Budget Resolutions and Economic Situation

HC Deb 18 March 1987 vol 112 cc942-1014

[Relevant documents: European Community Document No. 10155/86, Annual Economic Report 1986–87 and the unnumbered document, Annual Economic Report 1986–87 (final version as adopted by the Council).]

4.31 pm

Mr. Roy Hattersley (Birmingham, Sparkbrook)

There is one aspect of the Budget on which I am sure that the Chancellor and I are in complete agreement— the opportunity that it provides for the two major parties to show how wide is the gulf that now divides them. The alliance will no doubt take refuge in the abandoned trenches of no man's land. We believe that at the next election the voters must be offered a clear alternative, so we shall not counterfeit agreement where none exists, opposing tax cuts before they are made but supporting them once they are in the pay packets. We believe that the Budget is wrong—socially wrong, economically wrong and, in its neglect of the unemployed, morally wrong—and we propose to say so.

While I am on the subject of the alliance, I should take this opportunity to offer my congratulations to the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) on his victory last Saturday. Labour Members were never in any doubt about his success. As the creator of the SDP, he must have been irresistible to what Matthew Arnold described as the "home of lost causes". In any case, I understand that there was considerable apprehension in Oxford that if the right hon. Gentleman failed to get the top job there he would go off and found a university of his own.

I also congratulate the Chancellor on his remarkable performance yesterday. With £6 billion to spend, he managed to make its distribution an anti-climax. Dead sheep have done better in their time. As the right hon. Gentleman knows, there was some hope among Conservative Back Benchers that the lost page of his speech— the dramatic highlight of his entire performance—contained the tax cuts for which they longed but which they were denied. Notwithstanding that, I can offer some cheer to those Tories who wanted a party political Budget and felt that they were not getting it. It was, of course, exactly what they got. The Budget was intended to buy votes, but the Chancellor has carefully targeted the voters whom he hopes to buy. The men and women who have been written off as potential Tory converts were ignored. There was nothing for pensioners without a second income, nothing for families living on poverty wages, and nothing for the unemployed. By neglecting the people who need help the most, the Chancellor has widened the desperate and destructive divisions within our society.

Mr. Eric Forth (Mid-Worcestershire)

Will the right hon. Gentleman explain how the fall in interest rates, which has already begun and will inevitably continue as a result of my right hon. Friend's long-term Budget—for that is what it is— can fail to benefit the business community and therefore employment in the long run?

Mr. Hattersley

Everyone agrees— the Tory's own model agrees and every economist and institution of every point of view agrees— that if the first priority is to reduce unemployment, spreading money about in tax cuts is the slowest, least effective and least economic way of achieving that.

Mr. Forth

What about interest rates?

Mr. Hattersely

If the hon. Gentleman will bear with me for more than a couple of minutes of my speech, I shall be developing exactly that point.

Before the hon. Gentleman's wholly irrelevant interruption, I was referring to the fact that the desperate and destructive divisions in our society have been intensified and deepened by the Budget. They have been intensified in the name of prudence. The price for the reputation of prudence that the Chancellor thinks it expedient to promote is to be paid by the families on the dole, those living in houses unfit for human habitation, the sick waiting for hospital beds and the pensioners unable to pay their fuel bills. No Budget every relied so heavily on the dictum that no one with a conscience votes Conservative.

Prudence is the word that Conservative spokesmen have been advised to put into their speeches, but this is not a prudent Budget. It is not prudent to spend £20 billion per year holding unemployment at more than 3½ million. It is not prudent to sacrifice the £30 billion per year that this country would earn if those 3½ million men and women were back at work. It is not prudent to allow our housing stock, our hospitals our schools and our roads to decay to the point of disintegration. It is not prudent to squander our oil revenues. It is not prudent to encourage the reduction of manufacturing output and the collapse of manufacturing investment and to escalate the deficit in our balance of manufactured trade. It is not prudent to refuse to secure the homes of the old and the weak against the disastrous rise in burglary and robbery over which the Government have presided. I repeat, this is not prudent Budget.

Mr. Nigel Forman (Carshalton and Wallington)

If the right hon. Gentleman is so converted to the mertis of genuine prudence, which I take to be the burden of his argument, what is so prudent about the Labour party's spending plans which would increase public expenditure by £28 billion at the minimum estimate?

Mr. Hattersley

"All this and more", as they say. If the hon. Gentleman and his colleagues will bear with me, they will find that I deal with exactly that point on page 78 or 79 of my speech.

I repeat, this is not a prudent Budget. More important, it is generally irrelevant to our economic needs. It is built around income tax cuts which cannot be sustained and will worsen the growing deficit in our balance of payments— a danger that the Chancellor at present finds it convenient to ignore. Even if the prospects were as rosy as the Government pretend, the Chancellor's choice of spending priorities would be wrong. It is not simply the economic outlook which demands that available funds should be invested in our future rather than used to fuel the credit and consumption boom. Short term or long term, the extra resources at the Chancellor's disposal should be concentrated on the reduction of unemployment, the alleviation of poverty and the improvement of essential services. They should have been used to build a united country; instead, they have been used to finance a failed publicity stunt.

The public expenditure White Paper, which was the curtain raiser to the Budget, was described by the Spectator as having fallen off the back of a lorry. The simile is now continued. We are in the middle of one of those closing-down sales that advertise their bargains with whitewash messages painted on grubby shop windows: "Everything must go. Buy while stocks last. Amazing reductions." Customers who fall for such blandishments find, when they return to complain about the shoddy character of the goods, that the hucksters have cut and run. So will it be with this Government. That is their clear intention, and that is the message of the Budget.

The tax cuts that the Chancellor announced yesterday, intensifying as they do both the credit boom and the pressure on imports, cannot be sustained. Were the Government to be returned in the general election, for which the Budget is no more than a trailer, value added tax would be increased to fill the gap left in the revenue and to reduce the consumption of imported goods. We would be left with tax cuts that help the rich the most, and those cuts would be replaced by tax increases that hit the poor the hardest. An increase in VAT is the Prime Minister's clear intention. On television in January 1984 she was absolutely explicit. She said: It is the balance between indirect and direct taxation which we want to switch. It is the pattern of Tory behaviour to cut direct taxation before elections and, given the chance, to increase indirect taxation afterwards.

Yesterday, my right hon. Friend the Member for Islwyn (Mr. Kinnock) referred to the history of Conservative tax duplicity, notably the behaviour of Mr. R. A. Butler. Hon. Members shouted then, as some are shouting now, for more recent examples. An hon. Gentleman, whom I am afraid I cannot identify as I do not know his constituency, has asked for such an example. Let me give him one. I suspect that the occasion of his election in 1979 was such an example. Before that election, the Prime Minister promised that there would be no increase in VAT. Immediately the election was over, VAT was increased from 8 per cent. to 15 per cent.

At least the Prime Minister has learnt that lesson. When pressed on television, on the radio and at press conferences, she now refuses to say categorically that she will not increase VAT if the Government are re-elected, and I understand that the Chancellor of the Exchequer was similarly evasive with journalists yesterday evening. If, now or later today, the right hon. Gentleman wishes to give a categorical assurance on the subject, I am sure that we shall listen to it with a good deal of interest and with absolute belief. Until then, it will be clear—and I believe it to be true—that the Government firmly intend to increase VAT should they be re-elected. That must be true, because the use of the Chancellor's extra revenue for tax cuts cannot be sustained. Anyone who looks at the causes of the extra revenue that the Chancellor distributed yesterday will understand that.

Let me make it clear that I do not intend to accuse the Chancellor of being lucky; luck is an essential part of our trade. But no one believes—and I do not think that the Chancellor even pretends—that the £6 billion that he has to distribute is the result of four years of careful planning. In December, the Chancellor told the House: I very much doubt whether there will be much scope for reductions in taxation in next year's Budget"—[Official Report, 17 December 1986; Vol. 107, c. 1242.] In the present Treasury team, invention is one of the jobs allocated to the Chief Secretary, so I assume that the Chancellor was telling the truth in December. If he was telling the truth then, he did not expect the £6 billion fiscal adjustment in March; therefore, he cannot legitimately claim credit for it. He should be surprised by the sudden bonus, and, as well as being surprised, he should be worried.

That £6 billion is underpinned—indeed, it has largely been created— by four underlying factors that have made it possible for the Chancellor to reduce income tax and the public sector borrowing requirement simultaneously. Those factors should oblige a rational and honest Chancellor to take responsible decisions about how the available money should he spent. If it is used to expand the real economy, it can be turned to advantage. Only by using it for investment can we turn the temporary bonus into permanent gain. If it is frittered away on a brief spending spree, it can only intensify our underlying economic problems.

The Budget is underpinned by a bogus calculation of Government borrowing. The temporary expedient of selling Government assets is recorded as a reduction in the PSBR. We have argued in the past, and no doubt will argue again, about the wisdom and propriety of privatization— especilly privatisation at knockdown prices, which has allowed speculators to make £2 billion in profit on the instant resale of wilfully undervalued assets. However, there can be no argument about one fact: the sale of capital assets is now being used to finance increases in consumption.

The buoyant revenues of which the Chancellor made so much yesterday are an even more short-lived and even more dangerous phenomenon. They are the product of circumstances that either cannot continue, or cannot be allowed to continue, without massive damage to the real economy. It is folly to use them for immediate spending rather than for investment in our future.

Sir Peter Hordern (Horsham)

How does the right hon. Gentleman square what he has said with the rapid increase in corporation tax during the past year, which is far above my right hon. Friend's estimate and cannot be described as either temporary or bad for the economy?

Mr. Hattersley

I assure the hon. Gentleman that it is wholly temporary—at least, I hope it is. It results from two phenomena— the first is the changes in the tax regime brought about by the Government, which have now made it more likely that capital will be distributed rather than being ploughed back into industry. The other is the fact that the capital investment has been reduced. and that that reduction has produced a phenomenon about which the House should be concerned—namely, the decline in investment, especially in manufacturing. In a moment I shall give the figures and develop the case—I hope with the general agreement of the House, if not with that of the hon. Gentleman.

The Revenue collected an extra £500 million in stamp duty as a result of house price inflation and the extra share transactions that result from merger mania. The corporation tax payments to which the hon. Gentleman referred amounted to an extra £1.7 billion, but I repeat that they are not the marks of success. They are largely the result of the withdrawal of investment incentives and stock relief, and the failure to invest increased profits. The extra revenue in that sector is the direct product of a disastrous fall in the most important area of new investment. Investment in manufacturing industry has fallen to 20 per cent. below its 1979 level.

I shall give another example of that. Government income has gained almost £1 billion from increased VAT receipts on consumer durables and imports. The increase in VAT revenue creates a perfect vicious circle. That revenue is increased when imports rise. The extra revenue is distributed in income tax and the extra spending power thus engendered is used to suck in more imports. Those are the sources of revenue that the Daily Express yesterday described as the result of economic success. Lord Beaverbrook must be turning in his grave to learn that his old paper is congratulating the Government on promoting the exports of Germany and Japan.

Central to the increases in VAT and corporation tax receipts is the explosion in indebtedness which the Government first allowed and then encouraged. Personal debt now accounts for almost 70 per cent. of net income after tax. Indebtedness now increases by 20 per cent. a year and stands far higher than it did during the much derided Barber credit boom.

The Government are obsessively opposed to increasing public borrowing to finance investment in British industry. However, they actively encourage private borrowing to finance the purchase of German cars, Japanese videos, Italian footwear and south-east Asian textiles. The result is unfortunately recorded for all to see. It is the continual decline in Britain's balance of payments, despite oil income that has contributed at least £100 billion during the lifetime of the Government.

Let us consider the actual figures. In the 1985 autumn statement, the Chancellor predicted a £4 billion balance of payments surplus for 1986. Naturally, he brushed aside, with all his usual charm, the idea that he might possibly be wrong. Each subsequent forecast, the Budget and the 1986 autumn statement, was worse than its predecessor. There was a £1 billion deficit last year and this year the deficit was originally forecast to rise to £1.5 billion. Yesterday, the Chancellor increased his estimate of the deficit to £2.5 billion. We have seen a £5 billion deterioration in the 1986 deficit between the 1985 autumn statement and the actual outturn.

If, in 1979, the BBC had prophesied that, despite oil, the Government would still preside over a balance of payments deficit which would grow year by year, the chairman of the Tory party would have got on his bike and pedalled round to Broadcasting house to sort out the Bolsheviks who were spreading such nonsense.

About manufacturing trade, the Chancellor cannot even simulate confidence. The manufactured trade balance has slumped from a surplus of £5 billion in 1978 to a forecast deficit of £8 billion this year.

The Government know that the balance of payments is deteriorating fast. It is impossible to imagine a more irresponsible way of reacting to that deterioration than escalating the consumer and credit boom by cutting 2p off the basic rate of tax.

Mr. Kenneth Carlisle (Lincoln)

Will the right hon. Gentleman give way?

Mr. Hattersley

No, I shall not.

The folly of that choice is underlined by the inability of British industry to meet the increased demands upon it that more purchasing power will bring. Manufacturing exports are a subject on which the Government make great claims and repeat great boasts.

Mr. James Hill (Southampton, Test)

They are right.

Mr. Hattersley

Yes, they are right. Manufacturing exports have risen by 15 per cent. since 1979. The only problem is that imports have risen by 48 per cent. Manufacturing trade is in deficit for the first time since the industrial revolution. Net manufacturing is negative for the fifth year running. Manufacturing output has fallen and is still lower than it was in 1979.

The first necessity of a responsible Government is to increase Britain's capacity to meet domestic demand and expand foreign sales, especially to fill the gap that will be left when oil revenues begin to run out. Once we were told that rescue would come from invisible earnings. However, now even the forecasts for invisible earnings are beginning to be scaled down.

I ask the Chancellor a question today which I have often asked him before but which, so far, he has refused to answer. What are his plans for getting the balance of payments back into surplus? What will replace the oil income? He must know that yesterday's Budget makes that gap harder to fill. It will boost the import of consumer goods and do little or nothing to improve the prospect of manufacturing industry. A brief balance of payments deterioration, in preparation for increases in manufacturing output, is sustainable. However, a continuing balance of payments deterioration, brought about by a flood of consumer durables, cannot possibly be sustained.

There are some parts of the Budget which we approve of and applaud and which I should like to put on record as receiving our support. I refer, for example, to the tax differential for unleaded petrol, the concessions to charities, the increased allowances for the blind and for those aged over 80 and the new tax allowances to assist with training. I have taken examples from the four parts of the Chancellor's speech with which we especially agreed.

Mr. Hill

What about exchange controls?

Mr. Hattersley

I hear the hon. Gentleman ask, ".What about exchange controls?" I shall answer, perhaps improperly, the question that was shouted out from the Front Benches rather than the one to which the hon. Gentleman would like me to reply.

We are told that we are to have the formal repeal of exchange control. However, since the present powers are incapable of effective operation, I am not quite sure why the Chancellor chooses to bother. In the one passage of his speech that was meant to be a joke, the Chancellor asked whether Opposition Members would support repeal. I am pleased to tell him that we shall, gladly. However, we shall want a debate on the Floor of the House to draw attention to the money that has flooded out of Britain since the end of statutory exchange control and to describe the new way in which we propose to bring that money back to invest in the British economy, British industry and British jobs. However, after we have debated it we have no intention of attempting to breathe life into an already dead Act when we have a superior instrument to put in its place.

I should also like to tell the Chancellor how much we applaud his conversion on the measurement of broad money. Once it was the criterion against which all policy was tested and the centrepiece of the medium-term financial strategy, of which the Chancellor was the author. The only problem with the broad money target was that the Chancellor could never hit it. Yesterday, in a moment of rash frankness, the Chancellor described what he proposed to do about M3 and said that he would follow the "wiser" course. It is certainly wiser for his reputation.

We equally welcome the changes in VAT that the Chancellor proposed for small businesses. However, we must confess to bias because we proposed them all in last year's Finance Bill, but the Government voted them down. We welcome the sinners come late to repentance. Would that we could say the same about the Chancellor's manipulation of statistics. He told us yesterday—as he has told us so often— about the seven years of continuous growth. However, I invite him to tell the House what the average rate of growth was during those seven years. Knowing his reticence, I offer him the answers. For 1979–1986, the average rate of growth was 1.5 per cent. Including the forecast for 1987, it increased, on average, to 1.7 per cent. However, under the previous Labour Government, from 1974–1979, it was 1.9 per cent.

I am not surprised that the Chancellor chooses his statistics with such scrupulous care. I give another example. He did it again yesterday evening when he entertained the British public with what I can only describe as some interestingly creative diagrams, mostly based on the notion that if they did not record the performance of our most successful competitors, it would look as if Britain was top of the league. There are some attractions in that technique. By assiduously applying it, Yorkshire al ways wins the county championship, and Sheffield Wednesday the football league. However, even applying that unusual technique, the Chancellor could not bring himself to publish a table for inflation on his television broadcast. That is because, according to the Government's forecast, we are about to become bottom of the inflation league in Europe. It would have been a peculiar diagram that showed we were at the top by not having any of our competitors on it.

The Chancellor has been just as selective in his descriptions of the reasons for cutting the basic rate. The most unattractive excuse is the pretence that the basic rate has been cut because of anxiety about the low-paid. That is simply a deception. The low-paid, or at least low-paid families, would have received far more help if available funds had been used to increase child benefit. That would still have left the problem of single low-paid earners, among whom are many nurses, about whom the Prime Minister speaks so feelingly when she thinks it convenient to do so. In February she said: Nurses on £150 a week who have to pay £41 a week in income tax and national insurance contributions & pay too much."—[Official Report, 24 February 1987; Vol. 111, c. 134] Why the sudden conversion? Why the sudden concern?

In 1978–79 a nurse paid 25 per cent. of her earnings in tax and national insurance. After seven years of Conservatism she now pays 27.5 per cent. and more on VAT than previously. Today nurses' total direct tax bill is still higher than it was under Labour and they pay twice as much on VAT.

Mr. Kenneth Carlisle

Will the right hon. Gentleman give way?

Mr. Hattersley

No.

If nurses or any workers on £150 a week were the Government's genuine concern, the Government would have introduced a reduced rate band, increased allowances above the inflation rate or cut national insurance contributions. If the poorly paid were the Government's real concern, the Government would have helped the lower income groups during the past seven years, not the highest paid 5 per cent.—the only people significantly to benefit from Tory tax policy. Nurses, and indeed the low-paid in general, are being used as an excuse for making changes which are designed for and help most the highest paid. If the Chancellor and the Prime Minister asked a typical nurse to choose between across-the-board tax cuts and extra investment in the Health Service, that nurse would choose an improved Health Service without hesitation.

As the debate continues I hope that we shall be spared nonsense about lower tax rates yielding higher tax revenues by encouraging harder work. That view does not stand a moment's examination and finds absolutely no support in the study of the subject which the Government commissioned from Professor C. V. Brown. Tax yields from the high-paid have increased because primary incomes have rocketed for reasons wholly unrelated to lower marginal tax rates. The Treasury's own figures confirm that the earnings of the richest 10 per cent. have risen six times as fast as the earnings of the lowest 10 per cent, Is there any hon. Member, even on the Conservative Benches who will pretend for a moment that the big bang salaries in the City— the City salaries which the Chancellor compared with telephone numbers— have come about because of lower marginal tax rates? They have come about because of greed. Cuts in the standard rate of tax across the board are not necessary for our economy and I do not believe that they are the choice or wish of our people.

Mr. Kenneth Carlisle

rose—

Mr. Hattersley

Every survey confirms that standard rate tax cuts are not even the priority of the highly paid. The British Institute of Management, speaking for the men and women, who, according to the Prime Minister, need extra incentives and will leave the country if they do not get them, found that three quarters of its members, anticipating this year's Budget, preferred improved services to tax cuts. The summary of its survey states: The principal message put forward was that managers preferred some specific increase in government spending to a cut in taxation.

I invite the Chief Secretary to answer this question directly: why was the cut in the basic rate more important to the Government than an improved Health Service and higher pensions? Why was it more important than more textbooks in schools and an end to the crisis of homelessness? Why, above all, was that cut more important than a cut in unemployment? I hope that the Chief Secretary will not further enhance his reputation for keeping the truth at arm's length with the pretence that a general cut in income tax—the general reflation, about which the Government used to be so scathing—is the best way of fulfilling their obligation to reduce unemployment.

Last month at Question Time I asked the Chief Secretary whether he found the repetition of fraudulent statistics demeaning and he assured me and the House that he did not. With his recently acquired frankness, I trust that he will now admit that the Treasury's economic model demonstrates that tax cuts are the most expensive, least effective and most economically damaging way of encouraging additional jobs.

The Chancellor talked to us about unemployment and employment yesterday and gave us some figures. I would like to ask the Chief Secretary to give today the true figures for the unemployment record that the Government can, rightly, boast. But since he would be reluctant to do that, I propose to do it for him. The Government's unemployment record does not put them in a position which justifies their denial of and refusal to accept all the advice that they are given about how unemployment can he cut.

Since the Government were elected we have lost 750,000 jobs in the British economy—more than the rest of the European Economic Community put together. The whole of the reduction in unemployment last year is accounted for by either special measures or changes in the method of calculation. The triumph which the Government proclaim and the Chancellor attempted to proclaim yesterday is the product of schemes, special measures and statistical manipulation.

The Labour party believes that the money at the Chancellor's disposal should have been used to put Britain back to work in real jobs. At a net average cost or £6 billion the unemployment register could be cut by 1 million in two years. There is now no doubt that the money is available. Yesterday the Chancellor had at his disposal easily enough to finance Labour's job programe. It is not that he could not afford to put Britain back to work; he chose not to put Britain back to work.

We set out a week ago the details of our programme, which should have formed the centrepiece of this year's Budget. The Budget should have been built around four elements. The first is an expansion of employment in the private sector, stimulated by new investment and the carefully targeted incentive of reductions in national insurance contributions in selected areas.

Mr. Tim Yeo (Suffolk, South)

Will the right hon. Gentleman give way?

Mr. Hattersely

The second is the introduction of genuine skill training to make the British work force in the next 10 years the best trained in Europe and in the short term to begin to redress the scandalous neglect of training which has accompanied the seven-year cycle. The third is investment of public sector capital in new and improved houses, roads, schools, hospitals and sewers. The fourth is investment in public services— teachers, nurses and home helps.

The jobs that we intend to create are real jobs which people need and will be glad to pay for. There was a time when the Prime Minister was in favour of real jobs. Before the 1979 election in Birmingham she said that the Tories would reduce unemployment— I promise you, Mr. Deputy Speaker, that she said that, incredible though it now seems—by creating the conditions for real jobs, not artificial ones, so that once again the products stream from our factories and workshops whilst the customers of the world scramble over each other to buy them. That is now the sickest joke of the Prime Minister's seven years— although I know that there is much competition for that accolade. The exact opposite of her promise is what has happened. We are scrambling over ourselves to buy foreign goods. Our factories and workshops are starved of new investment. The Government, far from relying on real jobs to reduce unemployment, rely for their propaganda on the manipulation of statistics by Lord Young's inventions. If he were truly confident of a fall in unemployment I doubt whether even he would resort to such tactics.

