Order. I want to make an appeal to the House regarding the length of speeches. Yesterday speeches were abnormally long. Many hon. Members on both sides of the House want to speak. Therefore, it would be selfish of those who catch my eye to take up too much time. I ask for reasonably brief speeches.
I think that the House will be interested to review today the implications for social policy of the Budget and of current Government decisions. It would be impossible to cover the whole spectrum of social policy in a relatively brief speech, so I shall choose three of the most sensitive areas and concentrate upon them. I shall talk about family poverty, the disabled, and the elderly. I do not pretend that that covers the whole range, but I cannot do everything at once.
When we talk about family poverty we should also include in our thoughts those who are, for brevity, called the hard pressed. Many of us are apt to generalise about the relative state of the poor. I confess that when in Opposition I generalised. The generalisations are often based on academic pronouncements that depend upon research, in turn based upon fairly arbitrary assumptions from evidence which at best is uncertain because of the constantly moving interrelation of earnings, prices, taxes, benefits and household family size.
There is no definitive overwhelming evidence about the state of the very poor. There is certainly no definitive overwhelming evidence that they are poorer than they were. There is mildly encouraging evidence that there are fewer of them and that they are relatively less poor.
The yardstick that we generally use when discussing this subject is the possession by a household with children of spending power lower than that which they would have were they on supplementary benefit.
The House is intensely sensitive about people who are living below the supplementary benefit level, however small a proportion of the working population, and there is an understandable desire to use any possible instrument that would, without means tests, automatically reach all of them. The Government understand and appreciate this constant pressure to review the relevance of an increase in family allowances.
Before the General Election right hon. and hon. Members who are now Ministers and the late kin Macleod said that the then Opposition, if elected, in their determination to ease and abate family poverty, would use a family allowance increase. There is no doubt about that. It was the instrument that then looked obvious for the relief of family poverty.
On taking office we found—this has been explained before—that the tax threshold had been so sharply reduced by successive Labour Chancellors that the instrument was nothing like as effective as we thought it would be. So we introduced the first-aid measure of family income supplement, to which I shall come later.
The problem about an increase in family allowances remains virtually as true now as it was in the autumn of 1970. We are faced with a dilemma which would confront any Government. If an increase in family allowances were coupled with clawback, then virtually every family man earning wages would find himself paying direct taxes. However, if an increase in family allowances is not associated with clawback, the benefit is entirely indiscriminate. Vast sums of money are put into the hands of the better off and the prosperous, who do not need the help, in order to leave a minute residue in the hands of the poor. That is why we introduced the idea of the family income supplement.
I am not pretending to the House and the country that FIS is a triumph. But nor is it a failure. It is putting into the poorest households with children over £10 million a year. We believe that nearly three-quarters of those entitled to more than £2 a week are getting the benefit—the poorest are getting the benefit —and those who are not claiming are, as would be expected, those largely entitled to less than £2 a week. The picture is that overall about 50 per cent. of those we believe to be entitled to benefit are claiming and receiving it. That 50 per cent. is made up of about a quarter of those entitled to less than £2 and about three-quarters of those entitled to more than £2. I hope that critics will not forget that FIS carries with it the passport to a whole range of other benefits for which no additional means test is required.
In the 1971 and 1972 Budgets the Chancellor provided help for all taxpayers, particularly slanted to assist the poor, by way of increased allowances in 1971 for children and in 1972 for single persons and married couples. The result was to raise the tax threshold over the last three years by 8½ per cent. in real terms compared with the achievement of the Labour Government who lowered the tax threshold by no less than 12 per cent. during their period in office. It is an extraordinary comment that their choice of tax changes should have lowered sharply, indeed savagely, the rate at which direct tax became payable by the lower-paid working man with two, three or more children. The cost of the Chancellor's tax changes connected with raising the threshold, particularly addressed to the poor, is running now at well over £1,000 million a year.
I read with great interest, as I am sure many hon. Members did, the review of our family poverty policies by the Child Poverty Action Group, which TheGuardian published last week. It was generally very sensible and, as one would expect, from the CPAG, penetrating and well-informed. There were, nevertheless, some omissions and factual errors that may be worth correcting.
