Budget Resolutions and Economic Situation

HC Deb 23 March 1987 vol 113 cc22-135

[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).]

3.36 pm

The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Paul Channon)

We shall be concentrating today, as frequently is the case, on the implications for industry and commerce of the Budget of my right hon. Friend the Chancellor of the Exchequer. On the last day of the debate on the Budget it is clear that it is a difficult one to criticise, because there are only 10 Labour Back-Bench Members present to hear the debate. They are right to think that there is nothing to criticise, because I am glad to be able to report to the House that the outlook for industry today is extremely promising.

Mr. Frank Haynes (Ashfield)

Is the Secretary of State aware that there is a lobby of this place from the construction industry and that that is where our colleagues are? The right hon. Gentleman should follow them there.

Mr. Channon

That may be deemed to be more important than the Budget to the future of the country. It is for hon. Members to decide their priorities.

It is hard to remember a time when the economic climate for business was as favourable as it is now. The economy as a whole grew by 2.5 per cent. in 1986, and in 1987 it is expected to grow by a further 3 per cent. Manufacturing output, in which the whole House is interested, has grown by 14 per cent. over the past six years and will grow by a further 4 per cent. in 1987. This is a remarkable reversal of the downward drift in manufacturing output from its peak in 1973 and is a striking testimony to industry's revival.

The level of investment in the economy is also buoyant. Total fixed investment is expected to increase by 4 per cent. in 1987.

Mr. John Smith (Monklands, East)

If the Secretary of State is correct and manufacturing output increases by 4 per cent. in the coming year, is it not the case that even after that it will still be below the level of 1979? On that basis, why should the Government be entitled to any credit?

Mr. Channon

I do not think that the right hon. and learned Gentleman is right in that assumption. If my forecast is correct, we shall be at about the level of 1979. Whether or not it is, I must point out, as there seems to be a great deal of debate about the 1979 figures, that they were lower than the 1973 figures because of five years of Labour Government, during which they consistently went down. The idea that there is some miracle Labour party potion that cures everything is sheer nonsense. What is important when we look at the future is to see what will happen, and output will grow by a further 4 per cent. in 1987, and the outlook for output is extremely good. That is why Labour Members are so distressed to hear the news.

The figures that I am quoting are from my right hon. Friend's Budget, but outside forecasters, including a number by no means sympathetic to the Government—I can quote them if the House wants me to—make similar predictions. The figures announced last week confirm that unemployment is firmly set on a downward trend. It is particularly encouraging that some of the sharpest falls were recorded in areas of highest unemployment. The House spent last Thursday debating employment and my right hon. and learned Friend the Paymaster General convincingly showed that that trend will continue.

The prospects for our exporters are also excellent. In 1986 our non-oil exports were 3 per cent. higher than in 1985, and they are forecast to be 5 per cent. higher again in 1987 than in 1986. The volume of our manufactured exports is at an all-time record, after six years of steady growth. A further healthy increase in growth from that all-time record is expected in 1987. In recent months the growth in the volume of our manufactured exports has been running ahead of that of our manufactured imports. The combination of a competitive exchange rate and a world economy that is responding to lower oil prices means that, as the Financial Times pointed out a week ago, the opportunities to rebuild the UK's share of export markets have rarely been better.

The Labour party tries hard to conjure up the spectre of a sterling crisis. Perhaps the loss of £5 billion in oil exports would have produced a sterling crisis if that party had been in office. However, after a cumulative balance of payments surplus of £20 billion over the seven years to 1985 we face the prospect of a deficit this year equivalent to one half of 1 per cent. of GDP. That this figure is so small is a tribute to the resilience of the economy in the face of a massive adjustment that was imposed so quickly by the falling oil price. It also illustrates the contribution to the balance of payments of our earnings from overseas assets, now running at £4 billion a year.

A relatively rapid rise in import volume is to be expected while the economy expands. About three quarters of manufactured imports are bought by business and commerce as essential inputs to their production. The full benefits of improved competitiveness have yet to come through. However, I expect the growth in imports to slow by the end of the year.

British industry is well placed to make the most of its opportunities. Productivity in British manufacturing, which was the despair of our friends in the 1970s, has improved by no less than 40 per cent. in the last six years. This puts us right at the top of the international league for productivity growth, ahead of Japan, Germany, the United States, Italy and France. Productivity has grown more than three times faster than when the Labour party was in power. During that time our productivity growth was lower than that of all our major competitors, yet Opposition Members have the cheek to argue about the prospects for British industry.

In recent months, unit costs in British industry have risen no faster than those in Germany and Japan, although I still see scope for improvement. The latest figures of the profitability of the non-North seas sector are the highest since 1973, and I am confident that this improvement is continuing. For the benefit of Opposition Members, I should emphasise the vital importance of profits, which are the source of three quarters of the funds needed by industry for capital investment.

It is not only in those aspects that can be quantified that British industry has now recovered. Our reputation for quality is being gradually and painstakingly restored. The industrial relations climate has been transformed. The number of industrial disputes last year was down to the level of 1935. Multinational companies are not only saying that the United Kingdom is once more a logical location for manufacturing operations; they are acting on the belief.

In today's Financial Times, the American chairman of British Oxygen stated: In the last half dozen years Britain has done a pretty good job. If I was a company having to set up in Europe, it is Britain I would choose". It must be said that 1986 was another excellent year for foreign direct investment in Britain.

Sir Peter Emery (Honiton)

While one in no way wishes to carp at an excellent speech and superlative Budget, may I ask my right hon. Friend whether he accepts that hon. Members on both sides of the House are worried about the level of research and development in manufacturing industry? If we are to stay in the position that we have attained, research and development in the new technologies to keep us ahead of the world are of the greatest importance. If there is any way in which my right hon. Friend can help companies to further research and development, it would be worth undertaking.

Mr. Channon

There is a great deal in what my hon. Friend says. In my Department's budget there has been a massive switch of resources to research and development during the Conservative Government's period of office. We are considering a range of matters and in due course we will have to reply to the Select Committee in another place on this important aspect.

On foreign direct investment, I should tell the House that more than 300 foreign companies have shown their confidence in the strength, stability and future of the British economy by deciding to invest here.

Mr. Roger Stott (Wigan)

Will the Secretary of State give way?

Mr. Channon

I must continue; I have given way three times already.

New investment projects in manufacturing included those announced by Compaq Computers from the United States at Erskine; NEC at Telford; and Orion Electric at Port Talbot. Substantial expansion projects included those announced by Ford at Dagenham and Halewood; Peugeot Talbot at Ryton; Sharp at Wrexham; and Sony at Bridgend. These decisions confirm the positive experience of those companies already operating here. Since 1980 foreign direct investment in the United Kingdom has created or safeguarded over 200,000 jobs.

The list of our industrial successes is lengthening all the time. Jaguar, with the stimulus of a return to the private sector, has re-established a reputation for quality and turned a £30 million loss in 1981 into a profit of more than £120 million in 1986, creating 1,500 new jobs in the process. In 1978–79 it took British Steel nearly 14.3 man hours to produce a tonne of liquid steel. By 1985–86 it took 6.3 man hours and BSC's productivity had caught up with the best in Europe. J. C. Bamford, a family business, has taken on the American giants of the construction equipment world. It has remained profitable, while its competitors have been in retreat. It has quadrupled its turnover to £220 million in 10 years, and half of it is exported. Vickers, a company rooted in traditional heavy industry, has diversified, so that in addition to its longstanding activities it now has 40 per cent. of the world market in controllable pitch propellers, and it has diversified into several other areas.

In recent weeks and months there has been a general resurgence of business confidence. The CBI's monthly survey of industrial trends for February was the most encouraging of its kind for at least 18 months. The majority of firms expecting their output to increase was greater than it has been for three years. A majority of companies now say that their total order book is above normal—one of the highest figures ever recorded. On export order books, the response was more favourable than any since the middle of 1985, which was the most optimistic in the history of the survey. The most recent survey by the Association of British Chambers of Commerce recorded a high level of business confidence among its membership in all regions of the United Kingdom.

Mr. Richard Hickmet (Glanford and Scunthorpe)

My right hon. Friend mentioned the BSC, and it was a great pleasure to have him visit the most efficient steelworks in Europe last Monday. Certain proposals have been aired by Eurofer and the Steel Council. Will he confirm that the BSC is among the most efficient and profitable steel corporations in the world, that any future cut in capacity must depend on the profitability of the industry concerned, and that as the BSC is the most profitable steel works in Europe we would expect no steel cuts in its operations?

Mr. Channon

My hon. Friend makes an important point, and exactly the same point was made by my hon. Friend the Minister of State at the Steel Council on Wednesday last week. I agree with him and am happy to confirm how impressed I am by the efficiency at the Scunthorpe works, which are probably the most productive steelworks in western Europe. If they are not the most productive, they are certainly right up with the leaders. That is a remarkable turnround, especially when one considers that when we came to office British Steel was losing well over £1 billion a year. This year its half yearly profit is albut about £68 million. In the past few years there has been a complete turnround.

I was dealing with the Association of British Chambers of Commerce. Its latest survey recorded a high level of business confidence among members in all regions and showed how confidence was picking up in the areas of high unemployment. The Government are determined to continue the fiscal and economic policies that have brought about these hopeful trends and my right hon. Friend's Budget is ideally suited to this purpose. Above all, industry needs a stable economic and financial framework. The runaway inflation of the 1970s must not be allowed to reappear. With the annual increase in the retail prices index now at about 4 per cent., and expected to remain in that region for the rest of this year, industry no longer faces the constant worry about prices shooting up as they did not very long ago.

Nor does industry need to fear that Government borrowing will enjoy priority over wealth creation in Government policies. The PSBR this year and next will be at lower levels than we have seen since the beginning of the 1970s as percentages of GDP. Industry, of course, has made a major contribution to this development, through increased payments of corporation tax. I point out to Opposition hon. Members that that is a classic demonstration that lower taxes and prosperous taxpayers mean more, not less, revenue for the Exchequer. It is a matter of great satisfaction that the prudent economic and fiscal policies pursued consistently by my right hon. Friend and his predecessor have made it possible for this year's Budget to include a range of measures, direct and indirect, that are greatly to industry's advantage.

My right hon. Friend's decision to devote more than half the scope for fiscal adjustment to a £3 billion reduction in public borrowing was not only financially prudent but will be of great benefit to industry and commerce, and thereby to jobs. The CBI welcomed the Budget as just what it wanted. [Interruption.] Opposition Members laugh at the CBI figures. They are not interested in the voice of the views of industry.

One immediate benefit of the decision to reduce the planned PSBR has been a further reduction in interest rates. All of us are aware of industry's long-standing concern that real interest rates have been higher in this country than in most of our competitor countries. It has been the Government's policy throughout that interest rates should be maintained no higher than is necessary to maintain downward pressure on inflation. The whole House will welcome the fact that the strength of the economy and the Government's prudent policies have permitted a cut in interest rates. Not only does each percentage point off interest rates represent a cut of £250 million in industrial costs, but, even more important, the prospect of a sustained cut in interest rates which can be taken into account when industrialists calculate the return on new investment will make it easier for them to plan for expansion.

The reductions in tax will help industrial performance. If Opposition Members believe that the money will be spent on imports alone, they have little confidence in British industry. Have they stopped shopping at Marks and Spencer which, like many companies, has British sourcing? My right hon. and learned Friend the Paymaster General has said that the same argument would apply equally to increased wages, but the Opposition do not argue that wages should be cut. The reductions in personal taxation will encourage everyone not only to work harder but to acquire new skills and qualifications and to seek additional responsibilities.

I commend particularly to the House and to industry the proposed new tax relief for profit-related pay. For a married man on average earnings who accepts 5 per cent. of his pay in the form of profit-related pay this offers the prospect of an extra £1.50 a week, which is equivalent to 1p off the basic rate of income tax. With 20 per cent. of his pay in the form of profit-related pay the tax relief is worth £6 a week, or 4p off the basic rate. If this new relief is widely taken up, as I hope it will be, it will help to create a sense of common purpose among all those who work for companies. It will bring much needed flexibility in pay structures, without which firms are understandably reluctant to take on more employees when things go well, and may see no alternative in a downturn to reducing employment.

Industry's most important resource is its people. The Budget will help to ensure that the energies and potential of countless individuals are put to good use.

It is an excellent Budget for the individual entrepreneur and the small business. The large increase in the threshold for inheritance tax and the improved business reliefs will make it easier to pass on a flourishing family business to the next generation. The increased retirement relief from capital gains tax will also improve the incentive to build up a small business.

My right hon. Friend's package of VAT measures for small businesses responds to a number of legitimate concerns. The proposal to allow firms with an annual turnover of up to £250,000 to account for VAT on a cash basis will be particularly welcome. It will mean that small firms are no longer required to pay VAT on transactions for which they have not been paid, and it will thus allow automatic relief from VAT on bad debts. The option to account for VAT annually, with a system of monthly instalments, will be found useful by many firms.

The changes in the business expansion scheme will increase the value of this useful measure. It will no longer be necessary for all the funds subscribed to be invested within the same financial year if tax relief is to be obtained. This has led to a bunching of BES investments in March of each year, with the risk that the quality of the investment suffered. The change will increase the confidence of potential investors in the scheme, as well as its potential for helping to launch small and innovative companies.

A further specific change is designed to enable the business expansion scheme to be used more easily for financing film production in the United Kingdom. This is something that the film industry has been urging on the Government for some time, and my right hon. Friend's proposal will be very welcome to them.

This Budget represents the continuation of an economic strategy that is plainly succeeding. It maintains the prudent fiscal and monetary policies that have resulted in inflation finally being curbed. It takes a further step towards increasing incentive and enterprise by allowing people to keep more of what they earn, and it continues to reduce the level of public sector borrowing, so releasing more funds for private sector investment at a lower price.

These policies have led to the successes that I have already outlined and have contributed to achieving the biggest monthly fall in unemployment on record. Yet the Opposition—with their heads still buried in the discredited economic tomes of the 1960s, rather than observing the reality of economic success all around them—continue to advocate the reverse. In a welter of high spending, high borrowing and high taxation, they would throw away all that has been achieved. They have a prescription that would send us sliding back to the bottom of the league once again. On every front their policies would be crippling to industry and business.

The climate of understanding and co-operation in industrial relations, which the Government's trade union legislation has helped bring about, would be lost as power was handed back once more to the militants and extremists in the trade unions. Industry would be hamstrung by a plethora of bureaucratic committees and controls. Management would be prevented from taking any decisions until it had been cleared by innumerable committees, local authorities, the trade unions and any other pressures that the Labour party wants to put on it.

Some companies would fare even worse. For them it would not just be management which the state took over, but ownership as well. Despite the overwhelming evidence of its manifest failure, nationalisation is still on Labour's agenda, although it calls it by a different name nowadays.

In case industrialists are tempted to believe that their particular commanding height of the economy is not on the list for seizure, I remind them of the words of the right hon. and learned Member for Monklands, East (Mr. Smith), who last year said: I don't see why we should just go round taking over clapped-out companies. It would be nice to get into the new profitable areas. Stuff that makes money. The right hon. and learned Gentleman nods. That is the Labour party's policy. I am glad to have that confirmation. The House welcomes that clarification. One thing is certain. Once the right hon. and learned Gentleman and his colleagues got their hands on those companies they would not be profitable for long.

Labour has also promised to impose selective import tariffs and subsidies. This would lead to swift retaliation against British exporters, just at a time when our export prospects are better than they have been for years. In addition, to my astonishment, the Opposition have said that they propose to abolish the aid and trade provision, which, since its inception, has helped to win exports worth £1.7 billion. I cannot fathom what on earth the policy reason for that can be. Perhaps the right hon. and learned Member for Monklands, East will tell us a little about that proposal, because it seems utterly astonishing.

Hon. Members will remember that during the Knowsley, North by-election, when I much enjoyed the presence of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), the hon. Member for Kingston upon Hull, East (Mr. Prescott) let the cat out of the bag by announcing that Labour would impose a levy of at least 1 per cent. on companies' turnover to finance industrial training.

Mr. Eric Heffer (Liverpool, Walton)

That is right.

Mr. Channon

I am glad the hon. Member for Kingston upon Hull, East has the support of the hon. Member for Liverpool, Walton (Mr. Heffer). Others are not too sure. His colleague, the right hon. Member for Sparkbrook, hurriedly tried to put the cat back in the bag again by saying in the same place the next day that that was not Labour party policy and that he could not imagine that it would be.

A week later the hon. Member for Kingston upon Hull, East added to the confusion by telling me during the industry and employment debate that compulsory training levies were certainly Labour party policy and that 1 per cent. was the minimum under consideration. It seemed that the two were split by irreconcilable differences and that buns might start flying in the Tea Room.

Last week the Labour party introduced its new training document describing a new adult skill plan financed by Government and industry, but no mention is made of levies. All that we are told is that there is to be a new name—a new national training fund, which would require a fair financial contribution from all employers.

I should be grateful if the right hon. and learned Member for Monklands, East would tell us exactly what is proposed. What is the size of the burden which the Opposition intend to put on industry? Is it to be a 1 per cent., 2 per cent., or 3 per cent. levy? Is it to be on turnover, on profits or on sales?

As recently as last Thursday the hon. Member for Kingston upon Hull, East, who is rapidly becoming to the Labour party what the albatross was to the ancient mariner, forgot his brief and admitted that there would be a levy. But then, in a remarkable attack of amnesia, he denied that he had ever said that the levy would be 1 per cent. on turnover. Surely the House and industry in general are entitled to know exactly what the proposals are, what they will cost and whether small companies are to be exempt. We must be told, or industry will have no idea what financial burden the Labour party proposes to impose. That is a disgrace.

Mr. Heffer

If we are not to have a levy of 1 per cent. or a fair contribution to training, how will we train the people whom we need?

Mr. Channon

I am strongly in favour of more training expenditure, but I am not in favour of a compulsory 1 per cent. training levy on the turnover of companies whether they be big or small. That is what is promised. Either that is Labour party policy, or it is not.

Mr. John Smith

Will the right hon. Gentleman give way?

Mr. Channon

Not now. The right hon. and learned Gentleman will have a chance in a minute.

Mr. Smith

I should like to answer.

Mr. Channon

Very well, we shall hear the answer.

Mr. Smith

The right hon. Gentleman's reluctance to give way might arise from the fact that my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) asked a pertinent question. If the right hon. Gentleman is in favour of extra expenditure on industrial training, how is it to be financed?

Mr. Channon

I believe that training should be financed by the companies themselves. The House will have noticed that even though I gave way the right hon. Gentleman chose not to answer the question. He did not answer the question, either because the Labour party has not decided, or because the answer is too embarrassing. Perhaps we shall be told a little later, although I suspect that we might not be.

Mr. Sydney Bidwell (Ealing, Southall)

Will the right hon. Gentleman give way?

Mr. Channon

I must press on. Many hon. Members wish to speak.

The Budget is prudent. It is a Budget for industry, with sound money, lower interest rates and improved incentives. Industry's performance over the last six years has been a success story that is perhaps only now being fully recognised. The Budget will allow industry to build on that success. I hope that it will be the signal for many firms to move from successful consolidation to renewed expansion. The criticism from the Opposition Benches is a time-honoured part of our ritual. What matters is the response to the Budget by industry and the country. I am confident that the response will be positive. The outlook for industry has seldom looked brighter.

4.6 pm

Mr. John Smith (Monklands, East)

Having listened to the Secretary of State's speech, one can hardly believe that we live in a country with over 3 million unemployed. Those people rated hardly a mention from the beginning to the end of the right hon. Gentleman's speech. yet unemployment is one of the three great problems in this country. The first is mass unemployment which is at a disgracefully high level by any civilised standard. The second is a manufacturing industrial base which has been dangerously reduced and urgently needs to be expanded. The third is the deepening entrenchment of the north-south divide.

It is clear that the Budget was not intended to help a sustained effort to reduce unemployment. In speech after speech during the Budget debates Government apologists have sought to claim that tax cuts, particularly the reduction in the standard rate, will create jobs. They might, but if the extra money available for consumption is spent on imports—as the evidence shows is likely—new jobs will be created, but they will be in Frankfurt and Tokyo, not here.

If the Government had any intention of creating new jobs in the United Kingdom, which one might have thought to be a reasonable aspiration of any sane Government, the best value in jobs and in the improvement of services is to be achieved in a carefully targeted programme of public expenditure.

The Labour party has produced such a programme in "New Jobs for Britain". The intention is to reduce unemployment by 1 million in a two-year programme. It involves four main elements. The first is encouraging economic enterprise by stimulating investment in manufacturing, promoting industrial and regional policy and reducing industry's costs by cuts in national insurance contributions on a regional basis. That will provide 250,000 jobs.

The second element is stimulating capital investment in the nation's infrastructure, with particular reference to the housing programme and transport systems. That will produce another 250,000 jobs in the public and private sectors.

The third element involves a major skill training programme, converting the current piecemeal schemes into a national training programme providing 360,000 jobs and training places.

The fourth element is improving health, education and personal social services to provide another 300,000 jobs. The cost will be £6 billion each year.

Mr. John Maples (Lewisham, West)

We understand that the Labour party's programme is to be financed by increased borrowing. Last Wednesday the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said that he would be happy with a PSBR at 4 per cent. of GDP, at about £15 billion or £16 billion, which represents an increase of £12 billion. What effect will that have on interest rates?

Mr. Smith

My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said nothing of the kind. Certainly at no time did he say that the programme would be financed entirely by borrowing. The hon. Gentleman should reread Hansard.

Mr. Maples

On a point of order, Mr. Speaker. Is it in order for the right hon. and learned Member for Monklands, East to misrepresent what his right hon. Friend the Member for Sparkbrook said on Wednesday?

Mr. Speaker

The hon. Gentleman can seek to raise that matter later if he is called.

Mr. Smith

My right hon. Friend the Member for Sparkbrook was talking about the public sector deficit, not public sector borrowing. When the hon. Gentleman rereads Hansard he will be under an obligation to withdraw the allegation and not to repeat it.

We have repeatedly made it clear that the cost of the programme will be £6 billion in each year. We know from this Budget that that could be afforded—let it not be said that there is no alternative. The Chancellor had at his disposal £6 billion and that could have been used to finance the programme. Each time a sensible policy has been advocated to the Government we are told that there is no alternative to their current policies, as if it was beyond the wit of man to devise any alternative. They cannot use that excuse in this case. The Labour party's programme spells out what can be done and the Budget showed that that it could be afforded. It is a matter of choice.

The Chancellor of the Exchequer (Mr. Nigel Lawson)

Oh!

Mr. John Smith

The Chancellor laughs. We are used to his lack of concern for the unemployed. In Budget after Budget he has refused to lift a finger to help the unemployed. In this Budget he has made the cynical choice to disregard them entirely. The Chancellor's ambitions are not as high as ours, but if he had even spent £2.6 billion—the amount of money he used to cut the standard rate—it would have made a significant impact on reducing unemployment.

What type of Government do we have? What kind of society do we live in that does not put the reduction of unemployment by 1 million in two years at the top of its list of priorities?

Mr. Lawson

The level of unemployment is coming down, you silly man.

Mr. Smith

I shall avoid replying directly to the Chancellor's vindictive personal abuse—it is no substitute for argument. When I develop my argument I shall have a word to say about some of the things he has said in the past, but I hope that he can contain himself for a moment or two.

The Chancellor does not seem to understand that the figures for unemployment in this society are higher than they were in the 1930s—and we thought that was the most dismal decade of our century. He does not seem to understand that unemployment is lasting longer than it did in the 1930s. It is not just the loss of economic opportunities that is so disheartening; it is the blighting of individual opportunities and the stunting of personal development, especially that of our young people, which is the tragedy of our times.

The Chancellor and his colleagues talk about getting unemployment below 3 million, as if to get unemployment below that figure would be an occasion for national rejoicing, when we would all break out into cheers at the Government's success.

Mr. Hickmet

Surely the right hon. and learned Gentleman will be pleased if that occurs?

Mr. Smith

I will be pleased when unemployment finally gets below 3 million, but I will not regard that as an opportunity to congratulate a Government who should never have allowed that figure to get near 3 million in the first place. This is the first post-war Government to put us into such a position. If the Government do get to the stage where unemployment is below 3 million, with all the associated flags and buntings, I hope that they will not be surprised to discover that the public do not consider that much of an achievement. The Government will be reminded that they inherited an unemployment level of 1.25 million. The public are also aware that, in modern Britain, 1.25 million under-25s alone are out of work at the moment.

The Government have a determined policy towards the unemployment figures and that is why they have made 19 changes to them. I wish they had an equally determined policy towards the true problem of unemployment.

This Budget is irrelevant to the millions of unemployed and their families. The Chancellor—we need not be surprised that he did this—walked by on the other side of the street.

In the presentation of the Budget an attempt was made—it was repeated today by the Secretary of State for Trade and Industry—to claim that industry was prospering under the Government. It is a difficult task to claim that industry is prospering under the Government and we must consider the facts. How can industry be prospering when investment in manufacturing industry—the key to our future success—is 20 per cent. lower than it was in 1979? How can industry be prospering when manufacturing output is 5 per cent. lower than it was in 1979—in fact it is lower than it was in 1972—and when 20 per cent. of our manufacturing capacity has disappeared? I challenge right hon. and hon. Members on the Conservative Benches to question any one of those figures. They cannot. They know that they are precisely the current facts about British industry. Those are the results of eight years of Conservative Government.

How can the Government have been succesful if investment is one fifth below what it was when the Conservatives came to office? Output has still not reached the level that the Conservatives inherited. At the end of next year, output, based upon the Secretary of State's prediction and the prediction in the Red Book, will still not have reached the 1979 level. The fact is that one fifth of our industry has disappeared. How can that be a record of success?

The Secretary of State for Trade and Industry and other apologists seize upon one statistic—that of productivity—and say that everything is reassuring because manufacturing productivity has increased. Today the Secretary of State for Trade and Industry introduced a new phrase, "comparisons of rates of productivity growth". Almost certainly that will be something different from productivity, but the sleight of hand that goes on in the presentation of statistics is such that we must consider the productivity statistics with care.

Mr. Tony Marlow (Northampton, North)

Will the right hon. and learned Gentleman give way?

Mr. Smith

I am developing an argument at this stage and I will not give way.

The Government argue that manufacturing productivity has increased, but I hope that they know that productivity figures have only comparatively improved because employment has fallen faster than output. In effect, workers have been thrown on the dole faster than production has declined. Productivity growth on its own is not the objective that we should seek, rather productivity against the background of increased production. That should be the true objective. In that way we generate higher output through improved utilisation of all our resources. I have reminded the House that manufacturing output is some 5 per cent. lower than it was in 1979. Productivity has increased only because employment has fallen by 28 per cent. The Government should take no credit for chat figure.

In Government speeches copious references are made to an increase in exports. We heard it again today from the Secretary of State for Trade and Industry. It is true that, since 1979. manufacturing exports have risen by 15 per cent., but why is it that, in all the speeches from Ministers, in the Red Book and in answers to questions, there is only ever reference to exports? There is never any reference to imports. Surely the Government comprehend that it is the relationship between exports and imports that is the crucial matter.

Mr. Lawson

indicated dissent.

Mr. Smith

If the Chancellor does not understand that, it is no wonder that we are in our present economic difficulties. Perhaps the Chancellor believes that it is all right to talk about exports and totally to ignore imports. I thought it was had enough that the Secretary of State did not know the difference, but now we have a Chancellor of the Exchequer who does not know the difference either.

Mr. Marlow

rose—

Mr. Smith

No, I will not give way.

The Government refer to exports rather than imports only because if they refer to imports it gives the game away. Manufacturing exports have risen by 15 per cent. since 1979, but if the Government referred to imports they would have to admit that, since 1979, they have gone up by 48 per cent.

In all the Government propaganda a cloud of silence has descended on the trade figures, especially the figures for manufactured goods. The reason for that is that we had a deficit of almost £6 billion in 1986 and, as the Red Book tells us, we are heading for a £8 billion deficit in 1987. Not only are we in deficit, but we are, in fact, facing a deficit that is accelerating on a downward curve.

Mr. Lawson

That is neither here nor there.

Mr. Smith

According to the Chancellor, it does not matter that we have moved from a £5 billion surplus in 1979 to a £8 billion deficit in 1987. It does not matter that there has been a £13 billion deterioration in the balance of trade in manufactured goods. The Chancellor sits there smugly and says that it does not matter. That reveals the mentality and competence of the people who are temporarily in charge of our affairs.

Mr. Marlow

rose—

Mr. Smith

I will give way to the Chancellor if he would like to explain why a £13 billion change in our balance of trade does not matter. It would be an interesting explanation. We know, however, that these are facts that cannot be denied. The alarm bells should be ringing both in the Department of Trade and Industry and in the Exchequer to signal the deterioration in our balance of trade in manufactured goods. That would be happening within any sensible and competent Government. Worst of all, this is the first time since the industrial revolution that Britain has had a deficit in its balance of trade in manufactured goods. It is the unique achievement of the Government to put us into deficit to the extent of £8 billion.

Despite the depressing statistics for British manufacturing industry, is there any notion of help in the Budget? The answer is no. To all intents and purposes, the Government have turned their backs on manufacturing industry. It was the Chancellor of the Exchequer who reminded us some years ago that he did not understand the special importance that the Opposition, and some Tories, attach to manufacturing industry. I shall explain the special importance that we and, I suppose, some Tories still give to it. The manufacturing sector is the nation's indispensible wealth creator. Secondly, without a vigorous and expanding manufacturing sector, we shall not be able to pay our way in the world.

There are those who speak of the important contribution that is made by the service sector. I accept, of course, that it has an important contribution to make, but it will not have a future unless it has the market that the manufacturing sector provides for it. It is the interlinking of the two sectors that the Government fail. to understand whenever they address these problems.

Mr. Ian Wrigglesworth (Stockton, South)

Will the right hon. and learned Gentleman advance the argument that only one third of services are tradable whereas virtually 100 per cent. of manufactured goods are?

Mr. Smith

I would make that point if it were precisely correct. The argument is slightly better than the hon. Gentleman suggests. Only one fifth of services are internationally tradable as opposed to all manufactured goods. I am grateful to the hon. Gentleman for his help, but perhaps he will help me a little more when he next intervenes by getting the facts right.

Tomorrow the Labour party will launch its industrial policy, entitled "New Industrial Strength for Britain". The document will show how a constructive policy can help to transform the prospects for British industry. We wish to set in motion three engines of growth: first, new policies for investment; secondly, a new approach to research and development; thirdly, an entirely new approach to education and training.

