. It is worth putting on record a couple of parts of their letter. One passage read: As Chief Economic Advisers to governments from 1947 to 1979, we are greatly troubled by the prospect of continuing high unemployment. We do not accept the widespread view that it is inevitable. On the contrary, we consider that much of the increase of 2 million in the number of unemployed since 1979 results from errors of economic policy.

The letter continues: The time has come for a change of course. Realistic policies exist which could lead to a major return to work without exploding inflation. The Chancellor has a real opportunity to introduce a budget for jobs. Genuine and major reductions in unemployment should be the top priority for government policy.

It is easy to rubbish civil servants, including those who have been in post when other Governments have been in office. There are those who have been in that position over many years when both Conservative Governments and Labour Governments have been in office. There was the time of "You've never had it so good" in the 1950s and the period of full employment in the 1960s and early 1970s. £4,000 million or £5,000 million had been allocated in the Budget, that would have helped to create as many as 1 million new jobs, including 50,000 in Wales.

The needs of the elderly and the disabled are often catered for only in institutional care. These people could be looked after in their own homes if resources were made available to pay those who are available to do the work to undertake it. It may cost only £60 or £70 a week of additional public expenditure per person to trigger such a scheme, and the state is willing to pay £180 a week to maintain people in private residential homes, or £230 a week to maintain people in private nursing homes. Surely some money could have been made available to the domiciliary services to help the elderly and the disabled live in the community, and thereby increase employment.

In Wales there is a great need for housing. About 160,000 houses—about 14 per cent. of the housing stock —are unfit. At the same time, building workers are out of work. They want work but they cannot get it. Some schools are in an appalling condition and need maintenance. There are roads with holes in them. The rural roads especially are in a state of disrepair. The railways need modification and investment. Hospitals have increasing waiting lists. These are the problems within the community. At the same time there are those who are willing to work. They want to work and we are paying them to do nothing. We could pay them a little more to work, and that little more is the money that is being given away in a tax reduction. The Chancellor of the Exchequer should not have moved in that direction.

This will be a good Budget for the well-off. It will enable people perhaps to have a second colour televison set, a second new car, a second overseas holiday, a second pension or even a second home. Unfortunately, it will do precious little for the 3 million or more who do not have even a first job.

7.8 pm

Mr. Tim Smith (Beaconsfield)

I listened carefully to the remarks of the hon. Member for Caernarfon (Mr. Wigley) about the Budget. It is in the nature of things that perspectives should vary fundamentally on the statement of my right hon. Friend the Chancellor of the Exchequer. I could not accept the hon. Gentleman's description of the Budget as either "tinkering" or "tired". I am genuinely enthusiastic about what my right hon. Friend had to say. He has introduced a remarkable and radical Budget that is wholly consistent with his three previous Budgets. I do not agree with the hon. Gentleman's assertion that it will do nothing for unemployment, and I shall explain later why I believe that to be so.

The hon. Member for Caernarfon said that we could have a PSBR of £7 billion, £8 billion, £9 billion or even £10 billion instead of £4 billion, and he then said that he wanted lower interest rates. The two objectives are not compatible. He complained about the Leader of the Opposition wanting it both ways, but so does he. We shall see tomorrow a fall in interest rates as a direct result of a major cut today in the PSBR for next year.

I agree with the hon. Member for Caernarfon that the Leader of the Opposition wants to have it both ways with regard to taxation. The right hon. Gentleman said that we should go back to having the reduced rate band. Obviously the right hon. Gentleman has forgotten that the reduced rate band was 25 per cent., and the standard rate of tax next year is to be only 27 per cent. Therefore, the reduced rate band would now only be 2 per cent. lower than the standard rate. Very soon there will be a reduced rate band, not for a few, but for every standard rate taxpayer. That is why this is a remarkable Budget. If we take into account the measures announced in the autumn statement and the Budget, we have witnessed a fiscal adjustment of £11 billion. In November an increase of £5 billion in spending was announced. Today, the Chancellor announced a reduction of £3 billion in borrowing and a reduction in taxation of £3 billion. This is a remarkable achievement and it underlines the strength of the British economy and the buoyancy of tax revenues.

There are three measures in the Budget that I believe will be particularly welcome. The first is the increase in the threshold for inheritance tax. When that was announced it was obvious that Labour Members felt it was some kind of give-away to the rich. I must tell them of one of my constituents, the wife of a retired teacher. This lady wrote to me the other day to say that she had noticed that the price of their modest house in Gerrards Cross must be between £120,000 and £150,000. That would be the price of a modest house in Gerrards Cross. The lady suddenly realised that, in those circumstances, when she handed on her estate to her son, half of it would be subject to inheritance tax. She is not a rich person —she represents the ordinary constituent. Such a position would have been faced by many throughout the south of England because of the huge price increases. Therefore, I welcome the change that the Chancellor has announced this afternoon.

The second attractive change is the introduction of what are termed "freestanding AVCs". This provides the opportunity for people who belong to occupational pension schemes to top them up by making additional voluntary contributions, not to that scheme, but to a personal, portable pension scheme of their own. At the moment such schemes are available only to those who are not members of occupational schemes. This change will prove very attractive. I notice that the Red Book suggests that over 250,000 people will take up that opportunity, but I believe that many more will do so.

The third measure that I believe will be extremely welcome are the changes that are to be made in the administration of VAT for those businesses having a turnover of less than £250,000. Cash accounting will be the answer for those small businesses which have complained for so long about bad debts and late payers. They will no longer have cause for complaint, because they will not have to pay over the VAT until they have collected it from their customers. The threshold for this change was put at £100,000 in the consultative document, and the fact that the Chancellor has increased that to £250,000 is most welcome.

The new arrangements for annual accounting are also welcome as they give small businesses the opportunity to pay nine estimated amounts of VAT on account during the course of the firm's financial year. They will then make a final payment, together with one annual VAT return. That will do a great deal to help those small businesses which complain that they have to complete a complicated return once a quarter.

With the benefit of hindsight, it is clear that the year 1981—in particular the Budget of 1981—represented a major turning point for the British economy. It is clear that 1981 marked the end of 20 years of relative economic decline for Britain. At that time, the Government's critics said that their economic strategy, in particular the medium-term financial strategy, would not work. Indeed, a group of learned academics wrote to The Times to say precisely that. Since then the United Kingdom has enjoyed sustained economic growth of around 3 per cent. per year. Total output, manufacturing output and productivity have risen and 1 million new jobs have been created. All that has occurred because, in the depth of the recession, the Government had the courage to tackle the causes and not the symptoms of Britain's economic malaise.

As British industry has become more competitive, and consequently more profitable, so the yield from corporation tax has risen. As the standard of living of the British people has risen, so to has the yield from indirect taxation. Because of the buoyancy of Government revenues, the Chancellor was able to announce today a combination of lower direct taxation and lower Government borrowing. Some will say that he is a lucky man, but I say that the Government, by their unwavering economic policies, have created their own opportunities. The United Kingdom's economy has escaped from the vicious spiral of relative economic decline to a virtuous circle of soundly based economic growth. Today, the Government's critics say, not that the Government's economic strategy will not work—plainly it has done—but that it will not last. On the contrary, I believe that because it is soundly based it is much more likely to last than the failed expansionary policy of the past where a "go" was inevitably followed by a "stop".

The underlying strength of the economy is best demonstrated by its ability to withstand the seismic shock of a miners' strike followed, not so long afterwards, by a huge plunge in the price of oil. Two or three years ago lectures entitled "What will happen when the oil runs out?" were fashionable. Last year's Red Book showed that, at the time of the 1985 Budget, North sea taxes were forecast to be £13.5 billion in 1985–86. This time last year the forecast for this year, 1986–87, was £6.1 billion. It is against that background of a huge fall in oil revenue that today the Chancellor was able to announce cuts in taxation. No wonder that today nobody asks "What will happen when the oil runs out?"—we already have the answer.

All the evidence suggests that the recovery is spreading from the south of England, through the midlands to the north, yet unemployment, even in the south, remains stubbornly high. Why is it that there are 4,000 people out of work in Slough, but at the same time there are more than 20 pages of job advertisements in the local papers every Friday? I believe that the answer to that question lies in a combination of lack of skills and lack of incentives. Therefore, it is most welcome that the incentive to work will be increased by the raising of tax thresholds and the reduction in the standard rate of income tax that the Chancellor announced today.

Now is the right time to set some economic objectives for the next period of Conservative Government and the next Parliament until 1991 or 1992. Those objectives stem from a desire to get the fundamentals right by removing obstacles to economic growth and job creation. I believe that they should be, first, the elimination of inflation altogether; secondly, a continuing reduction in public spending as a proportion of gross domestic product; thirdly, a balanced budget; fourthly, a reduction in the standard rate of tax to 20 per cent. and in the top rate to 50 per cent.; fifthly, British membership of the exchange rate mechanism of the European monetary system; sixthly, real interest rates equivalent to the world average; seventhly, increased mobility of labour, principally engendered by major deregulation of the Rent Acts and a corresponding increase in property to let; eighthly, continued support for the Scottish and Welsh Development Agencies and the creation of a North of England Development Agency; and, ninthly, continuation of the hugely successful privatisation programme involving the transfer to the private sector of, among others, electricity, coal and water.

We have come a long way since 1979. Many of the changes that have been made are irreversible. The benefits of today's Budget are the rewards for the efforts that managers and workers alike have made to modernise British industry by doing away with outdated work practices and investing in the latest technology. Once again Britain can compete effectively in world markets. That success has been hard won and the country will want to think carefully before it throws it all away.

7.18 pm
Mr. Tom Clarke (Monklands, West)

Forced to choose between the descriptions of the Budget by the hon. Members for Beaconsfield (Mr. Smith) and for Caernarfon (Mr. Wigley), I believe that the Budget represented a statement by a tired Government and that the hon. Member for Caernarfon was right. It is appropriate to recall the words of Lloyd George — a Tory nation is a tired nation. If the Budget demonstrated that, the people will respond appropriately when, before long, they are asked to pass judgment on the priorities explained by the Chancellor and supported by some of his right hon. and hon. Friends.

The Budget did little to deal with the biggest problem that Britain faces — unemployment. It did little to remove the regional variations and the great gap between the most prosperous parts of the United Kingdom and areas such as in my constituency where great poverty and deprivation are experienced and where people are greatly concerned about the Government's lack of leadership and about their complacency, which the Budget showed, which is clearly widely shared by Conservative Members.

I was distressed, as my constituents would have been, to hear the speech of the hon. Member for Cambridgeshire, South-West (Sir A. Grant), who referred to people being involved in the black economy. In many ways that represented an honest statement of his opinion, but I regret the fact that that is an oft-repeated view, as I know from talking with many people, especially in southeast England. It is a great myth and is patronising and unacceptable. The constituents of my hon. Friend the Member for Motherwell, North (Mr. Hamilton), who are fighting to save the Caterpillar factory, with massive support from the Scottish people, and who want to produce, sell and export their products, and who would have liked reasonable interest rates so that they could carry on with that objective are rightly offended when, by implication, they are told that their fight for jobs is a sham because they are dependent on the black economy to keep themselves going.

People in Lanarkshire and in my constituency have experienced closure after closure, from Cardowan to Gartcosh and at Buchanan in Stepps. There has been an exchange in the House on the Scottish whisky industry's future, which is of great interest to me. Alas, after the Buchanan closure, there will be no more jobs in that industry in my constituency. The men and women who have experienced unemployment and redundancy will not be attracted by the minor taxation changes announced by the Chancellor. For them, unemployment is total. The minor tax concessions given by way of window dressing have little attraction and show little awareness of the reality of the problems faced by those families.

The Budget is a clear indication that Kenneth Galbraith's words of more than 20 years ago apply even in 1987. He talked about the reality of private opulence and public squalor. We are seeing the "private opulence" in the fact that the Chancellor's concessions are bound to be better for the higher income groups. That is consistent with the Prime Minister's reply a few weeks ago to a question that I asked when she said that the top 10 per cent. of the people have enjoyed a great deal more prosperity since 1979 than have the bottom 10 per cent. We have seen the gap grow between the very prosperous and the very poor, those who have been caught in the poverty trap and who know what unemployment and destitution mean. The tragedy is that, given an opportunity in the Budget, the Chancellor has failed to respond to the problems that people are enduring.