The most deplorable of all the schemes and inventions are the job clubs, at which young men and women are obliged to play kindergarten games as the price which they must pay for continued unemployment benefit. I will give the House an example of one of the kindergarten games as seen on television. Young men and women were required to go to the jobcentre and take it in turns to have a piece of paper pinned on their back. Then other members of the group wrote on that paper their opinion of the person wearing the label. Would the Chancellor risk that in the Cabinet?

The only positive and specific proposal for the reduction of unemployment which the Chancellor made yesterday was the quadrupling of the number of job club places. It seems that there is nothing to which the Secretary of State for Employment will not stoop in order to massage the unemployment statistics. I make it clear that we would not contemplate such schemes. It was clear when the Chancellor lost his temper on radio this morning how vulnerable he feels on this issue.

I repeat that we will create real jobs. There are thousands of projects which are essential to the economic well-being of this country and which need to be organised within the public sector. Many of them—roads, houses, new hospitals and schools— will be commissioned by public authorities from private sector contractors. The rehabilitation of dilapidated housing in Birmingham and the replacement of crumbling sewers in Manchester is real work, as is the work done by nurses, teachers and home helps. So is the work generated by new investment in the nationalised industries, not the padding of their payrolls but the new capital work which the chairmen of those industries have already told us needs to be done, which they want to do, but which they are prevented from doing by the arbitrary and artificial limits placed on their power to raise and invest capital.

Of course, the achievement of those plans obliges inflation to be kept in firm check and interest rates to be reduced. That requires that firm decisions be taken about spending and borrowing. I propose to make Labour's position clear on both subjects.

We are committed during our first two years to the job creation programme which I have described and the anti-poverty programme to which I shall turn in a moment. the anti-poverty programme will be financed by redistribution. There will be higher taxes on the highest paid 5 per cent. of taxpayers, the only major recipients of the long-promised tax cuts, recipients whose cumulative annual tax cuts now total £3.6 billion. The cost of Labour's job programme can be met out of the Chancellor's own fiscal adjustments, though, of course, it requires that borrowing be kept at the level which last year the Chancellor was happy to recommend to the House as a mark of prudence. That will keep indebtedness well below the level which is accepted by our more successful competitors. The rational measure of borrowing is the public sector financial deficit, which we will hold below 4 per cent. of national income. Indeed, under our proposals the ratio of debt to national income will fall. The increase in borrowing which we propose for the economy as a whole is the equivalent of a man on £10,000 a year borrowing an extra £150. That is why the increase in Government borrowing is a burden which most families will gladly carry in order to ensure jobs for their families, friends and neighbours.

Since the Chancellor is mumbling to me about the problems of increased borrowing, I will ask him now to answer a simple question. Is it the problems of higher borrowing that cause the unacceptable levels of interest rates? Did he cut borrowing in order to reduce interest rates? Is he still arguing that the weakness in our policy is the relationship between borrowing and interest rates?

The Chancellor says not a word. On any other occasion during the last five years he would have leapt to his feet and told us that of course everybody knows— every economic illiterate, including the shadow Chancellor—that borrowing and interest rates are intimately linked; the more we borrow, the higher the interest rates, and we must borrow less in order that interest rates can be cut. At some time, unbeknown to us, the Chancellor has been wholly converted, for it says in his own Red Book, under what is still called, poignantly, "The Medium Term Financial Strategy": Private sector borrowing has been rising and is now over 10 per cent. of GDP. It has clearly contributed more than public borrowing to upward pressure on real interest rates.

What is all the fuss about? Why is he not attacking the private borrowing boom that he complained about? Why is he still talking in terms of a policy which his own financial statement and Budget report now denounce?

Mr. Tony Baldry (Banbury)

rose—

Mr. Hattersley

I hold the view that for a sustained policy of industrial investment interest rates must be reduced below the figure at which they stand today. Despite all yesterday's rejoicing, real interest rates in Britain, assuming a 1 per cent. reduction, remain higher than those in America, Japan and Germany. They are still higher than at any time before the election of this Government. All yesterday's announcement will provide is a return to the interest rates which prevailed during the Conservative party conference. All yesterday's provisions will result in is interest rates at the level at which they stood when the Chancellor was holding them down in October in order to guarantee the Prime Minister's standing ovation. Since then he has been holding them up to ensure a good reception for his Budget, selling sterling in order to postpone the full cut of 1 per cent. until today and in consequence holding back reductions in mortgage rates in order that the good news should be associated with yesterday's Budget statement.

The Chancellor must know that we shall have persistently high interest rates whilst there remains uncertainty about our ability to move into a balance of payments surplus.

Sir William Clark (Croydon, South)

rose—

Mr. Hattersley

Were British interest rates to be reduced to anything like those which our competitors enjoy, the pressure on sterling which a series of bad balance of payments figures is bound to create would hit us at once. The myth that the market determines interest rates has been exploded by the way in which the Chancellor held them down during the Conservative party conference and held them up before the Budget. He is still holding them at an unacceptably high level. Were he to do anything else, sterling would still collapse. We will not get the right level of interest rates without a change in economic policy. That new policy must be about the real economy, about investment, output, exports and, above all, jobs.

I repeat that in this Budget the Government have once more turned their back on the unemployed, who suffer the most corrosive form of poverty.

Two weeks ago Mr. George Will, the distinguished Washington Post journalist, whose enthusiasm for President Reagan is almost as great as the Prime Minister's, told me that the Chancellor had described 3 million unemployed as "manageable". Ever anxious to do the Chancellor credit, I reminded Mr. Will that when that report had appeared in newspapers the Chancellor had denied that he ever said it. Mr. Will replied: He said it. He said it to me. To Labour, 3 million officially registered unemployed is not simply unmanageable but intolerable, and we will not tolerate it. Nor will we tolerate the continued poverty which is made all the more morally indefensible by the Government's claims of economic success.

If we are doing so well, why cannot we help the hard-pressed families, the pensioners and the long-term unemployed? The Chancellor by implication has already rejected, and no doubt the Chief Secretary directly in a few moments will reject, the view that the money he had to spend yesterday would have been better spent on job creation. He is therefore left with another choice. If he rejects the Labour party's plan for financing improved pensions and higher benefits by higher taxes on the top 5 per cent. of earners, why does he regard another cut—yesterday's cut in the basic rate of income tax—as more important than, for example, allowing pensioners to live in comfort and dignity? Why does he think that a cut in inheritance tax is more important than increasing child benefit?

The Labour party believes that action could and should be taken in three areas. First, the retirement pension should be increased by £5 a week for a single pensioner and by £8 for a pensioner couple. Secondly, child benefit should be increased by £3 a week; that is the most precisely targeted way of reducing family poverty, yet its real value has been allowed to fall since 1979. Thirdly, long-term supplementary benefit should be extended to the long.- term unemployed. Despite all Lord Young's machinations and manipulations, the official total of men and women out of work for more than a year is higher than total unemployment in 1979. Today to the hopelessness of longterm unemployment is added the indignity of inadequate benefit.

I have no hesitation in asking the most highly paid 5 per cent. of the population to finance those three proposals. Many of the top earners would understand the necessity to do so, because they know that choices have to be made. Today there are 50,000 taxpayers with an income of more than £70,000 a year. They have benefited from income tax cuts by an annual total of £880 million. The average cut before the Budget was worth £19,000 a year; that is, £367 a week. What sort of society and what sort of Government give the rich a tax bonanza of an extra £50 a day but will not increase retirement pensions by £5 a week? The answer to that question is a Government obsessed with power and cynical about principle, a Government anxious to paper over the crack of potential economic catastrophe, at least until they get the election over.

The Economist, hardly the Labour party's friend, judges that had the Government published the honest and accurate balance of payment figures in 1986 sterling would have slumped out of control. The Government know that on existing policies their present strategy cannot be sustained. City forecaster Phillips and Drew judges that the markets are holding their breath for an early election and expects an immediate reversal of policies afterwards.

The Government are holding their breath as well. They have a majority in the House of 144. They have more than a year to run. Why then, except for the fear of economic crisis, are the Government preparing for a snap election? The tactic is transparently obvious. There is no need for the Conservative party to waste money on Saatchi and Saatchi. The slogan has alread been published— vote now, pay later.

In preparation for that, this is a Budget for the next few weeks, not for the next few years; a Budget to bribe selected voters. It offers no hope to the unemployed and no assistance to education, health, housing or pensioners. It ignores poverty. It divides the nation. On the Labour Benches we have enough faith in the public to believe that the Budget will be dismissed with contempt.

Mr. Yeo

On a point of order, Mr. Deputy Speaker. About 45 minutes ago the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) told the House in response to an intervention by my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) that he would explain how a £28 billion spending spree—

Mr. Deputy Speaker (Sir Paul Dean)

Order. It is clear that the hon. Gentleman is raising a point of argument, not a point of order.

Mr. Baldry

On a point of order, Mr. Deputy Speaker. Yesterday Mr. Deputy Speaker reminded House that it was traditional for the Chancellor to be listened to in silence. Does that apply also to other speeches during this debate because it was extraordinary that the Shadow Chancellor seemed totally unprepared to give way to any right hon. or hon. Gentleman. Is that simply because he is frit at being confronted by the arguements?

Mr. Deputy Speaker

Order. It is the normal convention that the Chancellor of the Exchequer of the day, when he is delivering his Budget statement, is listened to without interruption. But that does not apply to other right hon. and hon. Gentlemen whether they are speaking from the Front Benches or the Back Benches.

5.25 pm

The Chief Secretary to the Treasury (Mr. John MacGregor)

The right hon. Member for Birmingham, Sparkbrook, (Mr. Hattersley) made a long, though hapless and completely unconvincing, attack on the Budget. He tried to claim that it was not prudent. No one will believe him. He said it could not be sustained. I assure him that it will be. He displayed extraordinary views when he described this party as a party that was cynical of principle. I recall that it was the right hon. Gentleman who said, "Whatever the Labour party stands for, I support." The way in which he has repudiated his beliefs over nuclear defence demonstrates that absolutely.

I can understand his difficulties. What the right hon. Gentleman cannot stomach is the thought that in the Chancellor's Budget and in the public expenditure White Paper before it we are seeing for the coming year in the most positive and clearest way the fruits of the success of our economic policies, prudently and persistently applied. Far from being transient, as the right hon. Gentleman tried to suggest, they are solidly based on good foundations and strong public finances. I repeat straight away to him that the Budget will be sustained. For what we are seeing now is an economic hat trick—[Interruption.] It is interesting that, because they are afraid to hear the good news, Opposition Members try to prevent anyone speaking on this side. They simply sit and shout— hardly a contribution to a serious economic debate.

The economic hat trick is a hat trick of good news. It is important to take all the items together—a £4.7 billion increase in public spending in the coming year concentrated on our high priority areas such as the Health Service, education care and support for the sick, disabled and those in need; a £3 billion reduction in the public sector borrowing requirement to maintain prudence and keep borrowing and inflation low; and a £2.6 billion cut in taxes to give back to people more of what they have earned and to provide incentives for continued economic progress. To that today we can add the 0.5 per cent. reduction in interest rates in response to the Budget and the 0.5 per cent. reduction last week in anticipation of it.

The reason that we are able to have all three is that we now have a strong economy because we have followed from the outset a clear medium-term prospectus for sound, steady finances, together with a whole bank of measures to improve our economic and industrial performance and to release the British people's energies and enterprise.

That the country is now getting the benefit of higher spending, lower borrowing and lower taxes is not due to luck. It is because we have now had six years of healthy, balanced growth, close to 3 per cent. a year on average. Year in and year out we have continued steadily upwards, building up a strength durable enough to withstand two whirlwinds—the collapse of our oil revenues and a long and costly coal strike.

In the stop-start years of the 1960s and 1970s, events of much lesser magnitude threw the economy out of kilter and brought growth to a halt. Now we are strong enough to take them in our stride.

After decades of falling ever further behind our competitors, we are beginning to show the way. In the 1960s, ours was the slowest growing of the major European economies. The same was true in the 1970s. In the 1980s, however, we have been growing faster than any of our major European rivals.

Mr. Jack Straw (Blackburn)

We heard all that yesterday. Will the right hon. Gentleman explain why he only gives statistics from 1981? Does he not recognise that this country suffered the greatest slump of any country in 1980 and 1981?

If there have been six years of economic growth, why is manufacturing output still not back to its level of 1979, and why is manufacturing investment still 20 per cent. below it?

Mr. MacGregor

I am deliberately including the whole of the 1980s. The position since 1979 is quite simple, as the hon. Gentleman knows, and as we have often said in the House. We faced a worldwide recession during that period, with a heavily disabled and uncompetitive British industry that was over-manned and riddled with restrictive practices. Today all that is much changed.

A reinvigorated British industry— [HON. MEMBERS: "Answer the question."] I am coming to the point now. Company profitability is now the highest for over 20 years—the highest since 1964. Company profits are one and a half times as high as in 1980, over and above the effect of inflation. That is now showing up in tax revenues, despite a corporation tax rate that is lower than that in any other major industrial nation, although the United States is now set to emulate us.

A key reason for this success is the dramatic improvement that manufacturing companies have made in productivity. In the 1960s and 1970s, productivity growth was well below that of our competitors. However, in the 1980s our manufacturing productivity has gone up faster than that in Germany, the United States and Japan.

Mr. Nick Raynsford (Fulham)

The right hon. Gentleman speaks of productivity. Will he now tell us about manufacturing output, and answer the question put to him a moment ago by my hon. Friend the Member for Blackburn (Mr. Straw)?

Mr. MacGregor

I am coming to that. The right hon. Member for Sparkbrook tried to put the resurgence of the British economy today down to what he called a consumer boom. Once again, the facts belie such an argument. Since the present upswing began, investment has gone up by an average of 4 per cent. a year, faster than consumption and twice as fast as the European average. That pattern is set to continue, with investment and manufacturing output and exports set to rise by 4 per cent. in 1987. In this Parliament we have seen manufacturing productivity growth of over 4 per cent. a year, and manufacturing output up by over 10 per cent., with a further rise of 4 per cent. forecast for 1987. Manufacturing export volumes are up by 30 per cent.

Mr. Raynsford

Juggling the figures.

Mr. MacGregor

The hon. Gentleman well knows that I have also explained the position from 1979 to 1981. I have given the figures for the 1980s and for the life of this Parliament. They all show big increases in manufacturing productivity, investment and exports. By contrast, in Labour's upswing from 1975 to 1979, investment rose by only 1.25 per cent. a year— compared with the 4 per cent. that we are achieving—with consumption rising faster than investment. It is a hit rich—indeed, it is a travesty of the record—for the Opposition to speak as they do in their recent so-called policy document about the need to stimulate investment.

The right hon. Member for Sparkbrook is still trying to peddle a myth. I had thought that he would give it up—he has used it often before, and always been wrong—but perhaps it is all he has. The myth is that there is something fragile about the present strength, and that there is a stop around the corner. Perhaps that is because the right hon. Gentleman was so used to both problems in office. Quite apart from the fact that that has not happened in the past six years, other evidence that is independent of the Government confirms what I am saying. The last CBI monthly inquiry reported a sharp improvement in firms' total order books and export order books. Over a third of firms in the survey expected to increase their output over the coming months.

The Association of British Chambers of Commerce, not always the most optimistic of bodies, confirms the CBI view. Its latest survey reveals higher orders and more firms expecting to increase investment and employ more people. Those improvements are taking place across the country. Only last week the Engineering Employers Federation reinforced the positive outlook.

If confirmation were needed, both of business optimism and that the Budget contains the right strategy for business and jobs, it comes from the industry itself. The House will have noted that the CBI has said that the Budget is good for business and reinforces business success—just what it wanted. That is a much better barometer of the prospects for industry and jobs arising out of the Budget than anything that the opposition parties might say, because it comes from people who are actually improving our industrial performance.

No wonder then that the right hon. Member for Sparkbrook clutches at straws. He points again to the position on the current account of the balance of payments. But the Chancellor's forecast of a £2.5 billion deficit is only 0.5 per cent. of GDP, compared with an average of 1.25 per cent. of GDP under the Labour Government. It is backed by the strength of our overseas assets, which are thought to have risen to around £110 billion by the end of 1986— four times higher as a percentage of GDP than when we took office. That is bound to stand the country in good stead as long as a Conservative Government remain in office to ensure that those assets are not frittered away.

Instead, the right hon. Gentleman resorts to predictions. For some months he has been telling us that there is a crisis around the corner, and that we are about to cut and run. However, I have just told him that is not how industry thinks. His predictions have been lamentably and persistently wrong. The right hon. Gentleman is not much good with the crystal ball. His balls have a habit of breaking apart in his hands.

My right hon. Friend the Chancellor, in his speech to this House on 20 January this year—Hansard c. 775— catalogued the way in which, ever since the last election, the right hon. Gentleman's forecasts of gloom— [Interruption.] I understand why the right hon. Gentleman does not want to listen to this. His forecasts of gloom have turned out to be wrong: on inflation in 1983, on growth in 1984 and on living standards in 1985.

In 1986, casting about for another statistic to predict wrongly, the right hon. Gentleman said that there would be no significant fall in unemployment before the next election. Yet in the past six months the most significant fall since 1973 has taken place.

The right hon. Gentleman's prediction for 1987 is that the tax cuts that my right hon. Friend has just announced will be unsustainable and that when we are re-elected we shall have to reverse them. H e should look at the Red Book. He will see there the strength of our finances. The only reversal—I grant that it would mean a big increase in taxes— would occur if the right hon. Gentleman, disastrously, ever got the chance to carry out his policies.

Mr. Kenneth Carlisle

Does my right hon. Friend agree that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was not straight with the taxpayer'? My right hon. Friend's Budget reduced the average taxpayer's tax by £3 a week, but if the Shadow Chancellor ever brought in a Budget he would claw back not £3, but more likely £6 or even £9 a week from the average taxpayer.

Mr. MacGregor

My hon. Friend is right. My point was that, year after year, the right hon. Member for Sparkbrook has made predictions of gloom which have proved to be wholly wrong. The right hon. Gentleman must have been the kind of person that Noel Coward had in mind when he wrote his song There are bad times just around the corner". As one of the lines tells us: the reds and the pinks believe that England stinks.

I shall now look in more detail at the three aspects of the economic hat trick. First. I shall deal with public expenditure. Although for reasons of public sector management and planning we announce the public expenditure plans in the autumn, it is right that in this debate we should look at them together with the Budget changes, because all are relevant for next year.

I repeat: our public finances are strong, so we have been able to plan for a significant increase in public spending next year of £4.75 billion—an increase which will be sustainable and which will not impose undue burdens on the taxpayer and the economy. The point I wish to underline is that, as in previous years, we have provided the extra resources for the programmes to which we attach the highest priority.

The biggest increase in the White Paper— and a substantial one—was for education, with extra provision across all sectors. On health, we are building on the 26 per cent. real increase in spending on the Health Service that has occurred since we took office.

Mr. Raynsford

What about hospitals?

Mr. MacGregor

We are building many more hospitals, as the hon. Gentleman knows perfectly well. We have provided next year for a further 2.8 per cent. real growth in net Health Service spending. We are building on the 20 per cent. increase in spending on the roads programme that has occurred since we took office. That programme includes 600 miles of new motorways and trunk roads. Our plans provide for an 8 per cent. real-terms increase next year. On housing, we are able to provide for a further £11 billion of spending over the survey period, following on the 40 per cent. real-terms increase in spending on renovation since 1978–79.

The right hon. Gentleman mentioned employment and training measures. I am sure that my right hon. and learned Friend the Paymaster General and Minister for Employment will speak about those tomorrow. In the coming year we will spend about £3.1 billion on employment and training. I note that despite all the scorn poured on our measures by the right hon. Gentleman and his hon. Friend the member for Kingston upon Hull, East (Mr. Prescott) the Opposition now include in their jobs package the kind of measures that we have in the employment and training programme— a programme which is on a scale much larger than Britain has ever seen before.

Finally, our law and order programmes provide for an increase to meet the Home Secretary's commitment to increased police manpower given at last year's Police Federation conference. In that and in a number of other programmes we are building on a 40 per cent. increase in real terms in law and order spending since we took office.

That is a substantial increase in public spending but none of it is at the expense of the prudent management of our public finances. I need say little about the reduction of £3 billion in the public sector borrowing requirement. It has already been widely and favourably commented on. One newspaper this morning described the general reaction to it as "admirably prudent and confidence building".

I simply make three points. First, it is the clearest of signs to all that, within a careful and prudent course which is sustainable now and for the longer term, we have been able to increase public spending and make a modest reduction in tax. Secondly, my right hon. Friend the Chancellor has been able to get the PSBR down to 1 per cent. of GDP—its appropriate level for the longer term— and has declared his firm intention of keeping it there. Thirdly, this is in marked contrast to both the Labour party and the Liberals and SDP, whose policy proposals for the coming year, as we have heard from the right hon. Gentleman, would have resulted in substantially higher PSBRs and higher taxes. The right hon. Gentleman claims that he wants to see interest rates come down, but the policies that he advocates would push interest rates and the mortgage rate in only one direction—-and that is up.

The right hon. Gentleman talked about our tax measures. I grant that we have still to reach our target. We shall reach it, but only when it is safe to do so through the continued success of our economy. The Labour party makes no bones about where it stands. It would put up taxes—and not only by the 2p reduction in this Budget. Combined with the other tax changes that it proposes it would, if it ever got the chance, in its very first Budget have a level of taxes far higher than the levels now. But that would not be all, because to meet their other spending plans a Labour Government would later have to put them up further still. The Opposition are daily making it clear that they are a high-taxing, high-spending, high-interest rate, high-inflation party with policies for a level of taxation which is far higher than when they left office.

I understand that the SDP and the Liberals will vote against the tax cuts, but as usual, what they will do after that is not clear. As usual, they will oppose a little bit and then forget it. I suspect that they do not have the courage of their temporary convictions. By contrast, we believe that lower rates of income tax are good for incentives and stimulate enterprise. We also believe in greater choice for people to spend more of their own earnings as they would wish, including on essentials.

Last year we had much debate about the choice between allowances and basic rate reductions. I believe that the case for the latter is now very much better understood. Until last year we had been concentrating on raising the allowances, so that they are now 22 per cent. higher in real terms since we took office, and the married man's allowance is at the highest level since the war. But there is a strong case, both last year and this, for concentrating on the basic rate. It is not just the starting point at which one pays tax that matters. It is also the effect of the marginal rate on every extra pound earned once one has started paying tax. It is most of all the marginal rate which has an effect on incentives.