We know already of the Government's appalling investment record. That is why we need the British investment bank that the Labour party proposes, which will bring forward new investment in manufacturing industry. I need hardly dwell on the case for research and development. An intervention in the speech of the Secretary of State for Trade and Industry made the point. It is so obvious that more research and development is needed. Britain will fail if it does not encourage new products and processes. In that context, it was chilling to note a few days ago a report from the Science and Engineering Research Council that it would have to stop financing all further projects this year because of an acute shortage of funds provided by the Government.

The scandal of Britain's neglect of industrial training has been revealed in report after report. In "New Jobs for Britain" the Labour party has shown what could be done. What do the Government say? The Secretary of State has told us that he is in favour of industrial training, but he added that it would have to be financed by companies and he did not have a clue how that was to be done. Next time the right hon. Gentleman thinks that he has a stick with which to beat the Opposition, I advise him to ensure that the stick does not hit him over the head. He should formulate his own policy before he attacks the policies of others.

Sir William Clark (Croydon, South)

Is the right hon. and learned Gentleman aware that a 1 per cent. levy on the turnover of our most successful companies would turn their profits into loss?

Mr. Smith

I am aware that in many unsuccessful companies there is no provision for proper education and training. The Chancellor of the Exchequer told us last year that the responsibility for research and development and for industrial training could be left to industry, which he claimed was profitable. He argued that it could afford to pay for it, and would do so. The fact is that industry has not responded. British employers for the most part—there are some honourable exceptions—cannot be relied upon to provide industrial training. Their neglect of industrial training is a measure of their failure to calculate their own long-term self-interest. This is a serious matter for the nation and for all those who are affected by the failure to provide training opportunities.

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

Is my right hon. and learned Friend aware of the effect of the changes in the way in which British Rail is to be organised in my constituency, which mean that, for the first time, this year 88 apprentices will complete their training and will not be given jobs? Is he aware also that no new apprentices will be taken on? That is one of the effects of the Government's policies.

Mr. Smith

I am grateful to my hon. Friend for drawing atttention to a serious situation that has arisen in her constituency, and in many others, as a result of the terrible decisions that have been taken by the management of British Rail.

The most sickening feature of all is the de-skilling of the nation. In most areas of Britain if an engineering company advertises for a small number of apprentices, the management is embarrassed by the hundreds of youngsters who apply. Only recently a manager in my constituency told me that he would never advertise again for apprentices. He explained that he did not know how to handle the queue of hundreds of youngsters who came looking for work. In future he will let it be known more locally that apprentices are required, and it is probable that they will be supplied by relatives of the existing work force. He told me that he had not understood the depth of the problem until he experienced it for himself. Unfortunately, that is the position throughout the country.

Instead, we should have a policy that is designed to create the best educated and most trained work force in western Europe. That is well within Britain's capacity. That could be achieved if it were set as one of our objectives, but that will not happen by accident. It will need the commitment of employers, employees, trade unions, trainers and educators at all levels. Above, all, the Government must give a lead.

Anyone who reads the Budget statement and listens to our debates will not guess that we are talking about issues that are vital for Britain. No one who studies the measures that are set out in the Budget statement will guess that we live in a nation that is more deeply divided now between north and south than ever before. Outside the south-east, the south-west and East Anglia—that is Britain to the north and west of the line between the Severn and the Wash—there has been sustained 94 per cent. of all the jobs lost since 1979. We know that the north-south divide is not the only relevant statistic. In pockets of the southeast, in some of the industrial towns, and especially inner city areas, there have been serious and worrying job losses. The most striking division, however, is between north and south.

For many hon. Members it is not necessary to deploy statistics on this issue. They know only too well from their constituency experience what is happening. A journey around Britain, especially by train, will draw attention to empty factory sites and deserted premises where there was once the hum of productive activity, where people and communities earned a good living for themselves and contributed to Britain's industrial and training strength. Too many areas are either derelict sites or factories with broken windows.

Mr. Marlow

Labour local authority areas.

Mr. Smith

The hon. Gentleman makes the cheap remark, "Labour local authority areas". I do not think that they are uniquely Labour areas. If they are Labour areas, thank goodness that there are some Labour Members who understand what it means.

Mr. Marlow

rose—

Mr. Smith

I shall not give way to the hon. Gentleman merely because he shouts from a sedentary position. That does not give him the right to intervene in the debate.

My hon. Friends—I wish that this were the position on the Government Benches—know of the tragic new phenomenon that is caused by the north-south division. Workers are driven south to look for work. They travel down from the north to find a job in relatively prosperous parts of the south. Many of them find a job but they cannot settle because there are no local authority houses, and house prices are tens of thousands of pounds above any ceiling to which they could aspire. We see these workers during the weekends on long-distance buses. They are the new industrial gipsies of Britain. These are men who travelled south to find work and they return home for the weekends. They are driven to make impossible choices. They are unable to settle with their families in the area in which they can find work. This means that they have to travel on long-distance buses during weekends.

Some of these men decide that family life is more important than a job and retreat, disillusioned and despairing, to where they came from. That is understandable. Others struggle on, having added to their problems the difficulties of a divided family. This tragic division of our country cannot be right, but it has not happened by accident. It is not something that has visited Britain like the black death of the middle ages, about which nothing could be done. It is the direct result of Government neglect. Regional industrial assistance has been halved since 1979, and the Government are planning to halve it yet again in spite of these appalling problems. The Government have abandoned regional industrial policy, which they described in their 1984 review as "a social policy".

That is the essential difference between the two sides of the House. We do not argue that regional policy is a social palliative to deal with the problems of run-down industries; we make an economic case for it. We say that we must use all the resources and skills of the people in the relatively disadvantaged areas so that they can create a new future for themselves, and so that we can lessen the division between north and south and the dependency which is so demeaning to both sides.

That is why the Labour party is committed to new development agencies, which will spearhead an industrial recovery in the regions. It is why we will place special emphasis on high-class new technology as part of our regional industrial policy, and will review the classification of assisted areas to breathe new life into a commitment that is now dwindling by the day.

We do not and cannot accept that the accentuation of unemployment and the deprivation of personal opportunity can be justified. It is bad for the north, but it is equally bad for the south. If economic expansion is to be confined by unfettered market forces to the overcrowded segment of our country, there will soon be overheating, skill shortages and pressures on the environment—all of which could be avoided by sensible planning to distribute industry not only more fairly, but more rationally. Bringing jobs to the people instead of driving the people around the country in pursuit of them seems a much more intelligent approach.

To listen to the Government speak about the Budget, one would think that the problems did not exist. There is certainly no hint of a policy to deal with them. That is the crucial difference between us. The Labour party wants a better, more productive future for our country, and we know that that can be achieved only by an expanding and competitive industry that taps the skills of our people and gives them an opportunity to take on the world. We know that we must create the wealth, as well as advocating that it should be spent on improving the quality of our society and the opportunities for our people. That is why we wanted to see a Budget that mounted an assault on unemployment, made its principal purpose the revival of our industries and sought to counter the deepening divisions in our country and among its people.

We oppose this Budget not merely because the Government have proposed no policies to deal with the problems, but because they do not even share our objectives.

4.32 pm

Mr. Julian Amery (Brighton, Pavilion)

I listened to the right hon. and learned Member for Monklands, East (Mr. Smith) with, as always, great respect. He ended his speech by emphasising the division between north and south. I recently had the opportunity to campaign for my party on Tyneside and in Durham, and I must say that I was surprised to find that the position, at least superficially, was not so very different from that in Brighton and the south-east.

Of course, big changes take place, including industrial changes. When Bristol and Liverpool were deprived of the slave trade a great many problems were created for those who had been employed in it, but some industries cannot be brought back. The same kind of thing is happening in various parts of Britain where industries that were once of major importance cannot be revived today.

The right hon. and learned Gentleman said that we must have a strategy for bringing work to the people. Of course we must, but we must also think about how to bring people to the work. The debate has reminded me of a fable which I am sure you, Mr. Deputy Speaker, were taught as a boy. It concerned some hunters who were hunting a bear and arguing about how to divide its skin. Until this year our Budget debates have largely raised the question, "What is the best way to hunt the bear, and what is the best way to divide the skin when we have caught it?". This is the first time that we have caught the bear, enabling the Government—I shall discuss in a moment whether they were right or wrong—to spend nearly £5 billion on hospitals, schools and so on, to cut taxation and to pursue a policy that is bringing down interest and mortgage rates.

I am sure that the right hon. and learned Gentleman—who I think will end up on a different Bench from that on which he now sits—will be the first to recognise that that is a considerable achievement. I do not think that anyone would deny that. We have climbed a steep and stony path and, to paraphrase Sir Winston Churchill, we have emerged on to sunny uplands. where we have something to distribute. The interesting point about the debate is that it has not been about the policies; it has been about how we should divide the proceeds.

Conservative Members are entitled to ask, "Would the bear have been shot if the Labour party had been in power?". I think that the answer is no. I am sorry to see that the right hon. and learned Gentleman has momentarily left the Chamber; he may have some natural function to fulfil. Would the policies advocated by the Labour party since 1983 have produced the results that ours have produced? Labour's policies have been modified from week to week and from month to month. I understand that it is announcing some tomorrow that are different from those that it has preached before, but all that those policies have advanced is the need for more public expenditure.

There is a reasonable argument for that, but where does it lead? We have been through it before, and we know that it leads to higher inflation, to austerity and, in the end, to bringing back the International Monetary Fund. We know what it did to our industrial relations, which are now among the best in Europe. My right hon. Friend the Secretary of State mentioned that foreign companies were now investing here. They would not have done so had the National Coal Board not won the battle against Mr. Scargill, or had the newspapers been stopped by the Wapping dispute. On both issues, the Labour party was on the wrong side.

A new world is developing. My right hon. Friend said that 300 German companies were investing here. I have heard of 200. Asked why, they said that our industrial relations were better and that our taxation was more sensible. When I was on Tyneside I was interested to note that the Nissan company was taking up work in Sunderland in a big way. All that is the result of policies that have worked. More growth, more employment, lower interest rates, lower inflation and a stable currency cannot be called bad results. I question whether those results would have been achieved if we had pursued the policies advocated by the right hon. and learned Gentleman.

I come to the policies advocated by the alliance. They are rather like the old Austrian eagle. They have two heads. One says to the country that whatever the alliance thinks the audience wants to hear. The other, which is quite natural, coming as it does from the new chancellor of Oxford university—the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) —is the Socialism of the Gaitskell era. I understand and respect that view, but where does it lead? To call it "cloth cap Socialism" is out of date, but I would say that the SDP comprises well-dressed Socialists with a penchant for the better things in life, and why not?

Because SDP Members have learnt from their experience that that policy cannot be made to work without producing inflation, they have advocated a form of incomes policy. It is a rather complicated formula, which penalises employers. It might lead to a flight of capital unless exchange controls are introduced. It is not a sensible policy or one that might create or encourage economic growth. I understand that the right hon. Member for Hillhead and his colleagues want to show that they are not in favour of inflation, but what will they do? Will they invite Barbara Castle to join their ranks? "In Place of Strife" is what they are trying to say.

With hindsight, it could be said by Labour and alliance Front Benchers that the Government might have done better. I do not deny that. All politicians are fallible. Alfred Marshall, who was the doyen of all our economic policies when we were young, said that to achieve economic success one has to apply reason, perception and imagination. That is exactly what my right hon. Friend the Chancellor has managed to do. The former Leader of the Opposition, the right hon. Member for Blaenau Gwent (Mr. Foot), who is not here today, said: More governments, including left governments, have been thrown out of power through a failure to deal with inflation than through any other single cause.

The Opposition parties, simply because of their inability to criticise the Budget, have fastened, rightly, on the unemployment issue. It would be ridiculous, particularly in an election year, for anyone to suggest that we do not care about unemployment. We want to be elected, so of course we care about unemployment. Even if we were hard-faced, hard-boiled men, we would still have to care to get the votes. It would be silly to pretend that we are not interested in that issue.

One million new jobs have been created. The right hon. and learned Member for Monklands, East said that unemployment is worse now than it was between the wars, but the position is different now. Between the wars very few working men would allow their wives, when they had children, to work because there were not the amenities that are now available today—refrigerators, washing machines and the other goods that take the burden off the housewife. There is now a much larger working population.

Of the 3 million unemployed, more than 1 million have been unemployed for more than a year, and this is the hard core of the problem. The other 2 million, apparently, to judge from the statistics, are re-employed within 12 months. That is what the statisticians would call a transfer of human resources, but what I would call people changing their jobs. If, as happens in many cases, they are given a "handshake" from the firm that they leave, it is not all that rough. I am glad to say, as a rather old-fashioned Tory, that we do not make it too difficult for those people to make the change.

The real unemployment is created by the type of industrial action that we saw during the coal strike. Tens of thousands of coal miners lost between £8,000 and £9,000 by obeying Scargill, and the Labour party did nothing to stop that nonsense.

It has been said that this is an electioneering Budget. I was amused to hear the Leader of the Opposition answer the speech by my right hon. Friend the Chancellor. It is always very awkward to speak immediately after my right hon. Friend. The right hon. Gentleman attacked my right hon. Friend's speech as the speech that he had not made. I can understand that the right hon. Gentleman's speech writers had not guessed what was in it. It was interesting to note the light that the right hon. Gentleman's speech threw on the Labour party. The Labour party thought that if it had been in our shoes an electioneering Budget would have been produced, but it has not. This throws some light on what the Labour party would have done if it had happened to be in our shoes.

Ever since, we have heard about how Labour would have spent the money if it had it, about what Labour would have done with the £5 billion or £6 billion that was available and about how Labour would have spent it differently. All right, but Labour thought that we would produce a Budget to grab votes. We have not, but Labour should not think that this is not an election-winning Budget. The caution and prudence shown are guarantees that when my right hon. Friend the Prime Minister brings forward her manifesto, and if she offers something pretty good, it will be credible in a way that nothing else would have been.

4.47 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Member for Brighton, Pavilion (Mr. Amery) said that this was an election-winning Budget because it was a prudent Budget. I shall question that later, but first, while the Chancellor is here, I think that I should do what my right hon. Friend the Leader of the Opposition does each time he responds to the Chancellor. He congratulates him on the manner of his speech. We all recognise that the right hon. Gentleman's speech was his own—I could detect no trace of any civil servant's injection into it—but that is the limit of my congratulations. [Interruption.] I have seen many Treasury briefs, and one gets to know their language. I did not detect it on this occasion.

The Chancellor talks repeatedly about this country's economic success. I only wish that that were true. Talk of success is somewhat credible when one sees what is happening in the west end of London, but in my constituency what is known as the west end of Ashton-under-Lyne shows no sign of success. There is unemployment of more than 20 per cent. In Droylsden houses are decaying and their fabric is being destroyed. Window frames are rotting to such an extent that the standard practice is to get large wads of newspaper and stuff them between the brickwork and the window frames. How can one talk of success when that is happening and when the roads are in hopeless disrepair? I would welcome the opportunity to show the Chancellor around some parts of my constituency. I think that even his confidence might be shaken. He certainly could make no claim to success.

If the right hon. Gentleman has been so successful, why were retirement pensions, for example, not allowed to share in his success? If he has been so successful, why was child benefit not increased to help the least well-off couples? Why are houses rotting? The Public Accounts Committee has heard that £19 billion is required just to maintain a reasonable level of house repair. That has not been undertaken. It is false economy to allow house repairs to be neglected and windows to fall out, as is happening in my area.

I can find further examples in which sensible assistance would have been of enormous financial and economic value. It would have been value for money. That sort of expenditure is required just to maintain the level of our investment. A most important question was put by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). If the Chancellor of the Exchequer is so successful, why is our industry not being modernised in the way that is should be? Why has our balance of payments deteriorated from a surplus of £2.5 billion to a deficit of £7.5 billion? Why have education and training been so generally deplored? There are many problems. I cannot understand how one can talk of success when such crucially important matters are before us. Above all, if we are so successful, why is this still such a divided country?

Mr. John Townend (Bridlington)

The hon. Gentleman spoke about education. Does he accept that we are spending more in real terms per pupil than at any time in history and that pupil-teacher ratios and expenditure are as good as they have been at any time in history?

Mr. Sheldon

I never concentrate on inputs. I am more interested in outputs. Nobody can be satisfied with the output of our universities and other education institutions. Nobody can talk about success in that regard. The Government have failed to achieve something that could reasonably be achieved.

The Chancellor of the Exchequer not only talks about success but wants to claim the prize for prudence. If he has been so successful, why is he so prudent? General elections do not normally bring a rush of caution to the heads of Chancellors of the Exchequer, despite what the right hon. Member for Pavilion said. We have to examine more carefully the Chancellor's claim for his achievements in prudence as well as in success.

Let us consider the balance of payments for 1987. It is forecast to be minus £2.5 billion, but we know from past forecasts that the average error amounted to £3 billion. We could have a balance of payments deficit of between zero and more than £5 billion. That is a bit shaky. There is not much sign of success. Nothing in the future seems to suggest that it will change readily.

If the Chancellor has been so successful, why did he fail to revalorise excise duties? We all know why—it has an effect of about 0.3 per cent, on the retail prices index. If inflation could be as high as 4.5 per cent., according to the Red Book, with an increase in the margin of error of 1.75 per cent., which could bring it over 5 per cent., but leave that out of account at the moment, the Chancellor thought the extra 0.3 per cent, that was lost from failing to revalorise was worth having.

Some years ago the Chancellor of the Exchequer used to believe in a rather interesting notion called "truth in taxation." He applied it to income tax. He said, "It is not right that, year after year, the Chancellor claims credit for raising the level of threshold. It is not fair. We want truth in taxation." He went along with the Rooker-Wise amendment, so there was the ready revalorisation year by year. If the Chancellor of the Exchequer is still wedded to truth in taxation, we need a Rooker-Wise among the Government to bring about revalorisation of excise duties. I shall be interested to know which Government Members will put themselves forward as candidates. At least on this occasion they should have the support of the Chancellor of the Exchequer, although I do not see much sign of welcome at the moment.

The important thing is that the so-called prudent Budget depended on the failure to revalorise taxation and on a high exchange rate, high interest rate policy. They are clearly now the prime determinants of British economic policy—high interest rates to maintain a high exchange rate and to maintain low import prices, even though manufacturing industry will be dealt another blow. Already we have heard Denys Henderson, the incoming chairman of ICI, say that a $1.60 pound is eroding our competitive position, but cheap imports—the policy that we are pursuing at present—and low excise duties will massage the inflation figures, as will Lord Young's many devices to manipulate the unemployment figures.

The Chancellor of the Exchequer is best known in the lifetime of two Parliaments for wanting two things in his medium-term financial strategy. One thing to which he was dedicated was monetarism in a somewhat extreme form. We were all happy to see it moderated. The Chancellor looks quizzical. He will recall the 1980–81 Red Book, with its steady downward trend. It was a brilliant intellectual exercise—I shall never deny him that—but it postulated a rather rigid procedure for determining important matters. At one time, as the right hon. Gentleman and I know, he wanted to leave it to the Governor of the Bank of England to carry out the policies. We debated these matters in the fiduciary debate of 1976 or 1977. I am not sure whether Mr. Robert Leigh-Pemberton would be happy to carry out that type of policy, in the light of the more recent pronouncements.

The Chancellor wanted monetarism and tax reform. The first was not on. For his second aim, he had experience as a financial journalist, a most unusual experience as a speaking Whip on Finance Bills, and experience as Financial Secretary to the Treasury, responsible for the medium-term financial strategy. He was superbly placed —no one has ever been better placed—to be the great reforming Chancellor in taxation matters once the nonsense of monetarism was seen to fail. That is what many expected, and the action on pensions and life assurance led one to hope, and even to expect, the beginning of the long task of eroding some of the nonsenses in our tax sytem, the predominant peak of which, of course, was mortgage relief. Schedule A, inheritance tax, capital gains tax, and mortgage relief had a most powerful effect upon the incentive of people to invest in their own property.

The Chancellor has always had a passionate wish for a share-owning democracy, but what we have instead is a property-indulging Government. They subsidise the constant musical chairs, as householders trade up to improve their investments, particularly in the south-east. Of course, the Chancellor of the Exchequer knew and understood that, but he also knew the Prime Minister's opposition to any rationalisation. In the end, the result was a draw. There was no reduction in the relief, but no extension, either. Those of us who awaited with great interest the passage in the Chancellor's speech that we thought would deal with the level of mortgage relief found that it was a dog that did not bark. Those of us who trained our eyes on both the Prime Minister and the Chancellor of the Exchequer to see how they reacted to the change were not rewarded by even a mention of the matter.

Profit-related pay was mentioned by the Secretary of State for Trade and Industry. I do not believe that there is any direct connection between the efforts of many employees and company profitability. It is all right for those in top management. They have a responsibility for certain areas, and if they are successful they are rewarded. But what about the charge hand in the machine shop, or the designer in the drawing office, let alone the worker on the shop floor? What direct connection do they have with the profitability of the company as a whole? Salesmen receive performance-related commission on their sales. There are arguments about the effectiveness of such a system of rewards, but its effectiveness does not increase as the distance between personal effort and distant profitability goals increases. To provide tax incentives for these but not for more direct achievements does not improve incentives. It distorts them. What about the public sector? Are we to discriminate against it? Employees in the public sector are not in the profit-making business. Are they to receive no incentive for personal effort?

Mr. John Stokes (Halesowen and Stourbridge)

I am listening most carefully to the right hon. Gentleman, for whom I have a great regard. However, in the many factories in my constituency, which I frequently visit, I have never found such great realism as now. The workers, the charge hands and the foremen, let alone the managers, are deeply interested in the success of their companies.

Mr. Sheldon

They have to be if they want to keep their jobs, but whether their desire to keep their jobs is related to a distant goal that does not directly affect them is another matter, with which I believe I have dealt sufficiently.

The Chancellor of the Exchequer rightly stressed the importance of fiscal neutrality in a number of these areas, but he makes a bit of a nonsense of his claim to fiscal neutrality by his proposals relating to share-purchasing, betting at racecourses, and profit-related pay. There is not much neutrality there. The late Lord Kaldor, for whom I had a great personal affection—I think that he was the greatest economist that we ever had who failed to win a Nobel prize — believed excessively in the ability of tax incentives to motivate action. The Chancellor of the Exchequer used to represent the other extreme, from which he is now shifting. The distortion of the economy that results from those policies is reflected in this Budget. It runs counter to so much of what he has advocated in the past.

I regret, as does my right hon. and learned Friend the Member for Monklands, East, the fact that the Budget is largely designed for the south-east. The Chancellor said not a single word about regional policy. That was a terrible omission, which I am sure he must regret.

Mr. John Morris is the president of the Manchester chamber of commerce and industry. In the presence of the Prime Minister, who was sitting by his side — he is a very brave man—he said: we do have a problem and we do believe a change in central government policy is needed to help us put it right. It is a problem which, if allowed to get worse, will not just prevent the north-west from exploiting its potential but will strangle our national growth. This problem is known in the Press as the north-south divide but it is actually much more specific than that. It is the accelerating concentration of the nation's wealth and resources in the south-east … Only by a commitment to the potential of the regions will the nation as a whole be able to escape the south-east vortex. The reason you and your colleagues hear so many complaints outside London, Prime Minister, is because frankly we do not see a willingness to address this problem. That is the most important problem of all. It is more important than economic policy.

People feel that they are being disadvantaged because they live in a certain part of the country. That is the reality of their feelings, and what I regret most about the Budget is that there is no recognition of what is happening outside this favoured region in the south where we have the opportunity to debate these matters.

The Government have created two nations. The Budget deals with only one of them. Not a single word of the Chancellor of the Exchequer's speech was devoted to the problems of the other regions, and even now they do not even receive lip service. The taxation relief that has been offered by the Chancellor is not received with rapturous acclaim when prosperity is absent from entire communities.

The Government do not have a proper regional policy. For the last seven years they have claimed their devotion to small businesses. Mossley in my constituency, as well as Ashton-under-Lyne, consists entirely of small businesses, but while the Chancellor was extolling their virtues these firms were closing their doors. Nearly half those small firms ended their existence at the same time as the Chancellor was offering various kinds of relief and telling us what he was doing to help them. Once those doors are closed, they will never reopen. Those firms were doing a useful job for the community and the country. They suffered, and they will continue to suffer. Any Budget that leaves out of account such communities and people cannot claim to be a good Budget.

5.6 pm

Mr. Terence Higgins (Worthing)

I begin by congratulating my right hon. Friend the Chancellor of the Exchequer on his Budget. Inevitably it has been labelled by the media an electioneering Budget. I hate to think how mean and restrictive my right hon. Friend would have had to be for it not to have been so labelled.

The Budget debate takes place against an interesting political background for the Opposition. Labour Front Bench spokesmen have clearly stated that they will reverse whatever tax cuts my right hon. Friend might make. It is unusual for an Opposition to place such a statement on the record. None the less, on reflection it was not a very unfortunate statement for them to make. It has given the impression that if the Labour party were to come to power, all that would happen would be the restoration of the status quo as at the beginning of last week. In reality, that is not true. Given their expenditure programmes, it would mean a vast increase in taxation. Taxation would be far greater than at the beginning of last week.

In these debates I have great pleasure in speaking after the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). I was interested in his suggestion that amendments ought to be moved to increase excise duties. My right hon. Friend has not increased excise duties, which brings out the crucial point that it would be a question not just of offsetting the tax changes in the Budget but of increasing taxes as well. However, the right hon. Gentleman was quite safe to make that suggestion because he knows, as I do, that it would be out of order to oppose an increase in excise duties during the debate on the Finance Bill.

It is also of interest to establish clearly the position of the alliance. We recall that last year they voted against the proposal to reduce taxation. No doubt they did so to demonstrate their fiscal rectitude. However, they did not go to great lengths to publicise what they had done—no doubt to avoid endangering their electoral prospects. If they do the same this year, I hope that there will be a great deal of publicity about precisely what is involved.

I welcome in particular one measure—the proposal to increase tax relief for those over 80. Some years ago I had the privilege of introducing a private Member's Bill that gave pensions as of right to the over-80s. It was the first measure that we introduced in 1970 when we came to power. I hope that the example that my right hon. Friend has given in this Budget will be followed on future occasions.

I am rather more worried about my right hon. Friend's proposal to treat the capital gains paid by insurance companies in the same way as corporation tax. It will put them at a disadvantage in relation to unit trusts, and it may affect the profits that eventually they are able to distribute. I hope that my right hon. Friend will look again at that proposal.

My right hon. Friend has introduced a very balanced Budget. It strikes a balance between the increases in public expenditure that were announced earlier, cuts in taxation and reductions in borrowing. The balance between those three elements was the keynote of my right hon. Friend's speech last week. The fact that we have already seen a reduction in interest rates as a result of these measures is important not only to those with mortgages but to those who are investing in industry, with the prospect of corresponding increases in employment.

My right hon. Friend the Chief Secretary to the Treasury emphasised that we must look at both sides of the equation and at the difference between them. In that context, I hope that my right hon. Friend the Chancellor of the Exchequer will look more favourably at the proposals in the report on finance of the Select Committee on Procedure to bring together the two sides of the debate. It is strange that the Budget deals only with raising taxation instead of looking also at public expenditure. I hope that my right hon. Friend will look at that proposal again, and, perhaps, at the proposal for placing a limit on Government borrowing — a system that is used in the United States.

I welcome the cut in the public sector borrowing requirement, but I have two doubts about it. The first is my right hon. Friend's proposal that, over the length of the medium-term financial strategy, it should be held at 1 per cent, of gross national product rather than continue on its downward path. I hope that he will at some stage spell out the arguments for doing that.

I have long had differences with my right hon. Friend about asset sales, the proceeds of which he continues to treat as a reduction in public expenditure, whereas I believe that they should be shown as a means of financing the PSBR. Those asset sales are now larger than the PSBR itself. If the figures were treated in the way that I have suggested, the PSBR would be more than double the size that appears in the official figures. Of course, the impact of that change would not be twice as large, because selling British Telecom or BP is not precisely the same as selling gilt-edged stock. None the less, the economic effect, while not exactly the same in quantitative terms, is the same in qualitative terms.

It is difficult to ascertain what the balance between fiscal and monetary policy now is. I hope that my right hon. Friend will not hesitate as much as he has in the past, when policy is developed, to recognise that that balance has changed. There have been considerable changes in the medium-term financial strategy. The original intention of that strategy—to reduce the PSBR so as to control the money supply without putting excessive reliance on interest rates — is closer to being achieved now than before. It is curious that despite that fact the measure of money supply that was originally proposed—M3—has now been effectively dropped.

As the balance of payments has already been discussed at considerable length in this and earlier debates I shall say only that I do not share the great concern that has been expressed about it. The fall in the exchange rate against the deutschmark in particular is bound to work through in the form of higher exports. The official forecasts on the balance of payments figures may be over-pessimistic, not least because they are based on conservative estimates of future oil prices. Therefore, I do not share the concern expressed about the matter by the Opposition.

I now turn to the somewhat strange letter that appeared in the Financial Times immediately before the Budget, signed by all the chief economic advisers to Governments from 1947 to 1979. They should know better than anyone that publishing a letter immediately before the Budget is not likely to have a tremendous impact on its contents.

The letter was also curious because it made a superficial and over-simplified analysis of the events of 1979–80. It grossly underestimated the impact, not only of the items mentioned in it, but of the world recession at that time. It also failed to take into account the Clegg pay settlements, whose impact in terms of our competitiveness was serious, as the Treasury and Civil Service Select Committee pointed out at the time. The effect of high oil prices on the exchange rate should also have been mentioned. The letter failed to appreciate the great number of influences at work at that time.

As a result of that conjuncture of variables, overmanning in British industry was substantially reduced, and, as a result of that, the unemployment from which we have been suffering since then took place. It was neither the classical type, with a lack of co-operative factors, nor the cyclical variety. It was a once and for all change, reflecting the fact that the jobs were not there at all.

In terms of human unhappiness, that was a great tragedy for those who were affected by it, a large number of whom did not contribute to the inflationary wage settlements. It has meant that we have had to create about one third of the jobs in the economy since then. There is no simple solution to the problem and a massive increase in the level of demand would not bring about the kind of long-term solution that we need. On the contrary, it will take time. The Budget produced by my right hon. Friend is consistent with that objective.

The letter that I mentioned earlier advocates a change of course, although exactly what change is unclear, as it is not specified. The Budget's measures are likely to result in a reasonable level of economic growth which, in turn, provides a basis of lower interest rates and so on, giving hope that a decline in the level of unemployment such as we all desire will take place.