The hon. Members for Gordon (Mr. Bruce) and for Caernarfon referred to the Disabled Persons (Services, Consultation and Representation) Act 1986. A few weeks ago I asked the Prime Minister whether she thought that it was right to withhold the funding that is necessary for that Act to become meaningful, while at the same time preparing for the type of taxation cuts that we have seen in the Budget, which I do not believe are right. Public opinion surveys suggest that the British people would prefer to ensure that public services are not starved of resources, that there is proper public investment and than our infrastructure makes us capable of being a manufacturing nation worthy of that name, reversing the current trend whereby we import more than we export.

In the light of this challenge, the Chancellor has dodged the two issues facing this nation. The first is wealth production. We must produce the wealth before we can debate exactly where the money will go. The second is the distribution of resources. We, in a modern, sensitive society, have to decide how best those resources should be distributed. On both counts the Chancellor has failed.

The Budget will not lead to increased productivity. It will not help our hard-pressed manufacturing industries, including those in my constituency which have suffered so much in recent years. If we do not produce to the extent necessary to satisfy our people's needs, of course the social services are bound to suffer, and the Prime Minister will be forced into the embarrassment that was so obvious at the Dispatch Box when she said, replying to me, that funding would be made available for the provisions of the Disabled Persons (Services, Consultation and Representation) Act when resources became available.

This afternoon the Chancellor found other means of spending money. He barely recognised the problems in the social services. Over the weekend, in my constituency, more than 400 geriatric and psycho-geriatric patients were removed at the shortest possible notice from the Woodilee hospital, a psychiatric hospital built in Victorian times. The staff went with them and many patients were sent some 5 miles or perhaps 10 miles away to another hospital because the health board was advised that their present hospital's structure was dangerous. However, some of the patients then found themselves in a new ward where the ceiling was falling in. The nurses and auxiliary staff who were with them, and who have done an excellent job, showed me pieces of asbestos that had fallen from the ceiling.

This is Kenneth Galbraith again— private opulence and public squalor. For how long will the British people tolerate these priorities? It is not enough for the Government to say that they are committed to the Health Service and to allow that sort of thing to go on. It is not enough for them to say that they stress community care, yet not give the social services the resources necessary to make community care a reality. It is not enough for the Government to ignore the plight of disabled school leavers and the demands of a modern education system.

How can we talk about jobs, industry, our manufacturing base and competing with the Japanese, the South Koreans and the rest if we are not investing in education? How can we accept a situation in which 5,000 young people with the qualifications to enter higher education are denied that opportunity? How can we cope with a system where access to higher education is so limited that only 1 per cent. of children whose parents had an unskilled working-class background are given that opportunity?

What we are seeing—and this is a theme that we noticed time after time in the Chancellor's speech — is the reality of the resources of this country, including the most important resource of all, the contribution that our people are capable of making, being tossed away. No Government have that right. It is not beyond the wit of a modern Government to ensure that our economy is organised and planned to give our young people the opportunity of enjoying the full potential of their capabilities and their interests.

This is a very short-sighted Budget. For the reasons that 1 have given, I regard it as selfish and cynical. If Lloyd George said that a Tory nation is a tired nation, I must tell the Government that I believe the people are becoming tired of these priorities, tired of this approach, tired of unemployment, tired of seeing resources, especially oil, being thrown away to finance 3 million unemployed, tired of the consequences for the social services, for health, and for the education system. I have every confidence in the people of this country, because they have made it clear —and will soon do so again— that the Government's priorities are not theirs.

7.30 pm
Mr. Nicholas Fairbairn (Perth and Kinross)

The hon. Member for Monklands, West (Mr. Clarke) may have imagined that he was joining the hon. Member for Caernarfon (Mr. Wigley) in speaking for the Celtic fringe who, the hon. Member for Caernarfon claimed, regard this Budget as contrary to the interests of Scotland and presumably of Wales.

Perhaps, on St. Patrick's day, I may speak modestly for Scotland, which, I am glad to say, is north of the north-south divide, because the prosperity of the people of Scotland is infinitely greater than the prosperity of those who reside south of this mythical divide. The expenditure per head on education, on roads and on investment is massive. Our share of incoming industry is enormous. The success of the Scottish Development Agency, which we reorganised, is quite dramatic. We have a huge share of modern industry — a fact that the hon. Member for Monklands, West appears not to comprehend. The Labour party is consistently anxious to protect, to cosset and to contain industries of the past which are not relevant; it is not anxious to welcome the industries of the future which are. One of those industries is tourism, which has been highly successful in Scotland.

There have been some extraordinary speeches this evening. The official Opposition and the alliance have to find a way of saying that good news is bad news. They were robbed of their chance to say that the Chancellor had bribed the electorate, so they had to find some other way of alleging that the Chancellor has got it wrong. The thrust of their argument is that he should have reversed everything that has produced our present prosperity and economic strength by going back and investing the wealth of the nation in bureaucratic schemes. The reason why the Chancellor has been able to spend £11,000 million— I do not use this word "billion", because it is misunderstood —on the prosperity of the people of this country is his economic prudence. It is because we no longer have to spend it on loss-making nationalised industries, on so-called infrastructure, on all the things that lose money and build ever-increasing empires and can never be brought back again. It is because of the determination and the strength, essentially, of the Prime Minister and of the Chancellor that we have turned back from that inevitably downhill road in which taxation increased in order to support the ever-increasing claims of authoritarian bodies. That has produced a quite remarkable change. All the nationalised industries which have been privatised are in profit and now belong to the people.

I remember when British Railways, as it was called, was created. People genuinely asked if the railways now belonged to the people, which was their station, their carriage, their buffet. Now these industries really do belong to the people and are profitable. British Coal is doing the same. May it be privatised soon as well.

I should point out that the oil industry, which everybody imagined, in nationalist terms, was a sort of succour provided by Scotland for England, provoked not a word of complaint when it suddenly lost its strength and when England had to give succour to Scotland. The succour has come for Scotland and it has come this afternoon from the Chancellor who has sustained an important British industry. We say thank you for that.

We say thank you also on behalf of small business. Hon. Members have not sufficiently understood the extent to which the announcement made this afternoon on the adjustment of value added tax and other matters will benefit small business. If every small business took on one more employee or found itself able to do so financially, as I believe after today they will, it would mean employing between 500,000 and a million people in realistic, productive work. People are saying that the Chancellor did not speak about unemployment. But this is employment: one creates employment by creating the financial ability to employ. One does not create employment by enabling local authorities, by gross, and thus inflationary, overspending, to take on more employees for schemes to mend Woodilee or any other hospital, and such like. Like the hon. Member for Monklands, West, I have been on the Select Committee on Scottish Affairs investigating hospital building in Scotland. One could not envisage public money being better wasted than by being thrown away on that.

The Scotch whisky industry is very important to England, to the French, to the Americans and to everyone else, except the Japanese. Its pleas and our imprecations have been heard by the Chancellor and he has held excise duty at its present level. One of the things that I have noticed, taking a quite impartial view of politics, is that those who vote Labour also consume alcohol. I can imagine nothing that the Labour voter—or the about-to-be ex-Labour voter—will appreciate more. For the first time, I believe, since the war — certainly in my political recollection — nothing has been added to the cost of a pint or of a nip. Employed or unemployed, if he goes to the races he will be pleased because he is not going to be charged tax either. That should be fairly popular.

In Scotland, nothing is more important than the cost of transport because we are a widespread community with two fifths of the land space of Britain and only one eleventh of the population. For all those in the agricultural, rural and business communities, the fact that the Chancellor has held the price of petrol is still the best sign of economic strength that we could have. All the rural communities will benefit.

We have an increased number of people owning their own property. A large part of their weekly budget is already spoken for by what they pay for their mortgage. Undoubtedly, the fundamental excellence of the strength of the economy which enables the Chancellor to say that we need to borrow no more than 1 per cent. and thus enable interest rates for farmers, house owners and small businesses to be reduced is a fundamental reward for the people of Britain.

I know that any reduction in tax is regarded as small and any increase in tax is regarded as great. I remember, as a student at university, a little Socialist lady who went to the same dairy as myself. She said, "There you are, you Tories. Milk is up a ha'penny, threepence a week. Who can afford that?" I just had to agree that the price of milk had gone up. About a month later, I was in the dairy and again was able to say, "Right. Mrs. McLaren, you will be voting Tory today, because milk has gone down by a penny a pint." She said, "A penny? What's that?"

All the criticisms that it was expected would be levelled against the Chancellor—for example, that he was going to bribe the people of Britain—have not come true. It is not a give-away Budget. To allow one to have some pocket money back is not giving anything away. The state is increasingly being taken off the backs of the people. That means that in Scotland there are 19,000 more people in work now than when we came to office and in Britain 1.75 million more people are in work than when we came to office. That is the fact. Scotland is a vibrant new country, thanks to the economic policies of the Government and the courage of those who, when asked to waver and give money away to schemes and increase tax, bravely resisted. Of all those who were saying that, I notice not one in the Chamber tonight, and I have riot heard a voice of it now that the economic policy has proved so successful.

I believe that the Budget will do more for those who are not in employment than anything else. I regret one thing. The Chancellor did not remove one anomaly which, in my belief, would create a great reduction in unemployment. If a firm, a company or an individual employs people, the salary is paid before one pays tax. If an individual has a gardener or somebody to do up the car or whatever, he has to pay tax out of his already taxed income. That is what results in people going on the black economy. That is why an individual prefers to get pound notes in his hand for doing six people's gardens rather than being a gardener to one person who can afford to employ him. I believe that in this country there are probably between 1 million and 2 million people who are earning money without paying any tax on it and who are probably obtaining, unemployment benefit as well.

In Scotland, we welcome greatly not only the economic strategy of the Government but the Budget. It is sane, responsible, cautious and unflamboyant. If I may say so, it demonstrates, in the words of the Psalm, that we have created peace within our walls, and plenteousness within our palaces.

7.46 pm
Mr. Stuart Randall (Kingston upon Hull, West)

I want. to make a short contribution to the Budget debate.

I found the Budget statement a remarkable anti-climax. I must confess that as the Chancellor read out his statement I expected to see more smiling faces and more Order Papers being waved on the Government Benches. However, we saw very little of that. As previous speakers have remarked, one was left with the impression that something was missing. The comment has been made that. the Chancellor left a sheet on his desk back at No. 11 and that that contained the information that we were after.

Expectations were undoubtedly at a high level. The Budget had been hyped up by the media. Many of us—I know that this applies to Conservative Members—were expecting far more. I believe that it is a manifestation of the fact that we have a tired Government who have run out of steam. An election is imminent; we all know that. It is simply a question of when it will be. I believe that the Budget and the state of the economy will be important factors that will decide the date.

The first measure that I make of the Budget statement is what it does to alleviate poverty in Britain. Frankly, it does little if anything. That is one of the reasons—there are many others—why I am on the Labour Benches and not on the Conservative Benches. The Conservative party does not care about poverty. We have seen a remarkable increase in the number of people living in poverty —about 2.5 million—since 1979. The Budget was a great opportunity to do something about it, but it has totally failed. The Government are uncaring. They do not worry about the 6 million or 8 million people who live in that plight. Instead, they have had a taxation policy since 1979 of feathering the beds of the very rich. The statistics are quite clear. The very rich have done extremely well.

There are a few interesting questions. Many people have said that there is something missing, and I believe that that is true. We have heard only the Budget statement today and we have not had a chance to do the sums, but I cannot help feeling that there is about £2 or £3 billion somewhere which has not been used by the Chancellor.

Mr. Fairbairn

Quite right, too.

Mr. Randall

Perhaps the hon. and learned Gentleman knows.