For example, on family income supplement, the CPAG did not take account of the figures I have given which show that although only half of those entitled are taking up the benefit, that proportion contains three-quarters of those entitled to the most. Nor did the CPAG mention that virtually all the wage-stopped—and the numbers of wage-stopped have dropped sharply under this Government compared with the increases under the Labour Government—benefit from family income supplement, or that thousands more would be wage-stopped were it not for family income supplement.
The number of claims for free welfare milk quoted in the article was misleading. It excluded the people who get their milk through the family income supplement scheme. By advertising and linking these two benefits we raised the take-up from 1,000 in March 1971 to 119,000 in November last year. Not that we are complacent about it. It is difficult to say what proportion of the numbers eligible that represents, but it is not high enough.
The article gave the Government credit for reducing family poverty. The key figures here are those for two-parent families with the head in full-time work who live below supplementary benefit levels. The estimate for the end of 1970 was 74,000, and for 1971, 54,000. That is a fall in the number living in family poverty. If one includes the wage-stopped, the figures become 105,000 and 74,000. That is a bigger reduction than the CPAG allowed in either case. It is worth mentioning that these are end-of-year figures, so that the 1971 figures take account of the real terms increase in supplementary benefits in the previous autumn. The margins of error in these estimates are very wide and I therefore do not labour that point.
We must remember, however, that each time we raise the scale rates in real terms for supplementary benefit we increase by hypothesis the number of those considered to live in family poverty. That is unavoidable because of the policy that successive Governments have used. The scale rate for supplementary benefit has been raised in real terms in 1971 and 1972. Therefore, we have lowered the number in family poverty so far as the research tells us, despite the fact that we have enlarged the definition of family poverty by raising in real terms the supplementary benefit level.
What is the significance of the heavy emphasis that the right hon. Gentleman places upon his last point, that every time supplementary benefits are put up the threshold is made higher? Obviously, supplementary benefits are put up because there is not enough money in the previous supplementary benefits for people to meet their most dire needs—for example, fuel and the most essential things. By definition, others have become poorer because the cost of living has gone up. What is the heavy emphasis on that point?
I do not think that the hon. Gentleman caught the crucial words which I used—that we improved supplementary benefit in real terms. I should not say that if we had only kept pace with prices. In two successive upratings the benefits have improved. They have not improved by very much but they have gone up more than prices.
The article includes in Table III some comparisons between supplementary benefit rates and average earnings. I put emphasis on the article because we all respect the efforts of the CPAG. In addition, The Guardian is a paper that is concerned with social policy, and it is a relevant newspaper to quote. Surely, the true comparison is between the scale rates plus rent and net earnings, as we are comparing the purchasing power available to people at work and that of those on benefit. A comparison on that basis is much more favourable to the supplementary benefit scale rates.
The article had a thesis, which was that means-tested selectivity has failed and that group selectivity has succeeded —for instance, pensions for the over-80s and attendance allowance. I have shown that the evidence is not as clear as the readers of The Guardian may have concluded.
How do we identify people who need help? In some cases, we can identify a whole group or a sizeable proportion—for example, the over-80s—as needing help. In other cases, those who need help may be a small minority. A mixture of technique may be needed. Many of the needs of families with children, for instance, are universal. We meet them by universal means, through child tax allowances and family allowances. We hope to increase that universal support through tax credits. However, some families are in immediate special need, and we provide for them already through the immediate special means of the family income supplement.
It is no good seeing the situation in sharp, good and bad terms, so that universal is good and selective is bad. All that would do would be to deny ourselves useful methods of providing help on a useful scale where needed.
Hon. Members will be asking what the Government have done in the Budget or in the approach of the Budget for family poverty. There have recently been a series of steps which are contained in the Budget or taken into account in the Budget which have helped reduce family poverty.
I shall emphasise the comparison between the Labour and Conservative records in the handling of national insurance contributions. The Labour Government introduced three upratings. There was a handsome uprating in 1965, followed by upratings in 1967 and 1969. In each case, the flat-rate contribution by employees was raised, including the poorest. The Tory Government have carefully not raised the flat-rate contribution for the poor. The result is that under a Conservative Government the benefits have been increased sharply and no extra burden has been placed on the take-home pay of the poorest.