The demographic factors that have contributed considerably to the level of unemployment while employment has been increasing are likely to work gradually in our favour, and we should all welcome that. That will affect not only the south-east of England, but other parts of the country too. The overall employment picture gives cause for hope of an improvement. The balance between expenditure, taxation and borrowing is the right one, because if long-term investment is to be found, the rate of interest will play an important part in that.

This was not an electioneering Budget; rather it continued the development of policy. There have been considerable developments over the past few years, but this Budget should see us into a third term of Conservative Government and a continued improvement in our economic position.

5.18 pm

Mr. Matthew Taylor (Truro)

I thank you, Mr. Deputy Speaker, for allowing me this opportunity to make my maiden speech. It is not especially easy to come into the House in such tragic circumstances and I am conscious of the remarkable precedent set by my predecessor, Mr. David Penhaligon.

It is rare on the death of an hon. Member, even in such tragic circumstances, that such a huge wave of sympathy and such a great sense of loss are sparked off. That is true not only of my constituency and of Cornwall as a whole, although perhaps the greatest sense of loss has been felt there, but of many throughout Britain who felt that they had lost an ally, a straight talker and someone on whom they could depend. Indeed, many who had never met him personally felt that they had lost a genuine friend. David had become known throughout the nation as a politician who was honest, down to earth and deeply caring—in short, a politician of warmth and humour who could be trusted and relied upon.

I was fortunate enough to work with David, so I am well aware that he never attempted to put on a public face, or a pretence, but always acted on his words—he lived his Liberalism.

I believe that I can speak on behalf of all my constituents in thanking David's colleagues and friends in the House for their generous tributes to him. Most especially, I wish to pay a tribute to the sheer bravery of his family — to Matthew, and Anna and, above all, to Annette, his wife, who has shown remarkable courage in the months since his death. I am grateful to them for the help they have given me in tackling his casework, through the campaign and now as I take his seat in the House.

Let no one say that David was simply a good natured Cornishman, marvellous attributes though they may be. He was a rare campaigner for justice for the poor, the elderly and for Cornwall, highlighting not only the problems but proposing imaginative and far-reaching solutions.

When he was first elected he had come from third place in a constituency where the Liberals had badly declined. Over many years he built up a strong voice for the Liberal party, not only there but in the House, and it is an element of tribute to him that we now see the alliance and the Liberal party challenging for Government. Indeed, I think that he would have greatly appreciated the panic shown by certain Conservatives over the weekend.

At the time of his death David was one of those putting the finishing touches to the alliance's yellow book, "The Time has Come", and to the alliance Budget proposals. Each has now been published and is part of his legacy as a great Liberal. For each he drew, in large part, on his knowledge of the problems of Cornwall.

Truro and St. Austell is an area of great contrasts. It is popularly known for its beaches and sunshine but we suffer, in fact, from all the same problems as some of the most deprived regions of the north. The Cornish health service has not been allowed the resources to keep up with the growing burdens upon it. We have waiting lists for urgent cases and four out of five people have to wait more than a month. For non-urgent cases one in three people have to wait for over a year. The primary schools, in particular, are old and dilapidated, yet the funds are not made available to restore or renew them. Cornish housing waiting lists lengthen and homes crumble while the receipts from council house sales are locked up in London. Local unemployment remains well above the national average, yet the grants available to assisted areas have been removed from Truro and St. Austell and more jobs have gone with them. Farm incomes have dipped between 60 and 70 per cent in the past five years, bankrupting many smaller family farms. In the clay areas around St. Austell we still live with a pale version of the deprivation and dereliction of the coal mining communities elsewhere. We have seen a decline and it is those issues that I have highlighted throughout the recent by-election.

Throughout, I argued that the money made available by the short-term revenues from privatisation and North sea oil should be invested in rebuilding our schools and hospitals, in our children's education and training, and in jobs. Above all, I believe that the short-term Government revenues should be used not for short-term gains for the better off but for long-term investment from which we can all share the dividends in the future. Most of all, we must fulfil our obligations to invest in our children and their future. It was with the resounding backing of the people of Truro and St. Austell for those priorities that I took my seat on Budget day last week.

I must confess that I was disheartened by the Chancellor's speech; not for what it contained but for what it did not contain. There was a give-away of £500 million in the Budget to those who smoke and those who drink, but we are told that there was no money for the things that so clearly the people of Truro and St. Austell said that they wanted made a priority. It contained nothing for the unemployed, the old, the young, the disadvantaged or the future. Indeed, the Chancellor has failed to draw any lesson from the dismal showing of party candidates representing his priorities in by-election after by-election. Was there anything for the rich? There were perhaps a few extra pounds in the wallet, but I do not believe that even the rich still think that those are the right priorities for our Government. They can see that if their children are unemployed, their parents have to be helped out because the pension is inadequate. If when they want hospital treatment they find themselves having to wait more than a year or paying for it privately, there is no gain from the Chancellor's tax cuts.

I had hoped that the Government would respond to the clear message of the voters of Truro and Greenwich that the time has come to start investing for the future and to start rebuilding our nation. I fear that, so far as I can detect, the Chancellor has failed to do so. The people of Truro and St. Austell elected me to make that case and I have done so. They also elected me to campaign for change, and on that I am just beginning, but change is in the wind.

5.27 pm

Mr. Cranley Onslow (Woking)

It falls to me, and I am glad to accept the pleasant duty on behalf of the House, to congratulate the hon. Member for Truro (Mr. Taylor) on his maiden speech. I am sure that what he said about his predecessor will have been echoed by all present on both sides, and by those inside or outside the House. David Penhaligon was a man who won enormous respect and affection from all of us, even though we did not always agree with what he said. However, if we all agreed with what everybody said we would not be here at all.

May I say to the hon. Gentleman that I congratulate him on the manner of his speech, if not necessarily on all its content. I congratulate him on the terrifically Liberal way in which he interpreted the conventions about avoiding anything controversial. Whatever forces brought the hon. Gentleman to the House, he is now here on his own and he will stay here, as long as he does, by virtue of his own achievements and his mark will be made by himself. We look forward to seeing how he goes about it.

This is only the second time that it has fallen to me to congratulate a maiden speaker. On the other occasion, the hon. Lady whom I followed had won a by-election in Lincoln from a certain Mr. Taverne. As far as I can recollect, she lost that seat at the next general election and it has been a Conservative seat ever since. The hon. Gentleman may take that in any way he wishes. We look forward to hearing him again.

As far as I can recall, this is my own maiden speech in the Budget debates. I do not recollect having ventured into this difficult territory before. I welcome the procedural change by which it has been made possible for hon. Members to continue to debate the Budget on the evening that the Chancellor makes his statement instead of going on to some opposed private business or other.

I have no doubt from the conversations I have had with colleagues in the House and with constituents that this is a good Budget and that the Chancellor is to be congratulated on it. He is also to be congratulated on the consistent management and maintenance of the objectives that have enabled him to bring forward the Budget in this form.

I spoke to a number of my constituents on Saturday morning and I asked them what they made of it. The small traders were unanimous in their welcome for it, particularly for the value of the VAT changes. I hope that there will be no difficulty with the EEC on that and I hope that my right hon. Friend the Chancellor will also accept that the EEC should be pressed to do something to raise the VAT threshold above its present figure. It is far too low and it should be raised.

The constituents to whom I spoke were unanimous in welcoming the tax reliefs and were also very pleased about the interest rate reductions that had followed the Budget and the reduction in the mortgage rate, about which they had just heard. They were also very pleased about the constant theme running through this Budget, as with its predecessors, of maintaining the fight against inflation.

There is one specific point which I want to bring to the attention of my hon. Friend the Minister of State, Treasury. I want to echo the point raised by my right hon. Friend the Member for Worthing (Mr. Higgins) about the effect on the insurance industry of the proposed changes in corporation tax rules. Unfortunately, the Chancellor's Budget statement did not spell out too precisely what effects the changes will have and nor did the Inland Revenue press release that followed. I hope that we can have some clarification on that matter because the Association of British Insurers is very concerned by a move which it believes will bear heavily upon its industry. Many of its members are worried about what has happened to the "level playing fields" approach.

The ABI states that it has received confirmation from the Inland Revenue that it is intended that the proposed new measures will apply to the policyholders' share of chargeable gains arising in life funds. This is to be achieved by the repeal of Section 26 of the Finance Act 1974"— with which hon. Members will be instantly familiar. The ABI goes on to say: Tax on the investment gains of policyholders' funds effectively represents a levy on the savings of millions of policyholders. The new measures, which are expected to cost at least £50 million per annum, would further reduce the competitive position of life insurance companies in relation to investment trust companies and authorised unit trusts and even direct investments by individuals. The association goes on to stress: In 1984 the Chancellor justified the abolition of Life Assurance Premium Relief on the grounds that it was desirable to encourage equality of investment opportunities. The Association fully supports that objective but considers that the proposed new capital gains tax measures will have the opposite effect.

I must add to those comments the view of one major unit trust company with which I have been in touch. It argues that the calculation of the product of the change at £60 million in the Budget may be a considerable underestimate because, it states: In 1985 capital losses on gilts could offset gains in other securities. This is no longer the case. Stock and bond markets have risen substantially since 1985 so that realised gains in 1986 will be significantly higher than in 1985. … The provisions for capital gains tax made by the life companies are borne by the policy holders. Those provisions reflect unrealised gains. The cost to the policy holder of the Budget proposals will therefore reflect not the impact on realised gains—the Revenue's assumption—but unrealised gains. The company makes other points which no doubt can be pursued and probably will be pursued in the Committee stage of the Finance Bill. However, with regard to the representations that I have received, I must tell Ministers that there is a point which must be cleared up speedily. I would be happy to expand on the brief summary that I have given to the House now if that would be helpful to Ministers.

The next point concerns the cuts in the science budget, which have received a lot of publicity over the weekend. The right hon. Member for Glasgow, Hillhead (Mr. Jenkins) made a great deal of that in his party political broadcast and the right hon. Member for Plymouth, Devonport (Dr. Owen) went on about it during his appearance on "Any Questions".

The facts seem to be very difficult to establish. I can tell the right hon. Member for Hillhead in his absence that if he is concerned — and I would not quarrel with his objective—to make Britain the best educated nation in western Europe, it might have been more to the point if he had said something about the effects of the completely unnecessary teachers' strike which is causing infinitely more damage to our children's prospects than anything else that is happening at the moment in the world of education.

When we try to find out precisely what the effect of the Science and Engineering Research Council budget reallocation will be, we do not have very much firm material to rely on. An article in The Times today refers to Dr. Peter Day and his research into superconducting material, one property of which is said to be an application to magnetically propelled trains. I recall that we have been in that country before. There was a tremendous row in 1973 about linear motors which, I think, are not totally different from magnetically propelled trains. The judgment then was that that technology was not likely to be of great value to anyone with already well-established conventional railways. I wonder how genuine is the alarm that is now being sounded.

Another item in that article in The Times also worries me. It states: Britain is particularly well placed … because it has probably the world's best instrument for the job, called Isis, at the Rutherford and Appleton laboratory near Oxford. If we already have the best equipment for this research, I am puzzled and cannot understand why we cannot find some way of combining with other nations that are working in the same area to make progress together. I cannot understand why the British effort must be carried out in isolation and apparently totally funded by the taxpayer.

Leaving that point aside, the part of the argument that I find even more depressing is the way in which it ignores what is already happening in industry to apply research to marketable products. Our industrial progress is more likely to be speeded and maintained by applied research than by some of the academic work about which we hear so much fuss. I say that with the knowledge that at least two of the companies with whom I am lucky enough to be involved have recently invested considerable sums of money in setting up applied research units. These have been extremely successful and should shortly be paying their own way and soon making substantial profits. I would much rather see scarce scientific resources used in ways that will create jobs and saleable products in the next two or three years than being used to create something which may or may not be of great benefit to us in 20 years' time.

The general health of industry also attracted some comments from Opposition Members. When I hear Opposition spokesmen on this subject, I am puzzled by how little they seem to know about the south. They claim an enormous expertise on the north, but sometimes their comments about life in the south are totally detached from reality.

Mr. Alistair Burt (Bury, North)

That is because the Opposition do not have any Members of Parliament in the south.

Mr. Onslow

It may be because they have no hon. Members representing southern constituencies and I suppose that I would be out of order if I went into the reasons for that. However, Opposition Members have not tried to find out the reality.

The right hon. and learned Member for Monklands, East (Mr. Smith) suggested that if things continued as they are there would be skill shortages and environmental pressures in the south-east of England. There have been skill shortages and environmental pressures in the southeast for four or five years now. The green belt, which is immensely valued by my constituents, nevertheless acts as a barrier to some of the kinds of industrial and housing developments that some Opposition Members are so eager to see. More than one company in my constituency is 10 per cent, short of the skilled manpower it needs to maximise its business opportunities, and that against the background in which the employment position continues to change for the better. Only today I received a press release from Surrey county council that shows that there has been a 14 per cent, drop in the number of people registered as unemployed in Surrey in the past 12 months. The press release states that most young people in Surrey have a realistic opportunity of obtaining a suitable job.

Against that position, companies in my part of the world are seeking to move some, if not all, of their enterprise to other parts of the country—for example, to the north — where they can find a more congenial opening for development on property costs and employment opportunities. The biggest employer in my constituency is probably still British Aerospace, but its Weybridge plant is being run down and British Aerospace is relocating the work that used to be done there to other areas, including Manchester, Humberside and Bristol. It is no longer economically sensible to make aeroplanes at Weybridge, but design, draughtsmen's work and administration will continue there.

Just as British Aerospace is relocating to areas which the Opposition describe as deprived, so James Walker, which is the biggest direct employer located in my constituency, has long had subsidiary factories at Workington and at Wadebridge in Cornwall. They contribute to the strength and development of a healthy company. Another company whose representatives I met the other day is setting up a subsidiary in Birmingham, and another has set up part of its enterprise in north Wales.

That is how matters will go in the future. It may be true that, comparatively, the south-east is more prosperous than other areas at present, but that prosperity represents an economic flywheel whose benefits are spinning off and will continue to spin off to other areas. I congratulate my right hon. Friend the Secretary of State on what the Government have done in the Budget to make it easier for such firms to continue to prosper, expand and diversify.

Opposition Members who criticise the Government could usefully apply several tests when they talk about the north-south divide. One is whether the immobility of labour—about which, understandably, they complain— is increasingly being compensated for by the mobility of management. I have anecdotal evidence to show that that is happening, and there is statistical evidence to the same effect. In response to a question from me this morning, the Library was kind enough to produce some figures on domestic air passenger movements. They show that between 1982 and 1985 the average annual increase in traffic between the London airports and the provincial airports of Edinburgh, Glasgow, Manchester and Newcastle was 9.2 per cent. That is not all due to tourists or to family travel. A significant part of the increase— the right hon. and learned Member for Monklands, East, as a user of the shuttle, will have noticed this — represents the movement of managers to those areas seeking and expanding economic opportunities. The figures show that that trend has continued into 1986, although the full figures for that year are not yet available.

Mrs. Dunwoody

Has it occurred to the hon. Gentleman that it is caused by something much simpler? Management in areas such as the north-west is being forced to travel to London to check with other administrators, who are no longer in touch with what is happening in their few remaining subsidiaries in the manufacturing areas.

Mr. Onslow

It is probably some fault in the management system which I have no doubt the hon. Lady knows all about and could cure if she put her mind to it. I shall not dwell on that point, but the right hon. and learned Member for Monklands, East should not be so gullible about the cause of the split between the more economically active areas and the areas where economic activity has not yet recovered to its previous level. The industries that used to provide the economic activity in those areas have died and must be replaced.

The Government's management, which can be described as prudent, includes more proposals for privatisation, with the announcement that the remainder of the Government's stake in British Petroleum will be sold. I welcome such sales, especially because I have never believed that it is the business of the Government to accumulate assets. The Opposition are fond of talking about public ownership, but the only genuine public ownership is the personal and beneficial ownership by millions of members of the public, who now have the opportunity to put their savings into enterprises that were previously closed to them.

To return to my experience in my constituency on Saturday morning, the only switcher that I found was a lady who told me freely that she had voted Liberal at the seven elections in Woking in which I have been fortunate to come top of the poll, but that she now intended to vote Conservative. I welcomed that, and asked her to tell me why. She said that her son had told her that she would be daft to vote in a way that might create a hung Parliament and thus cause immense damage to the value of her savings

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

It is a very small sample.

Mr. Onslow

It is a very small sample, but I doubt whether she is the only person. What a perceptive fellow the hon. Gentleman is. What a perceptive little sample he is. I very much doubt whether that lady was the only constituent of mine who thinks that way about the opportunities that have been opened to her, under this Government, to take a personal interest in the prosperity of the country.

This is a good Budget. I agree with my right hon. Friend the Member for Worthing that it is not an election Budget. It is consistent with the long-term aims which the Conservative party has set for itself. My hon. Friends the Members for Reigate (Mr. Gardiner) and for Horsham (Sir P. Hordern) said that 25p was not a low enough target for the reduction in the basic rate of tax. I agree with them. It should be our purpose to reduce the first payment point for income tax as low as possible, consistent with prudent management. To do that, we must win another election. The Budget will help us to do that.

5.47 pm

Mr. Eric S. Heffer (Liverpool, Walton)

We have heard much in the debate about income tax, and the hon. Member for Woking (Mr. Onslow) also mentioned it. I have no objection to income tax relief for those at the lower end of the incomes scale—some working people have been taxed too highly—but that is not to say that we should agree with the Government's proposal to lift tide income tax burden from all sections of the community. A clear level should be set beyond which taxation should increase, not decrease, because income tax is an important way of redistributing wealth. The Government have taken the opposite line and are helping the rich, to the detriment of the poor.

A fact which emerges clearly from the Budget proposals, and which has been underlined by the debate —I have listened to much of the debate on various days —is that the unemployed gain nothing from them. As the people of Liverpool would say, there is nothing down for them. Nor does it help the low-paid. On Thursday last week my hon. Friend the Member for Bradford, West (Mr. Madden) said that since 1979 a total of £8 billion had been given in tax cuts. The poorest 6 million taxpayers have received only 8 per cent., while the richest 1 million taxpayers have shared one third of tax cuts. My hon. Friend said: The taxpayer on £70,000 a year has received a tax cut of £367 a week. The low-paid have received under £2 a week and that has been offset by increases in national insurance contributions, VAT, excise duties and other indirect taxes." —[Official Report, 19 March 1987; Vol. 112, c. 1114]

The Government have consistently pursued a policy of increasing indirect taxation, which hits the lowest paid hardest. Indirect taxation is the most punitive form of taxation, yet the Government have pursued a policy of increasing it from the very day on which they were elected. This is a rich man's Government. I do not mean that all of them are rich, but they support the rich against the poor. According to the Inland Revenue figures for 1984, the richest 1 per cent, of the population owned 21 per cent, of personal wealth, and the richest 10 per cent, owned 52 per cent. The poorest half of the population owned just 7 per cent, of the personal wealth. The latest figures for household income distribution, published in November 1986 in Economic Trends, show that the gap between the rich and the poor is widening. By 1985 the top 40 per cent, of the population accounted for 76.5 per cent, of personal incomes, whereas the poorest 40 per cent, accounted for 6.3 per cent.—a drop from 9.5 per cent, in 1979.

The fact is that Britain is made up of two nations. The gap is not just between north and south. In that respect, I partly agree with some Conservative Members. Matters are worse in the north because it has had a greater concentration of industrial workers, but some workers in the south are suffering just as much. We must understand that the divide is between the rich and the poor, although it is further aggravated by the north-south divide.

As I have said before, I shall never forget the image of the Prime Minister coming out of No. 10 on the day that she was elected and reciting the prayer of St. Francis of Assisi. It would have been better had she quoted a few words from what Benjamin Disraeli wrote about the two nations. Although we have not yet reached a state of affairs as bad as that, we are getting very close to it. In London, we are certainly getting close to the situation described by Jack London in "The People of the Abyss". He described poverty stricken, homeless people sleeping under arches in this great city of ours. He described people coming here to look for work and not being able to find it.

The problem is that the Government are a class Government, carrying out class politics. They do not argue class politics; indeed, they deny the existence of the class struggle. They simply carry out class politics against our people and our class.

The Prime Minister goes on about Victorian values. Some Victorian values were good, but not those that the right hon. Lady espouses. Her values are the values exemplified by the small shopkeeper who, unable to find somewhere for his workers to live, turned them out into the streets on a Sunday. Those employers kept their workers poverty stricken, did not think that there should be organised trade unions and fought against them. They believed that workers should be kept in service for the benefit of the rich. We do not hear the Prime Minister saying very much about the real values of those times.

The Government tell us that we are living in a popular capitalist society and that we are increasingly a property-owning democracy. They tell us that more and more people own their own houses and that there are more and more individual shareholders. Ministers should come to my constituency and to other parts of Liverpool and see how many houses are up for sale and how many of the young people who owned their homes have now been thrown out because they could not keep up the mortgage repayments.

Some time ago there was a very good article in the Daily Telegraph about workers coming down from Liverpool on the 4, 5 or 6 o'clock train on Sundays and going back on Fridays. Married men with families have to leave their homes to seek employment. They lead a nomad's life and live in all sorts of dreadful conditions—that is, if they can find accommodation at all. The hon. Member for Woking (Mr. Onslow) said that there was a skill shortage in the south, and I am sure that there is, but when my young nephew who is a skilled craftsman literally got on his bike and came down to the south with a tent he could not find a job as a skilled engineer. The only job that he could get was in a bar, and he did not think that that was what he required. Perhaps he could have got a job if he had had a house. But there are no houses, lodgings or other places in which to live. Those are the problems with which we are faced.

The Chancellor boasted that we now have 8.5 million individual shareholders. He knows as well as I do what happens when a company or an industry is privatised. In the first flush there appears to be a wide take-up of the shares, but they are almost immediately sold and become concentrated in the hands of financial institutions and smaller groups. If the Government think that I am talking a lot of nonsense about the share-owning democracy, they should look at the excellent booklet entitled "The Widening Gap—Rich and Poor Today" published by the Labour research department. I am talking, not about the Labour party research department, but about the research department started by people such as G. D. H. Cole a long time ago. The document lists the top 200 millionaire shareholders. They range from David Sainsbury and Robert Maxwell to J. M. K. Laing and, believe me, they own a lot of shares. They do very well out of so-called diffused shareholding democracy.

The real economic power rests not with the Government but with those top shareholders. Let us consider that in relation to unemployment in areas such as mine. In January this year Merseyside had 136,100 people out of work—20.1 per cent unemployment. The figures are also listed by local authority area. Knowsley had 19,001 unemployed and Liverpool 55,683. In St. Helens it was 14,434, and in Sefton, which includes Bootle, it was 21,039. In Wirral, which in Liverpool is regarded as a posh area to which one used to get the boat, it was 25,943.

I want the House to reflect for a few minutes on the misery that lies behind those figures and what they mean for people living in the situation that they are in today, with no jobs and no hope. This is particularly true of young people. It has been said by Conservative Members that we do not understand the south. Perhaps we do not, because we do not live here all the time, but if they came to our areas to see what it is like, with masses of young people with nothing to do and no hope and no future, they would understand us better. These people do not believe that anybody will do anything for them. Some of them have been unemployed for more than six years. They cannot change jobs because they have never had jobs. They are part of the over 1 million who have been out of work for more than a year. Hon. Members should think of the horror that that means.

Had it not been for the Liverpool city council taking on 11,500 workers for construction work, building houses, sports centres, parks and much else, the level of unemployment would have been even higher. Unfortunately, most of the Liberal party is not here, but I must tell its Members that it is a great pity to read that the Liberal party in Liverpool is talking about stopping the house building programme that had been put into effect.

The construction industry is the one industry which, if the Government were serious about creating employment, could get workers back to work quickly. It is a labour-intensive industry. All that one has to do is look through the Government Departments to see what is required and provide the money to get that building done, and get local authorities to say what housing needs there are, and get on with the housing. Public buildings, the development of the railway system, which needs modernisation, and the sewerage system provide plenty of opportunities for job creation. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) referred to the chamber of commerce that had asked the Government to provide £500 million in the Budget for extra work for the construction industry. I do not see that anything has been done along those lines.

Homelessness has increased. In 1979, 56,700 households were accepted as homeless for rehousing. That is the official definition of homelessness. By 1985 that figure had grown to 93,900, and it is rising all the time. That was the accepted number of applicants, not the total number, which in 1985 was 203,000. Government statistics point to 588,000 overcrowded households in 1985 and 109,000 severely overcrowded households, and only 38 per cent, of those people are on housing waiting lists. These figures have gone up all the time. Registered households in England stood at 1,020,000 in 1979, and they stand at 1.25 million today.

Much can be done. Opportunity exists through a housing policy. The Trades Union Congress, in its Budget proposals, and even the employers in the construction industry, have pressed the Government to put investment money into building. It is the one industry that could begin the process of building up employment and getting it going. Whatever criticisms I may have of some aspects of their policies, my Front Bench spokesmen are right to argue for beginning the process of developing the construction industry and putting investment into this vital industry.

When my party comes into office, as I think it will, it must carry out these policies. I am not one of those who read the papers and think "Oh my God." That comes from the hothouse of the journalists. When I talk to people, I find that they are about as enthusiastic for this Government as a Jewish person would be about a pork chop in a synagogue. They have no enthusiasm whatsoever for this Government and they intend to get rid of them. I want them to vote for the only party that can create an alternative Government, my party.

I want to see an end to privatisation and I want to take back into public ownership those industries which have been privatised. The Government talk about shareholding, but we all had shares in such industries because they were the nation's shares. They were owned for us, by us and in our interest. If they were not run as well as we wanted them to be run, we had the right to do something about that. Once such control is out of our hands, we have no control over industry.

I want to extend public ownership. I am delighted with the idea of the investment bank, and I hope that we shall look further than that. I want to see the nation's resources planned on a proper basis. Technological development, whether or not we like it, will create unemployment, so we need alternative employment for those workers who are made redundant. This means planning the nation's resources and the nation's labour, which is part of our resources. This in turn means that we have to talk in terms of a 30-hour week and fewer working days each week and extending industry, and the service industries, in other directions. We must put profits not before people but behind the interests of the people.

We need to get rid of this selfish, greedy society that has developed since the Government came into office. They have proved that the capitalist competitive system does not work in the interests of our people. It is time that we made a move to get rid of it.

6.8 pm

Sir William Clark (Croydon, South)

The House has listened with great interest to the hon. Member for Liverpool, Walton (Mr. Heffer), who made his usual anti-capitalism speech. In his view, we should go back to the good old days when we had state regulations and state control, which stifled initiative and led to overmanning in our industries. That is mainly responsible for today's high unemployment.

I welcome the Budget, which is a continuation of the Government's strategy since 1979. I cannot see that there should be any surprise that some of us who have supported this policy ever since the Government started in 1979 now see it coming to fruition. This year, my right hon. Friend the Chancellor has increased revenue from VAT, from more productivity in industry and from PAYE. This has given him the opportunity not only to increase public expenditure on education, health and so on to the extent of over £4 billion but to cut taxes by just short of £3 billion and to cut the borrowing requirement by £3 billion.

I do not know whether the hon. Member for Walton is advocating an increase in excise duty. However, I advise him that people with low incomes are benefiting from the fact that my right hon. Friend the Chancellor of the Exchequer has not increased excise duties on cigarettes, beer and so on.

To listen to Opposition Members, one would think that any reduction in taxation would immediately cause a balance of payments problem. Surely any increase in wages will cause such a balance of payments problem. Their argument is so illogical that it is untrue. The £2.8 billion reduction in personal taxation will create more demand and more jobs. That is what we want. My right hon. Friend the Chancellor's main thrust in the Budget ensures that inflation is being kept down with the non-valorisation of excise duty and the cut in the borrowing requirement.

As hon. Members will recollect, the public sector borrowing requirement was running at £7 billion, or 1.75 per cent, of GDP. It will now be reduced to £4 billion, which is only 1 per cent, of GDP. I am sure that Opposition Members will agree that it is fair to say that the Labour Government's borrowing requirement represented just over 9 per cent, of GDP. That forced them to go to the IMF. Their real problem was overspending. We were in an absolute mess—[Interruption.] It is no good the hon. Member for Dagenham (Mr. Gould) laughing. He knows as well as I do that when his right hon. Friend the Member for Leeds, East (Mr. Healey) was Chancellor he had to go cap in hand to the IMF to bail out the country. We were beggars to the IMF. The right hon. and learned Member for Monklands, East (Mr. Smith) said that his right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) did not say that under a Labour Government the borrowing requirement would increase to 4 per cent, of GDP. I refer Opposition Members to column 952 of the debate on 18 March which shows that the right hon. Member for Sparkbrook clearly said that the deficit would be 4 percent, of GDP. That means that he will borrow about £16 billion. It is no good the hon. Member for Dagenham denying that. Perhaps when he speaks he will spell out—

Mr. Bryan Gould (Dagenham)

I am grateful to the hon. Gentleman because I can do better than that. I should like to correct him and point out the distinction between the public sector financial deficit, which is what my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) was discussing, and the public sector borrowing requirement, with which the hon. Gentleman is confusing it.

Sir William Clark

Not under a Labour Government, because the difference between the two is the privatisation money. I presume that there will not be any privatisation money under a Labour Government, which means that 4 per cent, of GDP is £16 billion. I remind the hon. Gentleman that before the Labour Government went to the IMF the 9 per cent, borrowing requirement would, in today's figures, mean overspending of about £36 billion. That is the size of the problem that we face. The borrowing requirement must affect interest rates which we have seen fall by one point. I believe that they will go even lower.

I advise right hon. and hon. Members who advocate an increase in the borrowing requirement to consider the present cost of the national debt. It costs us nearly £18 billion a year to service it. What could we do with that £18 billion if we were paying it in interest? In simple terms, the country is paying £30,000 a minute in national debt. There are 60 minutes in an hour and 24 hours in a day, and every minute we are paying £30,000. I hope that my right hon. Friend's target for the borrowing requirement is zero. If we raise £5 billion from the sale of BP, the current borrowing requirement of £4 billion will be reduced to nearly zero.

I know that the hon. Member for Walton does not care for the capital society. However, during the past seven years, with the sale of property to council house tenants, we have created a true property-owning democracy — [Interruption.] It is all very well for Opposition Members to grin about that, but they should talk to some of the 63 per cent, of people who are owner-occupiers. Former tenants are delighted that they have had the opportunity to buy their council houses. Opposition Members should talk to the 8.5 million small shareholders and savers, not to people such as Mr. Sainsbury or Mr. Robert Maxwell. The small shareholders want a stake. It is all very well for Opposition Members to say that, with nationalisation, we all had a stake and were all shareholders. I should like to know what dividends I have ever received from, for example, British Rail, in which I am supposed to be a shareholder. I have not received any dividends from that but if I invest in British Telecom I receive dividends from that investment.