I feel intuitively that the Chancellor had more money than many of us originally anticipated, but he has failed to go ahead and use it. Instead we have a Budget which adds up, as I understand it, to about £4 billion. The sales of the so-called family silver — the Government's privatisation programme this year, involving British Gas, British Airways and so on—amount to about £8 billion. I find it remarkable that the figures do not seem to add up. Where has the money gone? Perhaps other right hon. and hon. Members would like to comment on that. I am not sure where the money has gone. In particular, the incredible consumer boom and the associated tremendous demand must have considerably enhanced the Chancellor's revenue. I do not know where that money has gone, either.

I sum up the Budget as a missed opportunity. The hon. Member for Beaconsfield (Mr. Smith) regarded it as a radical Budget. Far from being radical, it is a quite unimaginative programme that does nothing to alleviate poverty, for getting industry up and going again, or for improving the infrastructure. From that point of view, I find the Budget disappointing.

What is particularly interesting about the Budget is that the choices that will go before the electorate in the next few months, or whenever the election is, have been starkly laid out. The Government have put their wares on their stalls. A few other things will be on the way later, I am sure, but the Government have put out their stall. It involves a reduction in the basic tax rate to 27p and the other matters that the hon. and learned Member for Perth and Kinross (Mr. Fairbairn) eloquently listed, but that is it. The next few months will involve putting our alternative case. If Conservative Members read the case that was presented —I accept that one or two little things happened last week to prevent it from being made as well as we should have liked — they will see that there are many opportunities. The challenge now is to get over to the public what I regard as the jewel in our crown. It will result in the next Government being a Labour one.

I am concerned about the general state of the economy. The fact that the boom has been allowed to rip ahead and the fact that the Chancellor has accentuated the matter by creating more demand through the tax reduction seem to be most unwise. I am not sure how much more the economy can take. Over the past year, there has been a growth of about 25 per cent. in consumer demand, and to stoke it up even more worries me. It is a difficult matter to assess. We have not seen the various computer model runs, so we do not know what the parameters are.

The strategy that we are putting forward and what we shall put on our stall over the next few weeks and months had the support of four eminent political advisers in their letter to the editor of the Financial Times yesterday. One cannot disregard that kind of comment. I am sure that those eminent economists were sincere in what they said. They do not write such comments lightly. The way in which I interpret what they said is that the growth in the economy is insufficient to offset not only the increases in productivity over the past few years but the growth in the number of people in the work force. To get people back to work, it is necessary to have higher rates of growth. That would ensue from the kind of capital programmes that we have been suggesting. The four political advisers believe that, properly targeted, it would not be inflationary. None of us wants inflation to go up. We all want to make sure that we operate the economy in a sensible way.

We should think about poverty in this country. I do not like the notion of a divided country; it is wrong. I cannot understand how some Tories these days allow that kind of thing to go on—it never used to. The old type of Tory used to have much more respect for people who live in poverty, but nowadays the poor are discarded like litter into a dustbin. The Tories just do not care at all.

The Budget statement has done nothing about the long term. It is the best Budget that the Chancellor could come up with. He has not interfered with excise duties. It is almost convention to valorise all excise duties with regard to the rate of inflation. Clearly, that is done for vote-catching reasons, and we understand that. I hope that we shall be able to get over to the public—I hope that it will be discussed in the media over the next days, weeks and months — what the Government are doing in disregarding the long-term economic interests of the country. It is absolutely clear that the industrial base must be regenerated. It is inconceivable that the Government can continue their policy of privatisation and rely on oil revenues. We know that oil revenues are in decline and that privatisation cannot continue. It is inconceivable that the British economy can run on ad infinitum without regenerating our industrial base.

We have to get industry going. The programme that we announced last week will do a tremendous amount for the private sector. I do not want Conservative Members to say that we shall have funny little jobs or invented jobs. We shall not have them. They must be well thought through, reliable, real jobs. There will be none of the nonsense-type job. I would not support that sort of thing. It is important to get industry going and to get our infrastructure into good shape. That will create tremendous demand, get people back to work and help to overcome poverty.

Also, we must have good quality services in our hospitals to ensure that policies such as care in the community are properly financed. It is important that we train young people for real jobs so that we may properly support our manufacturing industry. There will be no nonsense-type jobs or scheme-type jobs, but jobs that will enable us to ensure that our industry, when it takes off, will not have the present skill shortages. Hon. Members are aware that we have a chronic shortage of skills.

Mr. James Couchman (Gillingham)

Does the hon. Gentleman say that the work experience schemes that the last Labour Government introduced to massage unemployment figures represented real jobs or training for real jobs? Does he agree that a two-year youth training scheme leading to a genuine qualification, which is a pre-qualification to further skills training, is a much better scheme than that which the last Labour Government introduced?

Mr. Randall

I do not particularly wish to talk about what happened eight or 10 years ago. Conservative Members said that they would get everybody back to work. We all know the leaflets that stated that Labour was not working. The Conservative party was dishonest with the people. It intentionally created high unemployment. We all know that there is nothing about the Government's economic policy that will do anything substantially to reduce unemployment.

There are two avenues down which we could go. If we spent money on reducing taxation, £3 billion would create about 80,000 jobs. However, if £3 billion were spent on the policies that are advocated by the Opposition, about 300,000 jobs would be created. A sensible expansionary programme requires people who are skilled in high technology and in all the areas that are necessary for the implementation of that programme. It' we cannot train people to do those jobs, there will be bottlenecks in the economy and they will constrain growth.

I am concerned about Kingston upon Hull. When I listen to debates like this, I believe that we should brush aside all the dross and ask what is being done for the people I represent in Kingston upon Hull, West. The people I represent will get very little out of this Budget. Kingston upon Hull is a very proud place, and I am proud to be one of its representatives. There are lovely people there, but there is a great deal of poverty and despair there.

The housing in Hull is appalling. The hon. Member for Brigg and Cleethorpes (Mr. Brown) knows Kingston upon Hull. He is on the south side of the river. He knows that in Kingston upon Hull people are living in houses with fungus crawling up the walls. [Interruption.] I am not overstating the case. The houses are damp. People are suffering from lung ailments. Children have to live in these conditions. I was appalled when I listened to the speech of the hon and learned Member for Perth and Kinross (Mr. Fairbairn). He glossed over the problems in the north. He dismissed the problems that are caused by poverty and ill health and put it all into pounds, shillings and pence terms.

Mr. Fairbairn

rose——

Mr. Randall

The north-south divide that is referred to so often in the newspapers does exist. It is appalling that we live in a country that is so divided.

On Friday night I met some people in my constituency who run a small guest house for young people who cannot find jobs and who have had difficulties in the past. I was told that when an official went to see them and a young man was introduced to him he was described as a lovely young person, but they were told that he is nothing. That young man thinks of himself as nothing. He thinks that he is completely unwanted. That is the kind of people that we have in our society today. [Laughter.] Conservative Members laugh. That is the difference between Members on this side of the House and those on the Government side. It is appalling that anybody can laugh at what I have said. Nevertheless, we have had to put up with that kind of reaction, and we shall continue to put up with it.

The Budget amounts to a lost opportunity. The regions have gained nothing. Pensions, student grants, education and pre-school education have been neglected. Nurses, the disabled, the homeless and those who live in poverty have also been neglected. Manufacturing investment is still 17 per cent. below what it was in 1979. The Budget is a great disappointment. It is bad for the people whom I represent, and it is bad for this country. It is symptomatic of a tired Government who have run out of steam and imagination. I hope that it will not be too long before the British people are able to make their decision on this Budget and vote this Government out of office.

8.4 pm

Mr. John Stokes (Halesowen and Stourbridge)

I listened with great interest to the deeply felt and most sincere speech of the hon. Member for Kingston upon Hull, West (Mr. Randall). I deeply resent the fact that the hon. Gentleman said that Conservative Members do not care about poor and ordinary people. I represent much the same sort of people as those who live in Kingston upon Hull, but we do not hear from them the self-pity that we heard from the hon. Gentleman. The west midlands have also been through very bad times.

The hon. Gentleman thinks that the answer to all our problems is state intervention, but for years this Government have believed that the answer to this country's ills lies in helping ordinary people to help themselves by building up their own businesses. That is the profound difference between us. I do not say that the hon. Gentleman is insincere in what he says about people, but I wish that he would not say it about me. I am not a young Tory; I am an old Tory. [Interruption.] I did not hear that. Does the hon. Member for Thurrock (Dr. McDonald) want to intervene?

The Chancellor deserves to be congratulated on his Budget. It has taken the Opposition parties by surprise. They cannot find in it very much to attack. [Interruption.] Does the hon. Member for Kingston upon Hull, West want to intervene?

Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. The hon. Gentleman should continue with his speech.

Mr. Stokes

We have already heard from my hon. and learned Friend the Member for Perth and Kinross (Mr. Fairbairn) and from my hon. Friend the Member for Beaconsfield (Mr. Smith) about the great difficulties that were experienced during the slump between 1979 and 1983. The 1981 Budget had to be severe, but it was the start of a new direction for our economy. Because of the economic problems that we have had to face since then, people can hardly believe that we are on the way to a recovery that can be sustained. That is new in this country's history since the last war. People are already forgetting about the great cost of the Falklands war soon after we came into Government, about the sinister and quite unnecessary miners' strike and, more recently, about the big drop in the price of oil which so greatly affected Exchequer revenues. Recently another big strike collapsed at Wapping. Labour relations almost everywhere are now excellent. In many factories in my constituency there is great realism on the shop floor. Those people show much greater realism than does the hon. Member for Kingston upon Hull, West.

British industry now has so many things going for it that I wonder why Opposition Members do not admit as much. The pound sterling is very competitive. Our goods are better designed and our marketing and sales practices are much improved. There is greater export penetration and low inflation, and productivity is higher than it is in many other countries. For the first time we are now able to compete fearlessly with Japan, the United States of America and Germany. Profits and dividends are good and prices are high on the stock exchange. All this good news is hard for some people to understand. The Opposition parties are in a quandary. They do not know whether to pretend that there has not been a recovery or to say that if there has been a recovery it will not last.

Today we have heard a great deal about poverty. Poverty exists to some degree not just in the north and in the midlands but throughout the country. However, if we take a general view of the country, and are quite fair about it, we see that the standard of living of most people has never been higher than it is now. Despite the pockets of unemployment and the tragedy that unemployment causes, people generally have never been so prosperous as they are now. One has only to look at the number of cars on the roads, or, at the weekends, at the enormous numbers of people who visit garden centres.

I am amazed at the numbers of people who, many for the first time in their lives, are taking package tour holidays. Pay packets are good for those in work, and in many households, especially in the west midlands, the wife is bringing home a welcome addition to the income. There is recovery and renewed confidence even in the west midlands, where industries suffered so severely. Exports are doing particularly well. Nothing pleases me more than to go into the packaging department of a mill or small firm and see packages marked for countries all over the world, yet we do not hear enough about that.

Our exports are tremendous and will improve. In my constituency the well-managed companies are doing well and are composed of sensible managers who backed the Government in the difficult days and never complained during those hard times. I never asked for special things for my constituency, as Opposition Members are always doing.

I believe that interest rates will come down very soon, and I still wish that the banks would do more to help small businesses. Bank profits are large and their lot is easy compared to that of industry, which has to fight for markets and cope with so many problems. The banks do not have those difficulties.

Another problem that my firm has had is the high rates imposed by the new Labour council. I therefore welcome the cuts in income tax. I am a member of the General Synod of the Church of England, where tax cuts like these are not popular. I believe that there is nothing morally wrong in the Chancellor taking a little less money from us. We can then decide ourselves whether to spend the money, to save it, or to give it away.

The growth given by the Budget to charity is most encouraging. I believe that this is real Christianity as opposed to compulsory taxation, which makes some people feel good. The Government are still devoting large sums of money to defence, which is absolutely right in contrast to what the other parties would do it they were in government, and increased sums are also going to health, social security and education. No Tory would wish it otherwise. However, in all those services we need better management and less waste.