The cut in the basic rate improves incentives for nearly 21 million taxpayers of working age, 94 per cent. of the total, whose marginal rate is the basic rate. It improves incentives for everybody paying tax at the basic rate including— and this is important— unincorporated businesses and the self-employed, while an increase of equivalent cost in the allowances improves incentives only for those people taken out of tax. Moreover, under 10 per cent. of the 1.2 million who would have been taken out of tax by such an increase are families with children. It was right to concentrate again this year on the basic rate.

We have again designed the income tax package so that it benefits as many people as possible and, as last year, we have limited the benefits for those paying the highest rates of tax. All income tax rates need to come down if we are to remain competitive with those countries which are also currently making substantial changes in income taxes—including reductions in their top rate, but we thought it right this year to give priority to reducing the marginal rate for the largest number of taxpayers. Let there be no doubt about the beneficial effect on living standards of these changes. The rates and allowance changes combined mean about £4 a week extra for married men and single people on average earnings.

The right hon. Gentleman talked about nurses. I can tell him that a nurse earning £155 a week will be £2.64 better off because next year she will pay £40.72 a week in tax and national insurance compared to £43.36 now. It was interesting to hear what the right hon. Gentleman said about that nurse, and I should like to make a number of points in response. First, he ought to take into account that in real terms the income of nurses is up by 33 per cent. compared to 1979. Secondly, he concentrated his suggestions on the reduced rate band. I should like to make three points about the reduced rate band. For the 2p off the basic rate that we are proposing the right hon. Gentleman would get a band of only £1,300 at 20 per cent.—not a very significant difference to incentives.

Thirdly, it would reduce the marginal rate for single people earning less than £72 a week. The nurse that the right hon. Gentleman talked about would find her marginal rate reduced by that proposal. When the right hon. Gentleman's party left office there was a reduced rate band at 25p. He will recognise that ere long we shall not just have a reduced rate band at 25p, we shall have the basic rate at 25p.

The right hon. Gentleman talked about living standards. Most significantly of all, following the Budget changes the effect of wages and tax changes combined mean that in real terms the take-home pay for a married man without children on average earnings will be up since 1979 by 22.5 per cent. It will be up over 18 per cent. for the same man on half average earnings. That compares with a 1 per cent. fall and only a 2.4 per cent. increase respectively over the whole lifetime of the Labour Government.

The right hon. Member for Sparkbrook has again laboured over his claim that tax reductions mean jobs in Cologne or Tokyo—in Germany or Japan, as he put it today—rather than here. Of course, he will know that the consumer is free to exercise his choice on which goods in the shops he wishes to buy, and it is up to British industry to ensure that its goods are competitive in quality, design and price, as increasingly it is doing, so that the consumer is attracted to them. But I would ask the right hon. Gentleman to reflect also on this: wage increases put money in people's pockets just as much as do tax reductions. Is he really saying that he is opposed to further wages increases of any sort, because that, too, gives people the chance to buy goods that were made in Germany or Japan?

Indeed, I would go further. Bigger wage increases, unearned by higher productivity, make British goods less competitive and add to inflation. Tax reductions, because increasingly they should have an impact on wage demands, have the opposite effect. For a married man on average earnings this year's Budget is equivalent, in itself, to a 2.7 per cent. pay increase without adding a penny to industry's costs. The right hon. Member for Sparkbrook should reflect before he argues that again. I hope that this change will be reflected in pay bargaining.

My right hon. Friend the Minister of State will be speaking more fully in the debate later about the income tax relief to encourage the spread of profit-related pay. Those firms that already have profit-related pay schemes generally believe that they have worked well. The relief now proposed to stimulate these arrangements could be equivalent to a further 4p reduction in the basic rate of tax for a married man on average earnings whose company takes maximum advantage of the scheme with 20 per cent. of pay profit-related. I believe that this initiative will over time make a significant contribution to tackling the problems of the inflexibility of the labour market and will reinforce the many other measures that the Government have taken to make the economy work more efficiently.

There are two other major tax packages in the Budget to which I wish to refer. As a former Minister with special responsibility for small businesses, I am delighted that, as with all other previous Budgets under this Government, there is yet again a substantial small business package. This year it amounts to £115 million of revenue forgone in 1987–88 and £105 million in 1988–89, without taking account of the benefit of the income tax reduction on unincorporated businesses and the self-employed. But it is only when one looks at the complete effect of the tax changes, the totality over all our Budgets, that one appreciates the full impact. For example, the successive reductions in the small business corporation tax rate, down another 2p this year, mean that since 1979 the rate has come down from 42p to 27p. That is by any standard a distinct and substantial change.

The business expansion scheme, which has again been further improved this year, not only has helped directly to fill the equity gap for small businesses which for decades was inhibiting growth—raising over £400 million in the first three years— but has been one of a number of Government measures which have transformed the climate for venture capital investment as a whole. Between 1979 and 1985 this increased fourtyfold in the United Kingdom. Indeed, the United Kingdom now accounts for almost half the venture capital in the whole of the European Community.

But, like many of my hon. Friends, I find that one of the biggest complaints from small businesses is that of late payment of bills. I know that my hon. Friend the Under-Secretary of State for Employment—the hon. Member for Rossendale and Darwen (Mr. Trippier)—has done all that he can to persuade the large companies especially to ensure prompt and due payment of bills. This Budget now contains a substantial help from the Chancellor for hundreds of thousands of small businesses in this respect.

The House will note that in introducing his VAT cash accounting package my right lion. Friend the Chancellor has gone far beyond the proposals in our consultative document. The right hon. Member for Sparkbrook tried to claim credit for this measure by saying that it had been raised last year by the Opposition. He demonstrated his ignorance of the VAT changes in the Budget and of what the Opposition tried to do last year. I assure him that, although the Opposition raised one VAT point, they certainly did not raise this. Our consultative document proposed this change in the autumn and it is we who are bringing it forward. Provided we obtain European Commission approval, the option of cash accounting will be available to businesses with turnovers of up to £250,000—a substantial improvement over the £100,000 which we originally proposed. This covers more than 800,000 businesses—well over half all 'VAT registered traders.

The cash accounting scheme will mean that businesses do not have to pay VAT until they are paid by their customers. If their customers fail to pay at all, no VAT will be due, thus giving automatic relief for bad debts. The total cost of that measure in the coming year will be £100 million. I believe that increasingly the significance of this change will be appreciated arid very warmly welcomed throughout the small business community.

As with small businesses, so with popular capitalism.

Mr. Raynsford

Ha, ha.

Mr. MacGregor

The hon. Gentleman does not even begin to know what it means, but the enthusiasm for both is spreading fast. Popular capitalism not only is here to stay but is on the brink of transforming social attitudes, indeed society itself.

My right hon. Friend the Chancellor referred yesterday to the continued spread of home ownership, now the ambition of the vast majority of young people. He spoke of the remarkable extent to which millions more are becoming direct share owners, as revealed by recent research which the Government and the stock exchange have undertaken.

Two other important aspects of this Budget which also develop popular capitalism have not yet, in my view, received sufficient attention. The first is the changes in inheritance tax. As my right hon. Friend the Chancellor explained, these have been concentrated on the smaller estates, particularly with the increase in the threshold from £71,000 to £90,000. This will take about a third of estates out of inheritance tax altogether. The increase in the threshold gives the greatest proportionate reduction to the smaller estates which are the least likely to have gained from the abolition of the lifetime charge last year and where the family home is often the main asset.

But its significance for popular capitalism is this: over the next decade or two, we shall see a very substantial number of families inheriting for the first time what are for them very sizeable free assets, as a result of the earlier spread of home ownership and of course, in particular, the right-to-buy schemes for council houses. That means that they will have considerable resources to invest. They will not simply have their occupational pension and perhaps very modest proceeds from a life policy. They will have the funds to invest directly, to have greater choice and to build up more substantial savings under their own control for their retirement than ever before.

Mr. Eric S. Heifer (Liverpool, Walton)

Will the right hon. Gentleman give way?

Mr. MacGregor

I am sorry, but I do not have time to give way again.

This leads me to the second aspect— the pensions package in this Budget. It builds on the various measures to promote private pension provision already put on to the statute book by my right hon. Friend the Secretary of State for Social Services, but it goes further. The proposal to allow employees to make additional voluntary contributions, outside their employers' scheme, introduces a further new dimension of choice to the pension scene.

I should like to stress the wider significance of these measures. They will give everybody more choice in how they provide for their retirement. They will allow a much greater sense of ownership of pension rights. They will make it easier for people to take their pensions with them when they change jobs. They will result in more people having their own pension on top of what the state provides.

Here, too, there is a significance which clearly escapes the Opposition. In the past, all the emphasis when discussing pensioners and their future was on the basic state retirement pension; and on this the Government have more than fulfilled their commitment with an increase in April which means, over the past 18 months, an increase of £5.95 in the pension for a married man. But increasingly as we look at the position of pensioners as a whole, that basic pension will assume much less importance. Already, in 1985, the average married pensioner household had a weekly income of just over £115, more than twice the basic state pension for a married couple, which was then £57 a week. Some of the balance comes from the state earnings-related pension scheme and other state benefits, of course, but a substantial and increasing proportion comes from occupational pensions and income from savings.

As far as SERPS is concerned, a man on average earnings retiring in 1979 would have received 95p a week but his equivalent retiring in 1986 now receives £16.25— per cent. of pensioners had occupational pensions in 1979, 51 per cent. in 1985. More tellingly, the number of pensioner households with investment income has risen from 62 per cent. in 1979 to 71 per cent. in 1985, nearly three quarters of the total.

The Government's policies for pensioners are much more attuned to the needs of the last part of the 20th century and much more in pensioners' interests than those of the Labour party. Through the added encouragement to private pensions provision featured again in this Budget, we are extending the ability of our citizens to build up much bigger savings of their own for their old age. Through the reduction in income tax and the abolition of the investment income surcharge we are reducing for the retired the burden of tax on the income from those savings. By developing an economy with low inflation we are protecting the capital value of those savings.

This is a Budget which will help to keep inflation down, and the pensioner is a clear beneficiary from low inflation. When inflation was rampant under Labour, the gaps between increases in the state basic pension meant that a pensioner's standard of living was falling sharply every week. The pensioner's income was growing less and buying less, and his capital was dwindling away.

So this is indeed a good Budget for pensioners, present and prospective. I remind hon. Members on the Opposition Benches who ask about pensioners that under the last Labour Government the average income of pensioners increased by 0.6 per cent. a year in real terms. Under this Government the annual real increase has been 2.7 per cent.—over four times as much. They made the same promises in 1974 as the right hon. Gentleman has made today, and look what happened. It is far better to deliver than to promise and so completely to fail.

I referred earlier to Labour's so-called alternative Budget. That is what the right hon. Member for Sparkbrook is prepared to own up to. But it is only a small part of the spending plans to which the Labour party is committed. I have been keeping a careful track of statements made by Labour spokesmen since I issued a detailed list of their spending commitments last July. I have taken due note of the statement of the hon. Member for Kingston upon Hull, East in the House on 6 November that the Labour party has abandoned its pledge to introduce a 35-hour week, a minimum wage, and a policy to introduce early retirement. I am sure that it will have been of great interest to many in the Labour party to know that it has given up these pledges. But I accept it. I have, therefore, removed these from my table of Labour's spending commitments.

But not all spokesmen for the Labour party have been as careful and studied about what they say as the right hon. Member for Kingston upon Hull, East. We have witnessed a stream of further pledges from the Labour party, including pledges on pensions, energy, the Christmas bonus, a winter premium, alcohol abuse, Scottish devolution, crime prevention grants, and a pledge to increase health spending. I have to tell the House that with these new pledges— and the hon. Gentleman is nodding—taken on board and the abandoned pledges removed, the full-year cost of Labour's spending plans now totals around £34 billion. This sum would represent a basic rate of income tax of 56p in the pound or an increase in value added tax to 49 per cent. Nothing could point up more sharply the contrast in the Budget and spending policies being put before the House—at least here I agree with the right hon. Gentleman: there is a contrast.

For the Labour party it is the old story: cash in on the resources of others; cash in on the success of others. Let others earn and we shall spend the fruits; we shall go further, irrespective of the costs in taxes, borrowing and interest rates.

This Budget builds on the successes of recent years. It is good for the economy, good for business and that means good for jobs. And it is built to last.

6.3 pm

Mr. Roy Jenkins (Glasgow, Hillhead)

I congratulate the Chief Secretary on being somewhat more succinct than the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), though perhaps not all that much. I will endeavour to improve on both, in that respect at least.

It would be churlish not to recognise that 1986–87 has turned out better for the Chancellor than I expected a year ago or than the City expected last October when his Mansion House speech aroused scepticism rather than confidence. Nor should one begrudge a Chancellor a bit of short-term luck. Anyone who holds the office of Chancellor—I am referring to the Chancellorship of the Exchequer, of course—has so many hazards to contend with that he is entitled to enjoy it when something goes right. As Adlai Stevenson said about flattery, "It's all right provided you don't inhale." It will be all right in this case, provided the Chancellor does not deceive himself that he has solved the underlying problems. But this is what I think he is in some danger of doing. His caution is more that of complacency than of prudence. On television last night he began by saying that the British were frightened of being accused of bad manners if they said that something was successful. I can assure the Chancellor that he is remarkably free of both aspects of this fear of his fellow countrymen.

It is also all right provided that we use the elbow room which fortune has given us in the best possible way for the future of the economy—and that, the Chancellor, in my view, has not done.

There are two main features of the Budget by which it should be judged— the reduction in income tax rates, and the reduction in public borrowing. Everything else is subsidiary, although there are some moderately important changes, some of them desirable. Neither feature exactly came as a shock to us since it had been heavily leaked for weeks past—not perhaps quite as precisely as in some previous years but certainly to an extent which would have made that famous diarist, Hugh Dalton, not only turn but gyrate in his grave with a sense of unfairness.

Both these major decisions are, on balance, mistaken. Income tax cuts would not have been our priority, and all the indications are, perhaps somewhat surprisingly, that they are not the priority of a majority of the nation either. The majority give a higher priority to jobs and to public services. It is not, therefore, a question of relentless public demand, and one must look at the economic justification, and this is extraordinarily thin. There is no question but that the impact upon unemployment is very weak per million pounds spent, or whatever other unit of management is chosen. Investment in construction, for instance, would without question produce a bigger impact on unemployment; and, almost in a causal relationship, the effect on imports, and consequently on the balance of payments, is correspondingly high.

The Chief Secretary tried to refute that by the rather surprising argument that the impact of wage increases on imports could be high too—income increases, let us say. But there is no choice between wage increases and tax reductions— at least, the connection is extremely tenuous; and if the right hon. Gentleman thinks that tax reductions automatically preclude the other, he is. from some points of view, being very optimistic.

These bring together, therefore, the small impact o n unemployment and the big impact upon imports, the two glaring weaknesses in this Budget.

Mr. Baldry

Can the right hon. Gentleman help us by telling us in clear terms what basic rate of tax the Social Democratic party feels would be appropriate now and what it would introduce if it ever had any influence over a future Budget?

Mr. Jenkins

I am proceeding in what I hope is a logical order, and I will come to almost precisely that point. So often, just asking a Member to anticipate his argument instead of waiting until it comes merely wastes the time of the House. There is a good deal to be said for seeing whether it comes before one asks a question.

There is nothing directly in the Budget for jobs, and what is there indirectly is, on the whole, so tenuous as to be supportable only by asseveration and not by rational argument.

The balance of payments outlook, with a revised deficit of £2.5 billion this year, is, to say the least, insecure. However, I would not make too much of the prospect of a balance of payments deficit in itself. Indeed, our alliance proposals, although showing a better result than the Government's proposals on inflation and a markedly better one on employment, show a somewhat worse, but not dramatically worse, balance of payments outturn. It would be reasonable to go through a balance of payments deficit tunnel of several years if it took us through to a new landscape of lower unemployment and higher investment.

During the years of oil spate, as the Chief Secretary reminded us a few minutes ago, we built up great assets overseas— he said £110 billion— but put up a weak performance in both public and private investment at home. In those circumstances it would be reasonable to use some limited part of the overseas assets to float ourselves off the domestic shoals but that is not what we are offered. We are offered a drift into deficit without purpose or plan. The Chancellor talked last night about a steady hand on the tiller. That got me a little nervous. It sounded too much like one of the equally nautical but less happy utterances of my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Callaghan). [AN HON. MEMBER: "He is no longer your friend."] He can be my friend. He said, "Steady as she goes," in his last Budget before devaluation and his resignation. Therefore, I do not think that income tax cuts were the correct priority this year. We shall, as we have previously intimated, vote against the relevant Budget resolution.

Sir Peter Hordern

rose—

Mr. Jenkins

I am sure that I shall come to the point the hon. Gentleman is seeking to make if he will wait.

The Labour party has, I understand, also picked up its courage to vote against that resolution, although it failed to do so last year when we did. If the right hon. Member for Sparkbrook was in the Chamber, I should like to hear from him how he justifies that, provided it would not involve him in competing with his right hon. Friend the Leader of the Opposition in the verbosity stakes in which the right hon. Member for Islwyn (Mr. Kinnock) yesterday established a commanding lead. I remember when Lord Attlee used to reply to Budgets in seven minutes flat with a mixture of congratulation and deflation, leaving it to Hugh Gaitskell to do the job on the second day. But those were the great days of the Labour party.

The right hon. Member for Sparkbrook announced that the Labour party will automatically reverse the tax cuts as well as vote against them. We do not say that, for very good reasons which I shall explain to the House. Circumstances will have moved on and may well have changed. After all, the Chancellor, to his surprise, finds himself £3 billion better off than he or anyone else expected in the autumn. We are not in favour of taxation for taxation's sake, still less for envy's sake, nor do we believe in pendulum politics in which one automatically reverses what the other side has done. However, we shall certainly not pledge ourselves never to increase taxation because no Chancellor of the Exchequer or would-be Government ought to do that. If the economy and the needs of the nation demanded it, we would not hesitate to do it.

Mr. Forman

The right hon. Gentleman is taking this statesmanlike approach, as he sees it, towards economic policy and failing to give the electorate any clear guidance on his policies, whether on tax cuts or borrowing. How can he expect his policy to be taken seriously if the electorate does not know where his party stands?

Mr. Jenkins

What is the hon. Gentleman's recollection about what has happened in the past? Did he think that in 1979 the present Government and the present leader of the Government set out the exact course of taxation? Does he think that the Prime Minister announced that for years to come there would be a substantial tax burden upon nearly everyone paying tax except the very rich? In my view, the only sensible and responsible thing to do is to set out one's broad approach to such matters. Income tax cuts would not have been my priority this year. We would not automatically reverse what has been done because pendulum politics is silly, but I would reserve the right, as any sensible Government ought to do, if it is in the interest of the nation as things appear at the time, to be prepared to face up to increasing taxes.

The next main aspect of the Budget is the battening down of public borrowing. That is mistaken in the present circumstances. It is, by historical standards, a severe policy. The deadweight total of national debt is already low as a proportion of GNP and the Chancellor now proposes to maintain, as he pointed out yesterday, a lower ratio of public borrowing than in any year apart from two years since 1950. Both of those years must have been mine; one was certainly mine and the other probably was too. Therefore, I start with some strength and, it might be thought, some dialectical weakness. I refute the latter immediately. The circumstances were very different, with unemployment under 600,000. Do not let us forget Keynes's parrot, and do not let us pretend that the negative borrowing requirement of 1969–70 was a prophylactic against the depredations of Lord Barber and the dethronement of the dollar. Within a year or two, under the prim guidance of Lord Barber and the end of the Bretton Woods system, we were plunging into the great inflation.

The rational as opposed to the incantatory argument for reducing borrowing to 1 per cent. of GDP and keeping it there is that it should bring about a reduction in interest rates. I would in no way underestimate the importance of lower interest rates to business. Clearly the Confederation of British Industry and other business opinion has given priority over tax reductions this year. Also, through mortgage rates, lower interest rates are extremely important to many individuals. The question is, what is the price one pays for doing it; and, more importantly, is that the only way in which such a reduction could be achieved? I think that we could have got much the same benefit, possibly more, from full membership of the European monetary system as well as a number of other advantages, although we should have joined before the recent 6 per cent. revaluation of the pound, which is undermining many of the reasons for the present favourable conditions for export, output and revenue. The prospect of knowledge of the degree of stability would also be of considerable importance to exporters' plans.

The Chancellor and the Treasury need an explicit exchange rate target to replace the complete abandonment of the sterling M3 loan stock. This morning's edition of the Financial Times was sharp about the matter. To some extent, the Chancellor accepts that. He is not strong enough to get his way against the stubborn and now almost solitary veto of the Prime Minister. The price we pay for such chauvinistic stubborness is having to bring own interest rates by a method that precludes many other desirable actions against unemployment and poverty, in favour of vital public services and, perhaps above all, in favour of adequate training, education and research.

A small item on the front page of The Independent this morning stated: New scientific research in British universities will be cancelled from today, for the time being. The Science and Engineering Research Council (SERC), which funds most of the scientific research done in universities, faces a shortfall of £8m. The Council meets later today to try to make ends meet. Just about the only option on its agenda is to stop financing new scientific research projects for the rest of the year. It is already March.

Mr. William Cash (Stafford)

What about the £2 billion?

Mr. Jenkins

The £2 billion is clearly inadequate to deal with that position. The £2 billion is not directed to scientific research, either.

What is happening, as described in the article, is no way to underpin success or to safeguard the future. Can it really be argued that a PSBR of 1 per cent. rather than 1.25 per cent. is a higher priority so clear that it should be achieved at the price of damage to British science? Every leader of scientific research I have recently met—I have met rather a lot in the past few weeks—believe that that is happening under our noses.

Not only, by any stretch of the imagination, is this no Budget for jobs but it is no Budget for the growing number of the deprived in our society. I do not believe in the almost mechanical egalitarianism of the right hon. Member for Sparkbrook, but I believe— [Interruption.] I am not sure how much he believes. It is the duty of the state to lean firmly but unvindictively in favour of greater equality— for the natural forces all lean the other way, and, if left untrammelled, produce results that might shock even the Chancellor's conscience. But, for eight years, the Government have leaned the other way. Two thirds of the tax concessions have been given to the top 20 per cent. The effect has been accentuated by the splurge of City and some other incomes.

The results have been predictable to nearly everyone, except the Government and their more extreme apologists. They argue that if the rich are made rich enough, some wealth will spill over to make the poor less poor. There is no sign of that happening. On the contrary, the gap has widened. The number of those below the poverty line and with little hope of rising above it has grown inexorably. Connected divides become deeper and wider— that between the employed and the unemployed, that between the north and south, and that between those who share prosperity and those to whom it looks like a closed fortress. The Budget, despite its room for manoeuvre, of which the Chancellor is so proud, does nothing to counteract that. It does not grossly exacerbate it, but it pushes it along, extending the existing evil. If I were the Chancellor, I would be deeply apprehensive for the future cohesion of our society under his policies, even if—and it is quite a big "if"—his luck holds.