We should continually remind people that overseas assets are a great boon to our economy and produce between £4 billion and £5 billion worth of invisibles for our balance of payments. They have increased from about £20 billion to £110 billion today. I am sure that economic pundits will agree that, in time, with the great build-up of overseas assets as oil revenue reduces, invisible earnings from our overseas assets will increase.

I welcome the mention of personal pensions. However, I issue a warning about occupational pension schemes. They should be increased. Nothing is better, when a person retires, than that he or she should have some income apart from the state retirement pension, because that gives them far more independence. However, if the Labour party were to form an Administration, they would force the institutions—the pension funds—to repatriate overseas assets and capital and divert that capital into what is known as a national investment bank. We have all seen the investment policies of previous Labour Governments. For example, there was not much money left after their investment in De Lorean. The same was true of the groundnut scheme and there was absolute, complete and utter disaster over Gambian eggs. If pension funds are forced to invest money in non-profitable ventures, through the national investment bank, their declining actuarial value will jeopardise the pensions of today's occupational pensioners. I remind the House that between 11 million and 12 million people have occupational pensions. If the Labour party had its way and upset actuarial valuations because of bad investment, those 11 million to 12 million people might not receive the pension that they were expecting.

I welcome the fact that another boost has been given to the age allowance in personal taxation. I also welcome the blindness allowance and the increase in the thresholds. I remind the House that they have increased by about 22 per cent, in real terms since 1979. However, I advise my right hon. Friend the Financial Secretary that the threshold is far too low. Even after the Budget a married man will start to pay tax at 27p in the pound as soon as he has earned £73 in a week. That is far too low. We should increase that threshold as soon as possible because the national average wage is now £195 a week. The target should be aimed so that a person starts to pay tax only after earning at least half of the national average wage.

As has been mentioned by some of my hon. Friends, the higher rates of tax are far too high. I welcome the fact that the top rate was reduced from 75p to 60p in the pound. However, at one time one paid 33p in the pound at the tax threshold. In the next tranche, when one's income had increased, the uplift was 40p. Then it was 45p, 50p and so on. The difference between 33p and 40p was a seven point jump. Now that tax is down to 27p in the pound, the jump from 27p to 40p is too steep and we must even it out. We cannot do so in this Budget, but in the lifetime of the next Parliament when the Conservatives will again introduce four or five Budgets our target should be for a rate of tax of 15p in the pound for those on half the average wage — £100 — 20p in the pound for those on the average wage—£200—and then increase the tax in tranches of five points each. That would provide a much more progressive payment for taxpayers.

I would not have a top rate of income tax higher than 50p in the pound in the long term. The United States of America acts as a magnet because of its salaries and research and development facilities, especially in the universities that liaise closely with private enterprise, which are particularly attractive to academics and scientists. In addition, the United States has a top rate of tax of 28p in the pound, so if we maintain our top rate at this high level there will be a tremendous brain drain.

I welcome the Chancellor's announcement of one VAT annual return for businesses with a turnover below £250,000. A small business is invariably a one-man business, probably with a wife or son helping. The first concern is to build up the business and the administrative burden of VAT is intolerable.

I agree with my right hon. Friend the Member for Worthing (Mr. Higgins) and my hon. Friend the Member for Woking (Mr. Onslow) that we should reconsider the question of capital gains tax on life insurance funds. If capital gains tax is paid on life insurance funds, there will be an element of retrospective taxation, because at present many life insurance funds have an in-built capital gain on which they do not pay tax. If CGT must be paid, presumably it will also cover past gains.

A Labour Government would reimpose the 2p reduction in income tax, but I do not suppose that they would touch the age or blindness allowances. I remind Labour Members that the low paid will benefit from the reduction of 2p in income tax on average by about £3 a week. Some pensioners pay tax, so why should they not have the 2p reduction? The Budget has given mortgage payers a 2p reduction in income tax, amounting to about £3 a week, and through reduced interest rates they could save a total of £4 or £5 a week.

I do not know whether this is constitutionally right, but if the Opposition will not co-operate in passing these tax changes, may I suggest to my hon. Friend the Minister that we have two Finance Bills? One would deal with the 2p reduction in income tax and the age and blindness allowances, and the other with everything else. In that way we could quickly pass the former, so that there would be no inhibition on the date of the general election, which I hope will be in September. Something should be done to prevent the chaos that could be caused if the Opposition do not co-operate, so that after 5 April 1987 those receiving dividends know how much tax they must pay.

Sir Geoffrey Finsberg (Hampstead and Highgate)

Does my hon. Friend agree that it may be helpful during the election campaign if teachers, miners and doctors realise that the Labour party would increase their tax?

Sir William Clark

I am sure that my hon. Friend is right. I am trying to find a way to avoid the chaos that could occur from 6 April if it is unclear whether tax should be paid at 27p or 29p in the pound.

I know that Labour Members are frustrated because the story is so good. It is true and fair to say that the economy has improved, is improving and is on a firm foundation. If this is thought to be a Budget of bribes, each of our Budgets has involved bribery because in each we have reduced taxation. Direct taxation has been reduced since 1979. It is clear from the reports from the Confederation of British Industry, the Association of British Chambers of Commerce, the Institute of Directors and the National Institute of Economic and Social Research that there is confidence. Even the NIESR, which is not normally optimistic, agrees with that. The trade union movement has been made more responsible and we have made massive strides towards prosperity.

All I say to my right hon. and hon. Friends on the Front Bench is, "For goodness sake, don't let anyone talk us out of continuing in the same way. The one reason why we have been successful is that we have had the determination not to be sidetracked to immediate panaceas." We have followed our strategy of keeping inflation down. I emphasise to the hon. Member for Walton that the best step any Government can take for the low paid is to keep inflation to a minimum. If inflation runs riot, it does not matter what one's savings are because they will be dissipated. The Government have controlled inflation and they must continue to do so.

6.26 pm

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

The hon. Member for Croydon, South (Sir W. Clark) defends the Government's economic record since 1979 and justifies the Budget on the grounds that the Government's policies are now coming to fruition. He appeals to his Front Bench not to be sidetracked and to continue on this particular road. However, he cannot deny that the great black spot in their economic record is their failure to get to grips with high unemployment—not perhaps in his constituency or part of England, but certainly in the north. That failure has accentuated the large regional inequalities and the disparities in income and opportunity. A Budget motivated by economic and social justice rather than by maximum voter appeal would attack the problem of long-term unemployment with the vigour previously reserved for tackling the problem of inflation.

During the past six months of falling unemployment figures the proportion of people in work appears to have altered little. Perhaps the greatest danger now facing us is that people will say, "Thank God, unemployment is now falling. We can forget about that problem." The recent unemployment figures have revealed how wide the gap has become between prosperous and disadvantaged regions. Between June 1979 and June 1986 the north saw a decline in total employment of nearly 14 per cent, while the south saw a decline of only 1 per cent. In the same period Yorkshire and Humberside suffered twice the national loss of jobs in manufacturing — a fall of 21 per cent, as opposed to 10 per cent.—and a much higher loss rate in energy production—a fall of 31 per cent, as opposed to only 24 per cent.

Yorkshire and Humberside together with other northern regions have been falling behind in job creation and predictions of future national industrial trends by independent organisations suggest that that is likely to continue. In 1984–85, of eleven United Kingdom regions, Yorkshire and Humberside had the third lowest average weekly incomes. The latest figures on wage differentials show that the gap there is still widening and in some respects it is now as high as £60 a week. The widening gap in house prices between Yorkshire and Humberside and the south-east reflect the relative prosperity of the two regions.

Stansted, the M11 and M25, the Channel tunnel and the increasing concentration of growth activities such as information technology in the south will widen the gap in future. This growing divide is reflected in northern cities. In Sheffield, the gap between the haves and have-nots has widened during the 1980s. More schoolchildren now receive free school meals, up from 17 per cent, in 1980–81 to 37 per cent, in 1985–86. The number of supplementary benefit claimants has nearly doubled since 1979. I know that the hon. Member for Croydon, South is kind and compassionate and I have a high regard for him. I wonder how he can reconcile what is happening in a northern city such as Sheffield, which is not untypical in the north, with the picture that he presented to the House and to which he enjoined his hon. Friends on the Front Bench to cling.

Employment is the key. Nothing brings about such a sharp drop in income as losing one's job, or retirement. That is borne out by income surveys. Unemployment in Sheffield has gone up to nearly four times what it was in 1979 and unemployed people now make up the biggest group claiming supplementary benefit. With the greatest good will, I say to the hon. Member for Croydon, South that the biggest paymaster in Sheffield is the DHSS. It supplies the income for 50,000 people in Sheffield, most of whom were wage earners not many years ago.

The key question about this Budget must be whether it is a Budget for jobs. A new poll has reported that 60 per cent, of people would be willing not only to forgo tax cuts, but even to pay more if it meant that more jobs would be created. All hon. Members were aware of that a week ago and it is interesting to note how that view has been reinforced by further polls since the Budget that were reported in the weekend press. There was no comfort for the Chancellor in the weekend press. The Budget is not going over as well as the Chancellor and, presumably, the Prime Minister expected. It may not win the election for the Conservatives. There was no comfort for the Government in the opinion polls published this weekend. There may be some for my hon. Friends but none at all for the Government. The best rating for the Government of 39 per cent, support will not give them a majority, but will result in a hung Parliament.

The Budget does nothing for the poor, the homeless, the old or the sick. Most of all, it will do nothing to create jobs. There is no cut in national insurance charges to reduce the cost of employment, no rationalisation in the scale of employee's contributions to reduce one more poverty trap and no increase in family allowances. I repeat that the Budget is no comfort to the Prime Minister who will not be encouraged to go to the polls on the basis of this Budget. Presumably, that was in the mind of the hon. Member for Croydon, South who in his speech asked for an election not in June but in September. A nation now divided will be more divided. The rich will get richer and the poor will be lucky if they only stay as poor as they are.

The Chancellor insists that the indirect route is the best approach to solve Britain's chronic social problems. I understand that view very well. He and the Prime Minister share an unshakeable belief that only an efficient, profitable and expanding economy can put Britain back to work. At one time, I think I was disposed to that view, but in recent years there has been much evidence to persuade many hon. Members to the contrary view. If the Chancellor's measures are intended to help create an environment in which the economy can expand, why is industry producing less and investing less now than it was in 1979? My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) asked that question in his opening speech.

Why has the Chancellor not responded positively to the anxieties about the long-term health of Britain stemming from the lack of research and development and innovation in private industry expressed by The Times, the Confederation of British Industry and the electronics industry as well as by the hon. Member for Honiton (Sir. P. Emery)? The British Institute of Management is also critical of the Chancellor's failure to encourage the technology sector as well as of the lack of moves to step up public spending in infrastructure development.

On grounds of economic management, quite apart from social justice, there is no case whatever for a reduction now in income tax. First, most people in employment do not need a boost in their living standards. They are all doing very nicely. According to calculations by the Central Statistical Office, those in work need an increase of only 2.4 per cent, to compensate for inflation and tax changes. Secondly, a tax cut now will merely accelerate a consumer spending boom. Consumer spending rose by 5 per cent, last year in real terms—or at about twice the rate of growth of the whole economy. Retail sales are running 7 per cent, ahead of last year, while manufacturing production is only 2 per cent, higher than a year ago. Most of the increase in sales has been met from imports, hence the balance of payments deficit, notwithstanding the oil revenues.

As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) warned the House on Wednesday, the dangers of an unbridled spending boom are first, higher inflation; secondly, a further deterioration in the balance of payments as foreign goods are sucked in; and, thirdly, a fluctuating exchange rate when manufacturers are pleading with the Government for a stable one. Last year's big devaluation of the pound has left British goods 25 per cent, cheaper than those of our continental competitors. This competitive advantage means a real prospect of sustained industrial revival — if the Chancellor does not spoil it.

Furthermore, the revival of depressed areas in the north, such as south Yorkshire, is very much dependent upon a general upturn in the United Kingdom and overseas. There is a further onus on the Chancellor to provide for that general upturn. He warned the House that there are still serious imbalances in the economies of the United States, West Germany and Japan which could lead to further turbulence on the exchange markets. I am well aware, as he undoubtedly is, of the difficulties of a coordinated economic expansion. Nevertheless — and I concede this to the Government—if there is one country whose economy is perhaps well placed to foster such an economic initiative on behalf of international expansion, it is the United Kingdom.

Such a British initiative would benefit not only the depressed north, but would be a positive response to last month's appeal by the United States Treasury Secretary, Mr. James Baker, when he looked to the group of five —but was obviously looking principally to the member nations of the European Community — for such a coordinated economic expansion.

In the ealy 1980s the United States spent its way out of unemployment in the traditional way without an increase in inflation because it managed to combine expansionary policies with a strong exchange rate. Any European country expanding alone would find it difficult to follow that act, but it demonstrates that a modern industrial economy can expand out of unemployment without unleashing a wave of inflation, provided the exchange rate does not fall. For the members of the European Community, trading so closely with each other, the most effective way to do this—if the political problems could be overcome — would be to expand together. The additional imports which would be sucked into any one country as growth picked up would be matched by exports to its trading partners with little change in the pattern of exchange rates.

How far did the Chancellor pursue, at the recent meeting of the group of seven, this pressing need for a coordinated economic expansion? He had been urged to do so the month before by the United States Treasury.

There is a danger, as the Chancellor warned last week, that the world economy will move back into recession later this year. He and the Prime Minister will have a further opportunity to foster co-ordinated international economic expansion on the 8, 9 and 10 June at the Venice summit of the seven leading industrialised countries. On the other hand, at that time we all may be caught up in a general election, in which case that will conclusively demonstrate what the Budget has been about.

6.40 pm

Mr. Kenneth Warren (Hastings and Rye)

In the Red Book my right hon. Friend the Chancellor says that he aims to maintain a vigorous and enterprising economy. Since 1979 the Government have reduced inflation, the public sector borrowing requirement and taxation. That is exactly what is required for us to build a base on which industry can expand. I declare an interest as an engineer and would like to concentrate on the needs of the future. We can rebuild the industrial enterprise of this country and conquer some of the problems about which the hon. Member for Sheffield, Attercliffe (Mr. Duffy) has just spoken so eloquently in terms of his own city of Sheffield.

I do not believe that we can ever get the service sectors of our economy to compensate for the loss of industrial jobs. I am not at all happy at the way deindustrialisation has been taking place, not just in recent years but certainly over the last 50 years. In 1978 Sir Alec Cairncross gave four good indicators, which are symptoms of which we are aware nowadays. He said: You can recognise deindustrialisation by a decline in employment both in absolute and relative terms in the industrial sector of the economy. Secondly, there is a decline in the share of national output contributed by the industrial sector of the economy. Thirdly, a decline in one's share of the world industrial output and, lastly, a failure due to poor export performance to finance a full employment level of imports.

Looking at those four points, and having done some research on the problem, I think that we have suffered from some or all of those symptoms over the last 50 years. Deindustrialisation is a dangerous disease which is now to be contrasted, I am happy to say, with a considerable wave of industrial enthusiasm that I have come across when travelling the country recently.

Although the Government at last have room for financial manoeuvre, for about the first time since the second world war, I am concerned that we should not use that manoeuvre without looking at ways in which we can make substantial progress. The Government are determined not to dominate industries, but are rightly determined to help industry where they can. There are three sectors where the Government have a task — in skills for jobs which are available, training for jobs which are available and matching people's keenness for employment with the tasks that have to be done. There is a need for a Government industrial strategy that recognises constraints on industrial progress and recognises the duties that the Government must fulfil to train people for jobs in a timely fashion and at the rate at which they are required.

There is an enormous skill shortage in this country. The Manpower Services Commission is doing a useful job in retraining, but I wonder whether the Government understand the scale of the problem in international terms and the very high levels of skills that are required to remain competitive. A couple of weeks ago I was talking to a major motor components manufacturer in the midlands. He said: I could open the doors to 300 qualified engineers tomorrow if I could only get them. If I got those 300 qualified engineers I could recruit 300 semi-skilled workers and after that probably another 300 unskilled workers. The key to re-employment, whether it be in Sheffield or the midlands, is getting the lead workers — the qualified scientists and engineers — out of colleges and through factory gates at a faster rate than has been attempted by the Government.

In my constituency there is a company which is working on a defence contract which is so short of engineers that it has had to subcontract the work to the United States. Another company in my constituency cannot find any engineers of the kind that it needs coming out of any college or university in the south-east and it has now had to recruit the first of several people which it expects to have to recruit from the far east. Unless we can meet the growing high skill shortages, which are easily and quickly identified, the process of deindustrialisation will go on. It has been known for several years that there are at least 30,000 vacancies for qualified scientists and engineers in the computer industry. Let us compare the numbers of engineers in industry here with those in Japan, West Germany and the United States. Of course, we have; a smaller population than Japan or the United States so it is not surprising that we have fewer engineers. However, West Germany, where the population is equivalent to our own, somehow manages to pay its workers twice as much as we do and to produce 30 per cent, more engineers than us. In Japan there are three times as many engineers as there are in this country and in the United States there are seven times as many.

It is not the number alone that matters. The question is how they are interleaved into the industrial economy and how they are utilised. Otherwise the Swiss and the Swedes, who have small populations, would never have been able to survive in world industrial markets. If we look at our major competitors, with whom we must compete to survive—West Germany, Japan and the United States— and the way in which they deploy their resources in the training of engineers, we see a very worrying picture. In this country, for every 10,000 people on the industrial labour force there are 36 qualified engineers. In West Germany there are 48 qualified engineers, in Japan there are 58 and in the United States there are 62. My statistics come from a report which was produced late last year by the Advisory Board for the Research Councils supported by the science policy unit of Sussex university, on whose court I have the honour to serve.

That ratio shows that we do not have a high enough mix of qualified engineers in our industrial society to be able to compete in a way that the investment in education, which is being put forward in the Budget, should deliver to our community. United Kingdom statistics, unfortunately—I hope that the Treasury and Department of Trade and Industry Ministers will pick this point up— are dreadfully slow to be published. The figures that I am quoting are the latest available and they are from 1981. Statistics from West Germany are available from 1982; Japan and the United States seem to be able to produce their statistics when they are only three years out of date. Even that may be a long time out of date, but one has to work on the information which is available. I ask the Treasury and the Department of Trade and Industry to see what they can do to speed up data which are produced only every three years, if at all.

My second point is about the effect of the shortage of engineers on the competitiveness of pricing of our goods for domestic supply and export. The Financial Statement and Budget Report 1987–88—the Red Book—on which our debate is based, shows some substantial improvements in chart 3.9 Unit labour costs in manufacturing".

It looks as though 1987 will be a particularly good year. However, the backlog from 1979 is extremely worrying and exemplifies the problem of the shortage of engineers in our industrial society.

United Kingdom unit labour costs rose over the period from 1979 to date by 84 per cent. For our other principal competitors unit labour costs rose by only one third of that rate over the same period. That is an example of how the shortage of engineers affects our competitiveness and why deindustrialisation continues. Holding down pay rises is a last resort which I do not applaud because there is a good litmus test as to whether a company's management is on top of the job. It demonstrates how skill shortages are biting into a company.

I draw attention to a parallel problem, which is in desperate need of a solution and to which some hon. Members on both sides of the House have referred—the question of research. The House of Lords report on civil research and development published late last year commented: Morale is low in the scientific community. Morale is low. It is at such a low level that the Government must recognise that the seedcorn is no longer being sown.

The Prime Minister said in February this year that Government spending on research and development, as a proportion of national output, was more than in the United States, West Germany and Japan. I do not want to clash with my right hon. Friend, particularly in her absence as that would be cowardly, but I wish that it were possible to know the exact military component of that research and development. It is clear from the House of Lords report that civil research and development has been declining over at least the last 20 years and is still in desperate trouble.

Only today in The Times there was a good example concerning the problem of the discovery of superconducting materials. Apparently research cannot be continued because the Science and Engineering Research Council has frozen funds for all new projects. That principle was discovered 70 years ago and many principles take a long time to reach the market place. For example, the ballpoint pen took 58 years to reach the market place in 1946. Detergent took 42 years and magnetic tape recording 39 years. We regard those products as commonplace today. Some other ideas have reached the market place more quickly. It might reassure the hon. Member for Attercliffe to know that stainless steel took only eight years from the principle being discovered to the time that it was on sale. Even better, synthetic penicillin took only a couple of years.

Science usually has to wait for marketing-led technology to come into public hands. Investment in civil research and development in the United Kingdom is not equivalent to our needs.

Last December John Fairclough, the Government's chief scientific adviser, attacked industrialists for failing to invest in research and development, but he said that he was "concerned" that the Government were likely to cut spending on non-military research. When he made that statement he was introducing the Cabinet Office review of Government-funded R and D. That gave us a little clue as to how much is spent on military research and development. The total spent is to go up from 51 per cent, to 54 per cent, over the next couple of years while the total spent on research is likely to come down by £4 billion.

Those fundamental figures are of desperate importance in relation to new projects on which the Government must make decisions and where decisions are long and dramatically overdue, such as on the funding of the A330/A340 Airbus projects and on whether we have a space programme. We cannot continue to put off decisions on high technology projects. The Government have a responsibility built into the structure of the agreements on Airbus. We cannot ignore the fact that we are gradually being manoeuvred out of our negotiating position on Airbus by the French and the Germans who fully understand that the market place which has been developing for the last decade has now arrived. Customers are queuing up before the design is off the drawing board.

If we cannot see what is happening to market opportunities on our doorstep, what chance or sense is there in people coming forward to qualify as engineers? The jobs may not be there when they get there. The jobs will have gone elsewhere. I am told by Airbus that planeloads of keen would-be participants in Airbus are arriving from Italy and Japan and other countries believing that the British are on the way out because we have spent so long trying to make up our minds about a blatantly obvious business opportunity. The Government cannot shirk their responsibility any longer.

With the Prime Minister's visit to Mr. Gorbachev imminent and the rumour that an announcement that a British astronaut will be propelled into space will be made in the departure communiqué, I hope that we achieve the understanding, which is believed to be abroad in Government, about the need to develop a space programme in line with that of our competitors. Mr. Fairclough said: The brunt of cuts will have to fall on the advancement of science and the improvement of technology. I cannot believe that the Chancellor and the Secretary of State for Trade and Industry will agree that that should result from our Budget.

It is true that the wallies in the Science and Engineering Research Council are not the best managers in the world. They are in the process of spending £6 million, which they believe they can recover, to move the telescopes out of east Sussex to Cambridge. I should have thought that they had something more inventive to do with that money than play around with that far-out piece of science.

Maurice Shock, chairman of the Committee of Vice-Chancellors and Principals, has clearly identified the problem in science in relation to Government. He says that although the science vote has gone up by 6.3 per cent., the whole lot will be wiped out by salary increases and as a result of the pound going down in value. That means that the sterling value involved in our collaboration with organisations such as CERN in Geneva has become more expensive.

The Science and Research Council has 1,500 research proposals with which to deal. About 500 could be expected to get through, but SERC finds that it can do nothing at all. That is not good enough. Will the Government please listen, not just to the hon. Member for Hastings and Rye, who is their friend, but to scientists who are desperately trying not to drain their brains away from our universities, colleges and industries?

There is a good lady at Imperial college, probably in a basement, where all the best research is done at university, —"with little natural light" is the usual formula—who is working on a system which she believes could produce power from sea water. I wish her success. I think that that is chemically possible. However, she cannot carry on her work, so she will have to go to the United States. That is not the kind of incentive that the Government wish to result from the Budget.

When Sir John Kingman, vice-chancellor of Bristol university, answered a question before the House of Lords Select Committee on civil research and development he said: The defence of this country will collapse, not necessarily for military reasons, but for economic and political reasons. If we spend too much of our research money on defence we will simply not be able to afford to maintain this country as a viable economic and political entity. Perhaps he was over-stating the case but Sir John Kingman is no fool. He was sounding a strong warning and, given his scientific background, strength and ability, we have good cause to listen carefully.

The funds that the five research councils have received from the Government have been wiped out, according to the programme before us, by the 24 per cent, pay award for university lecturers. Presumably, that award is justified, otherwise my right hon. Friend the Secretary of State for Education and Science would not have agreed to it. However, for that reason, there is no money to continue research work. One must ask exactly what the people who will receive this extra pay intend to do. My fear is that, as a consequence of the current relationship between Government and science, the brain drain will speed up and nothing will stop that for a long time.

It is difficult to measure the value of science. Science does not set out to create wealth but wealth is certainly created by science. If one studies the way in which foreign companies log patents in the United States it appears, from the latest data available, that of the top 33 companies registering patents in the United States, 20 are American, eight are Japanese, four are West German and one is a partly-owned British company. It is difficult to measure the output of science in the world, but patents and citations are a good measure of scientific output. The registration of citations follows strictly in line with the pattern I have described with regard to patent applications in America.

The science budget is the seedcorn for the nation's future industrial prosperity. However, in the past 15 years, the real-term value of the science budget has declined dramatically. A written answer given on 12 November 1985 stated that in 1971–72 the science budget was £607 million. However, in 1986–87 that budget was £535 million, in 1987–88, £529 million and in 1988–89 it is expected to be £527 million. That is not the type of investment that the Government would wish to see in industry. It represents declining investment and the Government should see where their duty lies and do those things which only Government can do.

We appear to be able to find money to encourage foreign companies to come to this country to compete with our own companies that are already fighting for their survival. I experienced that all of 20 years ago and I had hoped that any Government would have changed their mind about that policy. Some 20 years ago, we entered into a tripartite agreement on the Tornado aircraft and that led to British companies being in competition with new companies from West Germany and Italy. It appears that we still have not learnt and there are Japanese companies in Scotland that are due to receive some £150,000 in Government grants per job created. When compared with the projects that have been frozen by the Science and Engineering Research Council, such nonsense starkly brings out the problem we face.

There is a great problem regarding the cost of money. In real terms, Japan and West Germany pay only half the amount that our companies must pay to find their investment. I do not understand. I am sure that elegant Treasury Ministers will be able to baffle me by spelling out the reasons why money must be so expensive in this country, but there appears to be no basic reason.

As I stated earlier, industrialists have said that they can sell at $1.50 but that they cannot sell at over $1.60. If the price of money is reduced, presumably the value of the pound will come down. That is not a very satisfactory solution. It is rather like putting an elastoplast on the problem, but it is certainly better than the present situation where industry is castigated for not putting in enough money, but must pay twice as much as competitors for the money that it does put in.

A subject that is dear to the heart of my hon. Friend the Member for Honiton (Sir P. Emery) — I share his feelings — is whether there are constructive ways to encourage industry to invest more of its own money in research and development. Surely there must be incentives that the Treasury can devise.

In conclusion, there are three key obstacles which confront the Government — skill shortage, research money shortage and the cost of money. They are obstacles that the Government must remove, but, first, they must understand that such obstacles exist. I believe that the science policy followed by Government should be focused more clearly — I believe that the Government can do that. Indeed, I do not believe that any other Government who can come before this House has the same chance of success as that presently in power, and who will continue to be in power after the next election.

7.5 pm

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

When the Chancellor of the Exchequer got to his feet last week to introduce the Budget, I was not here. I had been bidden to the offices of the chairman of British Rail to meet him and the chairman of British Rail Engineering Ltd. That occasion proved far more indicative of the problems that face the country than the rather extraordinarily ambivalent Budget that was presented in the Chamber.

I had asked to go to see the chairmen of British Rail and of British Rail Engineering to put to them the position that exists in my constituency. We have just lost some 400 jobs in British Rail Engineering Ltd. because it has been decided that there should be a change in work patterns and that the repair work—the basic manufacturing work— of the Crewe BREL workshops should go elsewhere to regional depots.

When I arrived for that meeting, the chairmen, far from talking about the 400 redundancies, which had largely been dealt with by natural wastage, had another piece of information to give me. They said with some brutality, but with great directness, that another 600 jobs would be lost from the BREL workshops. Only those hon. Members who have gone through the trauma of watching efficient, viable, manufacturing industries destroyed before their eyes will know what effect that has on a constituency where there has always been a high degree of expertise and a strong commitment to manufacturing.

Let me tell the House what that means. It means that, in my constituency, there has been a continuing tradition of apprenticeships, which involve the training in the engineering industry, which the hon. Member for Hastings and Rye (Mr. Warren) discussed. A number of apprentices are taken in every year and go through a highly skilled and useful training programme. On completion of the programme the apprentices sometimes go to work in other factories in the constituency, but mostly they go into the business of constructing new or repairing existing locomotive and rolling stock. Are those skills no longer needed? In August, we shall be confronted with the situation that has not existed in my constituency since I was elected, but I am told existed in the 1920s, when young apprentices, when they come to the end of their time, will be told that there is no work for them. If the union cannot persuade large numbers of older workers to go, not only will no apprentices be taken on this year, but there will be no way of absorbing those people still going through their training. That is the reality of Britain under a Conservative Government.

The Government do not seem to understand that it is the economics of the madhouse to allow a railway system, which is a subsidised railway system, to run down its manufacturing units. These units have a high level of expertise and a great deal of skill. This action will force the British Railways Board to put work out to tender, not just in this country, but anywhere in the world. Those tenders will be for the very rolling stock that can be built by British Rail Engineering. Indeed, those tenders will be based on the detailed work carried out by BREL.

We have here the ultimate in cynicism. The Government believe that it is more important to hold to the political idea that we must force a degree of privatisation on to the run-down railway system than to consider ways of getting the best value for money. Swindon and Shildon have shut, and the men at Horwich have been moved around. In large part, the Horwich men have been absorbed in my constituency. Many of us are aware of the cost of these closures and moves to the men and their families. We are aware also of the expertise that they bring to their jobs. How can we expect a viable manufacturing industry to operate when we have kicked the guts out of the people who do the work and they no longer believe that they are needed, that they will still have a job in a year's time, or that they will still be in employment when their sons complete their apprenticeships?

In my constituency there was an agreement—it was one that the work force went along with — that there would be 400 redundancies over three years. That was the original position. Suddenly, the three years became six months, and now there are to be about 1,000 redundancies instead of 400. Where in the Budget is there anything for these men? Where in this anodyne mixture of tiny bribes and little gestures are there answers to their problems? Where are the answers to the problems that I shall face in my constituency if the one core manufacturing industry is allowed to run down and to die?

Why is this happening? Is the work force incompetent? Of course it is not. Is it capable of competing? Of course it is, if it is given a fair chance. It will be unable to compete, however, if every advantage is given to its competitors and the political view prevails that British Rail Engineering Ltd. should be run down. Unfortunately, the management, at chairmen level, will follow that view. The result is that the men know that their jobs are not safe.