More and more people are becoming share owners, and they obviously enjoy it. This makes it more important that the small amount of fraud in the City of London, especially in the insurance world, should quickly be detected and punished. We, and particularly the Opposition, are in danger if we think that the solution to every problem is to spend more taxpayers' money, when very often what is needed is better leadership and better men and women involved in the activities of organisation and management.

Many people seem to think that instead of tax reductions there should be more public spending, but public spending is already high — some say very high. More spending on infrastructure, for instance, would not produce many more jobs. I believe that the answer to our problems lies in having highly efficient industry and commerce that will produce wealth and spread it to all corners of this country and to all sorts and conditions of our people. That is what the Government have been trying to do over the past years and now their strategy is starting to pay off. Opposition Members cannot understand that.

Tax reductions are required at the bottom of the scale. I wish that there were tax reductions at the top of the scale, but that has not happened in this Budget and we must look forward to that next time. Tax reductions at the bottom and middle of the scale will increase demand and encourage those who work and who want to work. I welcome the 2p reduction in income tax—not too much and not too little. I welcome the expansion of help for pensioner arrangements and the further aid for charities. I welcome the improvements that have been made in the VAT arrangements for small firms and in the inheritance tax, and the further help for vitally important training schemes. I welcome help for the blind and the over-80s. I believe that the Chancellor is right to hold the PSBR at £4 billion.

The newspapers say that we shall soon have a general election. Fortunately, the date is chosen by the Prime Minister and not by the newspapers. When the election does come—and I do not see any particular hurry for it — I am confident that the voters will think carefully before jettisoning all the improvements that have been made by this Government for the dangerous and inflationary policies of the Opposition parties.

This afternoon we have heard a great deal about a tired Government. I think that this Government are full of vigour. The Prime Minister certainly has immense vigour. As for people wanting a change, we cannot pay too much regard to the polls, but, dash it, the Opposition are now lying nine points behind. Other critics are saying that our society is becoming not so much full of poverty as materialistic. Those critics are usually very well off themselves. I am glad that our children are well clothed and well shod and are looking so fit. I am glad to see people owning their own homes, with a good supply of gadgets in the kitchen to save the housewife so many chores. I am glad to see so many families with a car and a telephone, some savings in the bank and taking a holiday on the Costa Brava. That was not so when I grew up as a boy before the war.

Over 100 years ago Disraeli, a great Tory, said that the job of the Tory party was to improve the condition of the people. That is exactly what we have done and are doing. The whole trend of the Government is to keep the state off the backs of the ordinary people. That, in turn, gives us more freedom and more responsibility and must lead to more respect for others and greater love of our country.

8.18 pm
Mr. Stephen Ross (Isle of Wight)

The hon. Member for Halesowen and Stourbridge (Mr. Stokes) said a number of things with which I agree and others with which I profoundly disagree. The hon. Gentleman painted a very glossy picture of Britain. There is no doubt that a lot of people, whether in a family enjoying two incomes or not, have never had it so good—to use a well-known phrase. What happens when we finish selling off the statutory authorities by privatisation — presumably including the water and electricity authorities? What happens in the 1990s when that pot of gold has run out and we have a huge deficit of manufactured goods, which is growing all the time?

Is the hon. Gentleman aware that the younger generation are living on puny wages? Two of my sons qualified in agriculture but are not working in the industries in which they can use their degrees. One son is selling furniture on the second floor of Peter Jones in Sloane Square; the other is running a bakery. They are picking up £100 a week if they are lucky, and they are in their late 20s and early 30s. There are a lot of people like my sons.

Many of the younger generation cannot buy a house and have no chance of even trying to buy one because they are not earning enough money. Those are the people I am worried about. So many institutions and building societies are taking the easy way out. The Prudential has gone into real estate agency and taken over my old firm which has been established for over 200 years. This is the easy way to make money. The institutions are not putting their money into industry or creating the jobs or wealth that this country so desperately needs.

I know that the Minister has small business interests at heart. I wish to dwell on that subject, but I do not intend to delay the House. What does the Budget do to help Britain succeed in an ever more competitive world? In particular, what does it do for my constituency? The hon. Member for Halesowen and Stourbridge goes to the Council of Europe, as I do. I ask him to look around the streets of Strasbourg. What do we see that is British? Precious little; we may see a few Minis.

I was in Dallas the other day with the Select Committee on Transport. I said to some of my colleagues, "A fiver if you see a Lotus car here", because I understood that the Prime Minister's son was the Lotus car salesman in Dallas. We saw a few Jaguars and the odd Rolls, but we never saw a Lotus. I am told that there are some in north Dallas. I do not wish to be rude to the gentleman concerned, but I did not see any.

I did not see much else that was British. I went into the craft shops in Dallas to try to buy something to bring back, but everything was made in Korea, Japan or Taiwan. That is another problem that we all face in the West. What are we to do about it? My main problem is worrying about my constituency and the role that the Budget will play there, but I have to say that it does riot do much for my electors.

Mr. Butterfill

Does the hon. Gentleman know that our trade with north America, which was in deficit by £686 million in 1974, was plus £2.4 billion last year? Does he understand the difference in those statistics?

Mr. Ross

I was not complaining that British goods were not being exported, but I did not see many. I was talking largely about goods in shops. I am told that probably oil revenues come into that calculation. That is another worry. What will happen when the oil is finished? When the oil price shot down to $8 a barrel we were in desperate trouble. The pound went down to £1.10 against the dollar.

The West has a problem because of the amount of goods coming from the far east. America is swamped with them. If they introduce tariffs, that will affect our exports. They have already tried it with steel and similar goods and they nearly did so with spirits.

The hon. Member for Stamford and Spalding (Sir K. Lewis) rightly said that the Budget was too cautious. It is not a vote-seeking Budget. I think most Opposition Members were surprised at that. I do not think that it is an election Budget. My complaint is that it is unimaginative.

What does the Chancellor intend to do to create wealth? We must get more wealth from the resuscitation of our industrial base if we are to pay our way and afford the pensions and the health services that will be necessary in the 1990s. That must surely be the principal aim of any Government. There may be some relief from the small fall in interest rates which we are promised by Conservative Members. Hopefully, we will see tomorrow a drop of a half of 1 per cent. in interest rates. The Chancellor has been cautious. I acknowledge straight away the welcome help in the payment of VAT. Those are the only two glimmers of hope that I see in the Budget for the small manufacturer.

One of the greatest tragedies of this Administration has been the breakdown in trust between central and local government. In his latest book, the right hon. Member for Henley (Mr. Heseltine) advocates the establishment of various centrally appointed development boards and a strengthening of the role of the Department of Trade and Industry. Why did he not support the National Enterprise Board when it existed? It was a first-class state organisation and I was sorry when it was abolished. Apparently the right hon. Gentleman wants to put something similar in its place.

The only way we will eventually succeed in creating the new enterprises which we so desperately need is through local initiatives. I can claim a little experience in this sphere. Since I have been in the House I have established three small businesses. I am fed up with bank managers telling me how big my overdraft is and sending me Christmas cards saying, "I hope you will have a successful and prosperous New Year"—underlined three times—followed by "I would like to remind you what your limits are." I employ people in those businesses and I know some of the problems of running them.

The Under-Secretary of State knows, because he helped enormously with it, that I set up and chaired for four year an enterprise agency. Through his efforts, the Government came to appreciate the role of enterprise agencies and in a recent Budget some assistance was given to them.

I play a small part in a recently established development board. We persuaded our retiring lord lieutenant to chair that for no payment and we are grateful to him. It is doing a great job. It is manned by representatives of the public and private sectors and receives limited contributions from local government and the private sector. We are there to try to encourage new initiatives, to establish the seedcorn, to help local firms over temporary problems, to encourage good marketing, and to assist people like Richard Noble, who won the world land speed record, with the development of his Super-Two light plane.

Until recently that project employed 80 of my constituents. Because we are not an assisted area, we do not get Government help for such projects. People like that make their way to me. Richard Noble came to me in the House. He said that he wanted to set up light aircraft manufacture in the Isle of Wight; he asked what I and the local people would do to help him. I went to local government and to the development board and we did help him. The help came from local government and local initiatives. The chairman of the board was also able to help enormously through his contacts in the City.

We provide finance for trade stands, both within the United Kingdom and at foreign fairs, and we help firms with travelling expenses and so on. We help them to provide suitable advertising material to present to the public. We help deserving firms with the cost of essential machinery from time to time. We have to do something about our tourist industry, which is down 25 per cent. since 1979. The local authorities had to bail out the Isle of Wight tourist board, which went bust over a year ago when it got caught up in sponsoring a song festival which was an initiative to get people to come to the Isle of Wight out of season. But it did not work and the tourist board finished up with debts of nearly £200,000. Much more could be done by local government if we had a little more help from the centre. It is to local authorities that people constantly turn for funding.

We have just lost our last abattoir in the Isle of Wight. For an island of 122,000 people, that abattoir had a throughput of 300 sheep, 300 pigs and 60 to 70 cattle a week. It suddenly closed, and we are in desperate trouble. Hon. Members can imagine the cost of sending cattle across the water to Salisbury or Wimborne, or even further afield if they are casualty animals. It is a very expensive enterprise. I pleaded with the company, but there is no way that it will reopen the abattoir. The National Farmers Union had a meeting and says that we must have a feasibility study. It wants £2,500 to pay for the study. It can find £500 and it wants another £2,000. The letter is on my desk now. Again, the only people we can turn to are the development board and the local authority.

I want to see a far more positive approach and more confidence shown in the authorities which are taking a lead in assisting local enterprise. When I was the leader of the county council, we set up a scheme whereby we undertook to pay a premium of £25,000 a year to the bank known as the Three Is so that it could underwrite bank loans and make advances to industry on the Isle of Wight at a rate some 3 per cent. below bank rate. I think everyone has agreed tonight about the effects that high interest rates have on small industry. About half a dozen firms a year have taken advantage of the scheme which we set up.

I should like to see a similar national scheme. That would be worth while. I am not suggesting the establishment of municipal loans; we have to use the banks. But I am sick of the attitude of some banks. The National Westminster has just shown a profit of over £1 billion, yet it charges 55p to cash a cheque, which is steep. It is always putting on other charges. The banks are not as helpful as they should be. They are the financial institutions which we should use. If we had a scheme whereby local authorities were aided through the rate support grant to encourage local enterprise, we could help small industries to do a great deal more. They are faced not only with high interest rates and bank charges but with the charges of British Telecom and accountants' fees, which are not cheap; and transport costs, rates, gas and electricity all have to be met.

Life is rarely easy for the small business man. I am glad that the Under-Secretary of State for Employment is on the Government Front Bench because I know that he has done a lot for the small business man. However, we have not dealt with the real problem, which is money. We must do more to help, and the Budget fails totally in that respect.

8.29 pm
Mr. William Powell (Corby)

As the hon. Member for Isle of Wight (Mr. Ross) emphasised, we are bound to consider the Budget in the context of what is happening in our constituencies. I will assess the Budget by that yardstick. As so many hon. Members will know, my constituency has been through the eye of the storm and is emerging very successfully from that storm. The Budget will undoubtedly further assist in the process of recovery in Corby and east Northamptonshire.

The world did not begin in 1979, as so many Labour Members like to emphasise. It began long before that. My constituents ruefully recall the fact that some 13,000 of them were condemned to lose their jobs without any preparation for the future as a result of a decision taken by the previous Labour Government. When the hon. Member for Kingston upon Hull, West (Mr. Randall)—who has left the Chamber now—speaks about poverty, thousands of my constituents recall the fact that their poverty, which has been appalling in the past few years in many cases, was inflicted upon them by the conduct of the previous Labour Government who knew that the steelworks was to close by the end of the 1970s but made no preparation for what would happen after the steelworks closed.

The Labour Government knew that the steelworks was to close because they knew that the quality of the local iron ore was diminishing and could no longer be sustained for steel production. The decision had also been taken to concentrate on the great five steelworks of Ravenscraig, Llanwern, Port Talbot, Scunthorpe and Redcar. They knew that the consequence of that would be to condemn every small steelworks in this country to extinction. That has happened at Shotton, Ebbw Vale, Consett, Corby and elsewhere. My constituents recall what happened in those days. When they hear Labour spokesmen talking about poverty as though it was something that has just emerged under this Government, they know perfectly well that that is a load of balderdash.