6.25 pm

Sir Peter Hordern (Horsham)

The right hon. Member for Glasgow, Hillhead (Mr. Jenkins) said that he saw no economic justification in tax cuts, but, later in his speech, he said that he was not against tax cuts as such because he would not abolish them if he were in a position to do so.

Mr. Roy Jenkins

I think that the hon. Gentleman has misunderstood my point.

Sir Peter Hordern

I shall give way to the right hon. Gentleman in a moment. I have not finished dealing with his speech. He clearly said—I wrote down his words—that there were no economic justifications for tax cuts, and later he said that he would not consider it necessary to reverse such tax cuts. That is perfectly understandable, but the right hon. Gentleman must be responsible for what he said. He went on to say that if he were Chancellor, he would look forward, if necessary, to some tunnels of darkness in the balance of payments through which it would be necessary to go and that, in practice, it would be necessary to use some of our overseas investments to bolster the position. I am happy to give way to the right hon. Gentleman to explain to the House how he would repatriate the overseas investments that my right hon. Friend the Chancellor yesterday said amounted to £100 billion. How would the right hon. Gentleman seek to repatriate such investments to bolster the balance of payments?

Mr. Roy Jenkins

In exactly the same way as the Chancellor will repatriate them to finance the £2.5 billion deficit this year. It is automatic. Of course, substantial assets are in reserves in the form of drawing rights. I should have thought that it is obvious that there is no problem about that. What is the difference between what I propose and what the Chancellor proposes?

Sir Peter Hordern

I carefully noted what the right hon. Gentleman said. He distinctly said, "repatriating assets."

Mr. Jenkins

I did not say that.

Sir Peter Hordern

I wrote down what the right hon. Gentleman said.

In any case, any deficit is financed automatically by borrowing overseas. That is what the right hon. Gentleman, when he was Chancellor of the Exchequer, and his predecessors consistently did. When he was Chancellor of the Exchequer the Government had to borrow a great deal of money.

Mr. Jenkins

Will the hon. Gentleman give way?

Sir Peter Hordern

I shall not give way to the right hon. Gentleman.

Mr. Jenkins

Surely the hon. Gentleman must give way.

Sir Peter Hordern

I shall not give way to the right hon. Gentleman. He must accept some comments on his speech. He may be chancellor of the university of Oxford, but that does not mean that the rest of us have to listen in total silence.

There was one noticeable absence from the right hon. Gentleman's speech. There was no mention of an incomes policy. The right hon. Gentleman should have mentioned it. It was a prime feature of the alliance parties' policy. Only the other day, he said that it was part of his economic policy. The alliance parties must face up to how they would impose an incomes policy, in the knowledge that all such policies have failed in the past, as the right hon. Gentleman, to his certain experience, knows.

How would the right hon. Gentleman, at the head of such a Government, impose such a policy without the willing support of the trade unions? As he well knows, the Labour party enjoyed the support of trade unions for most of the time in which it was trying to operate an incomes policy, and much good it did it. If the right hon. Gentleman is to say that an incomes policy would work if we were to tax any increases in pay, he and the alliance parties would have to explain to the country how they would inflict such a tax upon nationalised industries when workers get increased wages, and also explain the effect on the fortunes of industries if any such thing were to happen The right hon. Gentleman is like the last of the Bourbons He has learnt nothing and he has forgotten nothing while he has been a Member of Parliament.

There has been a decided improvement in our affairs. A few years ago, 365 economists wrote a letter to The Times protesting about the policies of my right hon. Friend the Chancellor of the Exchequer.

Mr. Neil Hamilton (Tatton)

Now there are four

Sir Peter Hordern

My hon. Friend says four, but I think that there are five. That demonstrates an enormous swing of professional economists' confidence in the Government's policies. I do not think that there has been such a change since the conversion of St. Paul.

Dr. Oonagh McDonald (Thurrock)

Does that mean that the hon. Gentleman is happy to accept the joint forecast of 18 economists that the balance of payments deficit this year will be £5 billion—much bigger than the Chancellor's forecast in the Red Book?

Sir Peter Hordern

I am not and I never have been a great believer in forecasts. All the forecasts that were made in the past as a result of pressure were a great mistake. They may help some people but I do not find that they are very helpful.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Let us assume, for the sake of argument, that the deficit would be £5 billion. What serious consequence would that have?

Sir Peter Hordern

My hon. Friend asks a very good question that I shall deal with later.

It is incredible that economists should advise that there should be even more spending than there is at the moment. I do not believe that anybody can suggest that there is inadequate demand or inadequate expenditure at present. My right hon. Friend has now dropped M3, the money measurement, but he would not dream of concealing the fact that credit is now being extended very freely indeed. Debt in the personal sector is now about £202 billion, representing about 80 per cent. of disposable incomes. The savings ratio has decreased and is now down to 10 per cent. It is not just the quantity of credit that has been extended but the speed at which it has been extended that has created a considerable strain on our resources, which can for the most part be met only by production overseas. Therefore it was very prudent of my right hon. Friend to have such a small borrowing requirement, and I congratulate him on it.

The effect of such a small borrowing requirement is bound to have a favourable impact on interest rates. That has already happened. Therefore I congratulate my right hon. Friend further on not increasing mortgate interest relief, though he must have been very tempted to do so. I am sure that he must have been advised by very high sources to push it up. I am glad that he resisted that pressure.

Nobody can say that there is insufficient demand in the economy already. The hon. Member for Thurrock (Dr. McDonald) was right to draw attention to the forecast that the deficit on visible trade this year will be £8 billion. Some economists think that it will probably be higher. To balance the balance of trade deficit one has to take account of a much more permanent factor— the surplus on invisible trade, which is now a permanent feature of the landscape. As recently as 1985, it was £1.5 billion a year. It is now about £3.5 billion. Anybody who looks at the Red Book will see how rapidly invisible earnings are increasing. I think that they are here to stay. Apart from our very substantial invisible earnings, including overseas investments and the continuing stream of investment income, our financial services earnings have increased rapidly in the last few years. It does not help constantly to berate the City of London for its very substantial contribution to our invisible earnings.

The increase in company profits has been most marked during the last few years. Last year, company profits rose by 18 per cent., and this year they are expected to increase by 17 per cent. That has led to a substantial rise in the yield of corporation tax. It is only through the growth of corporate profits that there will be a substantial increase in investment and, ultimately, an increase in jobs. The reduction of corporation tax has had a wholly benign effect. Contrary to what was said earlier, the impact of tax reductions has a marked affect at the margin, by persuading people to work and by providing incentives to people to work.

From this strong base of profits and earnings comes a new stability and an independence that is based on home ownership, share ownership and now pension ownership. That is not before time. Moreover, this movement conforms entirely with the natural trend of social development. Anybody who has looked at "Social Trends" will have noticed that many more women are now at work—a permanent feature that is likely to increase; that many more people are now employed in the service industries; that manufacturing industry is producing more but is employing fewer people. The "Social Trends" survey asked people how they rated themselves. In terms of social class, 24 per cent. of those questioned thought that they were in the middle class, compared with 17 per cent. in the case of their parents. I do not know what that bodes for the natural constituency of the Labour party. That is a matter for the Labour party, but it has to operate on a declining trade union membership, on a declining manufacturing sector and on upward mobility of labour, all of which movements militate against the Labour party.

However, this development poses a question and a responsibility for the Government. Are we sure that we are moving in line with existing social trends? More and more deprived people, many of whom are unemployed, have been left to live in the urban priority areas as the more successful move out to middle and south-east England. In the last 10 years, the population of inner Birmingham has declined by 20 per cent., while the population of inner Manchester has declined by 25 per cent. and that of inner Derby by 20 per cent.

It is neither possible nor right to leave these problems to the local authorities. The Government's initiative in establishing a partnership between Government and private development, such as the docklands development, is wholly beneficial. I congratulate the Government on the action that they have taken. However, a great deal more needs to be done, so rapid have been the industrial changes that have taken place in the past few years.

It is essential to develop the private rented sector. It is intolerable that such divisions of prosperity between one part of the country and another should mean that it is impossible for people to move from one part of the country to another because they cannot find somewhere to live. Nevertheless, the basic question remains: is our present tax structure moving in line with the social trends and advances that we can all see?

An extraordinary change in personal ownership has been brought about by the sale of council houses and by mortgage interest tax relief. There has been an extraordinary increase in the assets that are owned by the pension funds on behalf of future pensioners. However, the cost of these reliefs, despite what my right hon. Friend the Chancellor of the Exchequer has done by reducing rates, is that taxation is levied from far too narrow a base. Therefore the rates are far higher than they should be. In other countries taxation is much lower. For example, the tax paid by a United States millionaire is only marginally higher than the reduced rate that has now been set in this Budget. In Australia, Mr. Hawke has proposed that top income tax rates should be reduced from 60 to 40 per cent.— and that is a Labour Government. All over the continent of Europe tax reductions are taking place that make our own tax rates look very much too high.

My right hon. Friend has proposed that contributions made outside employers' pension schemes should qualify for tax relief. We are moving inexorably towards greater individual discretion over pensions. We are moving away from the paternalistic practice that in the past placed such heavy penalties on people when they moved from one job to another.

In pensions as in mortgage tax relief, where house prices have rocketed, are we not underestimating the natural desire that we all possess, of providing for ourselves and for our families? Even now, with 27 per cent. as the lowest rate, is not that rate an almost insuperable obstacle to those out of work who wish to take a job? Should not that lowest rate at which taxation starts have a greater priority?

I ask the House to reflect upon the impact of high taxation upon a pensioner who has contributed all his life to an occupational pension. It can be a severe shock to find that his earnings and savings are to be taxed at the high rates that now obtain and have done for a long time. It is reasonable to ask how effective the top rate of 60 per cent. is anyway. Tax reliefs are available to taxpayers in that bracket, through enterprise zone investment, the business expansion scheme, the pension fund reliefs, the growing of trees and some classes of gilt-edged securities. Is it not now the case that it is optional how much tax a high taxpayer pays? Is it not much better to recognise the reality for what it is, draw the logical conclusion from it, drop all mortgage tax relief and tax all pension fund contributions and income in exchange for a radical, substantial and permanent reduction in income tax?

I have in mind a figure of about £10,000 million phased in over three to five years, with plenty of notice and publication, a substantial increase in allowances or child benefit, with income tax starting at 15 per cent. and the highest rate of about 30 to 40 per cent. Just such a tax reform—admittedly with more tax reliefs available—came about in the United States as a result of the President's own initiative. It was taken up later by Senator Packwood. The movement throughout Europe and in other countries is towards major tax reform. Incidentally, I should add that the tax reform in the United States was revenue-neutral. It did not demand a reduction in the yield.

There is much prejudice against change in our tax rates. There is the formidable opposition of vested interests—there are strong interests against it. But I believe that it would be of enormous appeal to the country and entirely in line with existing and natural development. It would bring much more work into taxation. It would abolish the poverty trap, and stimulate enterprise and individual responsibility. For too long successive Governments have regarded themselves as nannies, not just protecting the weak but stopping those who can look after themselves crossing the street.

It seems to me that we never go far wrong if we trust the people, and it is time that we did so, and stopped being a burden upon them and steering them into ways that we think are good for them. They can very well manage for themselves—those who are able to—and provided that we may have a strong, flexible safety net always for those who cannot, it is time that we allowed those who can manage their own affairs to do so in the way that suits them best.

6.43 pm

Mr. Sean Hughes (Knowsley, South)

I should like to concentrate on the most glaring omission from the Budget and speeches by Conservative Members—the problem of unemployment and the Government's obvious lack of will power to do anything about it.

There has been a great deal of talk in recent months about two nations. When I listen to the speeches by the Chancellor of the Exchequer, the Chief Secretary and Conservative Members, I begin to think that we inhabit two different planets. Listening to the Chancellor's speech yesterday and that of the Chief Secretary today reminded me of a story in the new biography of Anthony Eden by the hon. Member for Cambridge (Mr. Rhodes James) in which he refers to the eccentric behaviour of his subject's father, Sir William Eden. Apparently he had it in his mind that every time he organised a hunt, it rained. One day when it was duly pouring down, the horses and hounds were outside and the would-be hunters were inside. Sir William came into the hall and tapped the barometer, which said, "Set Fair". So he tapped it again and still it said, "Set Fair". So he picked the barometer off the wall, opened the front door and hurled it out of the house, and said, "See for your bloody self."

There are times when those of us who have to listen to Conservative Members dredging their vocabulary for superlatives with which to congratulate themselves, feel like saying something similar to them, not least when the Chancellor intoned yesterday: This is a Budget built on success, and a Budget for success."—[Official Report, 17 March 1987; Vol. 112, c. 828.] We should not expect any more because in each and every Budget since 1979 the Chancellor and his predecessor have made precisely that point. Let me recap. In the June 1979 Budget the Chancellor's predecessor said that the Budget would win a higher standard of living—for their country and for families".—[Official Report, 12 June 1979; Vol. 968, c. 263.] In March 1980 the then Chancellor said that the Government strategy was the best foundation for higher growth, fuller employment and a return to rising living standards".—[Official Report, 26 March 1980; Vol. 981, c. 1451.] In March 1981 the then Chancellor said that the Budget would help redress the balance of the economy in favour of business and industry."— [Official Report, 10 March 1981; Vol. 1000, c. 783.] In 1982 we heard about a better prospect of employment opportunities".—[Official Report, 9 March 1982, Vol. 19, c. 757.] In 1983 we had a Budget for enterprise".— [Official Report, 15 March 1983; Vol. 39, c. 157.] In 1984 the Chancellor said that there was an economic recovery whose underlying strength is now beyond dispute."—[Official Report, 13 March 1984; Vol. 56, c. 286.] The Chancellor intoned that again in 1985, and last year he said that the Budget was a safeguard for the present and a springboard for the future."—[Official Report, 18 March 1986; Vol. 94, c. 184.] Yet throughout that period there has been a steady inexorable rise in unemployment. On Monday this week the leader in The Guardian commented: Mrs. Thatcher needs to butter up less than 40 per cent. of the voters (not much more than 30 per cent. of the electorate) to ensure survival. The poor are always with us, but no longer needed at election time. For the poor, we can now read poorer regions, and poorer parts of the more prosperous regions. If ever further proof was needed that the Government have written off whole regions, it is in the Budget. There is no sense of urgency, no special provision and no priority for the regions that have been blighted by unemployment.

The Government cannot escape their responsibility. The present Prime Minister has had a single party majority in the House for longer than any Prime Minister since Lord Liverpool 160 years ago. It has been within her power to do something— anything— if she and her Cabinet wanted to.

For eight years the people of my constituency and elsewhere have been told that there was light at the end of the tunnel if only they could make the sacrifice now. Last night the Chancellor spoke of eight years of hard-fought gains. The trouble is that those who have had to do the hard fighting are not the people who apparently are to get the gains.

Let us look at the unemployment figures in my borough. Adult unemployment last September stood at 25 per cent. In September 1984 it was 26.7 per cent. That 1.7 per cent. change represents 1,300 people. But Knowsley is not a fluctuating market. There has been no identifiable influx of new business or industry. The 1.7 per cent. change is due partly to migration out of the borough altogether and partly to the now notorious fiddling of the unemployment statistics.

Even more damning are the statistics for youth unemployment, registered at the careers office in my borough. Let me make one comparison. In 1982 1,371 youngsters were unemployed, 2,390 were on temporary schemes and, there were 14 job vacancies. In February this year the figures were almost 1,000 unemployed, more than 2,000 on temporary schemes and 12 vacancies advertised in careers offices. When I checked this morning on the latest figure, the careers officer rang around the careers offices in my borough and I was told that there was a grand total of three job vacancies in a metropolitan borough on offer to youngsters. However, the Chancellor and his right hon. and hon. Friends would refer to the figures of those on temporary schemes as proof that the Government's policies are working.

I attended a conference a year or so ago about those temporary schemes. I will not generalise or dismiss them all. However, I thought that they were summed up admirably by the apparently sane individual who informed us that they had noted 25 identifiable skills on the "pick and mix" sweet counter at Woolworth. If the Government think that youngsters are going to be taken in by such schemes, they seriously underestimate the intelligence and the potential for anger of our young people.

I have one basic question to ask. When will the unemployed in my constituency of Knowsley, South, see the benefit of eight years of Conservative Government? I am not in favour of higher direct taxation as something good in itself. However, I wish that Conservative Members would spare us the nonsense that cuts in direct taxation will increase employment prospects in areas such as mine.

Since 1979, the Government have cut the standard rate of income tax from 33 per cent. to 30 per cent. to 29 per cent. to 27 per cent. There has been a fall in the rate of inflation and in base interest rates. When shall we have a comparable real fall in unemployment? Of course Conservative Members may say that I should take other factors into consideration. As far as I can see, the basis of Government logic is that low direct taxation will provide the incentives for people to invest. However, they are patently not investing in my borough. Who will invest? If the private sector with an ever decreasing tax burden will not invest, perhaps the Government will accept their responsibility. However, the Government do not believe in their role. It is difficult therefore to follow their logic. No wonder the Leader of the House did not want to be classed as a Tory intellectual.

The Chancellor has demonstrated his concern for the morale of the well-off, the morale of the highly-paid in our society. He and his Government have patently failed to show any such concern for the morale of the low paid or the unemployed. Whatever kind of short-term electoral advantage they may see in this Budget, I believe that such divisive policies will earn for them the odium of history.

6.53 pm

Mr. John Butterfill (Bournemouth, West)

I begin by referring to something in the Budget which has not previously been referred to either by my right hon. Friend the Chancellor or by my right hon. Friend the Chief Secretary to the Treasury. In fact, it is to be found buried in the annexe to chapter 4 of the Red Book, item No. 53: The gross margins earned by tour operators on sales of tours within the European Community will be brought within the scope of VAT with effect from 1 April 1988. That will be very welcome in my constituency of Bournemouth and will be welcomed by hotel operators throughout the United Kingdom. For many years they have been making representations to me and other hon. Members interested in tourism to the effect that the competition that they face from certain overseas destinations which were not subject to VAT on package deals—for example, to Benidorm—was unreasonable. This measure will go some way towards redressing the balance.

However, before people get too enthusiastic about the measure, it will mean that package deals marketed within the United Kingdom and to the United Kingdom will also be subject to VAT within the European Community. It will not be completely one-way traffic. Nevertheless, on behalf of my constituents and other hotel operators, I welcome the measure.

I also welcome the changes and reforms that my right hon. Friend has made in corporation tax and the business expansion scheme. I was happy to see that they received a welcome from the Leader of the Opposition yesterday. The most important point about the reforms is the degree to which they lead towards encouraging further investment in a number of ways— for example, in training. No longer will there be a tax penalty for the provision of training by an employer whose employee will shortly be leaving him. Nor will there be a penalty on the employee.

There is also a very welcome improvement in the position for oil companies and that will be particularly welcomed in Scotland. It will also be welcomed in my constituency and in Dorset, which is becoming a major oil producer. We regard the advent of the oil industry as something of a mixed blessing. However, we are prepared to do our hit for the benefit of the nation as a whole.

Another area which I think will be particularly welcome for the provision of employment is the relief given to small businesses through the changes in VAT. Cash accounting has long been dear to the hearts of those who operate small businesses. They have felt for too long that they have been the victims of late payers and usually the late payers are larger companies. They have also been victims of the non-payers. At long last they will have some relief from their difficulties, and that will be extremely welcome. The reforms made by my right hon. Friend the Chancellor with regard to a number of tax loopholes that are particularly relevant to international transactions and banks will also be welcomed and the revenue that they produce will be by no means insignificant.

One of my right hon. Friend's most important achievements concerns personal pensions. We all know that pension rights are dear to the entire population. However, they have been denied to many in the past because either people could not achieve those rights or they were tied to a particular scheme which might not have suited them. The changes that have been made will free them from those constraints and go a considerable way towards encouraging the mobility of labour. For those reasons, I welcome those changes along with the changes in inheritance tax which will be of great benefit to small businesses in particular.

My right hon. Friend the Chancellor has made a number of changes in the taxes on spending, in particular in VAT. Many hon. Members have welcomed the changes that have taken place with regard to welfare organisations and the provision of drugs for research and hospices. However, one particular aspect disappoints me. It would appear that the medical reliefs will not extend to those who provide veterinary services as charities. I am particularly concerned about the People's Dispensary for Sick Animals which does great work throughout the country and brings much relief to sick animals and animals in pain.

It would seem that, unless the word "medical" is to be interpreted to include the term "veterinary", such charities will not be included. I am sure that my right hon. Friend would not wish to create a situation in which a drug administered to an animal for research purposes was exempt from tax but a drug administered to an animal for the purpose of relieving pain or saving life was taxed. That does not seem a morally tenable position and I hope that my right hon. Friend will be able to remedy it.

I have mentioned the benefits that will accrue to tourism. The decision not to raise excise duty will also be of considerable benefit to that industry and will be widely welcomed. I am grateful to my right hon. Friend for that.

The Opposition have made much of the tax cuts being primarily intended to benefit the better-off, but they may care to ponder why the only group in British society who will not benefit from indexation of thresholds will be those paying higher rates of tax. As those thresholds have not been increased, higher rate taxpayers uniquely have been singled out for punitive treatment. Not enough has been made of that in the debate so far, but it is an important illustration of my right hon. Friend's thinking on the subject.

In my constituency there are more citizens over the age of 80 and even 85 than almost anywhere else in the country. The additional relief to people over the age of 80 will therefore be more welcome there than in many other places, although I know that it will be widely welcomed throughout the country. Advances in modern medicine mean that people live much longer than they did hitherto, so those benefits may be more widely felt than one might expect. The House will know that I have personally campaigned for the blind for a long time, so it was a particular pleasure for me to learn of the very substantial increase in the blind person's allowance.

The Opposition have made much of the fact that unemployment is unacceptably high. We all agree that it is unacceptably high and that we must do all that we can to reduce it. I am sure that that is common ground. The Opposition, however, sometimes exaggerate the situation by overlooking the facts relating to people who are;in employment. It may be helpful if I provide some figures.

In 1974, the number of people in employment was 24,971,000. By 1979, the figure had risen modestly to just over 25 million. In 1986, the figure was 24,712,000, hardly any different at all from the 1974 figure and only 684,000 below the figure for 1979—and that after one of the worst recessions that the Western world had known. It is a great credit to the Government that in the past few years they have been able to create an unprecedented number of additional jobs. The increase since 1983 has been 940,000, and it is growing all the time. The difference lies in the enormous increase in the working population. Between 1976 and 1986 the working population of this country increased by about 2 million, so the number of jobs would have had to be increased by 200,000 per year merely to stand still.