There have been a series of improvements recently to family income supplement. There is much play made about the poverty trap. In theory, the poverty trap is the corollary, the co-relative of help when people are in poverty. Help is given, and the greater the poverty, the more help is given. As the poverty is abated, the help given is reduced. The result could be in theory that extra earnings of £1 for a family which had been poor, would yield a net reduction in spending power.
In theory, that is possibly true, but it is in general only a theoretical possibility. When a man or a woman earns an extra £1 or £2 there is not an immediate and simultaneous withdrawal of all the benefits, cash and kind, that the family have been receiving. The benefits are generally given for some months or more. Moreover, the successive upratings—the Government have been by no means inactive on this front—of benefits have been more than enough to keep pace with rising prices. The benefit level has enabled wage earners to get the normal going rate of wage increases and still remain within benefit.
If he is so concerned to help the very poor, why has he made no proposals to help the large number of disabled housewives with children who have no disability pension?
I share the hon. Gentleman's King Charles' head. I said at the beginning that I would deal with the disabled. As usual, I shall not pretend that we have done more than we have done.
I was talking of the poverty trap. I remind the House that we have taken significant steps recently, the consequences of which are included in the Budget. We have converted the family income supplement, free school meals and free welfare milk from a short-term to a 12-month basis. That means that a person receiving these benefits who, during the successive 12 months, gets an increase in earnings, will not lose the family income supplement, the free school meals and the free welfare milk for 12 months, even if the qualifications for them are not uprated sufficiently to keep him in benefit.
Furthermore, the poor have benefited and will benefit very much from the increase of £3·50 in the needs allowance for rent rebates and allowances. Moreover, the poor will benefit from the increase in the income limit of £1·50 for rate rebate. They have benefited further from the postponement of the 2p increase in school meals. Therefore, I am able to point out that announced just before the Budget and included in it is an aggregate of improvements aimed precisely at poor and hard-pressed families, totalling on an annual basis about £55 million. These benefits will all help to abate family poverty.
I turn now to the disabled. I say at once—and I shall repeat it when I finish this passage of my speech—that we have a long way to go before we have a satisfactory policy for the civil disabled. But when we took office in 1970, nothing special was being paid for the chronic sick and the civil disabled—nothing. Proposals had been made, but after six years of Labour Government nothing was in payment. Now we have an invalidity package which brings benefit to the chronic sick, with special extra earnings rules for the wives of the chronic sick, and an increase in child allowances for the chronic sick that gives them over £1 per week more than for the children of the short-term sick or the unemployed. In other words, they are treated as we treat the children of widows.
In the Budget and in the uprating statement associated with it we have provided an increase of 15 per cent. in the invalidity pension and an increase of no less than 40 per cent. in the invalidity allowance. This represents an increase of 15p, 30p and 45p a week respectively according to the age of onset, and it increases by 40 per cent. the provision originally introduced by the Government in 1971. This is real help specifically aimed at the chronic sick.
Furthermore, we are in the process of extending the attendance allowance, which is now being received by about 85,000 households and which we expect to be received at either the higher or the lower level rate by about 250,000 households by the end of next year. We are extending it and are providing for an increase in the weekly payment of no less than 15 per cent., starting on 1st October.
I repeat, in answer not only to the hon. Member for Manchester, Wythenshawe (Mr. Alfred Morris) but also to the impatient eagerness of all hon. Members, that we recognise that we have a long way to go, but at least we have made a sturdy start. It is not only cash that we are trying to provide. We are aware of a serious shortage of services. I remind the House that we have authorised 50 new comprehensive assessment centres, which are now being designed or will shortly be built, and a sharp increase in the number of homes and hospital units for the younger chronic sick and disabled.