My constituents in east Northamptonshire also recall the storm which the boot and shoe industry has suffered in the past few years. Employment in that industry has halved because of the neglect for so long to build up the profitability of our firms, or to encourage an open trading system that would enable them to trade successfully. My constituents will therefore welcome the overall economic context of the Budget, the high and growing productivity and the most successful productivity record of any major country in the western world.

My constituents will welcome the fact that inflation is low and, as a result of the Budget, will fall lower. There is no doubt that because of the decision of my right hon. Friend the Chancellor not to valorise excise duties and because of what may happen with interest rates, inflation will drop still lower. As a result, growth is likely to remain buoyant and top of the league of western countries. The overall economic context is favourable and my constituents will benefit from that during the forthcoming year.

My constituents will also welcome individual measures announced in the Budget. Every small business man in my constituency will welcome the VAT measures. They will be of immense benefit to the local economy, to encourage confidence, and more people will go into business. The proposals in relation to profit-related pay will also be welcomed by many firms in my constituency.

Twice in the past three years I have had to propose a new clause to the Finance Bill abolishing on-course betting duty. I welcome the fact that I shall not be required to do that this year. It has come as something of a surprise to me that the Chancellor has yielded to pleas in that regard at this stage and I welcome the fact that he has done so in Cheltenham week.

I also welcome the changes that have been made to inheritance tax. Although no comment has been made about my next point so far in the debate, I welcome the modest but important proposals in relation to the friendly societies. Some hon. Members— although I cannot see any of them present in the Chamber now — will remember the hours of debate on friendly societies in Committee on the Finance Bill in 1984. We discussed friendly societies at considerable length then and considerable unease was expressed by Conservative Members in the Committee about the new proposals which the Chancellor introduced. The new measures that the Chancellor has announced today will be widely welcomed.

One point which has not received the emphasis that it merits and deserves this evening is the excise proposals with regard to petrol and fuel. The commerce in my constituency is carried around this country and abroad on lorries. There is no doubt that the decline in the oil price gave the road haulage industry an advantage which it was anxious should be sustained and should not be knocked by a renewed increase in duties on petrol fuels. In Irthlingborough. Raunds, Thrapston, Oundle, King's Cliffe and Corby tonight, my right hon. Friend's decision will be widely welcomed by the road hauliers who have become a booming section of the local economy.

My hon. Friend the Under-Secretary of State for Employment is on the Front Bench and he knows the way in which Corby has recovered in the past few years. It has recovered in part because of its extremely favourable location. It has a more favoured location for investment than any other assisted area. It has also recovered because of the Government's policies. One of the crucial policies which has enabled the recovery to take place is the 35 per cent. corporation tax. That has not been underlined enough in this debate. The decision to have the lowest corporation tax of any western Government is a major help in attempts to attract inward investment to this country. Substantial inward investment is taking place in my constituency from north America, the continent of Europe and elsewhere. That is becoming a major boost to employment. I welcome the extra stability that my right hon. Friend the Chancellor has been able to announce in that regard today.

It is also worth emphasising the fact that the tremendous growth which is occurring all the time in my constituency, which is brought about by location and central Government policies, has been encouraged and welcomed by local authorities in my constituency. There are two authorities in my constituency, one Labour-controlled and one Conservative-controlled. I do not mind —I have frequently done so — paying warm tribute to the way in which the local authority in my constituency has been determined to work with the Government to try to get the maximum to ensure that the reputation of the area is as high as it conceivably can be. All that has contributed. One can contrast that responsible attitude, of working with the Government adopted by the Labour council in my constituency, with the attitude that is adopted by some other councils, which has done irreparable damage to the reputation of their communities and made it so much more difficult to galvanise the local economy. That needs to be underlined.

I take up the theme used by the hon. Member for Kingston upon Hull, West. I am sorry that he is not here. He is a man whom I hold in great regard. I have listened to him for many hours in Committee on other Finance Bills and I know that he is utterly sincere in what he says and is anxious to do the best that he can by his constituents. I wish him every success in that.

At the root of the poverty—there is real, grinding poverty that cannot be ignored in my constituency today, even though we are bouncing hack from the worst — there are two causes. The first is the absence of skills and the second the absence of incentives. The Budget has to be seen in the context of various other major statements of Government policy that have been made in recent months, beginning with the autumn statement, through to the employment initiatives. My hon. Friend the Member for Rossendale and Darwen (Mr. Trippier) is here and has close responsibility for those initiatives. Taken together, they add up to an immensely important package of developments in Government policy.

As my hon. Friend the Member for Beaconsfield (Mr. Smith) emphasised, the fiscal adjustment for this year is no less than £11 billion. I can understand that some Labour Members have found themselves rather floundering about and short of words because they thought that this would be an election bonanza and they have found that the hype in the newspapers has turned out to be entirely unfounded. That fiscal adjustment is dramatic and is the biggest one that has been possible for any Chancellor of the Exchequer in modern times.

Let us emphasise that the most important single element in the fiscal adjustment that is being made for the coming financial year is increased Government expenditure. When we hear people saying that they want extra services before income tax cuts, we have to remember that they also want income tax cuts. Hon. Members will recall that yesterday a BBC poll showed that no less than 81 per cent. of the country wanted cuts in taxes, but also wanted increases in services. Next year, the Government are planning to spend no less than an extra £5 billion or so. That is the biggest single ingredient in the fiscal adjustment, and will have an impact in Northamptonshire as it will have elsewhere.

The bottom line is that, if we are to eliminate, as we all want to eliminate, poverty in this country, we have to face the fact that we still have a work force that in certain respects lacks the skills that are required for the future and we still have an economy that does not give sufficient incentive, particularly to the unskilled, to get work.

There is one message that all of us have to try to hammer home to every one of our constituents, especially every one of our young constituents. It is that there is no future in a lack of skills. The part of the work force that is most at threat is always the unskilled person, so in dealing with the increase in Government expenditure for next year we should mention that the education budget is to rise by no less than 18.6 per cent. That is a substantial increase in public investment in a major sector.

The skills will come about through the activities of the MSC, for which my hon. Friend the Member for Rossendale and Darwen has some responsibility. In my constituency, school leaver after school leaver is able to go through training into permanent new jobs, jobs that will take them away from poverty for ever as long as we are able to continue to pursue sensible and prudent policies that take account of the many aspects of economic life in this country and do not get out of context any one particular element.

My constituents will welcome this evening the measures that my right hon. Friend the Chancellor of the Exchequer has proposed. They will note that those measures have been welcomed in wide and differing parts of the country —from Essex, from my hon. Friend and neighbour the Member for Stamford and Spalding (Sir K. Lewis), from Buckinghamshire, Uxbridge, the west midlands and Scotland. No doubt what has been said will be underlined by others of my hon. Friends. Throughout this country, there will be a wide welcome for a sensible Budget.

8.46 pm
Mr. Geoffrey Lofthouse (Pontefract and Castleford)

The hon. Member for Corby (Mr. Powell) will understand if I do not follow him down his path. I notice that he did not mention Yorkshire and Humberside in giving the Budget a welcome.

Mr. Michael Brown

I am here.

Mr. Lofthouse

I apologise if the area has been mentioned earlier, but the hon. Member for Corby did not mention it.

I wish that I could share the enthusiasm of the hon. Member for Corby. There is a different picture in Yorkshire and Humberside, especially in the mining communities. It is about problems there, rather than party political points, that I shall speak in the few minutes at my disposal. The Budget has achieved a widening of the north-south divide. The people who will benefit most from tax relief and inheritance tax relief will be, on the whole, living in the southern part of the country. That being the case, there is no joy for areas such as mine in the north.

Where has all the money gone? What about the money from the sale of the family silver, as the late Lord Stockton called it? An income of about £8 billion was generated from the sale of British Gas and British Airways and from the sale of land and so on. Such money has not gone to Yorkshire and Humberside. Since 1979, for every four production jobs lost in the region, only one has been replaced from the service sector. There has been a rapid rundown in employment in Yorkshire and Humberside.

In the mining industries, we have seen very little capital investment. In the Castleford travel-to-work area, 24 per cent. of those unemployed are under the age of 24. Many of these people have never worked since they left school. Many of the males would normally have gone into the mining industry, but unfortunately there are no jobs there for them to go into. These people will not benefit from the tax cuts or any Budget decisions. This is pure fact and not a political point.

In my own area, since the miners' strike—I do not want to dwell too long on that because it gives me too much pain—about 7,000 jobs have gone. I am referring to the Castleford travel-to-work area in which about 3,000 supporting jobs have also gone. If I am able to assess the information that we in the Energy Select Committee received on the mining Estimates, I expect that there will be many more such job losses during the next three years, and they will not be cushioned by the redundant mineworkers payments scheme. There will be no weekly pensions for those miners, as there have been before this month. Therefore, the local economy will take a further bump.

Time and time again, we have made approaches to the Minister in an attempt to get him to assist those areas which have lost their staple industries. My area has never been one for the small businesses to which the hon. Member for Corby referred. It has had two staple industries, mining and glass. Both have nearly been wiped out without any other industry being put in their place. Since the miners' strike and the loss of those 7,000 and 3,000 jobs, British Coal Enterprise Ltd., which I do not knock because it makes a good honest effort to assist, has, as I said a few weeks ago in the mining debate, attracted only two jobs to replace the 10,000 lost in my travel-to-work area. The following week, I was taken up on that in the local press by a senior NCB official who said that my figure was wrong. Bearing in mind that I used the figures that he had sent to me, I was rather alarmed. However, I must concede that I was wrong. I gave that figure as two, but his figure was four. One can see from that the problems that we are experiencing in those areas.

We have tried to persuade the Minister to consider those areas for intermediate status or for development status to enable or encourage other industries to come into the area and provide employment. That would also encourage assistance from the EEC. However, at no time have we had any assistance whatsoever.

Those are the problems, and that is the great north-south divide which, in my view, has been further widened today. Despite what the hon. Member for Corby said, the Budget gives no encouragement to some areas. There is no joy in this Budget for the people in the areas to which I have referred. There is certainly no joy in it for pensioners, people living on the poverty line or low-paid workers. No hon. Member could really suggest that there is anything in it for those people. If there is any gain in it, it will be for people such as ourselves, who are reasonably well off. I cannot help but feel that in this Budget the Chancellor has written off the north as without hope and that he feels that there is no point in giving the north anything. He has put all his thoughts into assisting the wealthier parts of the country.

As I have said, in the coal mining areas, many young people have not worked since they left school and have no chance of getting a home because the local authorities have been unable to build any houses, despite large capital receipts. A few houses may recently have come on to the market for letting, but those houses were flogged off by the National Coal Board to racketeers and speculators.

I provided information to the House a few weeks ago to show that there were empty NCB houses. I can inform the House that I have already produced, for the appropriate Minister, information on tenancy agreements that offer youngsters houses that were purchased for £2,500 for a rent of £35 a week, plus general and water rates and a £350 down payment for key money. That is before they can take out a one-year tenancy. Those are kids who have never known employment in their lives and who are desperate for a home. Some have small babies. These areas get no assistance from the Government and have not received any assistance in this Budget. On top of that, a£10 million tax has recently been imposed on the sick by the increase in prescription charges.

Today's Budget has been nothing but a smack in the eye for the lower paid and those in poverty. They will not receive one farthing. I hope that the Government will at least consider the areas to which I have referred. I must advise the House that the recent report from the Energy Select Committee about the future of the mining industry emphasised that there must never again be quite so rapid a rundown in any industry, especially the mining industry which has special communities, without preparation and advance financial assistance by the Government. That was the unanimous decision of that House of Commons Select Committee, which has a Tory majority.