On the Friday following the conversation that I had had with both chairmen, the chairman of British Rail Engineering Ltd. resigned. I understand, Mr. Deputy Speaker—perhaps you will believe this—that I can be quite sharp on occasion, but even I do not take sole credit for persuading a man between Tuesday and Friday to change his view to such an extent that he decides suddenly to depart, taking with him his deputy. British Rail Engineering Ltd. says that this happened as a result of an agreement. It is the sort of agreement that was faced by one of the workers in my constituency. He talked about redundancy on the Thursday because he had multiple sclerosis, and he was told on Friday, "Collect your goods and be out of this factory by teatime." That is the sort of agreement that is being offered to the work force in my constituency, and there is nothing that can be done about it.

There is no clear sign that the Government understand what manufacturing industry is about. Unfortunately, there is a clear political plan that follows the Serpell report. We were told when the report was produced that there could be no likelihood of a Conservative Government supporting it, but how is it that what happened to the royal ordnance factories is now being repeated at British Rail Engineering Ltd?

First, the work force is run down. At the same time, large sums of taxpayers' money are spent on renewing useful assets and high-quality machinery. Before that process is completed there is direct privatisation, either by coming to an agreement of the sort that was reached with the royal ordnance factories or, even worse, with the sort of agreement that was reached with Vickers. Vickers had only one competitor in the creation of tanks and when the status of the ROFs was changed it was made darned sure that Vickers took control of the only commercial alternative. The position is the same with British Rail. Someone from Vickers has appeared from the sidelines to become a non-executive director. I do not have the advantages of many Conservative Members. For example, I do not know intimately members of the most important commercial organisations at managing director level. That is a deprivation that I shall manage to live with without too much difficulty. It may be that the gentleman from Vickers who has become a non-executive director has a great many skills, but it is certain that he has a strong commitment to a commercial policy that states, in effect, that it is fundamentally wrong to have a unit such as British Rail Engineering Ltd. that is capable of operating within the state sector. That is not because it is incompetent or because there is a lack of investment. It is not because it cannot compete. The reason is that the Prime Minister has a strong, bigoted and unequivocal hatred of a state transport system.

Conservative Members who come from points in the south are not concerned. Why should they be? Indeed, they think that it is quite amusing to talk about those who are coming south from Liverpool and Crewe, for example, looking for employment, perhaps finding it and then travelling backwards and forwards every weekend. Conservative Members do not think that these men are especially important. We know, however, of the cost in terms of social deprivation, and it is one that will be paid in generations to come. There will be, children who do not have united families and young people who do not have training.

In the centre of my constituency there are young men and women who have not worked for four years. They have not worked since leaving school and they have no hope of receiving proper, training. Of course, they can participate in the odd YTS scheme here and there and provide cheap labour by occasional spells of shelf filling. Let it be understood that they have had no training and that they will have no opportunity for training. Many of them know that they will never obtain a proper job. These young people have parents who are demoralised, destabilised and frightened. They are deeply angered also.

The Chancellor of the Exchequer may think that he has prepared a Budget that will be extraordinarily popular with those whom he wants to vote Conservative, but in effect he has wiped out a section of the population. This certainly applies to those who have been involved until recently in manufacturing industry. It is something that will come back to haunt the House for many generations to come.

I shall not stand by and see the workshops close in my constituency. I shall not stand by and see men and women put out on to the stones, when they are needed. I shall be here to remind the Chancellor of the Exchequer and other Conservative Ministers, day after day if necessary, that Britain cannot afford the criminal waste of destroying manufacturing industries that are fundamental to the nation. Until the Government learn that, there is no hope of anything other than a divided and destabilised society. That is a cost that none of us should be prepared to pay.

7.17 pm

Mr. Richard Ottaway (Nottingham, North)

I shall not comment on the remarks of the hon. Member for Crewe and Nantwich (Mrs. Dunwoody). other than to say that at the royal ordnance factory at Nottingham—the hon. Lady referred to royal ordnance factories generally—the work force has remained unchanged since privatisation and there is now a much enhanced order book. We are not suffering from social deprivation in the Nottingham ordnance factory.

When my right hon. Friend the Chancellor of the Exchequer can come to the Dispatch Box and confirm that the increase in expenditure that was announced in the autumn statement still stands, announce a cut in income tax and reduce the public sector borrowing requirement to I per cent. of gross domestic product, resulting in a cut in the interest rate and a reduction in the mortgage rate, coinciding with a reduction in the jobless by 71,000, I believe that he deserves our congratulations. As someone who represents a centre of the tobacco industry, he receives my thanks. The Players factory is at Nottingham and many of my constituents work in it. On many occasions we have said to my right hon. Friend that he must not kill the goose that lays the golden egg. This year we have been rewarded by his decision not to increase the excise duty.

The tobacco industry has been in difficulty. It has suffered a number of takeovers in recent years and it has undergone a massive reorganisation. It asked the Treasury for at least one year's relief, and I am pleased to say that it has been given that. That is something for which we are all grateful.

I should like to place a marker for the future. I am not impressed by the health argument that has been advanced during the debate, but I know that my right hon. Friend the Chancellor of the Exchequer has been influenced in the past by it. Smoking is dangerous to health, and I believe that it is the Government's role to persuade smokers to kick the habit, not to dictate by imposing taxation and forcing people to stop smoking. I cannot subscribe to the nanny state, which I consider to be unacceptable. If the Treasury feels that it must try to prevent the spread of smoking by means of taxation, I ask it to try to quantify the cost to the nation of smoking and of looking for cures for smoking. When that is done, I ask for the result to be included as a specific item in the Budget, rather than impose a general increase in taxation in years to come.

My only real concern about the Budget is the absence of any mention of the ailing shipping industry. It is inevitable that the Government will have to face the decline in the country's fleet, which is now in a perilous state. There are daily reports of further flagging-out from the British flag to flags of convenience. In 1985, the General Council of British Shipping said that by 1995 the number of ships flying the Red Duster would be between 300 and 400. That was a wildly optimistic forecast. It is now predicted that by 1995 only 100 ships will be flying the Red Ensign.

The Government have a duty to ensure that the number of ships is adequate to supply the nation's needs. There is no shortage of ships in the world, and I suppose that the colour of the flag that a ship flies as it comes up Southampton Water does not make much difference as long as the goods are getting into the country. It is ate Government's duty, however, to ensue that those ships keep on coming.

The second role of the Government is to ensure that a strategic reserve is maintained. This is not in itself a justification for intervening in a shipping area but, with a fleet of just 100 forecast by the year 1995, it should not be lost on the Government.

The lack of any policy on shipping is now hitting the shipping service sector. London is the centre of world shipping and has produced a good income for the nation over the years, but it is now in decline. There is a substantial shipping business in the City, with the resolution of disputes at the forefront. A leading arbitrator was saying the other day that he is now seriously underemployed. On the Baltic exchange, there is nothing but doom and gloom. The brokers are pessimistic. This sector depends on the shipping industry, and it needs a shot in the arm.

I welcome the changes to the business expansion scheme announced by my right hon. Friend the Financial Secretary the other day. However, as the Government know, what we need to resolve the nation's shipping problems is a fiscal remedy. The revenues from today's shipping are minimal. All the shipowners are now moving to offshore havens where they make no contribution to the British Treasury—"If you cannot beat them, join them." We should be positive about our two offshore havens, the Isle of Man and the Channel Islands, and encourage shipping to go there rather than to Panama or Liberia. We should liaise closely with the shipping industries, and consider reliefs for managing companies. After all, what have they to lose if no income is coming into the Treasury? They have everything to gain from the restoration of the country as a leading maritime nation, with the added benefit to industry.

To me, the most important parts of the Budget were the welcome announcements about small businesses. There are many small businesses in Nottingham. They are major job creators, and they are at the heart of the engine room of the nation's recovery. However, they are not without their problems. When a survey of east midlands firms asked which four factors most limited business prospects, 56 per cent. cited interest rates, while 46 per cent. blamed cash-flow problems. This is a good Budget for the business men who expressed those concerns. Interest rates have dropped in its wake, and we know that small businesses have welcomed that.

Hon. Members may recall reading a few weeks ago in the newspapers that the Nottinghamshire chairman of the National Federation of Self Employed and Small Businesses, Mr. Jim Conduit, had urged his members not to support the Conservative party in the next election because it had done nothing for them. However, I am pleased to report that Mr. Conduit has now changed his tune. After the Budget, he said: It will all make a big difference. Bank rates are particularly important to small business men. This Budget is a step in the right direction. So we now have the blessing of even Mr. Conduit.

The reduction in corporation tax for small businesses is also very welcome.

Cash flow was the second item that caused business men concern, and the Budget is particularly important for them. My right hon. Friend the Chancellor recognised that late payment of debts was a serious problem. He said in his Budget speech: Perhaps the biggest problem faced by the small business man today is the trade customer who is late in paying his bills: so late sometimes that VAT becomes due before the bill has been paid. I can do nothing about late payment; but I can, I hope, do something about the VAT problem."— [Official Report,17 March 1987; Vol. 112, c. 821] My right hon. Friend went on to announce the important concession of the optional cash accounting for VAT for businesses with a turnover of up to £250,000, and this concession is very welcome, but my right hon. Friend could do something about debt, as his Department is well aware.

The problem of creditors being kept out of their money while the debtors have the use of it was recognised by the Law Commission as long ago as 1978. In its report No. 88, it came up with the following remedy: The introduction of Statutory Interest is appropriate and necessary. Ten years later, however, the problem of late payment is growing. The complaints sound the same. I have received some letters from business men, one of whom said: We have never had a better year for turnover but we are still in danger of going broke. Another said: If all our bills were paid we'd be millionaires, but we can't recover the sums due. The excuses are moving with the times. One excuse that I have heard is, "We cannot get at the invoice until the end of the month; it is in the computer." In the old days, they could get it out of the filing cabinet in minutes.

In 1986 the CBI carried out an important survey, which found that late payment was common throughout industry. Of those asked, 57 per cent. said that most, or more than half, of their bills were paid late. The figure rose in a number of interesting industries. In the engineering industry it rose to 69 per cent.; in the construction industry to 64 per cent.; and, rather surprisingly, in the professional services to 64 per cent.

The City's leading debt underwriters, Trade Indemnity, said that the longest credit period that it had known was in the industrial and commercial services sector, which includes advertising agencies, computer services, contract cleaners, direct marketing, employment agencies, insurance brokers, security services and shopfitters. They all take a disgraceful average of 206 days' credit.

Mr. Hickmet

What about the delay by solicitors in paying counsel?

Mr. Ottaway

They fall into the professional services sector. They take up to 206 days to pay.

Unbelievably, no remedy has yet been put forward as suggested by the Law Commission. It may come as a surprise to hon. Members, but it is not possible to sue for the interest on a debt after the principal has been paid. That makes us the odd man out in Europe. The only way that a creditor can be sure of being compensated for being out of his money is by issuing a writ with the invoice, and that will hardly make the wheels of industry go round.

The Government have adopted a mixed attitude to the problem. Following the CBI guidelines in 1980, they launched a voluntary code in 1986 in a booklet entitled "Payment On Time". It is a rather woolly document and gives no recommended period for the payment of debt. The credit agency Dun and Bradstreet said that it had noticed no change in the time taken to pay debts since the publication of the booklet. That comes as no surprise, as we have had a voluntary code since time began.

Whereas the Department of Employment, which published the booklet "Payment On Time", did not receive much of a response, the Treasury has been far more positive. Last year it introduced penalties for late payment of VAT, and the response to a written question of mine shows quite dramatically that the receipts of VAT have gone up and the outstanding backlog of unpaid VAT has gone down.

The problem will be slightly alleviated by the welcome measure proposed in the Budget, but that measure would not be necessary if bills were paid on time. The answer is a right to interest on the late payment of debts as was recommended by the Law Commission. I am sure that that would result in a more rapid payment of bills.

In its survey the CBI asked firms whether, if they were automatically entitled by law to interest on any debt paid late, they thought their customers would pay more promptly. A staggering 85 per cent. said that they did. As a result, I introduced my Right to Interest Bill, whose main proviso was that interest on the late payment of a debt was deemed to be an express term of every contract. There has been considerable argument since then about whether that should be a statutory entitlement or a statutory discretion. My preference is for the statutory entitlement, because I believe that any discretion available to the courts is accompanied only by vast armies of lawyers trying to persuade the court how its discretion should be exercised.

The Government's position on this proposal is that they are open to persuasion. I am delighted to report to the Government that a consensus is emerging. My early-day motion 63, which is not by any means frivolous, and which calls for the introduction of legislation, is now supported by 176 hon. Members from all parties, including some of the hon. Members now present. Both alliance and Labour spokesmen have spoken in support of the proposal. I do not know whether it will he in their manifestos, but they have shown a distinct interest in the idea.

The excellent Forum of Private Business, which has about 20,000 members in the small business category, has conducted no fewer than five surveys on the topic, which have shown support varying between 70 per cent. and 84 per cent. in favour of a statutory entitlement. I now have the support also of the Engineering Industries Association, the Small Business Bureau and, I am afraid to say, the National Farmers Union, although I am not sure whether 1 want to pray that organisation in aid of my proposal. The CBI has come out in favour of the statutory discretion, and that is a welcome development. The Association of British Chambers of Commerce has a rather woolly, ambiguous approach to it all. It says that it supports future legislation so long as there is no change in the law. I suggest that the Government ignore that garbled advice.

Of all the major pressure groups in industry, the Institute of Directors alone stands opposed to the introduction of the statutory interest. That is primarily because it is a free market organisation. It believes that such a proposal is interventionist. It is not. It is regulation of the market place, which we are only too pleased to accept in the present climate. I believe that even at this late hour the Institute of Directors can be persuaded to change its mind.

The concern of my right hon. Friend the Chancellor is welcome. Speeding up the cash flows of small companies is important. 1 believe that the VAT measures announced by my right hon. Friend will do that and that my Bill will do so even more. The great advantage of my Bill is that it does not cost the Treasury a single penny. The important thing for the Government is to create the right conditions in which small businesses can operate. The Budget has done that, and I welcome it very much.

7.32 pm

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

The Chancellor's critics have been unfair to him. They have failed to realise his undoubted talents. In particular, the Chancellor has an outstanding ability to play word games in which he says the opposite of what he means. Most of us play those games at Christmas, but the Chancellor plays them at Budget time. When he tells us that the economy is undergoing some kind of economic miracle, he is really Humpty Dumpty telling us that the manufacturing base has been devastated by the Government. When he says that exports are improving, he is the March Hare who is telling us that there has been an import surge and that the impending balance of payments crisis is likely to be so disastrous that he could not give us the bribes that he had originally promised us. When he tells us that he believes in business integrity, he is really the Knave of Hearts who has created a free enterprise culture in which for too many people in the City of London the only principle is lack of a principle.

e have now had nine wasted Tory Budgets and they have combined to produce a free enterprise charter in which too many business men feel that it is better to make money than to make things. In those nine wasted Tory Budgets, successive Chancellors have trumpeted free enterprise. For the most part, it has been a disaster. For some, it has been death. This winter during the cold spell hundreds and possibly thousands of people died of hypothermia because they could not afford the heating, the food with enough calories and the clothing to stay alive. Every winter, according to doctors in Shoreditch, old people die before their time because they are thrust from the National Health Service and the community services cannot help. In those nine wasted Tory Budgets, breathing the spirit of free enterprise, the Government have left us with 100,000 families without a home, 4 million people without a job and, in a tragedy unparalleled in the Western world, one fifth of our population living on or below the poverty line. Nine million people have been thrown away like empty husks into the dustbin of free enterprise. In the future, historians will shake their heads and wonder how society became so barbaric that it could allow that to happen.

Parliamentarians have a responsibility to examine the moral, economic and intellectual basis of these Budgets and the Tory concept of freedom, which it defines in terms of free markets, consumerism and the ability to pay. The Chancellor justifies the death and destruction of these Budgets in terms of Friedmanism or monetarism, an ideological creed which curiously has existed entirely outside empirical evidence. When monetarism was monotheistic, the Chancellor and his family used to go every Sunday to St. Paul's in the City, and they worshipped the one true god — M3. Then, when monetarism became pantheistic, he and his family went along to St. Paul's in the City and worshipped M0, M1. M2, M3, PSL1, PSL2, DCE, broad money, narrow money, seasonally cyclically, psychically adjusted. In this Budget we have seen the slaughter of all the gods in the monetarist pantheon and the Chancellor has revealed himself to be a heathen who worships plastic—plastic Access, plastic Visa, plastic American Express. Plastic—the ultimate symbol of a throw-away society which inevitably and inexorably will eventually crush us all beneath the weight of our personal debt.

The other justification which the Chancellor gives us for his economic policies is that his tax policies will create incentives. They will make people work harder. If so, why has he increased the tax burden overall? If it is true that top people respond to tax cuts by working harder, why does not the Chancellor argue that working people will respond to wage rises by working harder? If it is true that this theory is based on the notion, as the economists tell us, that the substitution effect outweighs the income effect, is there no empirical evidence to support it? We do not have to look at the recent survey by Professor Brown. Ever since Adam Smith published "The Wealth of Nations" 211 years ago, economists in all countries have been searching for this evidence that the substitution effect outweighs the income effect. They cannot find it. I should have thought that, having got this bright bunch of academics together in 1776, 211 years on, when they can find no evidence to support their case, they might drop the research project.

But not a bit of it—they cannot find any evidence in this country, so little Matthew Parris who used to be a Conservative Member, went wheedling off to America last weekend. I saw him talking to some professor sitting beside a television set which had to have a computer to make him look intelligent. He was preaching the kind of guff and garbage which one hears in this country only when Chancellors have come here since 1979 to produce their Budgets. There is no foundation for the monetarist theory and no empirical evidence to support the incentives theory.

Given that the twin moral pillars of the Budget are greed and selfishness, I should have thought that the Chancellor might take the opportunity to give us measures to encourage financial rectitude—for example, to help minority shareholders stamp out fraud. That issue has been taken up recently by the Financial Times. The problems stem from the difficulties which minority shareholders had in a company called Film Finances Ltd. when they discovered alleged serious frauds and a prime facie breach of section 42 of the Companies Act 1981.

Hon. Members who have closely followed the Guinness scandal will realise that section 42 of the Companies Act 1981 refers to companies using their own money to buy their own shares illegally. One of the companies with shares in Film Finances Ltd. is Wren Trust Ltd., the wholly-owned subsidiary of Gresham Trust plc. As it happens, the chairman of Gresham Trust plc is Sir Jasper Hollom, who is also chairman of the takeover panel. When minority shareholders tried to bring a civil action for fraud, Sir Jasper, the chairman of the takeover panel, blocked it. In 1985, when professional advisers requested Sir Jasper to remove a secret cheque book in the possession of the finance director of Film Finances Ltd., Sir Jasper refused to do so. Sir Jasper said that he did not want an action for fraud to go ahead because he thought that considerations of profit and commerce were more important than considerations of the law.

I have the company minutes of Gresham Trust plc for 6 March 1986, Sir Jasper Hollom, chairman of the takeover panel, in the chair. Speaking of this case, the minutes state: the directors could only have regard to the effect of the present proceedings upon its investment (held by its wholly owned subsidiary Wren Trust Limited) in Film Finances Limited. If, for the reasons set out in the Affidavits, already sworn by Mr. Carr and Mr. Baldock, the Board considered that there were good commerical reasons why the proceedings were not in the best interest of Film Finances Limited, then it should resolve to support Film Finances Limited's application to dismiss the proceedings".

I am bound to say that I find that odd, coming from the chairman of the takeover panel. Surely the Government Front Bench will agree that the right course for the chairman of the takeover panel was, first, to allow the civil action to proceed and, secondly, to report each and every allegation of fraud and breaches of section 42 to the Department of Trade and Industry and to the fraud squad. Quite frankly, it is outrageous that one so eminent as the chairman of the takeover panel can put profit before the law.

On commercial grounds, I have no doubt that the directors of Guinness would have liked not to have had an inquiry because it would not suit them. The hon. Member for Tayside, North (Mr. Walker) quite rightly complained that he had warned the takeover panel that things were going wrong in the Guinness affair. The hon. Member could not have known that there was nothing that Sir Jasper could do about it. At the very time that he was complaining about what was going on in Guinness—note the date of the minute to which I referred, which was exactly the time that the Guinness shenanigans were at their height — Sir Jasper was seeking to cover up an investigation into an almost identical crime in relation to his own companies.

If only the directors of Johnson Matthey Bankers could have said, "On commercial grounds, we do not want an inquiry," I am sure that they would not have had one. If only the directors of Minet Holdings could have said in relation to the PCW syndicate, "On commercial grounds, we do not want an inquiry," I am sure that they would not have had one. There is a lesson for the Government Front Bench. That is, having created the atmosphere in which the most eminent people in the City of London can no longer tell the difference between right and wrong, the Chancellor should, first, tonight telephone the Governor of the Bank of England to secure the immediate resignation of the chairman of the takeover panel. Secondly, when he comes to the House with his Finance Bill, he should say that he will introduce measures to allow minority shareholders to bring fraudsters to book.

I feel a bit of a fool over the matter. I have twice in the House defended the takeover panel. I have said, "There are some people in the City that one cannot trust, but one can trust the takeover panel." Now my hon. Friends say to me, "But it was you, Sedgemore, who told us that we could trust the people on the takeover panel." I am bound to say unequivocally that I apologise to every hon. Member. I trusted those people too much. In future, I shall let my natural cynicism outweigh the desires of my heart, which always see the best of other people, whether they are in the City of London or anywhere else.

The Budget is a graceless epitaph for the Chancellor and the Government. Like the Chancellor, it lacks moral, economic and intellectual integrity. For that reason, the decent, thinking people in the House will not support it tonight.

7.44pm

Mr. Alistair Burt (Bury, North)

I congratulate the hon. Member for Truro (Mr. Taylor) on his maiden speech. I know that he cannot be in the Chamber all the time, but he will probably read my remarks tomorrow. It is a special pleasure for me to welcome an hon. Member who is actually younger than I am. We both had the pleasure, when elected, of being able to choose to come to the House or go on a Club 18–30 holiday. I also endorse the remarks about his predecessor, whose loss was deeply felt in the House. I wrote to my local paper that David Penhaligon gave politicians a good name. We would all covet that simple memorial.

The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) said precious little about the Budget. The only substitution effect that I have noticed recently is the rapid substitution of his own party by the alliance as the official Opposition of the country. I suspect that, as Labour Members ramble on, they will find that substitution occurring more often and in more places.

I congratulate the Chancellor on the Budget. The touchstone of success for the Budget in my constituency will be as it has been in previous years—its long-term impact on unemployment. I have made little secret of my concern that the Government's policy in the recent past did not appear to make the reduction in unemployment as passionate a cause as some others that they have taken up. I still consider that the Government are seen as underplaying unemployment, but clearly they are underplaying it much less than they did in the past.

In the past 10 years or so, the arguments on unemployment have changed. or at least they have changed in the real world, although not on Labour Benches. We have recognised that the present chronic unemployment is more likely to have been caused by longterm problems rather than short-term cyclical ones. We have accepted that there are no easy answers and have questioned the seemingly ready solution that Governments should somehow create more jobs. A mood of realism has settled on the issue, but I counsel colleagues that it is not a content mood. My constituents want things to improve. Often, they are angry and frustrated, for the pain of unemployment is barely lessened by an intellectual appreciation that its causes are deep and its cure is uncertain. The appreciation that the country's economic long-term health is so much more important to their own and their children's employment than short-term heart-on-the-sleeve measures has got home, and with it a lower regard for the easy and false options of Opposition parties.

It is in that context that Bury, North views the Budget. Unemployment in the constituency is now down from its high point of 4,798 to 4,171 last month, a rapid drop that was achieved in the past 17 months, which is most welcome. The constituency now has unemployment at about 9 per cent. A number of Budget measures seem certain to enable that trend to continue. The first measure relates to interest rates. That matter was gently glossed over by the right hon. and learned Member for Monklands, East (Mr. Smith) when he dealt with Labour's borrowing and spending plans.

Prudent management of borrowing means that interest rates will fall, and the first effects have already been seen. There is a tone in the Government's handling of the economy to which interest rates are now appearing to respond, which will come as welcome news to the Manchester chamber of commerce and industry, which was quoted gleefully and rather selectively by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). In its most recent survey of 31 December 1986 it referred to: "a more optimistic note showing distinct improvements in the figures for deliveries and orders in both home and export markets."

It went on to state: as 81 per cent. of respondents see lower interest rates as necessary to improve business prospects, it must remain a matter of conjecture whether the improvement will continue into 1987 without a fall in real interest rates.

Let us hope that the fall in interest rates, precipitated by the Budget, continues. It will be a gain for industry, for home owners and for the economy in general. I also add a plea for stable exchange rates through our early joining of the European monetary system.

Secondly, on inflation, it is a remarkable measure of how far we have come that so little space and attention is now given to inflation, with its crucial effect on industry, wages and fixed incomes — particularly those of the elderly. The same industrial survey of our region makes it clear how important inflation still is to local industry. The Government are entitled to credit for reducing inflation. The Opposition's cavalier disregard of the danger of inflation ought to be remembered by those whom they purport to champion, particularly by the old who were viciously affected by inflationary rises under the last Labour Government.

Thirdly, the release of small businesses from VAT is particularly welcome in a constituency such as mine. It is an important market and retail centre. Cash flow is the bane of so many lives. In an economy where encouragement is being given to the development of small businesses that are providing so many jobs, the Budget measures will help to improve their prospects further.

Fourthly, on income tax the Government must confront head on a seeming paradox. In 1979, the level of income tax and the desire for its reduction was a major electoral concern. Eight years later, the expectation of a reduction has meant that tax cuts are now greeted with almost a Gallic shrug. But there is no paradox. Other dangers now face the economy. People's attention has naturally shifted. Some two and a half years ago I counselled caution on this issue, believing that at a time of rising unemployment the suspicion was easily bred that one man's tax cut was achievable only at the expense of another man's job and that it was vital for a long-term, month-by-month and steady reduction in unemployment to occur to confirm the success of the Government's economic policy and to give it credibility. Slowly but surely, this argument has gained strength. My right hon. Friend the Chancellor of the Exchequer is now more entitled to refer to the advantages of a low tax economy, and we must press this home. The argument has been made easier by the obvious fall in unemployment and the Government's welcome acknowledgment that some public expenditure is very good—hence the welcome mood of the "Autumn Statement" of 1986.

I cannot impress on hon. Members too strongly the importance to our constituents of the balance and the combination between tax cuts and public expenditure—not the over concentration on one rather than the other. The Opposition parties are incredible to people, as they concentrate solely on expenditure, coyly refusing to make it clear who will pick up the bill. Nobody is fooled. The voters know who will pick up the bill. We had honest David Blunkett at last year's Labour party conference to thank for that.

The new balance that this Government have achieved and that they spelt out in the "Autumn Statement" and the Budget is to be welcomed. I see it as a necessary change in emphasis which my part of the country, blessed as it is with good and honest public servants in all their many vocations, will welcome. They will also welcome the concentration of attention on the lower end of tax allowances, though I ask my right hon. Friend to continue in his next Budget the policy of raising the tax threshold by more than inflation, thereby taking more of the lower paid out of tax. The 1.4 million fewer taxpayers since 1978–79 will welcome what has already been done, but I hope all hon. Members agree that that number should be added to.

Let me caution the official Opposition that their promise to add back to the tax bill of the lower paid what the Chancellor has already taken away is for those whose incomes have risen quite a different question from whether they may have wanted a reduction in their tax in the first place. What one does not have, one never misses. People want, quite naturally, the best of both worlds. They realise that it is only a sound economy—not a re-vamp of the IMF-ridden public expenditure-slashing old guard—that provides that chance.

A second touchstone of the success of this Budget is likely to be its ultimate impact on the north-south divide. Here—let us again be honest — is another seemingly intractable problem that has affected Governments of different persuasions since the first world war. All too often the arguments about the north and the south are oversimplified. It is not a simple problem. I hear with some sympathy the genuine cries of some Opposition Members. I know for the most part what inspires those cries, but increasingly those areas are represented by my hon. Friends whose sympathy is no less but whose realism is greater, which keeps them from the undesirable siren call of easy and false policy options.

This Budget will work for the north for the same reasons as it will work for the economy as a whole. However, I urge my right hon. Friend the Chancellor of the Exchequer to devote more of his considerable energies to this problem in his next Budget. It is time to be imaginative and perhaps iconoclastic in dealing with it. I have not always been the first on my feet to praise my right hon. Friend in the past, but I bow to nobody in my appreciation of him as his own man, untrammelled by convention and determined to pursue his own way of dealing with problems. In dealing with the north-south divide that approach is needed.

A Budget looking at the north-south divide would not devote itself to an older and in some ways discredited view that public expenditure on projects is the answer. Instead it would look at whether the fiscal structure could be altered in some way to assist the growth of businesses and new enterprises in the north. If it is fair to ask for differential pay in different parts of the country, perhaps it is also fair to ask for differential tax rates in different parts of the country.

But let us be absolutely frank. Ultimately, the north-south issue will be resolved not by Governments but by pure common sense. One day, some bright spark will wake up down here, in this over-priced, over-rated and congested hell hole of the south of England and say, "Blow this for a game of soldiers; I'm off." People will realise, as the price of land and houses continues to rocket, as their own and their families' quality of life suffers from ridiculous commuting decisions, that there is a decent alternative. We should be emphasising the positive side of the north-south divide. The positive side does not rely solely on public expenditure; it relies also on private expenditure. They both have a part to play. What so depresses me about the arguments of Opposition Members about the north is their appalling lack of belief in their own people and in their own areas. They have hardly a good word to say for them; they moan on and on. How many people outside the House, hearing that image of the north, will be attracted to go there, set up in business and fight for the future? I believe that the north and those who live in the north can produce industry, enterprise and jobs. Magic handouts did not work in the past and they will not work in the future. A different approach is needed.

The north-south divide will be reversed. Folk will realise that away from all this high-cost everything in the south-east is a beautiful part of the country. It is situated in the north-west, with fabulous road, rail, air and sea connections. It is handily placed in the centre of the country, with good state and private schools on the edge of a major city, with all the necessary commercial infrastructure to support successful business initiatives. This place is called the metropolitan borough of Bury. People ought to wake up to what will happen in the southeast in the next 20 years and get out fast. If anybody wants further details about Bury, my telephone number in the House is 219 6320. I shall be glad to tell people about the metropolitan borough of Bury.