It is also worth considering our record on inflation. The statistics are published by the Central Statistical Office and are available in the Library. Between February 1974 and May 1979, under the Labour Government, the average rate of inflation was 15.4 per cent., reaching a peak of South American proportions at more than 26 per cent. in 1975. When the Conservatives came to power, inflation fell to an average of 11.3 per cent. between May 1979 and June 1983; between June 1983 and January 1987 it was only 4.7 per cent.; and by January this year it had fallen to 3.9 per cent. Moreover, as my right hon. Friend the Chancellor has said, we expect it to be only 4 per cent. at the end of this year. That is an extraordinary achievement in a very short time despite very difficult conditions, slumps in oil prices and general uncertainty in world markets. Insufficient credit is given to the Government for that achievement.

The Opposition also seek to pretend that people are no better off than they were under the Labour Government. Average male earnings in 1979 were £101.40 per week. In 1986, they had more than doubled to £207.50. The Opposition also claim that we are not doing well in terms of GDP and output, but analysis of the facts does not bear that out. Taking the figures at 1980 factor costs to eliminate the effect of inflation, GDP in 1978 was 99.7. By the end of 1986 it had increased to 113—an increase of 14 per cent. in real terms, not a diminution as the Opposition allege. Industrial output increased by 2.5 per cent. in 1986 and the OECD forecast— not the Government forecast—is that it will be 2.75 per cent. in the current year. That is the highest in the Western world., as my right hon. Friend has said, and has been so throughout the 1980s.

The Opposition may claim that that improvement has been at the expense of capital investment in industry, which they allege has diminished. Again, the facts do not bear out their claim. At constant 1980 prices, capital investment totalled £42.7 billion in 1978. By 1985, the last year for which we have figures, it was £46.3 billion—again, a substantial real increase over the period. The Opposition say that there is no investment in industry, but that is not true. Investment in plant and machinery alone— surely the most important elements in industrial investment—has shown a dramatic increase from £13.9 billion in 1978 to £17.4 billion in 1985, again at constant 1980 prices. That is a very significant increase.

The Opposition said—they are changing their tune now—that it was wrong to abolish exchange control, that it would cause a flight from the pound, which would then plummet. In reality, for the three years following abolition, the pound was at all-time record highs—hon. Members will recall the time when we were getting more than $2.40 to the pound—so another Opposition myth has been blown away by reality. The Opposition also said that there would be no investment in Britain, but the effect on foreign investment in Britain is clear from the official statistics. In 1978, overseas investment in this country was £1.823 billion. By 1985, it had increased to £10.435 billion, an increase in overseas investment of 527 per cent., and it shows the confidence that overseas investors feel in this country, even if the Labour party feels no such confidence.

Exports were up 6 per cent. in the last quarter. In 1979, they were £40.6 billion. By 1986, the exports that Opposition Members said today did not exist, or had disappeared, had increased to £72.6 billion. The invisible balance during that period also rose from £2.7 billion to £8.5 billion, a substantial and worthwhile increase.

Dr. McDonald

The hon. Gentleman has a litany of statistics, and it would take us too much time to go through them one by one, but let us take the last two that he gave. The hon. Gentleman should admit that the United Kingdom share of world exports in manufactured goods fell from 9 per cent. in 1979 to 7.1 per cent. in 1985, the last year for which full statistics are available. In nine months out of 12 last year there was not a surplus but a growing deficit on invisible earnings that continued during the last eight months of last year.

We could go through every one of the statistics that the hon. Gentleman has chosen, but I note that in most cases he was careful to pick 1980 as the base year, as it gave a more favourable view of the Government's performance. If he had been honest enough to take 1979, when the Conservative Government first took office, as the base year, the picture would be very different.

Mr. Butterfill

As usual, the hon. Lady has been very selective in her choice. The base year of 1980 was chosen not by me but by that well-known pro-Tory-biased organisation the House of Commons Library. The statistics that I quoted were from a research paper prepared by members of the House of Commons Library economic research staff. They chose the year 1980; I did not do so. Presumably they chose it because they thought that it was the most representative year, and not one that would pander to the biases of either the Conservative party or the hon. Lady.

The hon. Lady has confined her remarks to the relative levels of exports of manufactured goods. We may see a relative decline in manufactured goods; indeed, I should be rather worried if we did not. The developing countries are constantly developing their own capacity to manufacture certain goods that we have traditionally manufactured.

It is incumbent on us, therefore, to move into the sphere of higher added value, higher technology and the sale of knowhow that is wonderfully exemplified by a company in my constituency called Davy McKee. It used to be the United Kingdom's largest producer of aluminium, rolled steel and steel tubing. It recognised, however, that those products were being developed by Third-world countries for themselves. All over the world countries were investing in their own capacity to produce aluminium sheet and steel tubes. Davy McKee realised, perhaps before many other companies, that if it continued to depend entirely on manufacturing here and exporting to those countries it would be out of business pretty quickly. It therefore chose to sell its know-how.

Davy McKee has built up one of the most successful companies in the world— in fact, it is the world's leading company—advising on the establishment of such manufacturing enterprises, setting them up, doing a complete turnkey package deal with the countries concerned, and then staffing them and providing training in the initial period. It has won orders from Korea, from the People's Republic of China and in the United States. That is an example of the sale of know-how. It did not appear in the hon. Lady's statistics for pure manufactured goods, but it appears on the British balance of payments. It is an ongoing enterprise with a great future, unlike the industries that the hon. Lady would like to prop up. Those industries are dying, and there is very little that we can do about it. That is why it is important that we do not concentrate parrot-fashion, as the Labour party always chooses to do, on the statistics for exports of manufactured goods. We must look at the overall trade patterns, because that is what counts at the end of the day.

The hon. Lady said that we were not doing very well with exports. I refer her again to the statistics, allowing for inflation at the constant 1980 figures that the Library chose to adopt as a fair comparison. In 1979, the figure was 99.1; in 1980 it was 100; and in 1986 it topped 122.9. That is a real increase in exports of 24 per cent. during the lifetime of this Government, something that the Opposition fail to recognise in their obsession with the claim that our industrial, manufacturing and export bases are disappearing all the time.

Let us look at the record on interest rates. London base rates are a fair example. In 1979, interest rates under the last Labour Government were 13.68 per cent. By last year they had fallen to 10.9 per cent., and today they are 10 per cent. and falling. They are expected to go into single figures within weeks, if not days. Does any of us imagine that that would have happened under a Labour, or even an alliance, Government? Of course not. We all know that we should have seen a return to the "spend, spend, spend" policy—spending other people's money—and the hyper-inflation that we have always known derives from those extravagant spending policies. Goodness knows, the hon. Member for Oldham, West (Mr. Meacher) will provide a few more of those before we are finished.

We now have a prudent Government who recognise that we have to live within our means, and that we can afford what we would all like to have only if we can earn it. That is why the figures for the public sector borrowing requirement are so important. We have been able to reduce the absolute level of the PSBR, which has come down from £9.25 billion in 1978–79 to last year's figure of £5.75 billion, and this year to only £4 billion, a level at which it is expected to remain.

What is more important is the borrowing requirement as a percentage of our gross domestic product. In the final year of the Labour Government it was 5.4 per cent. of GDP, last year it was 1.6 per cent., and this year it is only 1 per cent. That shows the degree to which we are nationally overdrawn in relation to what we earn, which must be understood by the people of this country. They will know that at the end of the day no one can spend more than he earns. That is the Government's message—that we are now living within our means.

Mr. Richard Caborn (Sheffield, Central)

What a load of rubbish.

Mr. Butterfill

Of course, the hon. Gentleman is entitled to his opinion. The Labour party has never believed in living within its means, but the Government believe in the simple principles of good housekeeping which everyone outside the House understands.

We know that there is economic illiteracy among Opposition Members and that they are dismayed at the success of the Government's policies. That is why we had such a pathetic performance from the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) earlier. He was rather below par and could not resist including cheap jibes about dead sheep. Such cheap jibes deserve comments about being savaged by Miss Piggy. However, Miss Piggy is probably a little more eloquent than the right hon. Member for Sparkbrook, and a good deal more economically literate.

7.20 pm

Mr. Willie W. Hamilton (Fife, Central)

I shall comment in due course on some of the points made by the hon. Member for Bournemouth, West (Mr. Butterfill). However, I should like to comment especially on the speech made by the Chief Secretary to the Treasury this afternoon. I am sorry that he is not in his place. He is guilty of tedious repetition. He went on like a parrot about the cost of the programmes that might be introduced by a future Labour Government.

He talked about the wonderful hat trick that the Government have won. He talked about the £4.7 billion increase in public expenditure on housing, health and schools; the £3 billion to reduce the public sector borrowing requirement; and the £2.6 billion cut in taxes. That £4.7 billion increase in public expenditure was a U-turn in which the Government engaged last autumn. In any case, there is a £23 billion backlog of local authority housing repairs and a £27.5 billion backlog of private sector housing repairs. In addition to those mammoth figures, the Audit Commission estimates a £500 million backlog of school repairs. In that context, the Government's boast about public expenditure increases is peanuts compared to the problems that we see all over the country.

Having boasted about that expenditure, the Chief Secretary tried to scare the living daylights out of people by remarking on what might happen if there was a Labour Government. He said that there would be a huge increase in taxes and a massive increase in inflation. The only thing that he missed out was the threat made by Winston Churchill in 1945 that if there was a Labour Government there would be a Gestapo, a secret police, and democracy would go out of the window. I warn the Government that they should look at what happened to Winston Churchill. He said those things in 1945 about colleagues who had worked with him in the coalition Government to defeat Hitler and all that he stood for in that world war. Churchill got his rewards for making that sort of absurd exaggeration about a Labour Government and I suspect that this Government will get theirs also.

When the Chancellor appeared on television last night, he was as smooth as a second-rate, second-hand car salesman. He sought to prove and convince the British people that there was success all around them as a direct consequence of the consistent policies that the Government have pursued since 1979. His performance last night, like his performance yesterday in the House when he presented the Budget, was a massive con trick and a cruel deception of our people, bolstered by carefully selective statistics. My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) referred to some of those earlier. On one occasion the Chancellor omitted all reference to what happened between 1979 and 1983. He started his statistics in 1983 to mask the brutal realities of our economic position, at least until the election is over.

What are the realities to the people outside? They know, and we all know, that we have greater unemployment than we have ever had in the entire history of this nation, including during the 1930s. That is the biggest social scandal in living memory. There has been massive and continuous unemployment since 1979, when the Government came into office with complete power to do exactly as they liked. We have over 2 million more people on the dole. That means an enormous waste of human resources, an enormous loss of dignity to those who are on the dole, and social and family tensions.

It was interesting and ironic that almost immediately after the Chancellor had made those boasts last night, there was a programme about an unemployed family in Peterlee, which is a new town in Durham. It is a pity that that series is shown so late at night. It showed a decent, respectable family that is torn apart by the policies that are pursued by the Government. Their only contribution towards a solution for that problem is a multitude of fiddles of the official statistics and various training schemes which do little more than tinker with the basic, underlying problem. The total cost to the nation of this social problem is about £20 billion a year.

In that programme about Peterlee last night, the family suggested that, as a result of unemployment, employers are taking advantage by offering low wages. The family had been offered a job in Trimdon, some miles away, to which they had to pay their own fares. By the time that they had done so, they would have received less than the social security benefit. Under the Government's proposals, if a claimant does not take such a job, he will lose benefit. Therefore, we are seeing a gross exploitation of that situation by unscrupulous employers, who know full well that that family does not have any realistic choice but to take those jobs on starvation wages.

The hon. Member for Bournemouth, West quoted a number of figures and I shall do the same. In 1980, which was the year he took so I shall take it too, we sold abroad £5.5 billion-worth of goods more than we imported. We depend more than somewhat on our trade with other countries. In other words, we had a balance of payments surplus. In 1983, again for the first time in our entire history, that had been turned into a deficit. By 1985, our share of world manufacturing exports had plummeted from 9.1 per cent. to 7.9 per cent., as my hon. Friend the Member for Thurrock (Dr. McDonald) has reminded the hon. Gentleman. That represents a fall of one eighth in our manufactured goods. About 2 million jobs have been lost in our manufacturing industry since 1979. Under no circumstances can that rake's progress be defined as success.

The so-called progress has been intensified by selling what the former Lord Stockton described as the family silver— British Gas, British Telecom and Cable and Wireless, with others to follow. The Government garnered about £8,000 million from the sale of those national assets. Every Opposition Member was a shareholder in those industries and we all shared the profits of a highly efficient gas industry. But now the industries are in the hands of relatively few shareholders, if those shareholders have not already sold their shares to make a quick buck or two. They were interested, not in British Gas or British Telecom, but in making a quick profit for themselves.

In addition, the Government had a windfall in the VAT bonanza arising directly from the consumer credit boom which the Government instigated. When the Chancellor discovered that he had about £6 billion to dispose of in his Budget he had to decide how to disburse it, how to pacify the City and his Back Benchers and how to ensure that the Prime Minister would win a third successive election victory. I give him full credit for his shrewd calculation, but the way in which he presented his Budget was uninspiring. He seems to have pacified financial institutions in the City with his £3 billion reduction in the PSBR. He seemed to bribe the electorate, but not too blatantly—he had to maintain a little credibility for himself. He has reduced income tax and other taxes at a cost of between £2 billion and £3 billion. The total cost is about £6 billion.

If we in the Labour party had had that £6 billion, it would have given us almost exactly the cost of our programme to create nearly 1 million new jobs in two years. That is the choice. No objective observer would dare or care to pretend that the way the Chancellor has decided to spend that £6 billion will create anything more than perhaps 100,000 jobs, and that is probably an over-estimate. I challenge the Chief Secretary or any hon. Member on the Treasury Bench to deny those figures. Our programme has been properly costed by independent observers and we are certain that we can provide 1 million new jobs in two years with £6 billion. Those jobs would be created not least in the infrastructure. I gave figures for the type of exercise that we would engage in on housing, building, education and the infrastructure generally, which includes roads, transport, hospitals and so on.

In the past few days the Prime Minister has boasted in her interview with The London Evening Standard about her great record on education, but let us examine some of the evidence on that. Almost every day every hon. Member receives representations from all sections of the educational community, from nursery schools, through primary schools to secondary schools and especially from universities, complaining about the lack of resources and investment in our future. After all, education is investment in human resources and in our future ability to hold our own in a competitive world. Virtually all the evidence points to the disastrous circumstances at present facing our educational system from the bottom to the top. The report by Her Majesty's inspectors entitled "Effects of Local Authority Expenditure Policies on Education Provision in England—1984" was published on 23 May 1985 and states: In 1984/85, 11 (out of 96) LEAs"— I stress that it was only 11 of the 96 authorities in England and Wales— were considered satisfactory or better in relation to all the major aspects of their provision for schools. It seems unlikely that present levels (of provision) will be sufficient to enable schools to respond successfully to the national and local calls for improvements in pupils' achievements and in the curriculum. I am the prospective parliamentary candidate for South Hams in Devon and I am receiving a constant stream of letters from people in that constituency because they are not satisfied with the service they are receiving from their present Member of Parliament. Yesterday I had a letter from the chairman of the Parents Action Group in south Brent about its primary school. I was told that the school was designed 110 years ago; that the children and staff must put on their overcoats to go to the outside toilets, and that not long ago a large piece of plaster fell from a classroom ceiling and that if the children had been there at the time, someone might easily have been killed.

The letter talks about rotten window frames and mould growing on the walls. It describes how there is not a single place big enough to hold an assembly of all the children and how there is no space big enough to provide physical education for just one class. That is the Chancellor's hallmark of success. That is not an isolated example, but could be multiplied a thousand times throughout the country. Moreover, the same applies to our hospitals and housing. Every hon. Member knows that that is true.

My hon. Friend the Member for Liverpool, Walton (Mr. Heffer), who is present, is a building trade worker. We know that 500,000 building trade workers are unemployed and that we have a massive backlog of building work waiting to be done on new houses and on repairing the old. The Government have said that they will spend £4.7 billion extra on housing, education, and all the rest put together. But the figures show that we ought to spend hundreds of millions of pounds on each of these services.

I suppose that it was the ultimate expression of the success of this Government when, just a week or two ago, they announced that prescription charges were to be put up another 20p, so that they are now 11 times higher than they were when the Labour Government went out. That is a measure of their success; that is a measure of their priorities. We believe that the supreme priority of any civilised Government in this country today must be to get those 3 or 4 million people back to work to create the wealth on which these services so much depend. We believe that we are the people to do it, that we have the policies on jobs and on the creation of wealth by the people who are now cooling their heels at great cost to the taxpayer and to their dignity and feeling of independence. We are very happy to be fighting this election on that issue primarily although not exclusively.

I have represented an area in Fife for a large number of years and it has never been in a worse state than it is in at the moment. I doubt whether, of the 70-odd parliamentary seats in Scotland today, the Tories will get more than a dozen; in fact, I doubt whether they will get a dozen, because Scotland knows where its true interests lie. I hope that parts of England will increasingly begin to realise this. We sometimes talk, rather mistakenly, I think, about the north-south division. It is not as clear as that. The peripheral areas of the country, by which I mean Scotland, the north-east, the north-west, the south-west and Wales, are the deprived areas, because there is as much poverty and deprivation of one kind or another in Cornwall and Devon and that part of England as there is in the north-east and Scotland. There is deprivation in housing and education, deprivation in terms of job opportunities, and so on.

As the right hon. Gentleman the Member for Henley (Mr. Heseltine), the former Secretary of State for Defence, says in his new book, unless the Government are prepared to intervene more actively in the solution of those problems, they will get worse rather than better.

The challenge is there and we in the Labour party are prepared to meet it.

7.42 pm

Mr. James Hill (Southampton, Test)

I shall not try to compete with the big guns we have heard this afternoon because, obviously, more and more statistics will just bewilder those attentive to this debate. I shall approach this subject as a constituency Member.

I am amazed that some Opposition Members cannot see that certain proposals in this Budget will create jobs. Jobs, after all, are what we have been told are needed. Thinking of it particularly from the point of view of my area, the concession to the North sea oil companies, whereby they can offset 10 per cent. of the costs of developing new fields against petrol revenue tax and can get tax relief for research into oil extraction, is a very interesting proposal. I say this because, although it is North sea oil that is mentioned, there is south sea oil as well. Off the Isle of Wight, BP and others have been exploring for some years. It is a very costly operation and I believe that they have found some gas and have capped some of the wells.

Some companies— Enterprise Oil, Britoil, Wood Mackenzie and others— might now think that the exploration of the coast around Southampton could go ahead. I feel certain that the sinking of wells on the mainland has been very profitable. I know that it is a very much more expensive operation to extract from south of the Isle of Wight, with all the problems of the severe weather there, and this could create some job opportunity.

We have heard one or two not very generous remarks from the Opposition about the fact that the Treasury has used some of the funds that have been raised by privatisation. One can only judge privatisation by the companies that one knows in one's own area. My personal gratitude to the Government for privatising Associated British Ports is overwhelming, because it has made a great success of the port of Southampton. The labour force has become co-operative again. From a year of no work at all in 1981 we are suddenly seeing many ships in the port. The container port is thriving under ABP and the leisure side of the port is being developed. If my colleagues in the House come to Southampton during a weekend to go over ocean village, which is a wonderful marina, plus shopping parade, restaurants and so on, they will see that privatisation does not destroy jobs, as is the Opposition's common formula, but can create many jobs.

Privatisation, of course, has been instrumental in enabling the Treasury to do more than usual. The Government are expecting in 1987–88 another £5 billion from privatisation, and I for one am grateful that this new impetus is being given to some of the institutions that were moribund and overmanned and had lost direction and the commercial cutting edge that is so necessary.

When I was looking at the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) today, I wondered whether his suit was made in Hong Kong, whether he drives a British car—I am sure he does—whether his video is English or Dutch and whether he has supported the workers of the United Kingdom in the way that they should be supported. We have dropped so easily into the habit now of buying foreign. One of the great fears expressed by the Opposition is that the 2p reduction in the standard rate will be extra money in the pockets of those who receive it and that they will automatically buy foreign goods, thus creating a balance-of-payments problem which they say could be very severe by the end of the year.

There is nothing wrong with every Labour Member, every alliance Member, and, of course, all Conservatives saying that one should buy British wherever and whenever possible. That is a practice that should be extended. I try to follow it myself, but one is bound to fail because sometimes the industries that should be there are no longer there, or have not taken the commercial opportunities to compete in the television, video, motor car and other industries.

Who is to blame us? The country has gone through an evolution. It cannot be said that it is terrible that a certain Government made 3 million unemployed; we must realise why there are 3 million unemployed. In my area, in the north-east and in the north-west, shipbuilding, ship repairing, heavy engineering and other such trades were changing overnight, perhaps because world markets were not available. Some of those companies turned to high technology, robotics or whatever. Employees were laid off and many plants were closed. If we are to support British manufacturing, we should tell people to buy British whenever possible.

In Southampton we have very little industry but many small businesses. We do not have massive steelworks, coal mines or such industries. Because we have so many small business men, when I go back to the constituency this weekend I shall be grateful for the Budget. It has been iniquitous that a person who has not yet received payment should have to pay VAT on it to the Government. I am grateful to the Chancellor that companies with a turnover of less than £250,000 will not be answerable for bad debts on VAT and that they will not be asked to pay VAT until they have received payment from their customers.

I welcome the proposal that VAT accounting should be done only once a year. Many small business men have complained to me about the enormous paperwork and which they want to cut down. If they can make their VAT returns once a year, it will be much simpler. Therefore, there is a great deal in the Budget for the small business man.

Like other hon. Members, I have been lobbied about the blind person's allowance. I am grateful that the allowance for the single blind will be raised by £180 to £540 per annum and for couples by £360 to £1,080. No one can carp at that.

We are all trying to be environmentally pure these days, so we welcome the Government's reduction of 5p a gallon on unleaded petrol. However, people should be warned not to buy unleaded petrol unless their cars have been adapted for it. Suppliers will have great difficulty keeping up with demand. No doubt the Treasury will have alerted them and it will give all possible aid to oil companies to provide unleaded petrol.

I have heard attacks on the proposal on inheritance tax. I cannot imagine why any hon. Member would wish to attack a concession which raises the inheritance tax threshold from £71,000 to £90,000. That will be a relief to the people who will inherit the money. Today £90,000 is not a great sum. If a house is involved, as well as the furniture and one or two other items, one is up to £90,000 almost immediately. Of course, if a person has no possessions it does not matter to him whether inheritance tax starts at £71,000 or £90,000. On behalf of my constituents, I thank the Chancellor for the fact that they can inherit another £19,000 without having to pay tax.

Some people seem to think that, because there are 3 million unemployed, there are 3 million ready and eager to work. However, many of them are untrained or need retraining because they have been trained in old skills. I am pleased that tax relief will be given for training. That is one answer to the problem. Any tax relief given to assist training must be good for the country and for employment.