I repeat that there is no joy in the Budget for those of us in the north or in mining communities. I had hoped that we might have received some sympathetic treatment, but it is fairly obvious that we shall not and that there is little sympathy for those of us in mining communities. I warn the House not to think that anyone in the mining communities is there to be knocked down because the Government think that they should be taught a lesson. The vast majority of the mining industry are hard-working, responsible people and they deserve consideration. I regret that the Chancellor has failed to consider them this afternoon.

Several Hon. Members

rose——

Mr. Deputy Speaker

Order. I am anxious to call hon. Members, particularly those who have sat through most of the debate, so I ask for brevity.

8.58 pm
Dr. Alan Glyn (Windsor and Maidenhead)

I shall be as brief as I can, Mr. Deputy Speaker. I wish to address two points to the hon. Member for Pontefract and Castleford (Mr. Lofthouse). First, the family silver has been sold to the people and has given them, as shareholders, a stake in the country. Secondly, I congratulate him on the way in which he has represented his constituency. The Government must tackle the north-south divide, and I am sure that they will. I make those remarks out of courtesy to the hon. Gentleman.

Today's climate is the result of seven years' hard work by a Conservative Government, and the budget is both responsible and prudent. Our industrial output has increased by 2.5 per cent., and since 1980 our growth rate has been faster than that of any of our European partners. At the same time, we have invested £1,000 million abroad. That is not to he neglected, because it will bring in income in years to come. If one casts one's mind back to before the war, one remembers that we had vast overseas investments which paid for a great deal of our needs. We shall live to benefit from that investment, and I hope that the Government will continue it.

We are all glad to see a fall in inflation because it is an evil to all classes and all savers. We are also glad to see an incentive for North sea oil development, which is an important part of our revenue. The Government's approach has been cautious, and they are right. They have provided 1.5 million or 1.25 million jobs, depending on how the figure is calculated, but that is just the tip of the iceberg in reducing unemployment. Despite what Labour Members say, all Conservative Members are terribly worried about the level of unemployment.

The relaxation of corporation tax is welcome and will make life easier. As the hon. Member for Isle of Wight (Mr. Ross) said, my hon. Friend the Parliamentary Under-Secretary of State for Employment, the hon. Member for Rossendale and Darwen (Mr. Trippier), has worked hard for small businesses. We rely on them to become bigger. For goodness sake, let us have more encouragement from the banks to set up those businesses, if they are sound. We do not want the banks wasting their money on overseas loans which simply are not viable, and many never repaid, either capital or income. I ask the House to consider the debts that the banks have accumulated by doing that. It would have been far better if they had invested in our small businesses. For once, I disagree with the policy of the big banks.

We all recognise the value of the VAT concessions given to small businesses. If we want small businesses to prosper, the banks and the Government must provide money and the burden must be reduced, as the Chancellor has done today. Most important, we must ensure that they are not burdened with unnecessary forms to fill in at the end of the year. They exist to do business, not to fill in forms for the Government.

Profit-related pay will bring dividends. We have made 8.5 million people shareholders and 63 per cent. of householders are home owners. Those are ways in NA, which we can make society more democratic and turn it into a property-owning nation.

I welcome the concessions on pensions, which make them more portable, and help to the over-80s. Provision for one's old age must be made by the state and private enterprise. Everybody likes to see VAT on charities reduced, but I am not so sure about income tax reliefs. I am all for taking people out of tax and not so much for reducing tax in the top brackets. However, I must admit that by reducing tax at the top, one increases the incentive to work which, indirectly, increases employment. We are in a fix, however we do it. Taking people out of tax is an encouragement to work, but taking money off the top layer also encourages people to earn more and to work harder. I do not know which is better. It is a mixed blessing.

The Government's aim, which is set out clearly in this document, is to create a property-owning democracy where people own their houses and are shareholders. They wish to create the feeling that everybody has a part to play. The harder they work, the more their company or institution will make, and they are benefiting from being shareholders.

There is one particular aspect of the Budget that I am unhappy about. We have not given sufficient thought to the training of young people. Technology has moved on and we must train young unemployed people at school, in jobcentres and anywhere else, so that they can compete in a modern, technological world.

9.5 pm

Mr. Tim Yeo (Suffolk, South)

I hope that my hon. Friend the Member for Windsor and Maidenhead (Dr. Glyn) will forgive me if I do not, in the interests of time, follow him down the route on which he embarked.

Nothing could have characterised more clearly the economic illiteracy of the Leader of the Opposition than his attempt to brand the Budget as a pre-election spending spree and a vote-grabbing Budget. No doubt that is what he expected when he prepared his speech, but it is not what he got. No doubt that was what the hon. Member for Sedgefield (Mr. Blair) expected when he said in this morning's press, "Beware of the bribes of March." Where were those bribes? They were conspicuous by their absence from the Budget.

In his Budget this afternoon my right hon. Friend was a model of prudence. It was a highly responsible Budget. It may even have been thought by some people to have been excessively cautious. In a year in which Government revenues are unprecedentedly buoyant, with billions of pounds coming into the Government coffers, my right hon. Friend has chosen to reduce the PSBR by £3 billion from the level that was projected for this year —although we have had a £3 billion undershoot in the current year—and the total amount of tax relief that he has given is less than £3 billion. It is a model of responsibility. I congratulate my right hon. Friend on the content of his Budget.

The Budget has been introduced against an exceptionally favourable background. That is not, as some people have suggested in the House and outside, a matter of good luck. It is the result of nearly eight years of good management. We are enjoying a steady growth rate of about 3 per cent. a year. This is not the stopgo cycle of the 1960s and 1970s, when the economy would charge ahead at 4 per cent. or more for a year or two and then the brakes would have to be slammed on. This is a sustainable rate of growth, and it is accompanied—this is important—by inflation being down at about 3 or 4 per cent. a year. That combination of steady growth and low inflation gives us the most favourable economic background that we have had for more than 30 years.

It is no surprise, therefore, that we are now seeing a substantial increase in productivity. It is no surprise that our share of world exports in manufactures—which is measured by volume — having declined steadily throughout the 1970s, as the chart on page 25 of the Red Book shows, are now holding their own in the 1980s.

That is why the trend in unemployment will improve substantially in the coming year. We are already creating jobs at the rate of 250,000 a year and we will see unemployment coming down handsomely in the third term of the Thatcher Government.

Mr. John Maxton (Glasgow, Carthcart)

Are there more people in employment today than there were in 1979?

Mr. Yeo

There are more people in employment today than when I entered the House in June 1983.

Mr. Maxton

That is not the question.

Mr. Yeo

That is the question that I am choosing to answer.

Something else that we have now that we did not have in 1979 or 1983 is £110 billion of overseas investments, which is second only to Japan. Our overseas investments have been more soundly managed. We are not excessively large holders of United States Treasury bonds. Our investments are well diversified in a variety of currencies and they will see us through the kind of crisis that we might face at some stage in the 21st century, as the overseas investments which were built up in the 19th century saw us through the second world war. That will be a pot of gold for the country to draw on in any future crises.

This combination of favourable circumstances is the result of prudent financial management and proper control over public spending, accompanied by industrial relations reforms. We have transformed the industrial climate and trade unions are now in the hands of their members rather than those of their leaders. Trade unionists can choose now whether to go on strike, and this is allowing industrial management to manage. Coupled with these developments has been an immense increase in share ownership.

We faced an extraordinarily attractive set of choices this year. We wanted to know which taxes would be cut and which might even be abolished and where we could increase spending. Contrast these choices with those that we used to face under Labour Governments. In 1978, when the Labour Government were being sustained in office by the Liberal party, whose representatives are sadly absent from the Chamber, we were faced with rather different choices. These included which taxes were to be increased and which new ones could be invented, such as the employers' national insurance surcharge. That surcharge was invented by the then Labour Government and the Liberal party did nothing to reduce or remove it when it had the chance to do so. If that Government did not have the nerve to increase taxes or invent new ones, they could cut spending. If they were not sure which course to take, the IMF was standing behind them to tell them exactly where they should make cuts.

I congratulate my right hon. Friend the Chancellor of the Exchequer most warmly on his Budget judgment. When the economy is growing already at a satisfactory pace, he is entirely right to use a substantial proportion of the resources available to him to cut the public sector borrowing requirement. We do not need presently another massive fiscal stimulus. Instead, we need a responsible Budget that will command the confidence of the financial market.

The Budget will lead to lower interest rates, and I believe that we shall see interest rates in single figures within days. The lower rates will benefit industry, and especially small businesses. There are other measures that will benefit small businesses. Lower interest rates will lead to the creation of jobs and will benefit directly every household that has a mortgage.

There would be little chance of lower interest rates if the policies of the Liberal or Labour parties, both of which are projecting a massive increase in the PSBR, were to be implemented. The Liberals, as always, want to have it both ways in their draft Budget. Despite advocating a huge increase in the PSBR, they imagine that, under their policies, interest rates will come tumbling down.

I am delighted that my right hon. Friend the Chancellor of the Exchequer resisted the temptation of introducing a tax cut of more than 2p in the pound. There is no economic or social case for a greater basic rate cut this year. Our long-term aim must be 25p for the basic rate and 50p for the top rate, and I am confident that we shall achieve that during the next Parliament. In 1987, our priority should be to help those on average earnings or below. My right hon. Friend reflected this, at least in part, in his decision not to raise thresholds for the 50 per cent., 55 per cent. and 60 per cent. rates. Indeed, he decided not fully to index the 45 per cent. threshold rate.

I should have been inclined to raise the basic rate threshold by more than the amount required by indexation, but I recognise that, having increased in real terms the basic rate thresholds by 22 per cent. since 1979, my right hon. Friend may feel that enough has been done. Of course, by this time next year, when the Social Security Act 1986 comes into operation, there will be less merit in raising basic rate thresholds because there will be a taper on the social security benefits that result directly from any increase in tax thresholds. It is, however, a most welcome aspect of the changes in personal tax allowances that a special increase in the age allowance for pensioners of over 80 years has been introduced. I am delighted that this has been done, and I am sure that it will be welcomed warmly by the many retired people who are living to a ripe old age in my constituency.

I have a passing regret that my right hon. Friend the Chancellor of the Exchequer chose not to build on the changes in national insurance contributions that he introduced in 1985. The lower rate bands of national insurance contributions paid by employees earning up to £150 a week offer the most cost-effective way for any Chancellor to give relief to low-paid employees. Indeed, my right hon. Friend can target relief to the three groups earning up to £150 a week without creating any administrative burden for the employer or the Inland Revenue. Those bands are already the subject of separate national insurance contribution calculations.

Without doubt, all the tax cuts that have been made this year will go a long way to improve work incentives. The right way to widen the gap between the take-home pay earned by someone in a full-time job and the income that that same person could obtain if he chose to live on social security benefits — [HON. MEMBERS: "Chose?"]. We are aware that that gap is much too narrow. We cannot deal with this problem by inflationary wage increases that undermine competitiveness and ultimately destroy jobs, nor by reducing social security benefit because, for those who are genuinely unemployed, their benefit levels are by no means generous. The right way to widen the gap is by cutting the tax burden on the lower paid. I welcome the Chancellor's announcement today as it will help work incentives.

I also welcome the strengthening of the profit-related pay tax incentives. I hope that that scheme will have a wide take-up in all sections of industry. I also congratulate my right hon. Friend most warmly on resisting presssure— some of which may have come from close at hand—to increase the mortgage threshold on which tax is payable. I am glad that the threshold has been left at £30,000. Any increase in it would feed straight through into higher house prices. It would not help those on average earnings who are unlikely to have a mortgage of more than £30,000. It would do nothing to reduce the disparity between house prices in the north and those in the south that has already immobilised labour in the north and south. Any change would have represented money wasted.

I regret that the Chancellor proposed no significant change to capital gains tax for individuals. I believe it is wrong that capital gains are taxed at a higher rate than the basic rate of income tax. I also deplore the continued failure to index capital gains that arose from investments made before 1982. Many people are sitting on long-term investments that have made substantial gains most of which merely represents the effects of inflation during the 1970s. If the Chancellor introduced a lower rate of capital gains tax, it would lead to a significant increase in the yield from that tax. Many people are sitting on large gains that they will realise at a tax rate of 30 per cent., but if the rate was reduced to perhaps 10 per cent. we would witness a significant increase in the revenue received from this tax.