This Budget is a responsible continuation of certain policies and an acknowledgment of an equally responsible change in others. The Chancellor has done well. The underlying strength of the economy is sound and people's response to a realistic Budget will be equally realistic. They will vote for it and give us the opportunity to continue to improve. Above all, they will give us the responsibility to continue in future the vital job of reducing unemployment.

7.57 pm

Mr. Ian Wrigglesworth (Stockton, South)

One would not have expected the hon. Member for Bury, North (Mr. Burt) to do other than praise the Budget. He welcomed the increased public expenditure upon which the Government embarked towards the end of last year and reminded the Government and the House that unemployment should be given a higher priority than so far his Government have given to it. I welcome that, as I welcome also some of the other points that he made.

As always in economic debates, Conservative Back Benchers tend to agree with quite a number of points that we on the alliance Benches make. In that connection, I wish to refer to the speech of the hon. Member for Nottingham, North (Mr. Ottaway). I pay tribute to the work that he has done in seeking to provide an opportunity for businesses to charge interest on outstanding debts. This is long overdue. These debts are a great burden on small businesses. I welcome, as he did, the Government's VAT changes. They will help small businesses, particularly over their cash flow problems.

I have begun on a non-partisan note, which I am afraid I cannot continue. First, however, I pay tribute to my hon. Friend the Member for Truro (Mr. Taylor). He made a very good maiden speech. It is a great pleasure to welcome him to our Benches. I knew him when he worked for David Penhaligon, and he will make a major contribution to our future debates. I support the warm tribute that my hon. Friend paid to David Penhaligon, with whom I also worked over the past year and whose death in a tragic accident resulted in a great loss to me, as well as to the whole House and the country.

The Budget has shown the clear contrast in the approach to economic policy of the two sides of the House. I want to examine the economy from our point of view, rather than in the glowing and misleading terms in which the Chancellor of the Exchequer, Ministers and their supporters have been describing it recently, as the general election approaches.

Inflation is still higher in this country than in any other member of the group of seven industrial nations, with the exception of Italy. Although one can draw good comparisons with our performance in the past — I acknowledge the progress that has been made—he fact remains that we are still lagging behind our partners in the group of seven industrial nations that constitute our major competitors on the world market.

My next point is one dear to the hearts of many Conservative Members, and hon. Members have referred to it during the debate. Our total tax burden is still higher than it was in 1979. If all that we have heard about the incentives that tax cuts foster is true, one wonders why that vast army of people—in addition to the brain drain, which has been taking place for different reasons—have been leaving the country recently.

In 1978–79, taxes represented about 33.8 per cent. of GDP. In 1979–80 they rose slightly to 35.1 per cent. So, having been at just over 35 per cent. in 1979, when the Conservatives came to office, taxes have gone up to 39 per cent., and just recently have fallen slightly to 38 per cent. Thus, the total tax take in this country is now 38 per cent. of GDP as against 35 per cent. when the Government came to office.

One need only look at the changes that the Government have made in taxation since 1979 to understand why that is the case. The Government like to forget the period 1979 to 1981, certainly as regards manufacturing industry. We remember the days of 8 per cent. VAT, which then went up to 15 per cent. even though the Government had promised that an increase—at least, of that size—would not take place after the election.

There are now 750,000 fewer manufacturing jobs in the economy as a whole. More jobs have been lost here than in the whole of the European Community during the corresponding period. Manufacturing output, unlike that of all the other developed countries, has actually contracted. Ministers do not like being reminded of it, but the House well knows that manufacturing output is still 4 per cent. below the peak level of 1979. It has taken the Government all those years to get back to manufacturing output at 4 per cent. below what it was when they came to office.

Unit labour costs, which have improved marginally—we have heard about this—are vital in comparing our position with that of other countries. They are still rising faster than those of our competitors. Earnings growth, which has stabilised at 7.5 per cent. —almost double the rate of inflaton for the past four years—is now creeping up again, once again undermining our competitive position. Average growth since 1979 is the worst in the group of seven industrial nations, except for France, and is below the European Community average of 1.4 per cent.

Recent figures have been adduced to blank out much of what happened in the early years when the Goverment's monetarist arguments were to the fore and when the change that has recently taken place in policy had not yet been given the chance to start working. The recent changes are the very ones that some of us have been advocating. The fruits of increased public expenditure are now becoming evident, and that is why we urge the Government to continue in that direction.

The fundamental divide between the two sides of the House, to which I referred earlier, concerns the way in which the £5.5 billion fiscal adjustment has been used. The Chancellor has been most unimaginative, considering the scale of the fiscal adjustments at his disposal. He could have done a great deal about tax reform, which would have been widely welcomed. However, he has devoted £3 billion to cutting borrowing. Why should he do that before a general election? We have been told that it is all because of "Lady Prudence", that he has been cautious.

I do not believe that that is the reason. The Chancellor did it for the same reason that led him not to put up the cost of booze and baccy, among other excise duties. He is worried that if he expanded the economy further we would have more major balance of payments problems and inflation would rise to 5, 6 or 7 per cent. That is what he fears would happen if he expanded the economy by using the whole fiscal adjustment instead of cutting back on borrowing.

The Chancellor also embarked on cutting income tax rates with the money that was available to him. He used £2.5 billion to reduce income tax by 2p in the pound.

Mr. Hickmet

What about interest rates?

Mr. Wrigglesworth

I shall come to interest rates in a moment.

Tax cuts are the area about which we most fundamentally disagree with the Government. As has been pointed out, there is no real evidence to show the incentives that tax cuts bring. We do not want tax to be any higher than it has to be. It is a question of priorities. One has only to read the recent speeches of Ministers—in particular those of the Chancellor—to realise that the Government have a wholly different set of priorities from us.

We believe that the highest priority is unemployment, which is hardly mentioned in the speeches of the Chancellor and other Ministers. Nor do they mention the poverty that is being suffered by a large percentage of the population. Those below the official margin of poverty, which is about 40 per cent. above the supplementary benefit level of income, now number 16.3 million—a rise of 42 per cent. since 1979. This amounts to about 31 per cent. of the population.

To echo Franklin Roosevelt, one third of the nation is ill-fed, ill-clothed and ill-housed. Vast areas of the north-west, about which the hon. Member for Bury, North spoke, Scotland, Wales and the north-east fall into that category. One need walk only a mile from the City of London, either east or south of the river, to see the poverty, ill health and bad housing that one third of the population are facing.

Our priority for the Budget, therefore, would have been to deal with those conditions and circumstances and with the unemployment that gives rise to them, rather than using the £2.5 billion fiscal adjustment to cut income tax by 2p.

The hon. Member for Glanford and Scunthorpe (Mr. Hickmet) mentioned interest rates. It is remarkable for Conservative Members to criticise us for not being concerned about interest rates. Like a number of Conservative Members, the Confederation of British Industry, the Governor of the Bank of England and, we are told, the Foreign Secretary and the Chancellor, for a long time we have been advocating membership of the exchange rate mechanism — the European monetary system—to try to get interest rates down. We are deeply anxious about the fact that our interest rates are, on average, 4 per cent. above the level of interest rates in our European partners' economies. We believe—this is not a figure that we have conjured up, but one which others have concluded should be possible — that by joining the exchange rate mechanism and by giving a degree of stability to the exchange rate and to monetary policy, we could succeed, in time, in getting the level of interest rates down by an average of about 2 per cent. The Chancellor has not taken that option despite advice from the many quarters that wish to see that happen. Indeed, many Conservative Back Benchers want to see that. We believe that that is a vital part of economic policy upon which the Chancellor should have embarked in this Budget and, indeed, in previous Budgets.

We believe that jobs and poverty should be the top priority. The level of unemployment is unacceptable. It is much worse than the official figures suggest. There have been 19 changes in the calculations on the register of unemployment which have taken some 524,000 people off the register, which of course is a register of those who are entitled to unemployment benefit and not those who are seeking work. One can add to that about 485,000 people who are on special schemes and the youth training scheme. If one does that, one gets a figure of unemployment that is massively higher than that quoted by the Government.

I have just received a report from Newcastle university on the research done by that university for BBC North-East. As a result of that work, it estimates that the level of unemployment is 46 per cent. higher than official estimates and represents a total job gap of some 4.7 million between the number of jobs available and those who want them. I do not take the view that the jobs provided by the Manpower Services Commission and the places provided by the youth training scheme are, in the disparaging sense, make-do jobs with no value. Perhaps some of them are of little value, but many of them are of great value and we should not discount them. However, I mention those make-do jobs because it was the Prime Minister, before she was faced with 3 million-plus unemployed, who condemned artificial jobs. In April 1979 the Prime Minister said: Artificial jobs are like artificial flowers, they have no fruit, they bear no seed. If that is the case, we would like to see the Prime Minister and her Chancellor do a great deal more to create real jobs in the economy. We believe that the proposals that we put forward before the Budget could achieve that.

Before dealing with our proposals I shall refer to important items in the Budget. First, unlike the Labour party, we welcome the introducion of tax relief for profit-related pay. We will want to examine this in Committee on the Finance Bill. We have for some time advocated moving towards more profit-related pay, we would like to see the scheme succeed and we will examine it in that light when it comes before the Standing Committee. I do not accept the disparaging remarks made by the hon. Member for Sheffield, Attercliffe (Mr. Duffy), who said that the scheme could not help to make workers identify with their enterprises and seek to achieve better results. That is the whole object of the exercise, as well as increasing the rewards available to workers at the same time.

Secondly, I hope that in Committee we will be able to discuss personal equity plans. I am afraid that all the evidence that we have seen bears out the fears that have been expressed from the alliance Benches ever since the scheme was introduced. We want to see a Loi Monory scheme, a front-loaded tax scheme, that will give a real incentive to people who have not invested in shares so that they will come into share ownership in a way that will greatly extend the number of shareholders in the country beyond what has yet been achieved by the Government.

If one looks at the Financial Times survey of institutions offering personal equity plans, one finds evidence to show that the number applying for them has dropped substantially since January when the scheme was first launched, and that those who did apply and those continuing to apply are paying for them in lump sums and are clearly existing shareholders, not new shareholders. The whole purpose of the exercise should be to try to bring people into shareholding for the first time. That is why we want to see a Loi Monory scheme rather than the personal equity scheme that the Government have introduced.

Thirdly, I should mention the regrettable introduction of the 25 per cent. increase in the duty on gaming machines. I am not against increasing that duty or the drink and tobacco duties in line with inflation. It is regrettable that that has not been done over a period of time and that this 25 per cent. increase has been slapped on to pay for the abolition of on-course betting duty. Those of us who live and work in constituencies with many working men's clubs will find that this will be an enormous burden upon them. I regret that the Government have taken this step. In the short time since the Budget I have had an opportunity to discuss this issue with clubs. Many of them are reeling under high levels of unemployment, loss of membership and considerable financial difficulty. The 25 per cent. increase in the duty will be a substantial burden upon them, particularly small clubs, and they could well do without it. To do this to abolish on-course betting duty is most regrettable and I hope that before the Bill goes through the House the Government will have had time to think again.

I should mention what we would have preferred to see in the Budget. On the subject of industry, I do not think that I need add much to the speech made by the hon. Member for Hastings and Rye (Mr. Warren). The Secretary of State for Trade and Industry was in the Chamber and he will have heard chapter and verse from one of his own Members what some of us, not least my right hon. Friends the Members for Glasgow, Hillhead (Mr. Jenkins) and for Plymouth, Devonport (Dr. Owen), have been saying about the need for increased civil research and development, the need for greater support for science in order to reverse the brain drain and the need for a smaller burden of interest rates upon industry.

We believe that we could get a substantial reduction in unemployment by targeting expenditure, not upon tax cuts, but upon providing a jobs guarantee over three years to the long-term unemployed, who are the most hard hit section of the people searching for jobs. We believe that it is essential that we do something about capital expenditure in the public sector. Expenditure needs to be increased in the education service, the Health Service and on infrastructure projects such as roads, railways, sewerage and so. We believe that the benefits of those who have been hardest hit by the recession should be substantially increased and that, plus a cut in employers' national insurance contributions, could all contribute, along with the jobs guarantee, towards getting the level of unemployment down by over 1 million in three years.

We have put forward our carefully costed proposals and the consequences of those proposals for borrowing, interest rates and the balance of payments for all to see. I believe that they would have been much more welcome to the country and certainly to those who have suffered most over recent times. The Secretary of State's speech at the beginning of this debate was exceedingly complacent about the problems facing us both socially and industrially. I hope that on reflection he will think that the party points that he made and the points scoring in which he indulged have little relevance to the lives of people in industry or those on the dole. I hope that he will think again and that the electorate in due course will see that the tactics adopted by the Government mask a great deal of misery beneath the surface and great divides within the nation. They represent policies that should be rejected in the general election, whenever that comes.

8.20 pm

Mr. John Townend (Bridlington)

It was interesting that the hon. Member for Stockton, South (Mr. Wrigglesworth) did not repeat the costing of the alliance programme. He did not say how much would be met from borrowing or how much from taxation. He did not seem to be interested in anyone querying that point with him during the debate.

It is especially pleasurable for Conservative Back Benchers to he called to speak in the debate on the Budget statement this year. After a number of years of hard slog, it is clear to everyone that the Government's economic policies are now paying off. As my hon. Friend the Member for Croydon, South (Sir W. Clark) and other hon. Members have said, it is remarkable, when we consider that oil revenues have dropped by about £6.5 billion, that the Chancellor has still been able to increase expenditure by nearly £5 billion including substantial extra expenditure on education and health. In my constituency within 12 months we shall see the completion of the new Bridlington hospital, which has been required now for 20 or 30 years. This Government — the Government who are repeatedly attacked for making cuts—have built and paid for this hospital. In addition, the Chancellor has been able to reduce the PSBR to 1 per cent. of GDP and to reduce income tax by 2p in the pound.

I am rather intrigued when Opposition Members, particularly alliance Members, refer to the level of taxation at 27p not being that significant to the ordinary man in the street. They forget that people consider national insurance as well as income tax. Even after the present reductions the man on below average earnings starts to pay tax and national insurance at the rate of 36p in the pound.

This has been a very conservative Budget — and I mean conservative with a small "c"—and it has been very prudent. In no way can my right hon. Friend the Chancellor be accused of putting forward a pre-election Budget. The projected figure that he has used in his estimates for the oil price is very conservative and I think that it is very likely that during the year oil prices will be higher and that there will be benefits both to Government revenues and to the balance of payments. The Chancellor deserves our gratitude and congratulations. Conservative Members must understand why the Opposition are looking so green with envy.

The economy is in better shape now than it has been for years. Inflation is under control, productivity is still rising and much of British industry, after a lot of pushing and shoving, is at last getting its act together. We really now have an opportunity of getting into a virtuous circle. Six years of successive economic growth have meant that higher tax yields are allowing the Government to reduce borrowing at the same time as reducing taxation. As a result, all of us who represent small business interests in our constituencies appreciate the effect that that has had already on interest rates, with the base rate falling by 1 per cent. over the past few weeks, mortgage rates are also coming down and further interest rate reductions likely. That will again give increased incentives to industry to invest.

Unemployment is falling. We must never forget that the figures are not understated—they are overstated by the enormous size of the black economy that has grown year after year. There are some 80,000 people who are registered as unemployed in the south-east when we all know that anyone who really wants to work and is capable of working in the south-east can get a job. There are several hundred thousand foreigners working in the catering industry because our own people are not prepared to take those jobs. We must also take into account those who are not willing to work. I checked the figures in my constituency just after Christmas. There were more than 100 school leavers drawing social security, yet there were more than 100 unfilled vacancies on the YTS. How many young people are not capable of taking the jobs that require more and more skills? How many of our children are leaving school unable to write properly. read adequately, do simple arithmetic or speak properly? The right hon. Member for Ashton-under Lyne (Mr. Sheldon) accepted earlier the point that I made that we are spending more per head on education than ever before. He said that what mattered was not the input, but the output. Surely, as much as anything, output must be the responsibility of those working in education.

There has been much talk about the north-south divide. I am sorry that the right hon. and learned Member for Monklands, East (Mr. Smith) is no longer in the Chamber. He would not give way when I tried to intervene earlier. I am an east Yorkshireman born and bred. I have worked in the north, in east Yorkshire all my life. I represent a constituency that has the eastern suburbs and the agricultural heartland of the city of Hull. That is an area of high unemployment. I suggest that Opposition Members, instead of always blaming the Government and referring to cuts, should ask themselves, "What is the reason for all this unemployment?"

When I was a boy, Hull was the third port of our country. It was a great and prosperous city. With entry to the EEC and the movement of trade from the Atlantic and Liverpool to Europe, Hull should have benefited and become the Europort of Europe. It did not. It declined. Why did it decline? It declined for two reasons, the national dock labour scheme—

Mr. Hickmet

And the unions.

Mr. Townend

My hon. Friend the Member for Glanford and Scunthorpe (Mr. Hickmet) is quite right — and the Transport and General Workers Union. Felixstowe, which in those days was a wharf at the end of nowhere, which did not have the dead hand of the national dock labour scheme or the TGWU upon it, took the trade. Our prosperity moved south. The first culprits are the unions and thq national dock labour scheme. I urgently press on my right hon. Friends that they should do away with that scheme in our election manifesto, because it has crippled the port of Hull.

I spent many years on the Labour-dominated council in Hull. I well remember industrialists coming to the city and saying that they would like to build a factory in the city if we could sell them some land. Our ideological brothers in the Labour party said that they did not believe in selling land and that land should belong to the people.

They said that they would lease the industrialists some land. The industrialists said, "Thank you very much", left the town and went somewhere else to buy freehold land. Now, when there is very little foot-loose industry and high unemployment, the Labour party has at last changed its policy. However, it is too late.

The hon. Member for Liverpool, Walton (Mr. Heffer) referred to Liverpool. What industrialist in his right mind would build a factory in Liverpool when we consider the record of the unions and Derek Hatton? What about the rates? That is one of the factors that influences whether an industrialist will develop. The Opposition have not taken any account of the appalling effect that some of those militant trade unions have had on our northern cities. I can quote a classic example. In my city of Hull, two brothers, half English, half West Indian, left the forces after the war and started to build agricultural trailers in a garage. They built up a large business that eventually became a plc. It was the largest manufacturer of agricultural trailers in the country. It was non-union, but eventually the unions got in. Unfortunately, the shop stewards were of the worst militant variety. They crippled that company and in the end it closed. We no longer manufacture trailers in Hull. If that company still existed, how many more apprenticeships would have been created? Before Opposition Members criticise the Government for unemployment in the north, they should come to the north and see the real reasons, as we who have had to live with the results of militant Socialism know the reasons.

It might appear churlish to mention omissions from a Budget that contains so much which is welcome, but some omissions have caused disappointment. No attempt has been made to deal with the tax anomalies and injustices that discriminate against those who are married and in favour of those who live in sin. The Conservative party believes in the family. It believes that children should be brought up in a stable environment and that that can best be provided within a marriage. Our tax system should discriminate in favour of marriage, but if the Government will not go as far as that, they should at least be even-handed and not discriminate against marriage. We have done that for many years, and I am sad that, in a year when resources were available, the Chancellor decided to do nothing.

It is nonsense that when two people decide to get married and set up home together they can pay £900 more a year in tax due to lower mortgage relief than they would if they lived together in sin. Equally, in this day and age, it must be wrong that a woman's investment income should be considered to be that of her husband for tax purposes when her earned income is considered to be her own and when the mistress's unearned income is considered to be her own. We cannot justify continuing a system in which divorce is more tax-efficient than marriage. I ask my right hon. and hon. Friends to consider that point.

I especially welcome two items in the Budget. The first is the additional help to old people, especially the extra age allowance for those aged over 80. It will be welcomed in my constituency, where the percentage of old people is way above the national average. Secondly, I thank the Chancellor for all the help that he has given to small businesses — we have heard all the details tonight —especially the provision that VAT can be assessed on a cash basis and that traders can obtain immediate relief for bad debts. No one has done as much as the Chancellor and his predecessor to help small businesses. Almost ritually, we expect every Budget to provide more help, encouragement and concessions to small businesses, and we were not disappointed this year. I am pleased that corporation tax and capital gains tax for small firms have been reduced to 27p in the pound.

This is a first-class Budget — a just reward for a Government who have followed a consistent economic policy regardless of carping criticism, naturally from the Opposition and occasionally from Conservative Members. Credit is due to British manufacturing industry, which has often been criticised in the past, and to the expanding financial services industry. They have taken advantage of the improved environment provided by the Government and they have created so much additional wealth and tax revenue that this Budget was made possible.

I look forward to my right hon. friend the Chancellor presenting his Budget next year and achieving his aim of reducing the standard rate of tax to 25p in the pound, and I hope that then he will make it more advantageous to be married than to live in sin. The success will continue only if we keep a constant watch on and increase our efforts to control public expenditure. The pressure to increase spending is always there. We must always be vigilant.

8.34 pm

Mr. Ken Eastham (Manchester, Blackley)

Election year always stimulates a concentration of mind, especially on the Government Benches, and we have seen that in some of the speeches today.

It was interesting to hear the hon. Member for Bury, North (Mr. Burt) suddenly becoming alarmed about jobs and saying that there is no easy answer. That is completely contrary to what was said in 1979. I remember the posters produced by Saatchi and Saatchi to justify the high fees that they received to project the Conservative party. Then unemployment was 1.1 million. Now it is 3.5 million and the same people are saying. "There are no easy answers". They did not say that in 1979. It shows the emptiness of the case made by Conservative Members. I realise that the election stimulates concentration, but it is not a genuine anxiety and some of the utterances and claims that were made today will kid no one.

The only good contribution from a Conservative Member today was the speech of the hon. Member for Hastings and Rye (Mr. Warren), who criticised the Government for the crisis in engineering. It was a telling, honest and forthright contribution. Opposition Members have been making similar speeches for the past seven to eight years, but, since they fell on deaf ears, they made no difference. The hon. Member for Bridlington (Mr. Townend) talked about six years of growth. If he believes that there have been six years of growth, he will believe anything. He cannot kid anyone by claiming that.

My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) mentioned some alternative methods of creating jobs and said that the northern region should also share the prosperity of the nation. I was grateful to him for reminding us about the Prime Minister standing outside the door of No. 10 in 1979 chanting some quote from St. Francis. Some people have described that as the night when A1 Capone took over, not as the night of St. Francis. That has been shown in many ways. We see the sickening and disgraceful spectacle of the rogues in the City — the slick operators who live on their wits and seem to be getting away with murder. Yet there is an over concentration on attacking the trade unions and punishing them in the most vicious antiquated way. The Government are no better than 19th century mill owners.

I wonder how many people saw "The Money Programme" on BBC2 yesterday evening, which showed 22-year-olds who operate in the City and who receive £100,000 a year. We heard those young whizz kids boasting about their Porsches, their big fancy houses and their £100,000 a year, and we hear speeches about the serious shortages of highly skilled engineers and technicians. Is it any wonder that there is no great enthusiasm among highly skilled people with brains to become engineers when they can receive such great rewards in this Conservative society?

The Budget contained no surprises. The newspapers prophesied that there would be 2p off income tax, and they were dead right. The newspapers also prophesied that the Budget would not help the poor, as did the churches and other religious people. There was no enthusiasm for the Budget and nobody can kid me or anyone else that it was a Budget that was meant for the people. We all saw during the Chancellor's speech that he appeared to lose two pages of his text. There was a slight hiccup and somebody ran off to the side benches to the civil servants. One of my hon. Friends asked that there should be an adjournment because of this splutter. I wonder whether there was a real mistake, and a couple of pages were missed out of the Chancellor's speech, because there was no mention of relief. Usually, the Chancellor tells us about relief for the handicapped or the less well-off. There was no mention of the unemployed or the handicapped, the poor or the mainstream pensioners.

It has been said that some pensioners will be getting 2p off their tax, but we all know that there are millions of pensioners who do not pay any tax. Usually, those who are paying tax are those who have had good jobs, and now have high pensions, such as town clerks, architects and ex-civil servants. Nobody in the inner cities such as Manchester, Glasgow, Liverpool or Cardiff will receive such benefits. None of those people are receiving anything from this Budget.

We should remind the Government that when the Chancellor is doling out money he should be doling it out to the people who made sacrifices. During the past seven or eight years, the groups that I have mentioned have been making considerable sacrifices, and if there is any payout or share of the wealth, they should be at the receiving end of them. Instead there has been no reward for them.

The Chancellor seemed to be padding out what he had to say about VAT. He spoke about the assistance with business transactions, tax deductions and some minimal relief for charities. If he wanted to tackle VAT, an obvious way to have done so would have been to reduce it to the figure that it was under the last Labour Government. We ought to remind the Government and the Chancellor—I will not let him forget it—that they have nearly doubled VAT. If he had reduced VAT, everybody would have benefited. However, that is not the philosophy of the Conservative party. It wants to be specific and give to those who do not need such benefits. That was certainly the case on VAT.

Another tax that has not been mentioned in the debate is taxing the sick through prescription charges, which have risen by 1,200 per cent. since 1979. That is a tax. If the Chancellor wanted to do something to help the sick, he could have done something about these charges. Nobody wants to be sick and nobody should be burdened because he is sick. That was another thing about which the Chancellor did nothing.

The emphasis throughout in the contributions from the Conservative Benches has been on tax relief for the better-off, for those who do not need the money, such as people who have to pay capital gains tax and who are extremely wealthy.

Another matter that has not been mentioned so far is the quality of life. I know that my hon. Friend the Member for Walton dwelt on this subject, but very little concern has been shown by Conservative Members. Like my hon. Friend, I believe that the local authority fabric, such as schools, roads, pavements, housing, hospitals, and better transport, are all worthy sectors, and expenditure on them can improve the quality of life. We all know that at the moment the Government prefer public squalor. It is the old story of private affluence against public squalor, and we have seen this year after year in the past eight years.

There are good ways to provide jobs if the Government are really concerned, and one of the most useful would be controlling the housing stock and making serious inroads into such problems. Nationally, 3.3 million private houses need at least £2,500 spending on them, and that is on the 1981 figures. The Association of Metropolitan Authorities recently estimated that to bring the private sector up to standard would need £27.5 billion.

I realise that these figures are gigantic, and to bring them into perspective so that we can relate to them I shall use the example of my city of Manchester—one city of many that need such help. In Manchester, we have a housing waiting list of 38,000, and 25 per cent. of these people are in overcrowded houses. A quarter of the housing stock is pre-war and it needs £150 million spending on repairs. The council also needs £250 million to repair the system-built houses which came about as a result of decisions taken in this place.

Some 10,000 local authority houses in Manchester are awaiting modernisation and 1,000 more people a year come on the waiting list for homes. Over £100 million is needed for heating improvements. In the private sector, 3,300 houses are waiting for improvement grants. I am advised that another 50 houses a week are added to this list. People are desperately waiting for the Government to give them money so that they can restore these properties into a habitable condition.

The Government once again mentioned training, as they regularly do. I do not go along with the Chancellor nor those on the Government Benches in the way that they interpret training, because our problem is not so much about training of young people but about skill shortages. That reinforces what was said from the Conservative Benches earlier today. I remind the Government that, when we are talking about skill shortages, we should remember that during the past three years they closed 27 skill centres, some of which were making a profit. Nevertheless, daft as that decision was, they decided to close the centres. They also savaged the industrial training boards, which did a vital job in training against skill shortages.

Our nation knows about the north-south divide and does not need politicians in Westminster to remind it about it. People are conscious of the injustices and the inequalities that have been practised by this Conservative Government. People no longer consider that we are one nation. There is a blatant and callous indifference in the Government's policies of inequality.

If the Budget is the best that the Government can do after eight years in office, we should ask what they have to show for those eight years. There are still 3.25 million people unemployed, and hundreds of thousands of people are homeless and living under the arches. People cannot get beds for geriatrics in hospitals. That is the progress that we are suffering under this incompetent Tory Government. Unemployment is not being tackled; crime, which many people say is associated with unemployment, is escalating and there is a feeling of hopelessness. Such is the Budget for 1987 under this Chancellor of the Exchequer.

8.50 pm

Mr. Richard Hickmet (Glanford and Scunthorpe)

Much of the criticism of my right hon. Friend the Chancellor's Budget by Opposition Members this afternoon has dealt with the decline of manufacturing industry, the north-south divide, and the consequential reduction in employment in the north. However, there has not been much analysis of particular industries or of the causes why some industries are in decline.

My hon. Friend the Member for Bridlington (Mr. Townend) made a telling point when he analysed what had happened in Hull. That city was one of Europe's major ports, employing several thousand dockers, and was poised to capture European shipping markets when we entered the European Community. However, it committed suicide through the national dock labour scheme and industrial relations in the ports. It is now paying the price.

I should like to investigate briefly the British Steel Corporation, and to take that as an example of what has happened in manufacturing industry during the past few years and to consider its future. As the Secretary of State said earlier, in 1979, the British Steel Corporation took 14 man hours to produce one tonne of steel whereas today it takes 6 man hours per tonne. In 1979, deliveries were unreliable but today the corporation can, in many circumstances, deliver within a month of an order being placed. Quality is now among the best in the world. On Monday, the Secretary of State for Trade and Industry visited the Scunthorpe steel works in my constituency and saw steel being made for export to Germany, China and to other countries. Today the British Steel Corporation exports more than 40 per cent. of its production.

After 10 years of continuous losses, which amounted to billions of pounds of subsidy from British taxpayers, the British Steel Corporation entered profit for the first time last year with a profit of £38 million, on a turnover of about £3.5 billion. This year, it is on target for a profit of £170 million.

Since 1981, that industry has seen about 120,000 job losses in the United Kingdom. On top of those job losses in the steel industry there have been losses in the transport, maintenance and other associated dependent industries, bringing the total losses to about 250,000. The tragedy of the British Steel Corporation has been that we failed to deal earlier with those problems.

The world has been awash with steel. There are 700 million tonnes of capacity in the free world, of which 100 million tonnes is excess. There are at least 30 million excess tonnes in Japan, 30 million tonnes in the United States and, depending on the figures that are available, between 20 million and 30 million tonnes in Europe. That over-capacity must be seen in the context of the countries in the developing world, which are constantly building new steel mills and expanding their capacity. That continuing overcapacity in Europe still exists, even after we had cut capacity in this country by more than 6 million tonnes and by 20 million tonnes in Europe as a whole. Steel workers all over Europe have lost their jobs and have been made redundant.

Today the European regime of quota controls, price fixing and capacity reductions is coming to an end. Since December 1985, no subsidies to the European steel industry have been allowed. I asked my right hon. Friend the Secretary of State for Trade and Industry—perhaps my right hon. Friend the Chancellor of the Exchequer will make sure that he gets the message—to ensure that no indirect subsidies are given for energy, transport or employment costs in the European steel industry.