We must welcome the Budget. When my local newspaper telephoned to ask me for my immediate impression, being as honest as all Conservative Members and many other hon. Members are, I said that I was happy. The Treasury team has not gone deliberately out of its way to give succour to people in order to buy votes. The Treasury has put forward a balanced Budget. It will get the borrowing rate down, which will be good for businesses which have to approach bank managers for money. The less we borrow, the more prosperous we will be in the long run. The message for all of us is that we must go for growth. I think that the Treasury team has that fully in mind.

I have perhaps one little carp. No doubt the Minister of State will be able to deal with it. I am among the Members who signed early-day motion 762. We are worried about the effect of VAT on free ports. We were told that a massive VAT review was taking place. Of course, we have heard a lot about it in the last two days. In his reply, or perhaps in a letter, my hon. Friend may be able to reveal whether the VAT review has made it possible for people trading within a free port not to have to go through the nonsense of preparing VAT forms or paying each other certain amounts to keep within the law.

The hon. Member for Liverpool, Walton (Mr. Heffer) will know that the free port at Liverpool is not doing well. I believe that development at Belfast has stopped completely. Prestwick is not going ahead because of this problem. Cardiff is starting with a lot of help, but unless the fiscal side is right it will not make progress. Birmingham, which is supported by Prudential insurance money, is going ahead. It is difficult to explain to people that a free port does not mean precisely what it says. No doubt the Treasury team is working on that.

We should not rush into another Budget in the autumn, although there is provision for that. Perhaps an autumn Budget would be one way of giving more assistance to areas that have been spoken about in the debate. Unless the Treasury team knows differently, I cannot see how we can delay a general election too long. It might be possible to go to the country after an autumn Budget, but I do not think we could wait much longer. If we go in June, the full benefits of this Budget will not be apparent. When we are canvassing we will have to make sure that the people on the doorsteps know what is in the Budget and realise how helpful it will be in bringing down interest rates which will in turn bring down mortgage rates. That will save pounds and pounds for the 63 per cent. of the people who are home owners.

The people are sensible. If we get the message right, they will realise that we are trying not to buy their votes but to get the country on course and booming for the next decade. Then the Treasury team will be proud of yesterday's Budget.

Several hon. Members

rose—

Mr. Deputy Speaker (Mr. Harold Walker)

I can see seven hon. Members trying to catch my eye. Unless speeches are shorter, some of them will be disappointed.

8 pm

Mr. Terry Fields (Liverpool, Broadgreen)

If ever there was a case of the morning after the night before, it is today, both here and around the country. Although the champagne bubbles may still be rising in the City and among the country's ruling class— even among the companies run by some Conservative Members— we must contrast them with the flat beer of ordinary, decent working people in my constituency.

Travelling home last night and coming to work this morning on the buses, I talked to bus drivers, conductors and ordinary, decent people about the implications of the Budget. Their analysis is that the Budget has left them cold. They know that it is an election gimmick and that the Government are attempting to throw dust in the eyes of ordinary working people to confuse them with largesse and make them believe that the country has resolved all its problems.

The reality has been exposed by the euphoria in the bosses' press this morning, which showed clearly that the bosses and the press are extolling the virtues of the Chancellor and the Treasury. However, there is little or nothing in the Budget for working people.

The people whom I represent pose the question, "What will the Budget do for the people of Liverpool?" What will it do for pensioners, for students in higher education who are desperate for decent grants to educate themselves for the future? What will it do for the hospital services, the disabled and the homeless? The answer is, "Little or nothing."

In Broadgreen, 8,550 people are unemployed. The January figure for Liverpool as a whole was 55,683—all decent people who are willing and able to work and who have been deprived of that right. On offer for our people is the Government's much-vaunted restart scheme, which is their major initiative for tackling unemployment—yet the entire programme contains not a single element of job creation. A pilot test of nine British towns shows that out of 28,175 people interviewed, only 295 were placed in proper employment—a total of 1 per cent.

Nationally, the figure is even lower; it is down to 0.8 per cent. Worst of all is the position on Merseyside. The halfway figures showed that out of 38,771 people interviewed, only 238 were placed in jobs— a tiny 0.6 per cent., or six in every thousand.

On average, the Government have spent on Merseyside £170,000 on bogus schemes to take people out of the dole queues, to massage the figures and to leave those people high and dry without benefit as a result of the crisis in the system.

What will the budget do about the hospital closures in my area? Figures from the Department of Health and Social Security show that between 1979 and 1985 the Mersey regional health authority suffered a 16 per cent. cut in the number of hospital beds, a loss of 3,815. Further analysis of the figures showed that the Mersey regional health authority had lost 20 per cent. of its obstetric and gynaecological beds, 17 per cent. of its general and surgery beds and 16 per cent. of its general medical beds.

Those figures, horrific as they are for those desperate for treatment, give the lie to the Government's claims that the National Health Service is safe with them. No wonder that people are dying while waiting for treatment, when fewer beds than ever before are available. That is clear proof from the horse's' mouth that hospital provision has been deteriorating ever since the Tories came to power, and it contradicts the Government's pre-election propaganda campaign.

Statistics about beds are meaningless at the sharp end. What will the Government do about those whom I represent? On Sunday night I spoke to a man in his sixties who I thought had been ignoring me for 12 months. People might say that he should have been ignoring me, but he had not been.

That man has been virtually blind with cataracts for the past 12 months. Recently, he went to the hospital to implore the doctors for treatment. They told him that if he came back in the middle or at the end of 1988 they would deal with his problem. In desperation, his family considered going private—so, for a fee of £50 for a five-minute interview with a specialist, he was told that he could be done on the following day. That specialist was probably trained by the National Health Service. He said that my friend could come back the following week, but that it would cost him—£1,500 for one eye, and £3,000 for both eyes. In addition, he would be charged £20 a day or £120 a week for in-patient care.

What shall we tell people in Liverpool and other places who are deprived of hospital treatment: that yesterday's Budget will enhance their life styles? We should not just wring our hands about the problems facing working people. We should explain to them not only why the situation has developed but, more importantly, how to resolve their problems— the problems of ordinary, decent people, not those of Conservative Members.

The Government engineered this Budget payola in three ways. Oil revenues have partially revived recently, with prices temporarily rising from $15 to $18 a barrel. There has been a boom in consumer spending, with people buying imports, as has been mentioned in the debate. That has been financed by credit, by loans and, in some instances, by bogus mortgages. VAT receipts have rocketed by 10 per cent. during the past year and company profits have continued to rise, mainly in the service industries and the finance sector. That has enabled the Government to raise extra revenue from the profits tax, which is up by 5 per cent.

Workers' incomes have risen by an average of 6 per cent. during the past year, but the Chancellor's receipts have increased by an extra 10.5 per cent., more than compensating for the 4 per cent. increase in spending that the Government gave out by way of more bribes last November. The Chancellor, having made the taxpayer pay £4 billion more than expected, thinks that he will kid the nation into believing that the Government, despite its disgraceful record in the areas that I have catalogued, is generously handing the money back in the form of tax cuts. The reality is that the Chancellor is trying to bribe us with our own money.

Before the Budget, hardly anyone supported the idea that the Chancellor should cut taxes. The CBI and the Right-wing London Business School economists said that it would be better to spend the entire revenue on subsidies to industry, improved transport facilities, sewers and communications, to help production and create jobs. Even the City, the dominant finance ring of capitalism, was not keen on tax cuts. It was worried that a boom in consumption would drive up inflation and threaten sterling's exchange rate. It is not surprising to find the CBI paying its due respects to the Chancellor today, because he has succeeded in improving conditions for the better off.

Only two days ago we found that Lucas Aerospace was pulling out of the CBI because that organisation has been solely conditioned to service industry in Britain; Lucas Aerospace is in manufacturing because it astutely realises that only through manufacturing industry can we have any wealth creation and a hopeful future for our people.

Only the Prime Minister and the loony Right of the Tory party are in favour of cuts in taxation because they see it as an election winner. They believe that further cuts in the burden of taxation on the high income groups can boost the economy and create unemployment, but the reality is that over the past seven years the tax handouts to the rich and the business interests have been invested not in industry but abroad.

Further tax cuts will largely benefit the rich and we shall see that in the months ahead. Obviously, however, tax cuts will also help the poor, and I am in some difficulty with my Front Bench over the policies that my right hon. Friends are pursuing. They talk about putting the tax back on to the taxpayer but people on low pay who are benefiting now from tax cuts would have to be looked after. My Front Bench would immediately withdraw the extra benefits that those people have received through tax cuts, but the people in Broadgreen do not want to know too much about that. Clearly, taxes are already too high for average working people and any cut is welcome.

Obviously the Tories hope to fool the people into believing that this Budget heralds a turn around in Britain's economic fortunes. Temporarily, the Government may be successful in their endeavours, but we have to tell working people that if they read Hansard for the report of debates that we had in the House on 18 November 1986 and as recently as 20 January this year they will see that hon. Members in all parts of the House presented a picture of decay and of collapse in the economy quite frightening in its implications for the capitalists and their political representatives. In the course of Commons debates, all the ammunition has been provided to show that British capitalism is in a state of terminal decay. In the debates the Prime Minister's supporters were allied to the City and to capital.

Unlike previous Tory Governments, this Government represents a section of the capitalist system that is based on finance— the banks, the insurance companies, services and the City of London. The long-term crisis in British capitalism has been enormously aggravated by the Government's measures. About 20 per cent. of manufacturing industry has disappeared since 1979. British manufacturing trade has moved from a £4.5 billion surplus in 1981 to a Government estimated deficit of £7.5 billion this year. Lloyds bank predicts that by 1990 Britain will have a balance of trade deficit in manufactured goods of over £13 billion. That is the reality of the crisis. The Government can patch it with candy floss by opening laundries and hotels—but unless Britain has a sound economic base as a trading nation it will fall further and further behind its competitors.

During the time that all this has been happening, there has been a massive drop in Britain's share of world manufactured trade. Almost six years into a boom—if we listen to the Government—manufacturing output is now 4 per cent. lower than it was in 1979. Who is trying to kid whom in these exchanges in the House? Conservative Members barracked my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) and said that he was under estimating Britain's performance. He quietened the House when he said: To be fair and honest, I must admit that four other countries have a worse record than ours for manufactured output since 1979. Those countries are Fiji, Argentina, Senegal and Barbados."— [Official Report, 20 January 1987; Vol. 108, c. 770.] That is the league that we are in, the country that was once the workshop of the world. Conservative Members tell us that we should be proud of our service industries. A service industry needs a manufacturing base to service and we do not have that base. Investment back into industry is an important feature of capitalism, but even Conservative Members do not understand that. They fail to learn the lessons that investment back into industry of the surplus extracted from the labour of the working class is the engine of capitalism.

Even when the leasing of machinery to industry is taken into account, there has been a drop of 18 per cent. in manufacturing investment since 1979. The collapse is reflected in almost every industry from motor cars to shipping and to machine tools. It is not just the smokestack industries of coal and steel which have faced collapse. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith), speaking about the information technology industry, said: A substantial part of our deficit in the balance of trade in manufactured goods comes from so-called sunrise industries. The figures for recent years show a pathetic record. In 1979 the deficit in office and data processing trade was £227 million. Last year it had risen to £670 million. In electronics engineering, the deficit in 1979 was £164 million and in 1985 it was over £1 billion". My right hon. and learned Friend then quoted the Ashworth report, saying: 'A sunrise industry is being eclipsed before it has even arisen … we are failing to the point where we cannot maintain key technologies … on present trends we will not have an independent broad based IT industry by the end of the decade.'"—[Official Report, 18 November 1986; Vol. 105, c. 460–61.] The Government face the collapse of our industrial base with equanimity. Reflecting the pressure of finance capital, they naively expect that so-called service industries will arise to replace the destruction of the manufacturing base. In the long run this spells disaster for British capitalism and, more specifically from my point of view, for the working class. In common with a big section of the capitalist class the Prime Minister has forgotten that the production of real wealth comes from manufacturing and that services ultimately rely on manufacturing industry. For an economy to become absolutely dependent on service industries, candy-floss industries, is like taking in other people's washing, as the right hon. Member for Old Bexley and Sidcup (Mr. Heath) said. The House of Lords inquiry into overseas trade clearly showed what service industries are all about.

I am always pleased to hear Karl Marx mentioned in any discussion of economics. His teachings are sadly lacking in British politics and have a lot to offer, certainly to my party, on the way forward during this crisis of capitalism which is there for all to see. Not long ago the hon. Member for Wyre Forest (Mr. Bulmer) said: Marx described the drive to monopoly as the Achilles' heel of capitalism and we have seen a huge growth in takeovers. In 1983 they were worth £2.3 billion, in 1985 the figure was £7 billion and for the first six months of 1986 it is £8.4 billion". The hon. Member dolefully declared: It is hardly healthy to see many large companies preferring to trade in other companies rather than developing their research programmes and producing new products". [Offical Report, 18 November 1986; Vol. 105, c. 492.] Not only British capitalism but world capitalism is heading for another recession. A small news item in the Daily Telegraph today says: America's foreign trade deficit soared to an unprecedented 140.57 billion dollars last year, confirming its status as the world's largest debtor nation". In the face of that world crisis and world recession, British capitalism is now the sickest of the sick capitalist nations and will face a worse situation than its competitors. That is the situation that will confront the Government who win the next general election. It took the right hon. Member for Chesham and Amersham (Sir I. Gilmour) to say recently: There is, therefore, a great deal of consolation for the Opposition and the alliance in the fact that they are going to lose the next election. There will be a nasty crisis in the next Parliament and the opposition parties can count themselves lucky that not they but my right hon. Friends"— the Tory Cabinet— will be dealing with it."—[Official Report, 18 November 1987; Vol. 105, c. 500.] We need to draw the necessary conclusions from an analysis of the deep-seated crisis within the capitalist system. Capitalism is incapable of taking the productive forces forward. I did not join the Labour party to manage capitalism. I did not come to Parliament to represent working people and to come to terms with managing capitalism. Only the Socialist transformation of society and a nationalised economy with a democratic Socialist plan of production can avoid the nightmare of massively increased unemployment and a sharp reduction in the living standards of working class people.

Unless the Government's policies are rejected in the next general election by the millions of working people looking to the future, especially on behalf of youth, we can look forward to a period of degeneration the likes of which we have never seen. We need a Labour Government striving towards Socialism. I am convinced that the electorate will respond in kind.

8.21 pm

Mr. Charles Morrison (Devizes)

The hon. Member for Liverpool, Broadgreen (Mr. Fields) said early in his remarks that there was not a single element of job creation in the Budget. That is a travesty of the facts. I can only imagine that he either did not hear or has not read what my right hon. Friend the Chancellor said. Nevertheless, I agree with him that there is scope for more to be done to reduce unemployment. For my right hon. Friend to announce in the autumn statement an increase in public expenditure of £4.75 billion and then in his following Budget to be able to knock 2p off income tax while at the same time reducing the PSBR by £3 billion below the previous year's budgetary figure is not, on the face of it, all that had. Some people have referred to the Budget as a pedestrian Budget. It may not have had the excitement of the Champion hurdle, but if we can at least take small steps in the right direction and keep our feet, we are making progress. Not everyone can make that claim, as we all recall, having experienced the last Labour Government. It needs the considerable imagination of the Opposition to pretend that this is an electioneering Budget.

I am not sure what an electioneering Budget in present circumstances is, since the British people are sending out signals— if the polls are to be believed— implying a preference for public expenditure over tax cuts. That makes the design of a traditional so-called "election" Budget very difficult, so I am glad that my right hon. Friend has not tried to make such a Budget. Instead, given the money which he had in hand, I suspect that the balance between increasing public expenditure and taxation cuts was not far wrong. Despite the opinion polls' view that people are somewhat averse to tax cuts, I suspect that, in reality, few will object to paying 2p less in income tax. On top of that, I welcome the raising of tax thresholds. I was delighted to hear of the increased age allowance for those over 80 and the increase in the allowance for the blind.

None the less, I must express a shade of disappointment that my right hon. Friend the Chancellor was not able to cut the rate of national insurance contributions on low earnings for both employers and employees. To have done that would have increased take-home pay and created employment. Equally, to have cut contributions on higher earnings would have added to industry's competitiveness. Part-time work could have been further encouraged by a higher earnings disregard coupled with a low earnings benefit to top up incomes to at least the unemployment or supplementary benefit levels.

Although it may be a little perverse to look a gift horse in the mouth, I consider that these ideas on contributions and benefits have a higher priority than income tax cuts. But I am unreservedly delighted by the help that the Government are giving small businesses. My right hon. Friend the Chief Secretary has referred to the postponement of payment of VAT until bills have been paid. This will be a great boon, just as will be the lightening of the heavy hand of bureaucracy in regard to certain other aspects of VAT. I am convinced that the increase in the ceiling of retirement relief for capital gains tax and in the rate of business relief for inheritance tax will be of great benefit to the future of small businesses and will lessen the worries of small business men.

I have a small but not unimportant regret that my right hon. Friend the Chancellor was not able to respond to the representations and requests of the National Farmers Union, the CBI and the Agricultural Engineers Association which urged that unincorporated businesses should benefit from 100 per cent. capital allowances on the first £10,000 of investment in plant and machinery. I am sure that, if my right hon. the Chancellor had been able to do that, it would have been of great benefit not only to farmers, whose concerns are of particular relevance in my constituency, but to all those who supply them with capital goods. Such action would have provided another helpful boost to the rural economy, which is not in the best of shape, as we all know. However, small and large businesses will benefit equally from the further cut in interest rates.

Manufacturing industry is always important, but it is even more so in the future as our main source of wealth creation as well as the means by which, more and more, once again we shall have to pay our way in the world. The balance of payments current account deficit hangs around like a black cloud foretelling, if not disaster, at least the threat of difficulties as oil revenues are reduced. Invisibles will continue to improve—of that I have no doubt— partly because of our overseas investment, but also because of the City of London. Thank heavens for the City, even if there should be no cheers for a very small number of its inmates. Without a stronger manufacturing base, the threat of difficulty in the balance of payments will turn into real difficulty.

The state of British industry can be summed up broadly as being better than for a very long time, but there is not enough of it. That is self-evident on two counts at least. First, we should look at the huge wastelands in many of our old industrial cities. Against that background, it is not surprising to learn that our industrial base has been reduced by between 5 and 6 per cent. since 1979. Secondly, we should take note of the fact that manufacturing output is still less than it was during the three-day week in 1974. In January 1974, the index of output for manufacturing industry was 106.9. In January 1987—these figures were issued yesterday—it was 103.9. What is more, the figure for January 1987 is well below the overall figure for 1979, which was 109.5. This situation cannot be right and urgent action is needed to stimulate still further the re-growth and redevelopment of manufacturing industry.

Of course, the solution lies partly in the hands of industry which must continue to improve its efficiency and competitiveness; but this matter is far too important to leave to industry alone. Government have a very important part to play. I would like to see the establishment of more development agencies or development corporations, but in the short term the Government must give industry a further boost.

Why not start with still more infrastructure schemes? We know how much more is needed in the way of new housing and house repairs, let alone roads and other programmes. Why do we not do more to match the remarkable programmes for hospitals or prisons, for example, with still more for housing? And let us not forget the local authority capital balances amounting to somewhere in the region of £6 billion, lying idle, frozen and sulky. I know, of course, that there is justifiable opposition within the Government to the thought of huge new council housing estates being developed, but why not allow the relief of some of these balances as long as they are used for joint schemes, for example, with housing associations or building societies, or with the private sector for a variety of types of housing? With a little imagination it could all be quite possible. It could boost the building industry and indirectly a lot of other industries besides. It could reduce unemployment and meet the housing needs of many more people.

If that action required an addition to the public sector borrowing requirement of £1 billion or so, I am not convinced that it would have dire consequences for interest rates. As what I am suggesting amounts mostly to capital expenditure, I suspect that the market would not react unfavourably. In any case the Chancellor has stated his support for a PSBR equal to 1 per cent. of gross domestic product. However, if The Times today is to be believed— I am the first to admit that it is not always to be believed— under the heading "PSBR plunges to £100 million" it states: The cumulative PSBR for the first 11 months of the financial year was just £100 million, compared with £2.7 billion at the same stage a year ago and £7.8 billion in the corresponding period of 1984–85. Of course, the twelfth and last month of the current financial year could present a very different picture but hardly so different as to make up the annual figure to £4 billion.

I suspect— and very properly the Chancellor said yesterday— that he would have wished to be prudent and careful about his assessment of the outturn of the PSBR for the current year; but on the basis of the evidence in The Times it seems quite likely that it will be a good deal less than he suggested. Given also the Chancellor's optimism about the course of the economy for next year, on the basis of this year's experience, the PSBR for 1987–88 could quite possibly be minimal.

It may well be the ultimate objective to balance the books, and that would be entirely proper. But if we did, I hope that it would be at a time when unemployment was infinitely lower than today. Thus it seems to me well within the scope of responsible Government to give manufacturing industry, and therefore employment, still greater encouragement.

I have reserved my personal three cheers for the Government for the end of my speech. If for no other reason—there may be many others—the Chancellor will go down in history with one sizeable group of people as the man who abolished on-course betting duty. He estimates that his munificence to racegoers, racecourses and, as a result, one way or another, most people in the racing industry, will cost about £20 million. I hope sincerely that his generosity will be rewarded by an equivalent increase in revenue from off-course betting duty. Indeed it is well within the bounds of possibility that that will happen. If it does, as chairman of the parliamentary racing committee I might feel justified in coming along and asking for some further bounty. But in the meantime, I would like to express to the Chancellor the thanks of the racing world.

This Budget passes another furlong marker in the marathon race towards economic success. I must admit that I would like to see the race run a little faster, since, however much better we are doing in this country, many of our competitors are doing at least as well and some better still. Even so, we are improving and so is our stamina. For that the Chancellor of the Exchequer can take considerable credit.

8.36 pm

Mr. Richard Caborn (Sheffield, Central)

I can agree with some of the remarks of the hon. Member for Devizes (Mr. Morrison)—in fact, there was a tinge of realism coming through, at least when he was talking about the infrastructure and the development of our wealth-creating base, particularly in manufacturing. It was welcome because there has been little reference by Tory Members to the wealth-creating base.

I listened very carefully to the Chancellor's statement yesterday, particularly for its effect on my own constituents, who unfortunately, in an inner-city area like Sheffield, Central, have borne the brunt of the Government's economic policy and have been victims of a similar industrial policy. Rather than giving hope for the future in both the short and the long term, the statement reinforced our social divisions and our divided nation, and underlined once again the mentality of the rat race.

Unemployment in my area is, on average, more than 30 per cent. and in pockets of the constituency about 50 per cent. The constituency has now been awarded first prize for having the highest number of under-25s unemployed in the United Kingdom. So disillusionment, despair and despondency abound in the constituency. If the Government create the conditions for the rat race, for greed and selfishness, there is a human reaction. The crime rate figures announced on Monday are a by-product of such a society. The Chancellor should move out of the ivory towers of the Treasury and see the devastation that his policies have caused in many of our inner cities.