Mr. George Foulkes (Carrick, Cumnock and Doom Valley)

What about charities?

Mr. Yeo

I will come to charities in a moment.

The relief available to people selling businesses on retirement is welcome. I am also pleased that the inheritance tax threshold has been raised bearing in mind that, in today's terms, £71,000 is not a large sum — it does not make someone rich to have £71,000.

Mr. Foulkes

What! The hon. Gentleman can write me out a cheque now.

Mr. Yeo

The Chancellor was right to emphasise that the inheritance tax is expected to yield £1 billion this year — more than three times the yield of the penal and confiscatory capital transfer tax that was left by the previous Labour Government.

I unreservedly welcome the VAT reliefs that have been given for charities. I am delighted to be speaking while my hon. Friend the Minister of State, Treasury is on the Front Bench. He will recall that I visited him some months ago as chairman of the Charities VAT and Tax Reform Group to make representations about a number of VAT anomalies. I am delighted that my hon. Friend has been able to persuade my right hon. Friend to meet our demands.

The relief that will be available for the installation or adaptation of bathrooms or lavatories for disabled people in charitable, residential homes is extremely helpful. I hope that that will be a useful step towards a sign of sympathy on other building alterations that charities must carry out.

The extension of the medical research concessions dealing with drugs and chemicals used by medical research charities is valuable. The concessions on welfare vehicles used by hospices is also welcome. Those changes will receive widespread acclaim. The Red Book estimates that such changes will cost £5 million. I hope that those changes will cost more than £5 million, although I doubt that they will. Although we welcome the fact that the basic rate of income tax has been reduced year by year, each time there is a reduction there is also a reduction in the income that charities receive from covenants that the Government urged the charities to develop in the early 1980s. Two pence off the basic rate of income tax means a significant cut in the income received by many charities. They need the VAT relief which my right hon. Friend the Chancellor has given this year to compensate.

I am delighted that excise duties have been subject to the most minimal changes this year. That will be good for inflation. I suspect that my right hon. Friend's forecast for inflation for 1987 is a little on the high side. I would not be surprised if it were less than 4 per cent. by the end of the year.

The encouragement of more portable pensions is welcome also, as is the greater freedom for people to make additional voluntary contributions. However, in the long term, we need to educate the public about the risks inherent in relying too heavily on unit-linked policies.

The tightening of the other tax provisions is welcome. The VAT change allowing small traders to opt for accounting on a cash basis is extremely desirable, as is the opportunity for them to make annual returns.

There is only one omission from my right hon. Friend's Budget speech which I regret. There was no reference to tax reform. I hope that there will be a strong commitment to tax reform by the Government in the next Parliament. It is high time that we overhauled some of the anomalous treatments, especially of married women, under the present tax system. I hope that we shall look at the merging of national insurance contributions with income tax because separation of those two no longer makes sense. Tax reform must mean tax simplification. To get tax rates down requires the abolition of concessions, not the creation of new ones.

As my hon. Friend the Member for Stamford and Spalding (Sir K. Lewis) pointed out, the Budget must be considered in conjuction with last year's autumn statement, which contained almost £5 billion of new spending. That was the time of the big give-away. Today's Budget was a prudent and cautious statement. I believe that my right hon. Friend the Chancellor has made the right Budget judgment for the long term. His Budget is in the best interests of our economy. It is not an electioneering Budget and, for that reason, will win the election.

9.21 pm
Mrs. Llin Golding (Newcastle-under-Lyme)

I should not like this opportunity to pass without raising the issue of those who are so often forgotten by the Government—the elderly and old-age pensioners. How does the Budget help them? How does it help the lady who spoke to me only a few days ago and told me of the time when she had applied for the special heating allowance but, because she had £536 in the bank, was not entitled to it? How does it help the lady who telephoned me today in tears and told me that she had to draw out the money that she had saved for her funeral to buy herself a new gas cooker because she had not had a hot meal for 10 days and her 30-year-old gas cooker had been condemned by the gas board?

How does the Budget help the elderly who are worried about the payment of heating bills? How does it help the elderly who are worried about paying for their television licences—something about which the Government are not in the least concerned? How does the Budget help the elderly who are worried about paying their telephone bills? Their telephone is often their only lifeline to their families, yet no help is given to them. How does the Budget help the people who are just above supplementary benefit level who have not been given any additional help and who do not get any rent rebates? They do not pay taxes and they have no savings.

The elderly have worked hard, often for little money. They have created this country's wealth and have been forgotten, yet again, by the Government and by the Chancellor of the Exchequer.

9.23 pm
Mr. Peter Thurnham (Bolton, North-East)

I join Conservative Members in welcoming the Budget in its prudence. It marks a turning point. The PSBR is low enough for us to see the prospect of lower interest rates, which I hope will soon be as low as those of our chief competitors so that British industry's costs through borrowing are no higher than those abroad.

The Budget holds out the prospect of continuous economic growth. We have had seven years of growth, and we can see the prospect of productive jobs instead of the sort of subsidised jobs that existed under the last Labour Government. The hon. Member for Kingston upon Hull, West (Mr. Randall) was, I think, referring to a letter in the Financial Times yesterday from four previous chief economic advisers. I find it a quite extraordinary letter. I see it as a small tombstone to the death of Socialist economic policies. Our success results from the reversal of all the policies that these gentleman must have advocated. I do not have in front of me the name of the present chief economic adviser, but I must congratulate him and his colleagues on being able to advise the Chancellor better than their predecessors did, if these latter have learnt so little that they say that the increase in the number of 2 million unemployed since 1979 results from errors of economic policy. Quite right, but it was from past economic policy in the years when those people were in office.

Which of these four magnificent knights was the one who recommended the jobs tax? Was that not a brilliant piece of economic and fiscal advice, the 3 per cent. surtax on jobs? Strangely, none of the four knights mentioned the job tax as part of the economic advice which he was so happy to give and which it was supposed would help in providing real jobs.

These people do not seem able even to recognise the success of present policy. They say that the economy has grown "at a moderate rate". They fail to realise that during the period of their advice the economy was growing at a lower rate than that of our competitors, whereas now it is growing at a higher rate, so how they can dismiss it as a period of moderate growth defeats me.

Again, they say that "slow growth since 1979" is the reason for high unemployment. If it is slow growth that causes high unemployment and we now have a higher growth rate than do our competitors they answer their own question, because that must be an answer to the present problems of unemployment.

These economic advisers end their letter by saying that they welcome the initiative taken by Hands Across Britain … on 3 May. All I can say is that I hope that it will not be long after that that we go to the polling booths and make it "thumbs down across Britain" for Socialist policies. We all look forward to that.

One of the best bits of information in the Chancellor's speech was that export growth in the past three months was 6 per cent. above the previous year. That is where the real jobs will come from; that is the success of manufacturing industry.

I also very much welcome the downward trend of the unemployment figure, which has decreased in the past six months by 100,000. Where the policies of Opposition Members are so lacking is in their assumption that they can reduce unemployment by looking to local authorities as the instrument of growth, the sort of nonsense that we hear from the hon. Member for Kingston upon Hull, East (Mr. Prescott), who seems to have been gagged for the past few days.

I would, however, like to draw the attention of the Chancellor to the fact that if we look at the unemployment figures in some detail we see that, although the number of people unemployed for a short time has come down, the number of those who have been unemployed for longer has increased. Perhaps I could just refer to the figures. In 1983, when I was elected, the number of people who had been unemployed for five years or more was 66,500. The last published figure for the number of people unemployed for five years or more was 232,000, so there has been a substantial increase in the number of people out of work for a long time. I urge the Chancellor to redirect restart and all the other employment measures so as to pay greater attention to those who have been out of work the longest.

I welcome the provision to allow tax relief for training, but I suggest that we need to go further than that. I draw the Chancellor's attention to a scheme which has been run in Bolton for the past year or more and in which priority has been given on the community programme to those who have been out of work the longest. This is a scheme that I initiated with the help of various right hon. Friends and Ministers in the Department of Employment, and it is fair to say that the scheme has been greeted as a considerable success.

Just today I was very pleased to receive a letter from one person who has been on the scheme and who had been out of work for over three years. I had been very pleased to give him a reference on the strength of the work that he was doing there. He wrote: Just a brief note to thank you for the reference you did for me, the reference indeed which helped me to secure a permanent position … I was one of the lads working on the site at the new Jerusalem Church … and my present employer (a nice term) said my appointment was due in no small part to the reference. So thanks again. That was from Mark Longworth.

Mr. Derek Fatchett (Leeds, Central)

The hon. Gentleman said that he recognised that there had been an increase in the long-term unemployed to well over 250,000 and that he regretted that. Does he see that figure as a success for the Government's economic policy?

Mr. Thurnham

I see it as a residual problem that arose from the policies pursued prior to 1979.

The people on that scheme were able to leave school and be given rates of pay that were above the market rate. They were people who did not feel it necessary or who were unable to gain the skills under previous policies. I call attention to the need to give greater priority to those who are in the predicament that they are in today because of the policies pursued by the previous Labour Government.

The Budget includes provision for the disabled, which is welcome. The blind allowance rises from £360 to £540, and there are additional charitable exemptions from VAT, including items for handicapped people in homes, as well as rescue and first—aid equipment. I should like to mention two stories in the newspapers in the past day or two. In one case, an award of £500,000 was given to a child who had been severely handicapped as a result of an accident and inadequate care afterwards. If it is possible for some people who care for a handicapped person to have £500,000 to help, why is that not available to all? In New Zealand and Sweden it is possible for funds to be made available on a no-blame basis. and I should like to draw the Chancellor's attention to the need for all people who have to care in such situations to have more help.

There was a great outcry about the need for the sterilisation of a young 17-year-old girl. People are living in cloud-cuckoo-land if they do not feel that adequate funds should be made available to help individual people provide care for that sort of person, rather than leaving it to institutions, where the problem is so much greater.

I congratulate the Chancellor on his excellent Budget, which lays the ground for continued economic growth and greater wealth. Through that greater wealth there will be an opportunity to provide care and greater provision for those in our society who are in the greatest need.

9.33 pm
Mr. Ray Powell (Ogmore)

I listened to the Chancellor from the start of his speech to the end and I listened to the Leader of the Opposition's reply. I am pleased that my right hon. Friend the Leader of the Opposition was able to highlight the fact that the Chancellor has not given consideration to the people I represent in Wales, especially in Ogmore. Over the seven years of the present. Administration, unemployment in the constituency of Ogmore has risen from 3.7 per cent. to 20 per cent. In part. of my constituency, Maesteg, with a population of some 26,000, the male unemployment rate over the past three years has been 40 per cent.

Given those figures in an area such as Ogmore, the Chancellor should have looked more seriously at the bonanza he talks about. He pretends to be a Santa Claus to those who are rich but he is a Scrooge to those I represent—the 10,000 people in Ogmore without a Job.

A number of people will obviously benefit from the Budget. Many rich city dwellers will receive tax relief on pensions amounting to £150,000. Most of my constituents—those in work as well as those out of work—would think that they had won the pools if they had £150,000 in the bank. Such tax relief would be out of the question for 99 per cent. of the people whom I represent.

Surely we must be concerned about underpaid and underprivileged people in society. Most low-paid people live in the deprived areas of Wales, such as that which I represent, where, in the past seven years, the Government's policies have deliberately de-manned the steel industry and resulted in the closure of mines. Five collieries in my constituency of Ogmore were closed in 1983. Two collieries in the area that I have represented since 1983 that were in the Pontypridd constituency have been closed. Seven collieries, with a work force of well over 3,500 people, have been closed as a deliberate attempt by the Government to ensure that coal mining areas in Wales were decimated. Indeed, the collieries to which I refer would have been of great national importance. They produced the best coking coal in Europe. They were closed in a deliberate attempt by the Government to force people into the unemployed ranks.