What about the future? The Japanese steel industry is laying off thousands of steel workers. It is ironic that today personnel staff from the major Japanese steel producers come to the United Kingdom to see what we have done in our steel industry about redundancy and about providing alternative employment for steel workers.

The steel industry in the United States is in mortal decline. The French and German steel industries are in a parlous state. When Opposition Members say that this Budget has done nothing for British manufacturing industry, I have to tell them that the strongest steel industry in Europe today is in Britain. It is the British Steel Corporation, which is one of the most efficient and profitable steel corporations in the free world. Opposition Members may gainsay that if they like, but difficult decisions had to be taken in the industry. When the Labour party was in power, it refused to face those decisions and shelved the Beswick report. Those decisions then had to be taken by this Government.

For the future, I want the British Steel Corporation to compete on profit, delivery, price and quality. If it does, it will remain the best producer in Europe. The only way in which we can protect jobs in manufacturing industry, whether in the steel corporation or anywhere else, is to compete on that basis.

The Commission is not reluctant to remove quotas on the production of steel in Europe. The time has come to get out of the steel regime. It is interesting to ask why the Commission should be reluctant to remove those quotas, because we can deal with over-capacity in steel production in two ways: we can allow the industry to compete on profit or we can proceed by diktat. We can simply tell the steel industries in Europe to close down capacity here and there. I see no reason why the Commission should reduce United Kingdom capacity and I was pleased that the Secretary of State gave that assurance following an intervention I made in his speech. In future, none of the BSC's plants should be affected as, clearly, they are profitable. The Commission must take into account the profitability and financial viability of companies in negotiating further cuts.

What effect does the right hon. and learned Member for Monklands, East (Mr. Smith) think Labour party policies will have on the performance of one of our major manufacturing sectors? The direct cost to the BSC of the 1 per cent. levy on turnover for training purposes would be £35 million. According to the hon. Member for Kingston upon Hull, East (Mr. Prescott), the Labour party would use the nationalised industry to increase manning. Furthermore, the Labour party is committed to phasing out nuclear power. What effect does the right hon. and learned Gentleman think that that will have on the steel industry, bearing in mind that it is the largest user of electricity in the United Kingdom and that the chairman of the CEGB has said that he will not be able to guarantee continuity of supply if phasing out takes place and that electricity costs may increase by up to 50 per cent?

It is all very well for the right hon. and learned Gentleman, like Pontius Pilate, to make an eloquent speech, washing his hands of any blame for the parlous state of British manufacturing industry, but the Labour party failed to deal with the BSC's problems and today proposes policies which would be fatal to its future. They would remove the industry from profitability, and if they did that, under the European steel regime, the results for the BSC would be disastrous. It would face closure.

I want to see the BSC run on a sound, commercial basis. The future of the corporation lies in privatisation and giving those in that industry a share of the profit, a share of their industry and a say in how it is operated. I am somewhat disappointed that workers in the BSC will not be able to share in the profits-related scheme for tax relief announced by my right hon. Friend the Chancellor.

Mr. Lawson

They will when it is privatised.

Mr. Hickmet

Perhaps that is a good argument for privatisation, but meantime I hope that that matter will be considered in Committee. In relation to a major sector of British manufacturing industry, namely the BSC and steel producers, past Labour party policies have proved disastrous and, if adopted, they would prove disastrous again.

9.1 pm

Mr. John Maples (Lewisham, West)

Every year at this time my right hon. Friend the Chancellor of the Exchequer returns with another year of economic growth under the economy's belt and we listen to a range of speeches from the Opposition from which one would think that the economy was in terminal decline. While we certainly have problems, we have an extremely healthy base from which to attack them.

Over the past few months my right hon. Friend has achieved more than tax cuts. In the autumn we saw an increase of nearly £5 billion in public expenditure. Now we have seen a £3 billion reduction in borrowing and a £2.5 billion reduction in taxes. That is a £10.5 billion fiscal adjustment over the past four months,£5 billion of which has gone into increased public spending and only £2.5 billion of which has gone into tax cuts. Therefore, it is wholly wrong to characterise what has happened to public-sector financing over the past five months as nothing but tax cuts.

If one adds to that £10.5 billion of adjustments the lost oil revenues of £6 billion, one finds that the non-oil economy has generated £16 billion more in tax receipts than was predicted at this time last year. I do not know where Opposition Members think that that money came from. It did not come from out of the sky, off a tree or from the IMF, which is where they go for their money; it came from economic growth. That is its only possible source and it is extraordinarily economically illiterate to pretend that it came from anywhere else.

The balance that my right hon. Friend has struck between tax cuts and the PSBR seems about right. I am glad that he has concentrated on cutting the basic rate of tax rather than on raising thresholds further. I am also glad that he has tried hard to give interest rates a downward push. In that context the proposals of the right hon. Member for Birmingham, Spark brook (Mr. Hattersley) are interesting. I put that in an intervention to the right hon. and learned Member for Monklands, East (Mr. Smith) and he uncharacteristically refused to come to grips with the problem. The right hon. Member for Spark brook said: The rational measure of borrowing is the public sector financial deficit, which we will hold below 4 per cent. of national income."—[Official Report, 18 March 1987; Vol. 112, c. 952.] There was no good in the right hon. Gentleman trying to confuse people about the difference between the PSBR and the PSFD. The difference is privatisation receipts, which a Labour Government would not have. I would have thought that the right hon. Gentleman would have known this and not tried to be so disingenuous in his response. Page 63 of the Red Book shows that virtually the only difference between the financial deficit and the borrowing requirement is the £5 billion of privatisation receipts which his Government will not have. As a consequence, it seems the right hon. Gentleman would view with considerable equanimity a PSBR in the region of £16 billion. Perhaps when he is replying to the debate the hon. Member for Dagenham (Mr. Gould) will deal with this point. I hope that he will not try to confuse people in describing the difference between the financial deficit and the borrowing requirement, because to the Labour Government they arc exactly the same.

A £16 billion increase in borrowing would raise total demand for credit in the economy by a quite astronomical percentage and would be bound to push interest rates up to an extremely dangerous level. It is extraordinarily irresponsible to pretend that the economy can stand that sort of level of public sector borrowing.

As I have said, I am grateful to my right hon. Friend the Chancellor for choosing to give a downward push to interest rates. In the last week or so we have seen part of the result of that. I hope that we will not delay for too long interest rate cuts because the markets want them to come down and the result of not reducing them is, as we have seen, a rise in the pound. I can understand my right hon. Friend wanting to see a slow decline in interest rates, but I hope that he will not allow that to go on for too long. The pound had reached a level about which the Government and manufacturing industry were happy and it would be better to see it back to that level.

I am also interested in the passage in the Red Book which gives the consequences of private sector credit demand on interest rates. I have been seeking to make that point for some time. An added explanation is that the credit granting institutions sell credit in a way that artificially expands it. If we were to couple the downward pressure on interest rates resulting from a lower PSBR with, perhaps, a little pressure in the banking sector for some qualitative restraint on lending to consumers and property companies, we might see interest rates fall even further.

The tax cuts have been criticised as being a way to do nothing about unemployment. One can argue about whether tax cuts or various methods of public spending are better ways of generating jobs. To some extent, we pay our money and take our choice from the academic studies that have been carried out. It is not true to pretend that tax cuts have no consequences for job creation. They help, and several academic studies prove that. We are seeing a fall in unemployment. If my right hon. Friend the Chancellor finds in the near future that he has further room for manoeuvre, I hope that he will be able to tackle the low end of the national insurance contribution schedule, because on the employees' and the employers' side that will help the low paid and help to generate jobs. It could do that at relatively low cost because the benefit needs to be given only to the group of people at the bottom.

I hope that my right hon. Friend will stay on the same path and will continue the strategy of reducing the basic rate of income tax rather than trying to raise tax allowances. I hope that he will combine what he has done in the Budget with further measures to help push down interest rates.

9.7 pm

Mr. Bryan Gould (Dagenham)

I congratulate the hon. Member for Truro (Mr. Taylor) on his maiden speech. He made a most effective speech and we look forward to hearing further from him in the same vein. I am sure that all hon. Members join him in the well-deserved tribute he paid to his predecessor.

This Budget debate began last Tuesday with the Chancellor's Budget speech. It was a speech of quite astonishing complacency, which painted a picture of the economy and then proceeded to build a Budget strategy upon that picture. His speech was a picture of the economy moving from strength to strength and doing so well that there was no need whatever for a backward glance at the poor or the unemployed or at all the other people who have been left behind. Clearly, the Chancellor's assumption was that they did not need anything in the way of a helping hand, that the Budget strategy would look after them as the economy prospered.

Presumably that is why in the Chancellor's speech and in the Budget itself it is impossible to detect even a hint of any help directed towards the unemployed or the poor. However, the truth is rather different. It is that the Budget speech was a mixture of half-truths and deceptions, of misleading statistics and ill-founded assertions all designed to conceal a record of quite appalling waste and decay and to give an illusion that the failures of the past, which were barely acknowledged, would somehow and miraculously be transformed into sparkling successes. It was in pursuit of that illusion that the Budget cynically and callously turned its back on the unemployed. It was a Budget which, in pursuit of that illusion, again did nothing whatsoever to address our long-term problems. Indeed, it makes those problems a great deal worse.

Let us look at some of the claimed successes, at some of the more salient features of our economic situation and our recent economic performance and see how ready Conservative Members are to claim them as successes. Let us look first, for example, at manufacturing investment—surely not an unimportant matter if we are concerned about our industrial future. We know—we have heard it repeated in the debate—that manufacturing investment is 20 per cent. below what it was in 1979. It is perhaps even more telling that, whereas in the years from 1975–79 manufacturing investment rose by £5.84 billion —there was a net positive investment of that size—in the years 1980–85 there was a net disinvestment of £5.52 billion. In other words, over that period, and virtually the term of office of the Government, we have been the only and first underdeveloping country that the industrial world has seen. That is the truth; that is the extent of the faith and confidence that investors have in the industrial economy, for which the Chancellor has been responsible.

Mr. Jonathan Sayeed (Bristol, East)

Will the hon. Gentleman give way?

Mr. Gould

No, I have only just begun. Perhaps the hon. Gentleman would like to rise to claim success in manufacturing output. Again, as we know, manufacturing output is still nearly 5 per cent. below what it was in 1979. Even if the rather optimistic and hopeful forecast in the Red Book were to be achieved this year and manufacturing investment were to rise by 4 per cent.—a most unlikely eventuality — we still would not have returned to the position of 1979.

In case that is not damning enough, I want the House to consider one pair of simple statistics. By comparison with the 5 per cent. fall in manufacturing output in the eight years from 1979 to 1987 let us look at the eight years of the great depression — the years of 1929 to 1937— when, as everybody knows, the economy was in desperate straits. Over that period we did not experience a fall in manufacturing output of 5 per cent.; we experienced an increase in manufacturing output of 38 per cent.

Mr. Lawson

This is casuistry.

Mr. Gould

This is not casuistry; this is a form of statistics that the Chancellor is all too unwilling to face. Clearly, there is no willingness on the Government Benches to claim those figures as a success story.

Let us turn to our performance on manufacturing trade. Here we have an amazing turn-round from a surplus of £5 billion in 1978 to a Treasury forecast of a deficit of £8 billion for this year. The Chancellor said earlier, when my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) made this point, that it was "neither here nor there". I only hope that that remark was picked up by Hansard. If it was not, I invite the Chancellor to repeat it now. If not, I hope that he will in the speech that he is about to deliver.

In a sense the Chancellor is partly right when he says that that deficit — that volume of goods, £13 billion worth of productive capacity — is, "neither here nor there"; it is certainly not here, but it is there. It is providing £13 billion worth of jobs, well over a million jobs in manufacturing industry, but it is providing jobs in other economies rather than in the British economy. I wonder whether any Conservative Member will rise to claim as a success the 2 million jobs that have been lost in manufacturing since 1979. Is that a success? Does that matter? Is that not important? I believe that it is. It is an important element in the worst unemployment record that any industrial country has had since 1979. Of course, the Chancellor tries to bluster his way through that figure as well, but it is an uncomfortable truth from which he cannot escape.

One could go on describing this wonderful success story with its emphasis on small businesses. However, in each of the past four to six years the number of insolvencies among small businesses has broken new records and is now at over 14,000—four times what it was when the Government took office.

Does anyone want to claim that the competitiveness of British industry is a success story? We are told that all the terrible sacrifices were worth while because now British industry is newly competitive, leaner and fitter. I tell the Chancellor that British industry is smaller, and poorer. Can he nominate any index of competitiveness which shows an improvement since 1979? I believe that he cannot.

Another way of measuring success is to examine its fruits. There are some fruits. Of course, a group of people will benefit from the Chancellor's tax cuts and be able to exchange their BMWs for Porsches. Why is the success not felt in all parts of the economy? Why, for example, do we have the worst trained work force in the western world? If British industry is so strong, why are we assured, as we were today, that even a small contribution by British industry to go some way towards meeting the levels of training provided by other and more successful countries would bankrupt even the most successful companies in our economy?

If we are so successful, why can we not afford to make even a token start in dealing with the £15 billion backlog of housing repairs in both the public and private sectors? That backlog condemns hundreds of thousands of families to misery and homelessness.

Mr. Sayeed

Why will certain Labour boroughs not take up Government money for the estates action plan?

Mr. Gould

The hon. Gentleman will have great difficulty establishing the truth and accuracy of that statement.

If the Government wished to benefit the economy from the fruits of success, they could spend some of the billions of pounds on housing and repairs. As the CBI recommends, we could be spending money on industrial infrastructure—on roads, rail, bridges and sewers. I admit that the Government are spending money, but not as much as the CBI identifies as being absolutely necessary. In its report, "The Fabric of the Nation", the CBI makes it clear that unless we spend that money our industrial infrastructure will decay and fray at the edges. One needs only to walk around our streets and compare our shabby, shoddy and dirty cities with those of more prosperous countries to understand how far short we are falling in this vital area.

If we have so much money to spend, and there is so much success in the economy, why are we not spending money on essential research and development? Why are we allowing ourselves to fall so far behind our more successful rivals?

Mr. Sayeed

rose—

Hon. Members

Sit down.

Mr. Gould

Why is it, even in the high-tech industries —the sunrise industries — that we are now running a major deficit of well over £2 billion? The trouble is that so successful is the economy that the sun has not yet risen and there is no chance of that occurring under present policies.

Mr. Sayeed

rose—

Mr. Gould

It is clear that only one Government Back Bencher is prepared to claim any of this as a success. If we are so successful, why are we not spending money on the National Health Service? Why are we not spending money to ensure that nurses are not forced to go abroad for jobs at decent salaries but are able to stay here to prevent the closure of wards and the loss of hospital beds? That is the position in our supposedly successful economy—we are running down the National Health Service.

If we are so successful, why are pensioners living in poverty, scrambling around to keep themselves warm to stop themselves from dying from hypothermia? If we are so successful and there is so much money, why did the Government break the link between pensions and national earnings? Why did we leave the pensioners behind? Why has nothing been done for family poverty? Why are there now more than twice as many people living in poverty today than there were in 1979?

Mrs. Elaine Kellett-Bowman (Lancaster)

Will the hon. Gentleman give way?

Mr. Gould

No, I will not give way.

If the country is so flush with money and success, why is there nothing in the Budget to make a true assault on family poverty through the most effective available means, child benefit? If we are doing so well, why is there no attempt to deal with the central scandal, waste and abuse of over 3 million people unemployed? Why are we constantly told that, "We cannot deal with unemployment because we do not know where the money will come from"? That has always been the point that has been put to those of us who argue that we should be spending money on providing jobs in the economy. If we are doing so well, why does the Chancellor sit there shaking his head and muttering, doing nothing and raising not a finger to help the unemployed?

The truth of the matter was revealed—in a rare flash of honesty—by a remark made by the Prime Minister when she gave an interview to the Financial Times on whether to join the European monetary system or at least the exchange rate mechanism. What the Prime Minister said was extremely revealing. She said that we could not join the exchange rate mechanism because the economy was not strong enough. Of course, I do not expect the Chancellor to agree with her sentiment about the EMS —we are all aware there is a major disagreement between the Prime Minister and the right hon. Gentleman about this matter. However, I wonder whether he would agree with his right hon. Friend, in her rare flash of insight and honesty, when she made that concession about the economy.

The Chancellor's Budget speech and his Budget strategy — typical of the general approach of the Government—were economical with the truth. We had a great deal of vainglorious posturing by the Chancellor and some extraordinary claims were made. I hasten to say that those claims were not made in the House where they could have faced immediate challenge, but, of course, on television. That is where the Chancellor set out to hoodwink the electorate and made claims that simply could not be sustained.

The Chancellor claimed that, under his tutelage and that of the Government, Britain has now reached the point where we are head of the European league for growth. The Chancellor well knows that, since this Government took office, we have had average growth of about 1.3 per cent. a year. That is worse than in any comparable period of our post-war history and it is worse than virtually any other advanced industrial country. He made an extravagant claim about productivity—a huge claim—that, once again, we are at the top of the league for productivity. That is largely a statistical effect, produced by simply getting rid of the weaker brethren. It is rather like shooting the tailend batsman in an attempt to put up the average—that may not work if one is the captain of the England team. Nevertheless, the principle exists.

Let us consider the truth of the matter. I invite any right hon. or hon. Member to give me the answer to this question—[HON. MEMBERS: "Give way then".] I will give way, but let me put the question first. Can anyone point to any of our rivals — we are told that they are languishing behind us in the productivity league table—who have secured improvements in productivity by reducing manufacturing output? Is there such a case—[HON. MEMBERS: "Come on, answer."] The fact of the matter is that we have achieved productivity improvements because the 5 per cent. fall in manufacturing output has been exceeded by a 28 per cent. fall in employment in manufacturing industries. If that is the sort of productivity improvement that the Government have to offer, let us have no more of that, thank you very much.

The one claim that the Chancellor of the Exchequer did not make, and the one league table that he did not put up on the screen, as it were, was about inflation. I wonder why that was. After all, inflation has been the Government's central objective. Why did the right hon. Gentleman not proclaim the Government's enormous comparative success with inflation? The answer is clear. Again, if anyone wishes to dispute what I am about to say, let him rise and I shall gladly give way. The answer to this little puzzle is that the right hon. Gentleman did not dare to reveal the truth about inflation because, as a proportion of the average of the G7 countries, it is worse than it was in 1979. The only advanced country that has a higher inflation rate than ours among the G7 countries is Italy.

The Italians, however, have the great compensation of their output, employment, national wealth and share of world trade in manufactures, which have compensated for their having a slightly higher rate of inflation than ourselves. They have overtaken us in all those respects and the Italians now have a far more successful and powerful economy than us.

Mr. Michael Colvin (Romsey and Waterside)

Perhaps when debating the Budget we might also pause to give thought to the alternative Budget. What would the rate of inflation be today if a Labour Government increased spending by £28 billion, which the Opposition say that they would?

Mr. Gould

Provided that I am not tempted to give way to such futile interventions again, I shall have time to answer the hon. Gentleman's questions by the end of my remarks.

On the inflation rate, the great jewel in the Government's crown, the Chancellor of the Exchequer was so afraid of what was happening to inflation that he failed to keep excise duties in line with the rate of inflation. That was not through generosity but because he was in a state of funk about what would happen to inflation.

The false claim is made that the Budget is the continuation or culmination of a tax-cutting process. We are told that a tax-cutting Government have come to judgment. Even after the tax cuts have been taken into account, the tax burden for the ordinary family is now higher than it was in 1979. A higher proportion of our national income is paid in tax than it was when the Government came to office.

It is not as if the strategy of the Chancellor of the Exchequer had any great point in it, even if it were a true one. Even if his claims were right, the Brown report makes it clear that the incentive effects of tax cuts that the Chancellor claims are minimal and illusory. As on so many other aspects of the Budget strategy, tax cuts are a matter of both claim and policy. They are a matter of wish fulfilment rather than of practical achievement.

On taxation, I invite the Chancellor of the Exchequer to deny that work has been done in the Treasury on the possibility of a major switch from direct to indirect taxation if the Conservative party wins the next general election. We understand by that that there would be a major shift to VAT. Perhaps there would not be an increase in the rate of VAT, but there would be an extension of its scope. We are familiar with that scenario because that is what happened in 1979 when the Conservative party came to office. The Conservative Government cut income tax but they doubled VAT. I notice again that the Chancellor of the Exchequer does not stir. We know that if the Conservative party were to win the next election, the tax cuts would be clawed back by a swingeing increase in VAT.

The Chancellor of the Exchequer claims that he has been consistent, which is the most laughable claim of all. In the passage in the Budget statement dealing with the medium-term financial strategy, I believe that the words "sterling M3" did not pass the right hon. Gentleman's lips. He could not bring himself to use that phrase. He talked in a woolly fashion about broad money, but even that, he told us, would have little effect or influence on policy. That is just as well, because if we were to apply the doctrines that he described only a couple of years ago as immutable, we should be experiencing inflation rates of 20 per cent. or so.

However, in the name of sterling M3, the Chancellor and his predecessor pursued policies that ruined the nation's economy, decimated its industry and blighted the lives of millions of people. It is astonishing that that doctrine could go without so much as a decent burial. Humility is not what we expect from the Chancellor, but an apology, however reluctant and inadequate, would not have come amiss.

We now have another piece of mumbo-jumbo economics. We no longer have sterling M3; we now have the PSBR. That, we are told, is the great totem. Yet the Government's Red Book tells us that the major explosion in borrowing and lending has been in the private sector, and that that private sector borrowing is the major upward pressure on interest rates. Why is the Chancellor doing nothing about that? If he is concerned about interest rates, why is he concentrating on the PSBR, which is insignificant by comparison with private sector borrowing?

The Chancellor claims that his Budget strategy is that of a prudent Chancellor. But he is the most profligate Chancellor in recent years. What happened, under this prudent Chancellor, to the £60 billion or so of North sea oil revenues? What happened to the billions of pounds that he secured by selling off the taxpayers' assets? What happened to the increased revenues from the increased tax burden that he piled on ordinary people, including hidden taxes, such as the forced increases in electricity and gas charges? Where have all those billions of pounds gone? They have slipped through the Chancellor's fingers, and there is nothing to show for them. He has spent that money at the rate of £20 billion a year on financing unemployment. Now, this prudent Chancellor invites the nation to float itself over the general election hump on a tide of imported consumer goods, financed by record family borrowing and fuelled afresh by the irresponsible tax cuts that he has offered in the Budget.

Oddly enough, it is not only the Opposition who have argued the case for public spending as a more responsible alternative to tax cuts. A document, presumably addressed to the Chancellor, from the Tory Reform Group—the patrons of that august body include the Secretaries of State for Energy and for Education and Science, the Paymaster General, who is present, and the Home Secretary —states: We believe that the extra resources available to the Government should not be used to increase the real spending power of those fortunate enough to be in work, but rather to create jobs for those out of work. It goes on to say: This is not the year to boost consumer spending. The Paymaster General will no doubt endorse that, and so do we. We believe that that would have been the responsible thing to do. The Chancellor had nearly £6 billion to spend, and he gave almost half of it in irresponsible tax cuts and reduced borrowing, unnecessarily and damagingly, by a further £3 billion to keep the City sweet. He could have taken the action that was necessary in the interests of our economic future —action that we spelt out in "New Jobs for Britain", our programme for reducing unemployment by 1 million in two years. As it happens, by a happy coincidence, our programme cost exactly the £6 billion which the Chancellor has frittered away. It is on that that we should have been spending the money.

There is just one thing to he said for the Budget. In all its futility and irresponsibility, it offers the British people a clear choice between another five years of Tory Government, with all their wasted decay, irresponsibility, carelessness and incompetence, and investing in our economic future, our industrial base, our infrastructure, the training and skill of our people, our economic future and the quality of life. It is a choice between destructiveness and investment. That is the choice which the British people will make come a general election. That is why there will be a Labour Government after that general election.

9.36 pm

The Chancellor of the Exchequer (Mr. Nigel Lawson)

We have had an interesting debate, enlivened for the past 25 minutes by the complete fantasy of the hon. Member for Dagenham (Mr. Gould). I congratulate the hon. Member for Truro (Mr. Taylor) on his maiden speech. He has not wasted much time. I do not know whether that betrays a certain nervousness about the duration of his tenure here, but he certainly carried the whole House with him in his sincere and well-merited tribute to David Penhaligon, whom we all miss so much.

The debate was interesting, too, for the opportunity that it has given to the right hon. and learned Member for Monklands, East (Mr. Smith) and the hon. Member for Dagenham to compete for the moderate candidature in the battle for the Labour leadership, which cannot now be long postponed. Although the hon. Member for Dagenham is rather flashier—

Mr. John Smith

Get on with the Budget.

Mr. Lawson

I have been told to get on with the Budget, but we did not hear a single word about Labour's plans from the hon. Member for Dagenham. He was purporting to say what the choice was for the nation. I shall give a word of advice to the Opposition. Although the hon. Member for Dagenham is undoubtedly rather flashier, I would go for the right hon. and learned Member for Monklands, East. He is very canny; he has seldom, if ever, said anything, and certainly not today. The hon. Member for Dagenham has said a great deal, most of it highly critical of the Labour party and all of which we have carefully kept on file for future use. The hon. Gentleman is also a little careless. I read in The Observer the weekend before the Budget that he was given the task of drawing up the employment programme in preference to the pugnacious Prescott who is employment spokesman. (Gould did, though, get his sums wrong, meaning that the appendices had to be left out of the original document.)

Mr. Gould

I am grateful to the Chancellor for giving way because this gives me an unforeseen opportunity to place on the record that that statement in The Observer profile, about which I do not generally complain, is plainly wrong.

Mr. Lawson

I do not know what happened to those appendices, but the hon. Gentleman certainly got his sums wrong today.

Today's debate takes place on a very important anniversary, for it was exactly 10 years ago today that the Lib-Lab pact was signed. The right hon. Member for Cardiff, South and Penarth (Mr. Callaghan), in the days when he had some influence over the Labour party's policies, succeeded in resisting a Conservative motion of no confidence by striking a deal with the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel). This deal ensured that the right hon. Gentleman's Government would die a slow and lingering death, rather than a quick one. By the same token, it delayed the return to sanity in the nation's finances.

It is interesting to recall what some luminaries in our political life were doing then—a sort of "Where were they then?" rather than "Where are they now?" The right hon. Member for Plymouth, Devonport (Dr. Owen) was Labour's Foreign Secretary. That very model of a modern Labour moderate, Mrs. Shirley Williams, was Education Secretary, in between appearances on the Grunwick picket line. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was Minister for Prices — a job in which he first established Hattersley's law: whatever the right hon. Gentleman predicts, the precise opposite will come to pass.

Indeed, of the leading lights of the Opposition today, only two were absent from the ranks of Government then. The right hon. Gentleman the Leader of the Opposition had, we are told, refused offers of a ministerial job. I only hope he is not regretting his decision, because it is daily becoming clearer that he is most unlikely to get another opportunity of office.

The right hon. Member for Glasgow Hillhead (Mr. Jenkins) had already left the sinking ship for the flesh pots of Brussels. Of course, the right hon. Member is back with us now, as joint economic spokesman for the SDP and its subsidiary, the Liberal party. The right hon. Gentleman's "Who's Who" entry reminds us that he is a member of the Athenaeum, of Brooks's, of Pratts, and of the Reform Club. He is, par excellence, someone who believes that the solution to any problem is to join a club, whether it is the European monetary system or OPEC. Talking of clubs, let me take this opportunity of wishing the right hon. Gentleman well in his new and exalted post of chancellor of Oxford university.

Mr. Jack Straw (Blackburn)

rose—

Mr. Lawson

I shall not give way. The hon. Member for Dagenham did not give way, and nor shall I.

The right hon. Member for Hillhead owes that victory, in equal measure, to the first-past-the-post electoral system and his seminal address to the students of Oxford university a few years ago. In that address, he said: There has been a lot of talk about the formation of a new centre party…I find this idea— [Interruption.]

Mr. Speaker

Order.

Mr. Lawson

I shall be coming to the Budget in due course, have no fear. In his address to the students of Oxford university, the right hon. Gentleman said: There has been a lot of talk about the formation of a new centre party…I find this idea profoundly unattractive. I do so for at least four reasons. First, I do not believe that such a grouping would have any coherent philosophical base. The idea that my views are closer to the campaign attitude of the Liberal candidate in Chester-le-Street than to those of Mr. Giles Radice is manifest nonsense. He concluded: Fourth, and more personally, I cannot be indifferent to the political traditions in which I was brought up and in which I have lived my political life. Parties are not to me a religion, but the Labour Party is and always has been an instinctive part of my life. [Interruption.] I am coming to the end.

Mr. Speaker

Order. I think that this is a preamble.

Mr. Lawson

He went on: I therefore have no desire to seek new combinations. I remember an old piece of doggerel about someone: 'Playing on his fuddled fiddle Somewhere in the muddled middle.' I could not have put it better myself.

As for the right hon. Gentleman's contribution to this debate, it was, of course, the same speech as he has made in all our previous economic debates—rather like some fine antique piece of furniture, the polish improving as the utility diminishes.

This year's Budget has been warmly welcomed — [Interruption.]—I see by the Opposition, and it has also been warmly welcomed by British industry, on whose performance our future prosperity depends.

Interest rates, which had fallen ½ per cent. in anticipation of the Budget, have since fallen a further ½ per cent., and the building societies have now given notice of a I per cent. fall in the mortgage rate. The pound remains firm. This means, incidentally, that, taking the income tax cut and the mortgage rate reduction together, the Budget is worth an extra £5 or more a week in take-home pay to a typical married couple buying their home on a mortgage.

As for the fall in interest rates generally, this of course reverses the 1 per cent. increase in interest rates in October. The House will recall that during the period of foreign exchange market turbulence which followed the somewhat inconclusive G5 and G7 meetings at the end of September, I authorised the Bank of England to intervene unusually heavily in order to buy a breathing space that would enable me to confine the interest rate rise to 1 per cent. rather than the 2 per cent. the market was then pressing for.

The reward for this was to be accused by the Opposition parties of having wasted vast sums of money. [Interruption.] I hear Opposition Members say that we did. I can now tell the House that the dollars that were sold from the reserves in September and October have subsequently all been repurchased—at a profit of some tens of millions of pounds. So much for wasting the taxpayer's money.