The very good and thorough report commissioned by the Church of England "Faith in the City," ought to have been been taken on board by the Chancellor and the Government because it laid down an agenda for revitalising many of our communities. Unfortunately, once again, when they have a golden opportunity to do something about it, the Government have gone in the opposite direction. It was very unfortunate that the chairman of the Conservative party rubbished the report prior to its publication by calling it a Marxist document.

The Budget may well have been received with open arms in the City, but what is new about that? Every Budget introduced by this Chancellor has been accepted by the City. I can assure the Chancellor, however, that it has not been accepted by industrialists, who are highly critical of the way in which the City has treated manufacturing industry, particularly in the north. They cannot understand how the Government can gloat about modern capitalism where one takes the wealth of the nation and gets people to invest in paper money when there are real needs for investment in the manufacturing base, which is where the finance should have gone.

In Sheffield we have been developing an employment plan for the future. It was the subject of some ridicule by the hon. Member for Gainsboro ugh and Horncastle (Mr. Leigh) when he was moving his ten-minute Bill this afternoon. It seems that it is now a crime for local authorities to consider seriously how they can develop employment plans, not just within the local authority itself but in partnership with industry, commerce and the retail trades. Conservative Members seem to see that as a crime and a subject for ridicule.

Our plan in Sheffield is to create 25,000 jobs in a two-year period. That would include 7,200 with the local authority, 3,700 with the public sector and 5,500 on training schemes. The private sector would have 5,000 in manufacturing, which would be a spin-off from that investment and there would be 3,000 in the service sector.

The cost of unemployment in Sheffield is now running at more than £300 million per year. That money is taken from the taxpayer and given to keep people idle. In Sheffield 47,000 people are registered as unemployed, but there are 8,000 on community programmes and youth training schemes, 3,000 women who are not registered and 3,000 men over 60 who do not register. Therefore, the unemployment figures are considerably worse than they would appear.

In developing the plan for Sheffield we have taken cognisance of the decline of the manufacturing base. That has been horrific since 1971 when nearly half the city's working population of 281,000 were employed in manufacturing. Ten years later that 139,000 had declined to 90,000 and we are now left with only 58,000, out of the 225,000 employed in Sheffield, who are employed in manufacturing, and there are about 200 job losses per month within the manufacturing base.

We have looked realistically at how we can work out, with a Government who are prepared to co-operate with local government how the money can be expended not only on employment but to develop infrastructure, provide better services and obtain a more compassionate society.

The 7,500 jobs directly under the local authority's control would cost about £100 million in the first year because £50 million would be on revenue and £40 million on capital. In the second year, which would be mainly revenue, it would cost about £52 million to put those 7,500 people back to work. The spin-off and the multiplying factor from that in the private sector, as I have already explained, would not just employ people but create wealth in itself.

We have worked out the employment cost and implications. Probably more important than that, a city such as Sheffield is trying to develop its infrastructure so that it can take us into the 21st century. That could well have been assisted by the Budget yesterday but, in fact, the Chancellor has turned away from it.

For example, combined heat and power is a development for which we have just signed the contract. Unfortunately, we had to go to a Scandinavian company for it. This will not only create 250 jobs but there will be 25 local firms involved in manufacturing for part of the project. It will provide lower heat costs not just for residents but for industry and it will use our energy resources much more economically. That is an example of an area of energy infrastructure that we had hoped the Chancellor would take cognisance of and encourage in terms of its application for energy resources as well as its employment implications.

On the matter of transport infrastructure, we hope that we will be able to develop an inland customs clearance, including the new Channel tunnel if and when it comes on stream, and try to regenerate the industrial infrastructure by attracting investment so that people who are producing in those areas can get the goods to the continent much more quickly. Unfortunately, Labour Members have had to extract from the Government in Committee the fact that they should start considering the development of inland customs clearance. Although the Government have not taken the responsibility themselves, at least they have charged that to British Rail and hopefully there will be some movement in that direction.

The electrification of the midland main line is an important feature for the north of England. We want communications with the capital as quickly as possible. Today the Minister of State, Department of Transport announced that British Rail Engineering Ltd. is to lay off 1,600 workers. Improved infrastructure would have a marked impact on BREL, GEC and many other major manufacturers in the United Kingdom. The development of an airport is also part of the development of the transport infrastructure.

Moving from the centre of Sheffield down the valley, called the lower Don valley, we are developing, again in co-operation with the private sector, the polytechnic and university, a science park and an infrastructure where small and medium-sized businesses can take off. We want something like £120 million over the next five years to develop that sort of infrastructure. That area will attract investment. We will be able to move into new technologies and apply those new technologies to the manufacturing, base that still exists and give that some assistance so that hopefully it becomes more competitive.

That project alone could produce some 10,000 jobs over the next 10 years. If the Chancellor had been able to deal with the infrastructure even in the manner that has been called for by his hon. Friends, we would have seen a marked difference in unemployment and, in the longer term, it would have attracted investment. Many of the projects I have outlined, which can be multiplied across the United Kingdom, could have been assisted and developed much more quickly if the Chancellor had taken that opportunity.

Conservative Members talk about a working relationship with local government and private finance. A few weeks ago, Sheffield city council was nearly prevented by the Government from developing 2,000 houses for which it had arranged finance from the private and public sectors. We had obtained agreement that two thirds of those 2,000 houses would be at rents commensurate with the local authority rents. The Government attempted to stop that going through because of their vindictiveness and at 5 o'clock on a Thursday afternoon they made the announcement that if the deal was not signed by midnight on that night the 2,000 houses would be stopped. They also stopped other joint ventures of that nature going ahead. That could not only have meant 2,000 homes but could have meant many building jobs and we believe that it would have gone on to further developments.

One other part of the Budget which has been referred to by Conservative Members on a number of occasions concerns small and medium-sized businesses. I was at the European Investment Bank a few weeks ago and I asked why small and medium-sized businesses in the United Kingdom did not take advantage of the EIB's loan arrangements and the new Community instruments. I was told, It is very simple, Mr. Caborn. The Financial Secretary to the Treasury issued a press release in 1984. The right hon. Gentleman stopped the changes to the exchange rate risk guarantee scheme when he was at the Department of Trade and Industry. The press release of 18 December 1984 states: Suitable transitional arrangements will be worked out with new Community instruments agent. That was after he stopped the exchange rate risk guarantee scheme.

We are discussing small businesses— £20,000 to £50,000 arrangements. I asked how many companies were affected by it in 1984. There were 129 allocations, and we in the United Kingdom received £17.5 million for them. In 1985, there were 163 allocations, worth £37 million. I thought I would ask the Chancellor about the situation. In 1986, from the high of about £30 million to £40 million, a facility has been made available by the Community through the European Investment Bank and the Community instrument. In 1986, only six loans were made by the EIB. There was none through the new Community instrument. We got a grand total of £1.9 million. That is because of the right hon. Gentleman's action when he was at the Department of Trade and Industry.

What worries me even more is that the new Community instrument mark 4 is coming on line. This matter was discussed in Committee. A document entitled "Command 1986 (723)" states: The Government also notes in connection with the proposals relating to loan facilities for medium sized enterprises, at the December meeting the Council of Economic and Finance Ministers reached a common position of the new Community instrument mark 4. As proposed by the Commission, there will be new financial arrangements of 1,500 million ecu, which is £1,100 million. Today I got the answer. First, the Department of Trade and Industry has cut that amount by half, and I have yet to check it out. More than that, £1,100 million has been made available, and it looks as though little will come to the United Kingdom. The best that we can get from a parliamentary answer is that it is not yet possible to estimate what proportion will come to the United Kingdom.

That shows clearly that the Government are not prepared to support, in an amenable way, small to medium enterprises. Indeed, they are not prepared to support local authorities, such as mine in Sheffield, of which I am proud. It is trying not only to assist the people of Sheffield but to revitalise the manufacturing base which, at the end of the day, creates wealth. Unfortunately, the Chancellor has missed a golden opportunity to revitalise and help the people of the United Kingdom.

8.53 pm

Mr. Graham Bright (Luton, South)

I hope that the hon. Member for Sheffield, Central (Mr. Caborn) will not mind if I do not comment on his speech. I shall hammer on as fast as I can, as time is short.

I welcome and support the Budget. It offers an opportunity to sustain the economic recovery through steady growth and low inflation. That is important. The rise in our output and productivity in investment and exports bears comparison with that of any of our competitors. Indeed, we have seen a significant increase in the number of new jobs. My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) quite clearly demonstrated that. The reduction in public borrowing is right in the present circumstances. Its effect has been and will be further to reduce interest rates. That is vital if the costs of industry and commerce are to be reduced. I know from experience in my business how much high interest rates deter investment. A fall in interest rates is particularly important for small firms. It will help them to invest and generate employment.

A lot is said about investment and the need to invest, but there is a difference between large and small firms. The more that capital is invested into a large firm, the more that investment goes into high technology and advanced manufacturing processes, which often means not an increase in the number of jobs but a loss of jobs. Small companies, which often have products and services that are designed for local and specialist markets, are labour-intensive. It is through encouraging them that the major proportion of new jobs will be created. Certainly, the track record of small businesses has been important in creating nearly 1 million new jobs.

One of the great bugbears of small firms is the burden of bureaucracy. Submitting accounts for VAT, especially when customers have not paid or may be about to go bankrupt, has been, to say the least, an absolute nightmare for many small companies. It is a major step forward for them to be allowed to pay VAT only when their bills have been paid. That relief from bad debts is long overdue and will be much appreciated by small companies. The introduction of optional annual accounting for businesses will also be welcomed. There will be far less hassle for small firms and a tremendous saving in administration, to say nothing of the saving of accountants' fees. Accounts can now be prepared just once a year. It will give an opportunity for properly prepared accounts to be submitted to customs and excise authorities and ensure that VAT is paid correctly. There will not be the to-ing and fro-ing that went on in the past.

As my hon. Friends will know, the reduction in the small firms' rate of corporation tax will be widely appreciated. In fact, any reduction in taxation will help their profitability and, I hope, their ability to reinvest. I should like to have seen— I know that my right hon. Friend the Financial Secretary to the Treasury will recognise this old cry—the Government look at the possibility of a graduated scale for small companies, or at least some threshold similar to that relating to income tax, before small companies start to pay corporation tax. That would be much appreciated and would encourage tiny firms to invest further.

There is still the problem that I have mentioned before of the small firm trying to beat the taxman by rushing out at the end of the financial year and buying unnecessary things such as a new giant desk or a new car, when such money should be reinvested. I should like to see an opportunity for small companies to roll over corporation tax. They lack the ability of large companies to transfer money from company to company.

I make a constituency point that has nothing to do with small businesses. It concerns the motor car industry. We hoped that some of the 10 per cent. special car tax would be taken off motor cars. That would have helped Vauxhall to sell more cars. At present, when the mark is high, we would not have been able to say that we were sucking in many more cars from Europe. It would have given an opportunity for British Leyland, Vauxhall and Ford to manufacture cars here.

If they are to prosper, small firms know that they must depend on their own efforts. The support of the workforce is often the critical factor. For that reason, I am particularly pleased by the Budget's provisions for profit-related pay. My own company already operates a profit-sharing scheme. Many firms operate such schemes, and they have proved to be very successful. The profit-sharing scheme is a catalyst for improving productivity and pay. I am convinced that the extended proposals that were announced yesterday will prove to be effective in stimulating and rewarding employees.

The simplified pension schemes that are to become available to small firms are equally important. Without a flexible labour market, without occupational and geographical mobility, small firms are inevitably constricted in the benefits that they can offer to employees. The pension proposals will help to ease that problem.

However, small firms are not just organisations with a life span of a single generation. They are often—perhaps even typically—family enterprises that are destined to be handed on to children and grandchildren. It has never made sense to penalise such small businesses and to compel their sale by imposing heavy taxes on those to whom they are transferred.

Therefore I welcome the rise in the threshold for inheritance tax to £90,000 and the more generous treatment that is to be afforded to shares held in unquoted companies. That will help to relieve the burden on small companies, and the prospects for those companies being passed on intact to the next generation will be markedly improved.

There is no doubt that small businesses will benefit from the Budget. I have no doubt, either, that the economy as a whole will benefit from it. Careful measures that promote growth without stoking up inflation are what Britain needs. Dramatic and unfulfillable promises reflect no credit on those who make them. They offer no real, long-term solutions.

The Government have chosen the careful, prudent course. It was the only defensible route for them to take. I commend my right hon. Friends for their decision and I shall support them.

9 pm

Mr. Conal Gregory (York)

I believe that the Budget is very warmly welcomed in the country, including in York, particularly for the help it gives to small businesses, as my hon. Friend the Member for Luton, South (Mr. Bright) has just said, in encouraging the spirit of enterprise and recognising the needs of the elderly.

In particular, I wish to draw the attention of the House to the introduction of tax relief on profit-related pay. The tax exemption— up to 20 per cent. of total pay, or £3,000, whichever is lower—should be a boost to those who wish to see their firms prosper through greater efficiency. In effect, the proposed tax relief could mean that up to 4p comes off the basic rate of income tax. That, coupled with yesterday's announcement of a 2p reduction in the standard rate of tax, will take people even further out of tax.

Profit-related pay is a natural progression of the Conservative case to ensure that those who put most into a company secure the fruits of their labours. As an example, one of the first management buy-outs, National Freight, recently reported that the value of each share had risen to a staggering £41. The development of profit-related pay should remove the pressure on the round of automatic annual pay rises. That should be seen against the background of the strongest economy since the second world war. Personal tax cuts, coupled with lower mortgages, will give individuals a higher real disposable income.

The starting rate of income tax in the United Kingdom is still too high and it is well above the rates in competitor states. No wonder that there is a spirit of enterprise in the United States of America, with a starting rate of 11 per cent., in France, with a starting rate of 19 per cent., and in West Germany with a starting rate of 22 per cent. Therefore the Chancellor's move to continue the reduction in the basic rate by 2p is warmly welcomed. A rate of 27p is well down on the 33p that was inherited from the Labour party.

The sound management of the economy under a Conservative Government has allowed the state to take a lower proportion of people's earnings and savings. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) constantly goes on record as saying that Britain is heading for a sterling crisis—almost as though he is willing one. I am glad to see that the markets think differently and that they disregard the increasing irrelevance of Socialist policies.

As for individuals, I praise the understanding that has been shown for two groups who are particularly vulnerable, the elderly and the blind. Those who are over 80, many of whom will have used their savings, will appreciate the new age allowance, amounting to £3,070 for single people and £4,845 for married couples. The other group, the blind, will welcome the rise in their allowance to £540, which is three times above the level that applied when this Government took office.

There were, however, certain omissions from the Chancellor's statement. I shall briefly refer to them, and if my right hon. friend the Financial Secretary to the Treasury is unable to respond to them in his wind-up speech, I hope that he will write to me in due course.

First, there is surely a case in equity for reducing relief on mortgages to the standard rate. Furthermore, as the Conservatives are the natural party of the family, we should ensure that relief cannot be doubled by two unwedded individuals applying for one mortgage when a married couple are effectively penalised.

Secondly, as a further move to help the lower paid, the Government should build on the welcome but modest changes in the 1985 Budget by extending the 5 per cent. employee national insurance deduction rate. Currently it applies to weekly earnings up to £60. Such a move would encourage many more to seek work and find it beneficial. Otherwise the "Why work?" syndrome will continue. I hope that our ultimate objective is to merge PAYE and national insurance systems of deduction, which will simplify administration, particularly for small firms.

Thirdly, on the heritage of the nation, the Treasury could introduce tax credits when capital taxes are discharged with art treasures. For example, in 1977, Lord Coke tried to meet a tax liability of around £1 million by offering the Leonardo da Vinci "Codex Leicester" valued at £1.5 million. He asked for the balance to take the form of credit against future family taxes. That suggestion was rejected. The Leonardo went abroad and was lost to the nation.

Last year the Beatty family could have met its tax obligation by surrendering a Van Gogh painting entitled "Sunflowers". That summer image could now grace the national gallery of Scotland, but instead it has been sent to auction. It is much more likely that it will leave the United Kingdom to reside in Japan or the Getty museum in the United States. Surely the Treasury has nothing to lose with tax credits, and the nation gains.

I am delighted that the Chancellor has joined us, because this is a personal aspect. He said that he intended to make no excise changes in alcoholic drinks. Surely a sector was omitted. I believe that my right hon. Friend slaked his thirst yesterday with a cooler—a combination of wine and a soft drink. I imagine that it was ready-made and not pre-mixed and packaged in a can or bottle. If it had been, it would have attracted a high rate of tax—as penal as wine not exceeding 15 per cent. by volume.

If one takes seriously the problems associated with alcohol, the Government should encourage consumption of lower strength beverages. I suggest that a new rate of duty covering the 2 per cent. to 7 per cent. alcoholic range, is introduced to cover that sector, which has emerged as a separate group, and which is so delightful for our Front Bench.

In making those specific suggestions, I in no way wish to detract from the Government's success in investing in this country's infrastructure or in encouraging others to do likewise. The people of Britain and of York in particular see that solid investment, whether it is capital expenditure on roads, with improvements to the Al and the building of the York outer ring road; on health care, which is up £42 million in the Yorkshire region for next year, which is 5.8 per cent. up over the current year; on railways, which have received £3,000 million of investment since the Conservatives took office, including £600 million in new rolling stock in the past three years; on education, with the best pupil-teacher ratio ever; and on job creation, with 1 million new jobs created since the general election—a faster rate of increase than all the EEC countries put together.

Like many oil producers, the United Kingdom has deliberately been pursuing a policy of competitive exchange depreciation. The Prime Minister deserves credit for this. Last year the pound's trade-weighted value fell by more than 10 per cent. and sterling reduced by over 20 per cent. against the countries of most industrial companies. We are the only major country the export volume of which is rising. Japan and the United States are flat, while West Germany and France's exports are falling. That is the background to the Budget.

The United Kingdom cannot afford a candy-floss economy, as the Socialists plan. Just imagine the effect of Labour's £34 billion pledges, which would mean raising the basic rate of tax, as we have heard tonight, from 27p right up to 56p in every pound, or to a VAT rate of just under 50 per cent. That would be a yoke that would stifle enterprise. Only the Conservatives can ensure that Britain stays great. The Budget builds on past success and looks forward constructively to the future.

9.9 pm

Dr. Oonagh McDonald (Thurrock)

Conservative Members have described the Budget as cautious or prudent. However, it seems to me, after looking at what the Chancellor has done with the resources available, that it is a nervous Budget. He has set aside £3 billion to reduce the expected PSBR from £7 billion to £4 billion. The markets and the press expected a £1 billion or possibly a £2 billion reduction in PSBR. Why is there such a large provision? From the Bank of England's reactions to the markets over the past few days, it is clear that it is not convinced that everything is right with the British economy or with the exchange rate. The Bank of England was therefore reluctant to lower interest rates in advance of the Budget. First there was 0.5 per cent. cut, which was reluctantly admitted, and now today only another 0.5 per cent. cut. That was the amount expected before the Budget was announced with its unusually low PSBR. That 1 per cent. cut in interest rates over the past few days still leaves our real interest rates higher than all our major industrial competitors.

The Chancellor's actions reflect his fears. What are those fears? [Interruption.] I can hear the Chancellor muttering away about the 1983 election and once again perpetuating the myth that somehow or other the Government are not responsible for the years between 1979 and 1983. He must face up to the fact that the Government are responsible for eight years of damage to the British economy. It is no good the Chancellor muttering in a patronising fashion. We all know the truth about what has happened in the past eight years.

What are the fears about? Are they about hot money flowing in and out? Are they about exchange rate instability or are they about the growth of bank lending? The figures for February will not be announced until tomorrow. Is it true that there is a sudden surge in bank lending that has delayed any further interest rate cut?

The Red Book, which in some ways is extraordinarily honest this time, given the Government's record in these matters, states: Private sector borrowing has been rising and is now over 10 per cent. of GDP. It has clearly contributed more than public borrowing to upward pressure on real interest rates. These trends are likely to persist". Expressed as it is in bland language, it nevertheless states the truth. The Government are determined that consumer spending shall continue to grow and that it will be fuelled by consumer credit until the election takes place. Then, of course, if we are unfortunate enough to have to face another Tory Government, consumer credit will be curbed. That has fuelled the high interest rates from which we are now suffering and it has led to the anomaly that last year manufacturing investment actually fell while consumer spending continued to rise. That means that once again British manufacturers, through lack of investment, are unable to fulfil the demands of the continuing high rate of consumer spending.

Cutting PSBR in that way is the only option open to the Chancellor. He referred to the Governor of the Bank of England's Loughborough speech of last autumn in his Budget speech yesterday. However, the Chancellor did not admit that the Governor had quite plainly told him that the broad money target was no longer feasible and that the Chancellor had better make up his mind on that issue quickly so that the target could be abandoned and with it the last vestiges of monetarism. The Chancellor must now rely solely on PSBR, and with that the City demanded its pound of flesh and the Chancellor gave it two pounds.

That prevented him, in his attempt to reduce the PSBR for the next financial year, from carrying out tax cuts which, judging from engineered leaks, he presumably wanted to make. He wanted to cut higher tax rates and to go down to a 25p standard rate straight away rather than promising us that rate yet again. He wanted to raise the mortgage tax relief ceiling. He has not been able to do any of that. Apparently he has not been able to do what he wanted. He has not been able to do anything of real benefit for the economy and he has not been able to do anything for the unemployed.

The size of the public sector borrowing requirement and the cost of the 2p cut in the standard rate of income tax show what resources were available to the Chancellor. Those resources could have been used to create real jobs, but the Chancellor chose to use them in such a way as to prevent the creation of full-time jobs. In his Budget speech there was scarcely a measure aimed at bringing down unemployment and creating jobs. There was no sense of any real concern about the unemployed. The Chancellor continues to believe that tax cuts will stimulate the economy and create jobs— a view that has been thoroughly rubbished by the Opposition in today's debate.

The Chancellor is, however, extremely sensitive about the fact that his Budget does nothing to create real jobs. In his interview on the "Today" programme this morning, the Chancellor made it clear to Brian Redhead that to be concerned about real jobs apparently means being a member of the Labour party. He is quite right, as the Labour party is concerned to create real jobs. The Chancellor and his party have no concern about that at all. They prefer to fiddle the figures and pretend that part-time jobs and the double-jobbing of the past couple of years represent a decrease in unemployment. The Chancellor refuses to consider the figures for the number of people in employment, which still have not reached the levels of 1979. That is the point at issue.

The Budget is a fearful Budget because the Chancellor is afraid of developments in the markets and the deteriorating balance of payments. According to the Red Book, the balance of payments deficit will he £2.5 billion up on the £1 billion estimate given in the autumn statement and the £3 billion surplus in 1985, turned into a deficit of £1 billion in 1986, with a deficit of £8 billion in visible trade. The Red Book suggests that the deficit may disappear in the next year, but that depends entirely on the improbable view that the import of goods and services will fall from the expected 7 per cent. this year to 3 per cent. in 1988, and there is absolutely no good reason to believe that. The balance of payments figure is deteriorating because our output is lower than it was in 1979, our investment is 20 per cent. down on 1979, and although exports of manufactured goods have risen by 15 per cent. the level of imports has risen by 48 per cent. since 1979.