Comparing the present number of people who are out of work with the number who were out of work in 1979, we see that there was a deliberate attempt by the Government to suppress workers and their demands for extra pay for the services that they offered, and to suppress the trade union movement. That attempt might have succeeded. Together with the oil bonanza, it might have given the money that the Chancellor has to disburse. But all the evening newspapers have quite deliberately suggested that the money could have been better used in creating employment.

In Wales in particular, it will not create necessary employment. As the right hon. Member for South Down (Mr. Powell) often says, it is passing strange that, for seven years, the Chancellor and his predecessor have continually talked about restraint and have assured us that successive Budgets would curb public expenditure. After seven years, and indeed on the eve of a general election, we find that the Chancellor has found money to disburse to people in the higher income bracket.

I wonder how much money will go to the Ogmore constituency. How much will go to the 10,000 people who are out of work in Ogmore? How much will go to the coalfield communities of Ogmore that are now totally depressed, annihilated, with few factories and with little money coming in for factory development? The people whom I represent do not have much hope for the future. This Government could have given £4 billion to the British people. Instead, the people who will benefit from the £4 billion will be the better-off.

In tonight's edition of the London Daily News, John Shields refers to the Chancellor of the Exchequer playing Santa Claus. In the second paragraph of his article, he says: They are the unemployed, who seem set to lose out once again, even though it is partly on their backs that the foundations for the current 'success' have been laid. Only six or seven years ago, in less bounty-ridden days, nothing was being given away. Cuts were applied only to public expenditure, never to tax. Priority was given to controlling the money supply, constraining public borrowing and cutting public expenditure. What John Shields says is quite true. Public expenditure cuts in my constituency mean that a scheme for 500 houses in Ogwr borough has been cut since 1979. The number of people on the housing waiting list in 1979 was 1,720. The number now on that list is 2,500. A limited amount of money is available for spending on public housing. We can build only 100 new houses a year.

There are 177,000 people out of work in Wales. The Tory Government did not inherit that level of unemployment in 1979. Unless something is done about the unemployed in areas such as mine, the direct result will be an increase in crime. Instead of providing tax relief bonanzas, the Chancellor of the Exchequer should have tried to combat the increase in crime.

When I look at people in my constituency, I see the degradation of unemployment. I see that 16 and 18-year-olds have no chance of a job because of this Government's policies. Despite the opinion polls, the Chancellor of the Exchequer will be kissing 100 of his hon. Friends goodbye at the next election. It is time that the Government appreciated that those who are out of work are demanding that this Government, or the next Labour Government, should do something about unemployment. Those who are out of work, with no chance of a job, will remember the Government's actions and this Budget at the next election—whether it is in June, or October, or next year —and they will vote for a Labour Government.

9.44 pm
Mr. James Couchman (Gillingham)

I shall not detain the House for very long, because I know that several hon. Members want to speak. However, I want to make a short speech as an employer who owns a small company in the licensed trade. I welcome much of what my right hon. Friend the Chancellor introduced in the Budget.

Mr. Fatchett

Is the hon. Gentleman supposed to be representing a constituency?

Mr. Couchman

Of course I am representing a constituency and I shall say so throughout my speech. [Interruption.] Does the hon. Member for Leeds, Central (Mr. Fatchett), wish to intervene from a sedentary or standing position?

For two years my right hon. Friend the Chancellor has taken steps to assist small companies and particularly the succession of ownership of small companies from father to son, which will improve the security of those small family businesses. I welcome the changes in VAT which will apply to businesses smaller than my own. A technical change in the partial exemption rules on VAT will be less onerous to the licensed trade than was first thought.

The decision not to increase excise duties on beers, wines and spirits for the second year running will be very welcome to a trade which is still suffering from recession and from a change in drinking habits. In 1981, when my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) introduced his Budget, I had the doubtful pleasure as a licensee of offering instant comment on one of the most swingeing increases in duty ever. That increase had a marked and deleterious effect on the trade of all licensed outlets. I hope that my right hon. Friend the Chancellor's restraint today will lead to a new buoyancy in the licensed trade.

Mr. Maxton

Does not the hon. Member have any regard at all to the appalling health problems created both by alcohol and tobacco? Does he not think that perhaps the Chancellor ought to have increased the price of both alcohol and tobacco to try to stop people partaking of them?

Mr. Couchman

The hon. Gentleman knows that we had an excellent debate a fortnight ago on the licensed trade, licensing reform and abuse of alcohol. The hon. Gentleman may have been present on that occasion to make his point.

It is in personal taxation that changes will be most widely welcome. My business employs many people on comparatively low incomes. Full-time bar staff generally live in and enjoy free board and lodging, but their weekly wages are comparatively modest. A gross wage of perhaps £125 a week will lead to an increase in net pay of something over £2 a week. I do not think those employees will take the £2 and buy a postal order and send it to the Chancellor in the hope that he may use it on increased public expenditure.

I do not think many people will refuse the reductions in taxation, in the amount of money which the Chancellor takes from us, and then ask for that money to be used on increased public expenditure.

Mr. Foulkes

Will the hon. Gentleman give way?

Mr. Couchman

I am not giving way.

It is also fair to say that my managers will much welcome the Chancellor's proposals for profit-related pay. Those proposals are likely to be extremely beneficial to them and to many other people who will in future share in the profits of the company for which they work.

I join many other hon. Members in welcoming the VAT changes affecting charities, the increase in the allowance for the blind, and especially the new higher age allowance for those aged 80 or over, in line with this Government's institution of a pension as of right for all over 80, which was resisted by the last Labour Government, despite many attempts to bring it in.

Because of my responsibilities as PPS to the Minister for Health, my hon. Friend the Member for Braintree (Mr. Newton), I perhaps should confine to a warm welcome my comments on those aspects of the Chancellor's Budget which relate to the DHSS.

Some Opposition Members have complained that the Chancellor has not introduced various increases in public expenditure. I remind them yet again of the increase of nearly £5 billion which the Chancellor introduced with the public expenditure White Paper in the autumn.

I could say much more, but I am conscious that there are at least two more hon. Members who wish to speak this evening. This has been a good Budget for business and for the individual. I believe that it will be modestly beneficial in creating jobs. I am certain it will be invaluable in securing existing jobs, especially those provided by small family companies such as my own.

9.49 pm
Mr. Michael McNair-Wilson (Newbury)

I can hardly be the Member for Newbury, with its famous racecourse, without wanting to say at least thank you to the Chancellor for removing the tax on on-course betting. I hope that it will encourage people to come to that racecourse and enjoy the pleasures of racing. That will be good not only for the racecourse but for Lambourn in my constituency, where so many excellent race horses are trained to such high standards.

There can be few Chancellors who have had the opportunity which was presented to the Chancellor this afternoon of being able to bring forward a Budget in which he could restore income to people's pockets without affecting the broad thrust of economic policy. The fact that the Chancellor has been able to do that speaks volumes for the effective way in which he has handled the economy.

I am particularly delighted that my right hon. Friend has been able to reduce the basic rate of income tax by 2p and raise tax thresholds. Pre-Budget speculation from all shades of political opinion in the House endorsed the assessment that the Chancellor brought into effect, namely, that he had sufficient revenue for a massive redistribution. The only question that arose—I suspect one inspired as much by electoral considerations as by reality—was whether he should use that redistribution to reduce the burden of tax or to increase public spending. In choosing to reduce the burden of tax I think that he made the right choice.

The argument that a tax cut will simply stoke up a consumer boom, which in turn will suck in increased imports, seems to miss the point of tax cuts. The country is heavily taxed, whether in terms of direct taxation, value added tax or through national insurance contributions. We know that in wage negotiations the effect of tax and the likely effect of inflation have been dominant considerations which have led unions, particularly those in the public sector, always to ask for large pay rises on the basis that inflation would erode them after a short time.

I suggest that a reduction in taxation will be what the Chancellor said it would be—a true incentive toward wage restraint. Lower direct tax will reduce the pressure for unreasonably high wage settlements, particularly in the public sector. By that I do not suggest for a moment that the public sector should not get reasonable wage increases. But we are now in a different atmosphere in which those negotiating public sector pay rises will be able to recognise that they should not have to allow for high inflation and the effect of high taxation, and that they can ask for more reasonable wage increases.

In those terms, I also welcome the tax inducement in the Chancellor's proposals for profit-related pay. Like the reduction in the basic rate of tax, that must assist our competitiveness if it encourages people to hold down wage claims. As competitiveness is one of the most important factors in employment, I disagree totally with the claim of the Leader of the Opposition that there is nothing in the Budget for the unemployed. We must take account of the seven years of steady growth in the economy and the recovery in the manufacturing sector of industry. It has still perhaps some way to go before it reaches the level that we want to see, but there has been recovery from a restructured industry. Those facts and the downward pressure of wage claims that will result from the Budget will help to keep industry competitive and thus enable us both to hold current markets and to gain new markets.

Who in the House would deny that if we can gain new markets for industry we can find new jobs for our people and real prosperity for the nation? If the Opposition tell us that that is not the case, what case would they choose to argue? I believe that this Budget is good for employment opportunities.

Those who say that a direct cut in income tax will simply stoke up a consumer boom are claiming that it will also therefore increase imports. I suggest that they are wrong. If they choose to come to my constituency they will discover that Sony has established a large factory, that Norsk Data has also a factory and that Bayer Pharmaceuticals from Germany has also set up in my constituency. That foreign inward investment has brought job opportunities that did not exist before. Those who say that an import boom is bound to follow from a cut in taxation are providing a counsel of despair. In effect, they are claiming that this country is no longer able to pick up the challenge from the new demand that will arise from the reduction of taxation. They are also arguing that companies brought into this country will somehow not continue to come in to meet that demand. Far from seeing an import boom, I believe that we will see a growth in more British business.

We have become a little obsessive about referring to all—British companies. That is an old-fashioned idea. We are members of the European Economic Community and we hope for a European industrial structure. I believe that international companies should be set up in this country and elsewhere. It is important that Britain's input to those companies in this country should consist of an input of people and skills. British companies should find opportunities to do likewise abroad. That is why I welcome the fact that our overseas assets are now at such a high level.

Another advantage of the Budget is that it finds time to consider other areas of our society that are in need. Reference has already been made to the changes to be made to charities to improve what they are able to receive from companies wishing to help. We know that hospices and the vehicles that they use are to be freed from VAT, as are hospice drugs for sick people. The old age allowance is to increase and the blind allowance is to be improved. All these measures—small though they may be—suggest that the Budget is more broadly based than one that simply seeks to concentrate on any one sector of the economy.

The tax cuts to which I have referred and the other benefits in the Budget must be seen against the autumn statement, in which a further £600 million was given to the National Health Service to bring total expenditure on the Health Service up to about £19 billion, which is rather more than twice the amount that the previous Labour Government spent on the service. The autumn statement also included a further £2 billion for the education service. That means that expenditure on education is at its highest ever level. The old-age pension today is buying more than it has ever bought in the history of our people.

Mr. Foulkes

Will the hon. Gentleman give way?

Mr. McNair-Wilson

We must remember that inflation has been running at less than 5 per cent. for the past two years and looks like remaining at that level. We must therefore realise that the economy is being handled by the Government in a way that the nation has not seen for several decades — if ever. When I put all these facts together and think particularly—

Mr. Foulkes

Will the hon. Gentleman give way now?

Mr. McNair-Wilson

I think particularly of the reduction in taxation and lower inflation rates, and the effect, as I have said, will be that wage restraint will become a new reality for all those going forward with wage claims. As I have already said—but will repeat because it is so important — this nation can regain its competitiveness because of wage restraints. Because it will regain its competitiveness, we shall have a real opportunity to expand the economy in terms of extra trade, more jobs and more real prosperity, from which will come the additional money that we would all like to see go into certain sectors of the national social economy. As we know, unless this nation earns its living and has more than enough out of that living, it cannot expand what it spends and we shall not be able to have the real funds that need to go into the National Health Service, education or higher education.

It being Ten o'clock, the debate stood adjourned.

Debate to be resumed tomorrow.

Forward to