All Budgets are exercises in balance. What has surprised some, both inside and outside the House on this occasion, is that in striking the balance I leaned very heavily in the direction of prudence, limiting the reduction of taxation to what was compatible with a public sector borrowing requirement of only £3.9 billion, or 1 per cent. of gross domestic product.

A PSBR of this size, which we look to have secured for the first time this year, represents an important achievement. In his very cogent speech my right hon. Friend the Member for Worthing (Mr. Higgins) asked, "Why 1 per cent.?" I believe that it is necessary to get the PSBR down to a level which, even with zero inflation, would prevent public debt growing as a percentage of GDP. One per cent. does that. We are there, and from now on it is a matter of consolidation.

But this Budget is not just a matter of having achieved the spring double of significant tax cuts—including 2p off the basic rate—and a sharp reduction in planned public borrowing. With the autumn statement, in which I announced a sizeable increase in public spending, concentrated on the priority areas of health and education, it represents an unprecedented autumn and spring treble.

Meanwhile, the Opposition parties have been vying with each other as to how they would have used the money that was available to me. For £3 billion, the Leader of the Opposition informed the House, in his somewhat rambling reply to the Budget speech, I could have obtained a computer for every secondary school child. Maybe I could, but the real point is this: had they been in office, with their policies, they would never have been in that position in the first place. The money would not have been there; the resources would not have been there; there would have been no chance whatever.

For there is nothing fortuitous about it. It is the reward of years of vigorous, healthy growth with low inflation. And that is what is set to continue, assisted not merely by sticking to the overall economic strategy that has brought us this success but by the new measures contained in the Budget.

I cannot, inevitably, mention all the measures in the Budget. I noted that my hon. Friend the Member for Woking (Mr. Onslow) and a number of my other hon. Friends referred to the capital gains of life assurance companies. We shall certainly be debating that matter in Committee. However, let me mention three important proposals among the others. The first is profit-related pay, to which my right hon. Friend the Secretary of State for Trade and Industry devoted, quite rightly, a large part of his opening speech. That offers great hope for the future of our country. The second is the development of personal pensions, to which my right hon. Friend the Secretary of State for Social Services referred more fully in a major speech outside the House a few days ago. The third proposal relates to the measures to help small businesses, in particular the option for businesses with a turnover of up to £250,000—more than hall of all traders registered for VAT—to switch to cash accounting. That is a most important change. In his speech on Wednesday the right hon. Member for Sparkbrook referred to this and said: 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." —[Official Report, 18 March 1987; Vol. 112, c. 948.]

I have to tell the House that there is not a shred of truth in that assertion. I challenge the right hon. Gentleman to provide chapter and verse for it. While he is thinking about it, I remind him that the Budget resolution covering cash accounting for VAT is Budget resolution No. 1, which I understand the Opposition propose to vote against tonight. Small businesses will be well aware of what the Opposition are doing.

There is, of course, an irreconcilable difference between the Government's economic policy and that of the Opposition parties. They would spend more, borrow more and tax more than we believe is compatible with a healthy economy and a free people. The main difference between the Opposition parties is that the Labour party, whether wisely or not, has been a great deal more specific.

As my right hon. Friend the Chief Secretary has revealed during the debate, the Labour party's firm spending pledges now amount to an extra £34 billion a year of public expenditure. All that would have to be financed somehow. If from income tax, it would require the basic rate of tax to be more than doubled. A lot of it, it seems, would be financed by higher borrowing—some £6 billion more, according to the right hon. Member for Sparkbrook. That would be damaging enough, but it still—

Mr. Gould

rose—

Mr. Lawson

Does the hon. Member for Dagenham dispute the £6 billion figure?

Mr. Gould

rose—

Mr. Lawson

I have not given way. I shall give way in a moment. The hon. Member for Dagenham disputed that the Labour party is planning to borrow an extra £6 billion. Let me tell the House that the right hon. Member for Sparkbrook said that he believed that there should be a public sector financial deficit of some 4 per cent. of GDP. That is £16 billion—[Interruption.] GDP is over £400 billion, so 4 per cent. is a £16 billion public sector financial deficit. The public sector financial deficit in the Red Book is £9½ billion, so the difference is £6½ billion and I challenge the hon. Member for Dagenham to wriggle out of that.

Mr. Gould

It is interesting that the Chancellor was extremely anxious not to be answered on the question that he put to me and tried to wriggle out of the subject.

Let me make it clear. Our jobs programme costs a net annual amount to the Exchequer — the Chancellor wanted an answer, so let him listen to it—of £6 billion. I believe that even the Chancellor can work out that that is quite a different question from how that money is to be provided. The fact is—[Interruption.]

Mr. Speaker

Order.

Mr. Gould

The Chancellor's Budget strategy and speech clearly show that it is possible to raise £6 billion for an investment programme of the kind that we propose without having to borrow anything like £6 billion.

Mr. Lawson

The hon. Gentleman has got his sums wrong again. It is clear that The Observer was right after all.

The Opposition could not have shown their hand more clearly than by their pledge, if given the chance, to take back the tax cuts I have been able to make in the Budget as a prelude to still more—[Interruption.]

Mr. Gould

rose—

Mr. Lawson

They have chosen that battleground and in the weeks and months ahead we shall be more than happy to fight on it. But let me return for a moment to the overall framework of economic policy. Over the past seven years there has been a vigorous debate in this country about the conduct of fiscal and monetary policies—in particular, whether it was possible to have a sustained recovery of output without a fiscal stimulus.

The post-war neo-Keynesian approach was to try to stimulate economic performance by expansionary fiscal policy and accommodating monetary policy whenever there was any sign of weakening growth. In practice it provided at best short-term gains to output at the cost of long-term trouble: rising inflation and a succession of financial crises. That is why we turned our back on that approach.

Our critics have constantly changed their ground as events have confounded all their gloomy predictions. Initially, they said that it was quite impossible to reduce inflation by the policies we were pursuing, and then we did reduce inflation. They then said that inflation was falling only because we were in a self-perpetuating downward spiral and that as soon as growth resumed inflation would rise again. Growth has now been going on for the past six years and inflation has stayed low. When growth did begin they said that it was a flash in the pan and would soon peter out. It has not petered out; it has gone on for six successive years. Year after year, we were told that although growth this year might be better than expected, next year it would slow down. And so it went on. But what has been the outcome? Sustained growth against a background of falling inflation.

The debate about monetary and fiscal policy should now be over. Given the historically low Budget deficits of the past two years, there can be no clearer evidence of the bankruptcy of our critics' case than the suddenness with which those who accused us of starving the economy of demand now turn round and accuse us of generating excessive demand. They were wrong then, they are wrong now.

The plain fact is that ours is now the fastest growing major economy in Europe and it is continuing to grow ahead of the rest. Moreover, growth in this upswing has been balanced between consumption and investment whereas, under the Labour party, it was consumption that was growing fast, so far as anything was growing at all, and investment was growing at a mere fraction of the rate of growth during this Government. Fixed investment has gone up nearly 4 per cent. in the upswing under this Government, twice the average for the European Community as a whole and far ahead of the 1¼ per cent. that Labour achieved. The picture of a healthy flourishing economy emerges not only from the official statistics but from the CBI's industrial trends survey and from that of the Association of British Chambers of Commerce, and all the other surveys, which show, too, that it is throughout the country, not just in the south-east.

Throughout the country, too, unemployment is falling. Indeed, the unemployment rate has fallen fastest over the past 12 months in Wales and the north. The same is true for long-term unemployment. Youth unemployment has fallen in every region over the past three years, again fastest in Wales, the north, the north-west and the west midlands. That is where unemployment has been falling fastest. The job pages of the regional newspapers bear that out.

To say that the Budget does nothing about unemployment, as the hon. Member for Dagenham said, is to miss the point completely. The solution to unemployment is a vigorous economy, and this Budget is reinforcing the vigorous economy that we have in this country. That is why unemployment is coming down and why it will continue to come down for the rest of this year. The plain fact is that British manufacturers, too, have an outstanding opportunity in 1987 with exports growing fast and a highly competitive pound.

The economy is now as sound and strong as it has been for a generation. It is the strength of the economy that has enabled us to announce in one and the same year higher spending on priorities, lower public borrowing, and lower taxation. Many Governments have been able to achieve one or even two out of the three, but no previous Government for decades has succeeded in all three. I commend the Budget to the House.

Question put:—

The House divided: Ayes 351, Noes 202.

Division No. 122]	[10.00 pm
AYES
Adley, Robert	Biffen, Rt Hon John
Aitken, Jonathan	Biggs-Davison, Sir John
Alexander, Richard	Blackburn, John
Alison, Rt Hon Michael	Blaker, Rt Hon Sir Peter
Amess, David	Bonsor, Sir Nicholas
Ancram, Michael	Bottomley, Peter
Arnold, Tom	Bottomley, Mrs Virginia
Ashby, David	Bowden, A. (Brighton K'to'n)
Aspinwall, Jack	Bowden, Gerald (Dulwich)
Atkins, Rt Hon Sir H.	Boyson, Dr Rhodes
Atkinson, David (B'm'th E)	Braine, Rt Hon Sir Bernard
Baker, Rt Hon K. (Mole Vall'y)	Brandon-Bravo, Martin
Baker, Nicholas (Dorset N)	Bright, Graham
Baldry, Tony	Brinton, Tim
Banks, Robert (Harrogate)	Brittan, Rt Hon Leon
Batiste, Spencer	Brooke, Hon Peter
Beaumont-Dark, Anthony	Brown, M. (Brigg & Cl'thpes)
Bellingham, Henry	Browne, John
Bendall, Vivian	Bruinvels, Peter
Bennett, Rt Hon Sir Frederic	Bryan, Sir Paul
Benyon, William	Buchanan-Smith, Rt Hon A.
Best, Keith	Buck, Sir Antony
Bevan, David Gilroy	Budgen, Nick

Bulmer, Esmond	Havers, Rt Hon Sir Michael
Burt, Alistair	Hawkins, C. (High Peak)
Butcher, John	Hawkins, Sir Paul (N'folk SW)
Butler, Rt Hon Sir Adam	Hayes, J.
Butterfill, John	Hayhoe, Rt Hon Sir Barney
Carlisle, John (Luton N)	Heathcoat-Amory, David
Carlisle, Rt Hon M. (W'ton S)	Heddle, John
Carttiss, Michael	Henderson, Barry
Cash, William	Heseltine, Rt Hon Michael
Chalker, Mrs Lynda	Hickmet, Richard
Channon, Rt Hon Paul	Hicks, Robert
Chapman, Sydney	Higgins, Rt Hon Terence L.
Chope, Christopher	Hill, James
Churchill, W. S.	Hind, Kenneth
Clark, Hon A. (Plym'th S'n)	Hirst, Michael
Clark, Dr Michael (Rochford)	Hogg, Hon Douglas (Gr'th'm)
Clark, Sir W. (Croydon S)	Holland, Sir Philip (Gedling)
Clarke, Rt Hon K. (Rushcliffe)	Holt, Richard
Cockeram, Eric	Hordern, Sir Peter
Colvin, Michael	Howard, Michael
Conway, Derek	Howarth, Alan (Stratf'd-on-A)
Coombs, Simon	Howarth, Gerald (Cannock)
Cope, John	Howe, Rt Hon Sir Geoffrey
Cormack, Patrick	Howell, Ralph (Norfolk, N)
Couchman, James	Hubbard-Miles, Peter
Critchley, Julian	Hunt, David (Wirral W)
Crouch, David	Hunt, John (Ravensbourne)
Currie, Mrs Edwina	Hunter, Andrew
Dickens, Geoffrey	Hurd, Rt Hon Douglas
Dicks, Terry	Irving, Charles
Dorrell, Stephen	Jackson, Robert
Douglas-Hamilton, Lord J.	Jenkin, Rt Hon Patrick
Dover, Den	Jessel, Toby
Dunn, Robert	Johnson Smith, Sir Geoffrey
Durant, Tony	Jones, Gwilym (Cardiff N)
Dykes, Hugh	Jones, Robert (Herts W)
Edwards, Rt Hon N. (P'broke)	Jopling, Rt Hon Michael
Eggar, Tim	Joseph, Rt Hon Sir Keith
Emery, Sir Peter	Kellett-Bowman, Mrs Elaine
Eyre, Sir Reginald	Kershaw, Sir Anthony
Fairbairn, Nicholas	Key, Robert
Fallon, Michael	King, Roger (B'ham N'field)
Farr, Sir John	Knight, Greg (Derby N)
Favell, Anthony	Knight, Dame Jill (Edgbaston)
Fenner, Dame Peggy	Knowles, Michael
Finsberg, Sir Geoffrey	Knox, David
Fookes, Miss Janet	Lamont, Rt Hon Norman
Forman, Nigel	Lang, Ian
Forth, Eric	Latham, Michael
Fowler, Rt Hon Norman	Lawler, Geoffrey
Fox, Sir Marcus	Lawrence, Ivan
Franks, Cecil	Lawson, Rt Hon Nigel
Fraser, Peter (Angus East)	Lee, John (Pendle)
Freeman, Roger	Leigh, Edward (Gainsbor'gh)
Fry, Peter	Lennox-Boyd, Hon Mark
Gale, Roger	Lester, Jim
Galley, Roy	Lewis, Sir Kenneth (Stamf'd)
Gardiner, George (Reigate)	Lightbown, David
Gilmour, Rt Hon Sir Ian	Lilley, Peter
Glyn, Dr Alan	Lloyd, Sir Ian (Havant)
Goodhart, Sir Philip	Lloyd, Peter (Fareham)
Goodlad, Alastair	Lord, Michael
Gorst, John	Luce, Rt Hon Richard
Gow, Ian	Lyell, Nicholas
Gower, Sir Raymond	McCrindle, Robert
Grant, Sir Anthony	McCurley, Mrs Anna
Greenway, Harry	Macfarlane, Neil
Gregory, Conal	MacGregor, Rt Hon John
Griffiths, Peter (Portsm'th N)	MacKay, Andrew (Berkshire)
Grist, Ian	MacKay, John (Argyll & Bute)
Ground, Patrick	Maclean, David John
Grylls, Michael	McLoughlin, Patrick
Gummer, Rt Hon John S	McNair-Wilson, P. (New F'st)
Hamilton, Hon A. (Epsom)	McQuarrie, Albert
Hamilton, Neil (Tatton)	Madel, David
Hampson, Dr Keith	Major, John
Hanley, Jeremy	Malins, Humfrey
Hannam, John	Malone, Gerald
Harris, David	Maples, John
Harvey, Robert	Marlow, Antony

Marshall, Michael (Arundel)	Shaw, Sir Michael (Scarb')
Mates, Michael	Shepherd, Colin (Hereford)
Mather, Sir Carol	Shepherd, Richard (Aldridge)
Maude, Hon Francis	Shersby, Michael
Mawhinney, Dr Brian	Silvester, Fred
Maxwell-Hyslop, Robin	Skeet, Sir Trevor
Mayhew, Sir Patrick	Smith, Sir Dudley (Warwick)
Mellor, David	Smith, Tim (Beaconsfield)
Merchant, Piers	Soames, Hon Nicholas
Meyer, Sir Anthony	Speed, Keith
Miller, Hal (B'grove)	Speller, Tony
Mills, lain (Meriden)	Spencer, Derek
Mills, Sir Peter (West Devon)	Spicer, Jim (Dorset W)
Miscampbell, Norman	Spicer, Michael (S Worcs)
Mitchell, David (Hants NW)	Squire, Robin
Moate, Roger	Stanbrook, Ivor
Monro, Sir Hector	Stanley, Rt Hon John
Montgomery, Sir Fergus	Steen, Anthony
Morris, M. (N'hampton S)	Stern, Michael
Morrison, Hon C. (Devizes)	Stevens, Lewis (Nuneaton)
Morrison, Hon P. (Chester)	Stewart, Allan (Eastwood)
Moynihan, Hon C.	Stewart, Andrew (Sherwood)
Mudd, David	Stewart, Ian (Hertf'dshire N)
Neale, Gerrard	Stokes, John
Nelson, Anthony	Stradling Thomas, Sir John
Neubert, Michael	Sumberg, David
Newton, Tony	Tapsell, Sir Peter
Nicholls, Patrick	Taylor, John (Solihull)
Normanton, Tom	Taylor, Teddy (S'end E)
Norris, Steven	Tebbit, Rt Hon Norman
Onslow, Cranley	Temple-Morris, Peter
Oppenheim, Phillip	Terlezki, Stefan
Oppenheim, Rt Hon Mrs S.	Thatcher, Rt Hon Mrs M.
Osborn, Sir John	Thomas, Rt Hon Peter
Ottaway, Richard	Thompson, Donald (Calder V)
Page, Sir John (Harrow W)	Thompson, Patrick (N'ich N)
Page, Richard (Herts SW)	Thorne, Neil (Ilford S)
Parkinson, Rt Hon Cecil	Thurnham, Peter
Patten, Christopher (Bath)	Townend, John (Bridlington)
Patten, J. (Oxf W & Abgdn)	Townsend, Cyril D. (B'heath)
Pawsey, James	Tracey, Richard
Peacock, Mrs Elizabeth	Trotter, Neville
Percival, Rt Hon Sir Ian	Twinn, Dr Ian
Pollock, Alexander	Vaughan, Sir Gerard
Porter, Barry	Viggers, Peter
Portillo, Michael	Waddington, Rt Hon David
Powell, William (Corby)	Wakeham, Rt Hon John
Powley, John	Waldegrave, Hon William
Prentice, Rt Hon Reg	Walden, George
Price, Sir David	Walker, Bill (T'side N)
Prior, Rt Hon James	Walker, Rt Hon P. (W'cester)
Proctor, K. Harvey	Waller, Gary
Pym, Rt Hon Francis	Walters, Dennis
Raffan, Keith	Wardle, C. (Bexhill)
Raison, Rt Hon Timothy	Warren, Kenneth
Rathbone, Tim	Watson, John
Rees, Rt Hon Peter (Dover)	Watts, John
Rhodes James, Robert	Wells, Bowen (Hertford)
Rhys Williams, Sir Brandon	Wells, Sir John (Maidstone)
Ridley, Rt Hon Nicholas	Wheeler, John
Rifkind, Rt Hon Malcolm	Whitfield, John
Rippon, Rt Hon Geoffrey	Whitney, Raymond
Roberts, Wyn (Conwy)	Wiggin, Jerry
Robinson, Mark (N'port W)	Winterton, Mrs Ann
Roe, Mrs Marion	Winterton, Nicholas
Rossi, Sir Hugh	Wolfson, Mark
Rost, Peter	Wood, Timothy
Rowe, Andrew	Woodcock, Michael
Rumbold, Mrs Angela	Yeo, Tim
Ryder, Richard	Young, Sir George (Acton)
Sackville, Hon Thomas
Sainsbury, Hon Timothy	Tellers for the Ayes:
St. John-Stevas, Rt Hon N.	Mr. Robert Boscawen and
Sayeed, Jonathan	Mr. Tristan Garel-Jones.
Shaw, Giles (Pudsey)

NOES
Abse, Leo	Archer, Rt Hon Peter
Adams, Allen (Paisley N)	Ashdown, Paddy
Anderson, Donald	Ashley, Rt Hon Jack

Ashton, Joe	Hancock, Michael
Atkinson, N. (Tottenham)	Harrison, Rt Hon Walter
Bagier, Gordon A. T.	Hart, Rt Hon Dame Judith
Banks, Tony (Newham NW)	Hattersley, Rt Hon Roy
Barnes, Mrs Rosemary	Haynes, Frank
Barron, Kevin	Heffer, Eric S.
Beckett, Mrs Margaret	Hogg, N. (C'nauld & Kilsyth)
Beith, A. J.	Holland, Stuart (Vauxhall)
Bell, Stuart	Home Robertson, John
Benn, Rt Hon Tony	Howarth, George (Knowsley, N)
Bennett, A. (Dent'n & Red'sh)	Howells, Geraint
Bermingham, Gerald	Hoyle, Douglas
Bidwell, Sydney	Hughes, Robert (Aberdeen N)
Blair, Anthony	Hughes, Roy (Newport East)
Boothroyd, Miss Betty	Hughes, Sean (Knowsley S)
Boyes, Roland	Hughes, Simon (Southwark)
Bray, Dr Jeremy	Janner, Hon Greville
Brown, Gordon (D'f'mline E)	Jenkins, Rt Hon Roy (Hillh'd)
Brown, Hugh D. (Provan)	John, Brynmor
Brown, N. (N'c'tle-u-Tyne E)	Johnston, Sir Russell
Brown, R. (N'c'tle-u-Tyne N)	Jones, Barry (Alyn & Deeside)
Brown, Ron (E'burgh, Leith)	Kaufman, Rt Hon Gerald
Bruce, Malcolm	Kennedy, Charles
Buchan, Norman	Kinnock, Rt Hon Neil
Caborn, Richard	Kirkwood, Archy
Campbell, Ian	Lambie, David
Campbell-Savours, Dale	Lamond, James
Canavan, Dennis	Leighton, Ronald
Carlile, Alexander (Montg'y)	Lewis, Ron (Carlisle)
Carter-Jones, Lewis	Lewis, Terence (Worsley)
Cartwright, John	Litherland, Robert
Clark, Dr David (S Shields)	Livsey, Richard
Clarke, Thomas	Lloyd, Tony (Stretford)
Clay, Robert	Lofthouse, Geoffrey
Clelland, David Gordon	Loyden, Edward
Cocks, Rt Hon M. (Bristol S)	McCartney, Hugh
Cohen, Harry	McDonald, Dr Oonagh
Coleman, Donald	McKay, Allen (Penistone)
Conlan, Bernard	MacKenzie, Rt Hon Gregor
Cook, Frank (Stockton North)	McNamara, Kevin
Cook, Robin F. (Livingston)	McTaggart, Robert
Corbett, Robin	Madden, Max
Corbyn, Jeremy	Marek, Dr John
Cox, Thomas (Tooting)	Marshall, David (Shettleston)
Craigen, J. M.	Martin, Michael
Crowther, Stan	Mason, Rt Hon Roy
Cunliffe, Lawrence	Maxton, John
Cunningham, Dr John	Maynard, Miss Joan
Davies, Rt Hon Denzil (L'lli)	Meacher, Michael
Davies, Ronald (Caerphilly)	Meadowcroft, Michael
Davis, Terry (B'ham, H'ge H'l)	Michie, William
Deakins, Eric	Mikardo, Ian
Dewar, Donald	Millan, Rt Hon Bruce
Dixon, Donald	Miller, Dr M. S. (E Kilbride)
Dobson, Frank	Morris, Rt Hon A. (W'shawe)
Dormand, Jack	Morris, Rt Hon J. (Aberavon)
Dubs, Alfred	Nelllst, David
Duffy, A. E. P.	Oakes, Rt Hon Gordon
Dunwoody, Hon Mrs G.	O'Brien, William
Eadie, Alex	O'Neill, Martin
Eastham, Ken	Orme, Rt Hon Stanley
Evans, John (St. Helens N)	Owen, Rt Hon Dr David
Fatchett, Derek	Park, George
Faulds, Andrew	Patchett, Terry
Field, Frank (Birkenhead)	Pavitt, Laurie
Fisher, Mark	Pendry, Tom
Foot, Rt Hon Michael	Pike, Peter
Forrester, John	Prescott, John
Foster, Derek	Randall, Stuart
Foulkes, George	Raynsford, Nick
Fraser, J. (Norwood)	Redmond, Martin
Freeson, Rt Hon Reginald	Rees, Rt Hon M. (Leeds S)
Garrett, W. E.	Richardson, Ms Jo
George, Bruce	Roberts, Ernest (Hackney N)
Godman, Dr Norman	Robertson, George
Golding, Mrs Llin	Robinson, G. (Coventry NW)
Gould, Bryan	Rogers, Allan
Gourlay, Harry	Rooker, J. W.
Hamilton, James (M'well N)	Ross, Ernest (Dundee W)
Hamilton, W. W. (Fife Central)	Rowlands, Ted

Sedgemore, Brian	Thorne, Stan (Preston)
Sheerman, Barry	Tinn, James
Sheldon, Rt Hon R.	Torney, Tom
Shields, Mrs Elizabeth	Wainwright, R.
Short, Ms Clare (Ladywood)	Wardell, Gareth (Gower)
Short, Mrs R.(W'hampt'n NE)	Wareing, Robert
Silkin, Rt Hon J.	Weetch, Ken
Skinner, Dennis	Welsh, Michael
Smith, C.(lsl'ton S & F'bury)	White, James
Smith, Cyril (Rochdale)	Wigley, Dafydd
Smith, Rt Hon J. (M'ds E)	Williams, Rt Hon A.
Snape, Peter	Wilson, Gordon
Soley, Clive	Winnick, David
Spearing, Nigel	Woodall, Alec
Stewart, Rt Hon D. (W Isles)	Wrigglesworth, Ian
Stott, Roger	Young, David (Bolton SE)
Strang, Gavin
Straw, Jack	Tellers for the Noes:
Taylor, Matthew	Mr. David Alton and
Thomas, Dr R. (Carmarthen)	Mr. James Wallace.

Question accordingly agreed to.

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

1. (a) for zero-rating or exempting any supply;
2. (b) for refunding any amount of tax;
3. (c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
4. (b) for relief other than relief applying to goods of whatever description or services of whatever description."

Mr. Speaker

I am now required under Standing Order No. 50(3) to put successively, without further debate, the Questions on each of the Ways and Means motions Nos, 2 to 52 and on the Procedure Resolutions, on all of which the Finance Bill is to be brought in. Instead of reading out each motion in full, I propose to follow the procedure used in recent years, that is to say, I will first read the title of the motion and then simply put the Question that the motion be agreed to. May I have the leave of the House to put motions 2 to 16 together? There does not appear to be any objection to that being done.

c116
1. 2. UNLEADED PETROL 31 words
c116
2. REBATE ON UNLEADED PETROL 198 words
cc116-9
3. 3. VEHICLES EXCISE DUTY (FARMERS' GOODS VEHICLES) 981 words
c119
4. 4. VEHICLES EXCISE DUTY (RECOVERY VEHICLES) 41 words
c119
5. 5. VEHICLES EXCISE DUTY (TRADE LICENCES) 37 words
cc119-20
6. 6. ABOLITION OF GENERAL BETTING DUTY ON ON COURSE BETS 182 words
cc120-1
7. 7. GAMING MACHINE LICENCE DUTY (RATES) 203 words
c121
8. 8. GAMING MACHINE LICENCE DUTY (EXEMPTIONS ETC.) 28 words
cc121-2
9. 9. VALUE ADDED TAX (CREDIT FOR INPUT TAX) 400 words
cc122-3
10. 10. VALUE ADDED TAX (SUPPLIES TO GROUPS) 539 words
c123
11. 11. VALUE ADDED TAX (VALUATION) 78 words
c123
12. 12. VALUE ADDED TAX (ISSUE OF SECURITIES) 116 words
c124
13. 13. VALUE ADDED TAX (SUPPLIES RECEIVED FROM ABROAD) 152 words
c124
14. 14. VALUE ADDED TAX (TOUR OPERATORS) 31 words
c124
15. 15. VALUE ADDED TAX (TRANSFERS FROM THE UNITED KINGDOM) 24 words
c124
16. 16. VALUE ADDED TAX (REGISTRATION ETC.) 35 words
cc124-8
17. 17. INCOME TAX (CHARGE AND RATES FOR 1987–88) 2,494 words, 1 division
c129
18. 18. INCOME TAX (INDEXED PERSONAL RELIEFS ETC.): OPERATIVE DATE FOR PAYE 83 words
c129
19. 19. INCREASED PERSONAL RELIEF FOR THOSE AGED EIGHTY AND OVER 429 words
cc129-30
20. 20. INCREASED RELIEF FOR BLIND PERSONS 139 words
c130
21. 21. RELIEF FOR INTEREST (LIMIT FOR 1987–88) 74 words
c130
22. 22. CORPORATION TAX (CHARGE AND RATE FOR FINANCIAL YEAR 1987) 20 words
c130
23. 23. CORPORATION TAX (SMALL COMPANIES) 52 words
c130
24. 24. COMPANIES' CHARGEABLE GAINS 24 words
c130
25. 25. CHARITIES 69 words
cc130-1
26. 26. REGISTERED FRIENDLY SOCIETIES 86 words
c131
27. 27. ANNUITIES, ETC. 22 words
c131
28. 28. RETIREMENT BENEFITS SCHEMES 11 words
c131
29. 29. INCOME SUPPORT 32 words
c131
30. 30. PAY AS YOU EARN 29 words
c131
31. 31. UNDERWRITERS 24 words
c131
32. 32. FOREIGN PARTNERSHIPS 32 words
c131
33. 33. COMPANIES: MATERIAL INTERESTS 36 words
cc131-2
34. 34. APPORTIONMENT OF INCOME ETC. OF CLOSE COMPANIES 15 words
c132
35. 35. CORPORATION TAX (PAYMENT DATES) 29 words
c132
36. 36. CHARGES ON INCOME 25 words
c132
37. 37. INVESTMENT COMPANIES 18 words
c132
38. 38. RECOGNISED INVESTMENT EXCHANGES 39 words
c132
39. 39. CONTROLLED FOREIGN COMPANIES 42 words
c132
40. 40. DUAL RESIDENT COMPANIES 36 words
c132
41. 41. DOUBLE TAXATION RELIEF: INTEREST ON OVERSEAS LOANS 17 words
c132
42. 42. ADVANCE CORPORATION TAX: OIL INDUSTRY 67 words
cc132-3
43. 43. COMMODITY FUTURES, FINANCIAL FUTURES AND OPTIONS 57 words
c133
44. 44. STAMP DUTY (CLEARANCE SERVICES) 24 words
c133
45. 45. STAMP DUTY (MARKET MAKERS) 15 words
c133
46. 46. STAMP DUTY (CROWN EXEMPTION) 24 words
c133
47. 47. STAMP DUTY RESERVE TAX 19 words
c133
48. 48. INHERITANCE TAX 121 words
c133
49. 49. OIL TAXATION: NOMINATION SCHEME 60 words
cc133-4
50. 50. OIL TAXATION: MARKET VALUE OF OIL 30 words
c134
51. 51. COLLECTIVE INVESTMENT SCHEMES 37 words
c134
52. 52. RELIEF FROM TAX (INCIDENTAL AND CONSEQUENTIAL CHARGES) 38 words
c134
53. PROCEDURE (PERSONAL PENSION SCHEMES) 69 words
c134
54. PROCEDURE (EXCHANGE AND FINANCIAL CONTROL) 64 words
c134
55. PROCEDURE (FUTURE TAXATION) 170 words
c135
56. FINANCE 55 words