The Government show no concern whatever about the growing deficit in manufactured goods. They pretend that the deficit can be hidden by a surplus in oil— a diminishing asset—or by a surplus in invisibles. They ignore the fact that last year there was a cumulative deficit in invisibles. In each of the eight months from May 1986 there was a recorded deficit in invisible earnings, as well as a deficit in March of that year. We can no longer assume that the growing deficit in manufacturing goods will be covered by a surplus in invisibles or in oil. The only way to tackle the problem of the balance of payments deficit is a proper long-term strategy for jobs and for manufacturing industry. There is a growing demand for consumer goods, but those goods must be provided by British industry. It is a question of goods being competitive not only in price but in quality. That too, will demand investment in manufacturing industry.

What the Chancellor has dismissed as utterly unimportant, three successful manufacturers insist is vital in the interviews they gave to the Financial Times yesterday. Mr. Haskins, the chairman of Northern Foods, believes that it is the growing investment gap between Britain and other developed countries that counts. He stated: 'The level of investment is too low. Industry is revaluing old assets through takeovers rather than pumping money into new assets.' It is only when better investment in manufacturing industry takes place that British industry will be able to supply consumer demand with the sort of goods it wants at the quality and price it wants. That is the commitment that the Labour party has, but which the Government manifestly do not have, when they have shown—

Mr. John Carlisle (Luton, North)

One of the hon. Lady's colleagues visited a car factory in a foreign car.

Dr. McDonald

Belonging to a Conservative Member perhaps? It would certainly not belong to me or any of my hon. Friends, who take care to buy British cars. We are patriotic, whereas the Government are determined to allow the export of investment capital abroad to create jobs there rather than here.

Mr. Carlisle

Will the hon. Lady give way?

Dr. McDonald

No, I shall not give way; it is not worth it.

This Budget has offered nothing for jobs, investment and certainly nothing for the low-paid. The Prime Minister has continued to talk about poverty ever since she quoted, in the most sickening way possible, the prayer of St. Francis of Asissi on the doorstep of No. 10 when she was first elected in 1979. Ever since then, when she has talked about the people in the bottom half, who pay too high a proportion of their income in tax, or when she has talked about nurses, she has let it stop at talk. Nothing has been done to reduce the burden of taxation on the low-paid. At every turn we can see that that is the case.

Even with the choices before him in this Budget, the Chancellor chose to take 2p off the standard rate of income tax instead, for example, of using those resources to increase personal allowances, beyond indexation, by 10 per cent., which would have taken a million of the lowest paid out of taxation. Of course, that was the option that the Chancellor set aside because he was determined to concentrate on taxation. Instead, he knocked that money off the standard rate, knowing full well that that means that it will bring a tax cut, when taken together with indexation, of £8.60p a week for someone on twice average earnings. For someone on five times average earnings, it will mean £9.27 a week compared with a reduction of £3.92p a week for someone on average earnings.

During the past eight years the top 5 per cent. have not only had the highest pay increases—in real terms. of 22 per cent.—but they have also increased their share of post-tax income, which has increased from 12 to 15 per cent., if we take tax and national insurance contributions together. Under this Government despite the apparent tax cuts, the proportion of tax paid by those on the lowest pay has increased, and the proportion of tax and national insurance paid by those with the highest incomes has decreased. The entire tax system has been carefully manipulated—we see that year after year in the Finance Bill—to give benefits to the rich at the expense of the poor. That has been the sole purpose of the tax changes.

I noticed that in presenting his Budget the Chancellor commented that a man on average earnings would benefit by about £3 a week from the tax changes. That comment made me wonder how the majority of the electorate, women, would benefit from the Budget. On examination, I found that women will come off worse. Women on half average earnings and even those on average earnings have all suffered an increase in the burden of tax and national insurance once again since 1979. Few women benefit under this Budget.

Women in full-time work earning less than £123 a week constitute nearly 3 million workers and women in part-time work earning less than £3.25 per hour number just over 3 million. Altogether, 6 million of a work force of 9 million women, whether in full-time or part-time work, benefit little from the 2p off the standard rate of income tax. It is interesting that in what is supposed to be an election year the Chancellor chooses to ignore the majority of the electorate. He will find that he pays the price for that sooner or later, whenever the Prime Minister summons up the nerve to go to the electorate. [Laughter.]

Mr. Peter Lilley (St. Albans)

The hon. Lady is laughing.

Dr. McDonald

I am laughing at the prospect of women giving the thumbs down to the Government who are led by our first women Prime Minister, who has deliberately reduced benefits to women, altered conditions of employment to their disadvantage, allowed, through the abolition of the wages councils and fair wages resolutions, women's wages to fall and allowed this Budget, in which 6 million women at work will benefit far less than men. That is what I am laughing at.

There was much talk about the notion of independent taxation for married women, but no plans for that have been mentioned in the Budget. For many married women child benefit is extremely important as they take the prime responsibility for bringing up children, yet the Chancellor has given them all of 15p a week extra per child. I have no idea what he imagines they are supposed to with that. It would not even buy a packet of Smarties and it would certainly not buy anything useful, such as food or clothing.

I then looked at the age allowance and assistance given to pensioners in general and women in particular. Women between the ages of 60 and 64 must still wait for the age allowance, despite receiving the old-age pension at the age of 60, so nothing has been done to help that particular group of women. Despite the changes in taxation over the past eight years, single pensioners continue to pay £1.28 a week more in tax than they did under the Labour Government. Naturally, we welcome any concession for any disadvantaged group, but the over-80s are still paying more tax. Under the Labour Government, single people over 80 paid 68p a week and married couples £1.45. With all those resources at his disposal, the Chancellor could find room to give only 80p a week more to single pensioners. Many women in that category will have expected more from the Government.

So when we look at this Budget we find that there is nothing there for most women and for most women at work. Over half the electorate have been ignored. Over half the electorate have seen for the past eight years their conditions of work and the possibility of caring for their children or for elderly relatives in the community being made much more difficult for them by the cuts in community care and health services. They have watched the standard of education of their children being destroyed. [Interruption.] I not only believe that but have seen it happening in my constituency. When I attend an advice surgery, go to the shopping centre or meet pensioners in their clubs, this is exactly what I find, that they find it a much harder struggle and that it has become increasingly hard under this Government. But of course, Government Members would have no idea what it is like to struggle to bring up children and look after elderly relatives and cope with declining services.

We find that it is all part of the record of this Government—giving with one hand and taking with the other. For, just as the tax cuts come through after 17 May, people will begin to receive their rates bills, which, owing to the cuts in central Government grants from 59 per cent. in 1979 to 44 per cent. in 1986–87, have gone up, adding another 4p in the terms of income tax between the years 1979 and 1984. The rates burden has gone up in real terms over the past eight years in spite of the promise that the Prime Minister made to abolish them. Instead of abolishing rates, she ensured that they were a heavier burden on households by cutting the central Government grants.

So I know what I will find in my constituency when the Budget begins to take effect. People will say, as indeed they have said to me already, two things: "They give it to us with one hand and take it away from us with another." If the Tories get back in it will be, "We know that we shall be paying for this Budget again because we shall have what we had before—value added tax being virtually doubled to pay the price of the Government's misdemeanours." That is what my constituents say to me. That is the result of the kind of Budget that the Chancellor has introduced. That is why the Opposition reject entirely the approach of this Government, not only to our economy, but to the needs of the kind of people that we represent.

9.33 pm

The Financial Secretary to the Treasury (Mr. Norman Lamont)

There have been a number of points with regard to the Budget on which both Opposition and Government Members have been able to agree. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was able to welcome at least some of the measures for small businesses and the measure to help the blind—the blind allowance— which was also referred to by my hon. Friend the Member for Luton, South (Mr. Bright). On that, at least, there has been agreement, but, alas, on precious little else.

The most striking feature of the debate has been the inconsistent and confused reaction to the Budget of the Opposition parties. They have constantly shifted their ground. The right hon. Member for Sparkbrook referred to the Budget as a non-event. I think that most of the people of this country would wish that we could have more such non-events. It is not every day that we get interest rates down within 24 hours of the Budget and 2p off the basic rate of tax. If those are non-events, I am sure that the British people would like to have very many more of them.

It is striking also that the right hon. Gentleman, in giving his assessment of the Budget, made no reference to what was the verdict of the Confederation of British Industry or of the markets, both of which unambiguously and clearly indicated that they thought it was an excellent Budget. The right hon. Gentleman prefers his own judgment to that of the markets and that is why, because he has that confidence in his own misjudment, if the right hon. Gentleman ever was in power he would enjoy no confidence whatsoever from the financial markets.

The right hon. Gentleman also referred to some of my hon. Friends perhaps being disappointed at the content of the Budget and having expected that my right hon. Friend might have gone even further. I do not know whether that was what some of my hon. Friends thought but certainly the reaction of Opposition Members when they heard the Budget was immense relief that my right hon. Friend had been so prudent. In the days before the Budget we noticed the mounting anxiety of Opposition Members. They were afraid that there would be even bigger tax cuts. There was a lot of talk in advance, especially from the alliance, about electioneering Budgets and bribes. When the Budget was out of the way that did not stop the alliance saying that we should have had a bit more and an even more generous Budget.

The hon. Member for Stockton, South (Mr. Wrigglesworth) managed to get on television. First he said that the Budget was one of election bribes; yet, a few minutes later, he said that the Chancellor had been over-prudent. How the hon. Gentleman manages to reconcile those two positions I do not know. When he proposes more spending he thinks that it is not a bribe, but when the Chancellor simply allows people to keep more of their own money, somehow it is a bribe.

Furthermore, notice that both Opposition parties are united in telling us that tax cuts are unpopular. How we are meant to bribe the electorate with something so unpopular I am not clear.

We also had the benefit of the first speech by the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) since he became chancellor of the university of Oxford. The right hon. Gentleman told me that he could not be here for the end of the debate. I am sorry that I have not had an opportunity to congratulate him on his election. No doubt he has had other matters on his mind apart from the Budget, but if he were present I would point out to him that today's speech was one of the least convincing that I have ever heard from him.

First, the right hon. Gentleman attacked the Government over the trend in the current account and then admitted that his own calculations indicated that an alliance Budget would create an even bigger deficit. He gave no explanation of the cornerstone of alliance policy—a tax-based incomes policy— which is surely an enormous administrative, bureaucratic, unworkable nightmare. If alliance Members think it so important, they owe the country an explanation of how it will work.

Some of us have harboured more than a passing suspicion that the alliance is more than content to be all things to all men. Certainly that was more than confirmed by the right hon. Gentleman's speech when he came to the subject of income tax. He was challenged to give the alliance view on what the income tax rate should be. He said that he would come to it. He did come to it but he passed on without answering it. He rather twisted in the wind when he was asked to explain how the alliance could vote against the tax cuts but could not say whether it was committed to reversing them. Again he left the impression that he was content to be all things to all voters all the time.

At least the Labour party has come clean on this and has made it clear that it is firmly committed to reversing the tax cuts not just in this Budget but in previous Budgets as well. If the right hon. Member for Hillhead and his colleagues, who pride themselves on their courage, really had courage, they would have come clean today and would have spoken frankly to the electorate. [Interruption.] That was a most interesting sedentary interjection. I shall repeat it for the benefit of the Hansard reporters. The hon. Member for Liverpool, Mossley Hill (Mr. Alton) said they did not come clean because it would amount to electoral suicide.

Mr. David Alton (Liverpool, Mossley Hill)

I was referring, of course, to the characteristic of suicide associated with the Labour party.

Mr. Lamont

That is an ingenious second intervention but tomorrow's Hansard will make perfectly clear what the hon. Gentleman's first intervention referred to. It referred to committing electoral suicide by coming clean on policies for taxation.

The right hon. Member for Sparkbrook criticised the Budget because it did not increase spending in priority areas, because it had given a higher priority to tax cuts than to increasing public expenditure. As he said at the beginning of his speech, there is a sharp divide between the two main parties in the House. The right hon. Gentleman might at least have acknowledged that the Budget has to be looked at alongside the autumn statement, which did increase public expenditure in the priority areas of housing, education and health.

The right hon. Gentleman talked about all the money for tax cuts, but the extra public expenditure amounts to more money than has been found for the tax cuts in the Budget. Because of that, my right hon. Friend the Chancellor is well justified in saying that it is a great achievement of the Government that we have managed to increase spending and cut taxes at the same time.

The right hon. Gentleman was quick to say how he would spend the extra money that my right hon. Friend has had available to him this year. The right hon. Gentleman has much the same attitude to these extra revenues as he has to oil revenues. The Opposition simply cannot wait to get their hands on the oil revenues which they think the Government ought to spend on subsidies to industry. If there is one thing that Britain has cause to be grateful for, it is that oil revenues have been handled by this Government and not by the Opposition.

In his speech the right hon. Gentleman did not pause to ask why Government policies have been so successful in generating additional revenue. He just accepted the revenue without for one minute asking how we had managed to cut the rate of corporation tax and yet generate additional revenue. In his speech he tried to give the impression that the extra buoyancy of revenue was due to indirect taxes. The largest part of the increase in revenue comes from the corporate sector, from corporation tax. It is as a direct result of the Government's economic policies that we have this buoyancy in revenue. The extra revenue in corporation tax has been based on the increased profitability and the increased productivity of British industry. That is where it comes from. The right hon. Gentleman says that he would spend it and knows how to spend it, but he will not get the chance because if he ever tried to implement his policies that revenue would not be there.

My hon. Friend the Member for Horsham (Sir P. Hordern) spoke about wider share ownership arid privatisation. The Government policies of encouraging wider share ownership have been extremely successful. My hon. Friend may know that we also have new evidence about just how successful we have been in extending share ownership.

I know that the hon. Member for Sedgefield (Mr. Blair) is interested in the survey commissioned by the Treasury and the stock exchange to which my right hon. Friend the Chancellor referred in his speech. That survey is now available in the Library and it shows that share ownership has trebled since 1979. About 8.5 million people, almost 20 per cent. of the adult population, now own shares The increase in share ownership has been widely spread across social groups, with the most marked increases being among the less well off.

The spread of share ownership in the United Kingdom is fast approaching that in the United States, where perhaps 25 per cent. of adults now own shares. Of the 5.5 million new shareholders, the great majority have bought shares as the direct result of Government policies, notably the outstandingly successful privatisation programme and the incentives provided for employee share schemes.

When my right hon. Friend the Chancellor referred to the spread of share ownership, the House noticed how the hon. Member for Liverpool, Walton (Mr. Heffer) reacted by shouting out, "So what?" That is a sad commentary the hon. Gentleman is a symbol of the Labour party, which is utterly unaware of the changes taking place through share ownership, through profit sharing and through people buying shares in privatisation issues. These are enormous, far-reaching changes to which the Labour party is utterly indifferent and which it plays no part in furthering.

Privatisation has been a key element in the Government's policy. Indeed, the last year, with the privatisation of British Gas and the flotation of the Trustee Savings bank, has seen the creation of as many new shareholders as there were existing shareholders when the Government took office in 1979.

We shall continue to build on this success, especially through further Government share sales. We have already announced our intention to privatise Rolls-Royce in the spring, followed by the British Airports Authority in the summer. In addition, the Government's policy is to sell their minority shareholdings in companies as and when circumstances permit. Among these holdings— the Opposition might be interested in this—are about 578.5 million shares in BP, nearly 32 per cent. of the total. As part of this policy, I am now able to announce that, subject to market conditions, the Government will sell this remaining shareholding in BP during the 1987–88 financial year.

Our measures to promote employee share ownership have met with similar success. It is here that the benefits of share ownership are clearest. It is where people can identify with the company with which they work. There has been a spectacular growth as a result of the measures which we have taken. There are now more than 1,200 all-employee share schemes, against 30 in 1979.

My right hon. Friend the Chancellor referred to a number of changes in the business expansion scheme.

Mr. Norman Buchan (Paisley, South)

Will the right hon. Gentleman give way?

Mr. Lamont

I wanted to comment on the business expansion scheme and shipping because my right hon. Friend the Chancellor announced a number of changes and I have one minor announcement to make. Last year we extended the business expansion scheme to ship chartering, and there have been signs of interest in it. However, there are still some doubts about what a ship chartering company has to do to satisfy the BES requirement that its trade must be carried out wholly or mainly in the United Kingdom. We are considering how the existing statement of practice can be revised to resolve these doubts and the Inland Revenue is consulting the General Council of British Shipping about this. We hope to reach agreement soon and to publish a revised statement of practice.

Last year, on Budget day, my right hon. Friend the Chancellor published a Green Paper on the "Reform of Personal Taxation". The Government invited comments from organisations, representative bodies and members of the public on the ideas discussed in the Green Paper. The response to the Green Paper has been disappointingly thin. Although the majority of those who responded to the Government's invitation expressed themselves in favour of transferable allowances, the Government do not yet feel that there is sufficient support to take a decision now to go ahead with so far-reaching a reform. Nevertheless, the Government consider it important both that the tax system should give women a fair deal and that the tax penalties in marriage should be removed, so we will be considering the matter further and will be exploring whether there is any satisfactory halfway house to the approach in the Green Paper.

The right hon. Member for Sparkbrook criticised the Government for giving so much of their tax cuts through reductions in the basic rate, but we have deliberately structured this year's tax changes so that the benefits are aimed at the vast majority of ordinary taxpayers. If we had decided to leave this year's tax regime in place for 1987–88, taxpayers with incomes below average earnings would have contributed 29 per cent. of the total income tax yield, but, as a result of our proposals, this group will receive some 37 per cent. of the total income tax reductions in the Budget. By contrast, those on more than twice average earnings would be paying some 32 per cent. of the income tax yield if we had left the 1986–87 regime in place, but will be receiving only some 21 per cent. of the total income tax reductions.

The further reduction of 2p in the basic rate means that in total the basic rate is now six points lower than when we took office. Hon. Members on the Opposition Benches have expressed scepticism about the incentive effect of 2p off the basic rate, but this needs to be seen in the context of a succession of Budgets and of the fact that we have managed to get the rate down from the 33p in the pound that it was when we first came to office. In addition, everyone in every income group, no matter what their level of earnings, now pays less in income tax and national insurance contributions combined than would have been the case if we had kept the previous Labour Government's tax regime in place and simply adjusted it for inflation. That is an absurdly flattering comparison for the Opposition because the truth is that they never would have adjusted the allowances for inflation. They completely failed when in government to do so. But what we are saying is that even if they had done that the tax regime today for every single income group is lower than it would have been if we had simply carried on adjusting their income tax regime for inflation.

Mr. Buchan

Will the Minister tell me the taxation element for those below taxation levels as a result of 15 per cent. value added tax? What is the proportion that they pay?

Mr. Lamont

The hon. Gentleman will have realised that my comments were about those who pay tax. I will come to his point, but in no way was what I said contradicted by the hon. Gentleman's intervention. For every income tax group we have reduced the tax burden that would have been borne if we had simply kept the Labour regime as it was and adjusted for inflation.

As for the hon. Gentleman's comments about indirect taxes, which Opposition Members sometimes like to add on to direct taxes in order to argue that the tax burden has been increased, the key point is that real take-home pay, calculated after taking into account indirect taxes, has risen since 1978–79 at all levels of earnings.

Dr. McDonald

rose—

Mr. Lamont

I will give way in a minute.

My right hon. Friend the Chief Secretary made it very clear today that not just people on average earnings but people on below-average earnings have benefited from a much faster rate of increase in take-home pay than they ever had when the Labour party was in power.

Dr. McDonald

The hon. Gentleman's use of average figures is entirely misleading. The top end of wage earners have had a real increase of 22 per cent. over the years between 1979 and 1986. However, at the bottom end the increase has been a mere 2 per cent. The use of average earnings gives an entirely misleading impression, because it does not show that many people on below average earnings have seen very little increase in real earnings since the Government took office.

Mr. Lamont

I am sorry that I gave way to the hon. Lady because she in no way met or refuted the point I was making. which is that people on average earnings, in their take-home pay after tax and after taking account of indirect taxation, have done much better under this Government than they did under the Labour Administration.

My hon. Friends the Members for Horsham, for Bournemouth, West (Mr. Butterfill) and for Luton, South referred to the provisions for occupational pensions in the Budget. I am sure that they are absolutely right that the announcement made by my right hon. Friend the Chancellor about personal pensions will be extremely important in making available occupations pensions to those 10 million people who are not in schemes at present. It will also be an invaluable aid to job mobility which is so important.

My hon. Friend the Member for Southampton, Test (Mr. Hill) referred to and welcomed the measures to help the oil industry in the Budget, of which there were two: the cross-field allowance and the relief for research related to oil extraction activities. The House will know that we have already brought forward the repayment of some £300 million of advance petroleum revenue tax so that we have, in a number of ways, attempted to ease the burden of adjustment that has fallen on the oil companies.

Opposition Members have said that this is a Budget that does nothing for unemployment. They talk about the Budget and employment as if a Budget for the economy and a Budget for employment were separate things. If the Budget is good for the economy, it is good for employment. It has been the verdict of the markets and the CBI that it will be good for business and for industry. That means that it will ensure that the favorable trend for employment that we have seen in the past few months will continue.

Opposition Members have sought to argue that my right hon. Friend has provided a picture of the British economy that is over-optimistic and over-rosy. I was interested to read an article in The Guardian by the hon. Member for Great Grimsby (Mr. Mitchell) who advised his party to wake up to the fact that the outlook for the British economy is now much better than it has been before. He said: the actual prospect is rosier; an opportunity for growth rather than a prelude to the disaster for which we have so assiduously prepared … So, far from slipping into a balance of payments disaster, Britain is probably riding a J-curve. Exports are rising; imports, currently, are not".

The article states: Labour should stop crying wolf. I think that the hon. Member for Great Grimsby is right. Opposition Members do themselves no good pretending that the economy is stagnating when it is not and pretending that output is not increasing when it has increased way above the levels the Labour party achieved when it was in office.

Opposition Members talk about manufacturing. That is important but it is only one component of total output in our economy. Less than a quarter of the labour force are employed in manufacturing. Labour Members like to live in a world in which they think that shipbuilding is more important than financial services or other services. They do not recognise the new industries and services that are beginning to be created and which are appearing. That is why it is perfectly true, as my right hon. Friend the Chief Secretary said, that whereas in the 1960s and 1970s Britain was bottom of the growth league, today we are at the top. Everything that my right hon. Friend the Chancellor said in his Budget speech indicates that that process will continue. We have a solid base for success. The economy of the country is strong in a way that it has not been for years.

Debate adjourned.—[Mr. Lightbown]

Debate to be resumed tomorrow.