I turn now to the last of the three groups on which I thought fit to focus attention in my speech—the elderly. We have been, medically and in terms of the conditions of life, relatively successful in enabling a much larger proportion of the population to live to old age. We now have as high a proportion of our population entitled to pensions as any other developed country. We have 16 per cent. of our population over the age of 60, for women, and 65 for men. The comparison is very sharp when we look at Holland, or Japan or the United States, for example, which for one reason or another have very much smaller proportions of their population at what we call pensionable age. I remind the House that a number of developed countries do not, as we do, pay women a pension at 60 and that not all of them pay a pension for the wife at all.
We have some 7 million people over the age of 65. That number is rising by 100,000 a year. We have two and a half million people over the age of 75. That number will reach three million by about 1981. So we—all Governments—face a huge task in creating, expanding and improving the services and cash benefits for a rapidly growing and ageing population.
The services which I have mentioned briefly have a long way to go, but I encourage the House by a reminder that compared with the increase of 12 per cent. in home helps whole-time equivalent during the six years of the Labour Government, there has been an increase of 18 per cent. in the whole-time equivalent so far during the three years of the Conservative Government. That is three times the annual pace of increase achieved by the Labour Government, and in the current three years we have trebled the amount in real terms being spent on geriatric buildings in the National Health Service.
The provision of home helps is very important. The home help service depends on what the local authority decides. Is it possible for my right hon. Friend to let us know which are the good local authorities for the employment of home helps and which local authorities lag behind? This means an immense amount to the people whom home helps serve.
I absolutely agree. I have long tried to encourage the local Press to provide comparisons of the quality and coverage of local services. My hon. Friend will be comforted by the imminent publication later this year of the 10-year plans of local authorities, which will spell out in great detail the planned expenditure on their services, including home helps.
But at Budget and uprating time, the House is principally interested in cash provisions for the pensioners. The pensioners had a very good decade from 1955 to 1965, during which there were four Tory and one Labour upratings. The pensioners had a genuine increase in their spending power. But there was then a trough for five years and I hope that now the current uprating will represent another surge.
The House will know that I am not one to exaggerate. The 1965 uprating by the Labour Government was handsome, but the 1967 and 1969 upratings were nil in real terms. In 1971, the present Government's uprating provided only marginal improvement, as I have said before, and 1972 saw our first annual uprating which provided a bit more than a marginal real improvement. We cannot tell what the current 1973 uprating, which in gross terms is very nearly 15 per cent., will be worth in real terms to the pensioners until we know what prices do, but I believe that it will then be found to have provided not a marginal but a significant real improvement in buying power.
The outcome of the three Tory upratings will be that by October next the pension will have gone up by 55 per cent. since the last Labour uprating. I cannot tell how prices will have gone up, but over the same period until January this year they had risen by 28 per cent.
Would the right hon. Gentleman not agree—although I appreciate that he is saying that perhaps the autumn will show a diffent picture—that the Index of Retail Prices as such, when set against the expenditure of most people who are in such desperate need, might prove to be entirely misleading if we should get a continuation of essential food price rises up to the period of the autumn?
The retail price index takes full account of food prices and we cannot judge. I am simply saying that my assessment is that by October there will be a significant real improvement in what is left in the pockets and handbags of pensioners. I will assert again that just as the Tory record in improving the real buying power of pensions was much better between 1951 and 1964 than that of the Labour Government between 1964 and 1970, so once again will be the real improvement in pensions by the current Tory Government.
I wish to emphasise that no one in this House, certainly no one on this Front Bench, is content with the present level. We all want there to be a decent margin over necessities for comfort and we want choice for the pensioner. We all want to cut the number of pensioners on supplementary benefit.
Mercifully, most people provide a margin for choice for themselves either through savings or occupational pensions or in some other way. A large proportion of those now retiring are already receiving an occupational pension, although not all at very high level. About 27 per cent. of pensioners are receiving supplementary benefit but even among that 27 per cent. 40 per cent. have disregarded resources averaging 85p per week, so even they have managed to have some savings.
I want to talk for a moment about the poorest pensioners on supplementary benefit. Some good-hearted, well-intentioned, intelligent people—and I have had a number of them outside my house for nearly a week—are apt to think that people are required to live in this country on £6·75 per week, and I suspect they believe people are meant to pay rent and rates out of that, as well. The facts are quite different.
For people on pension without sufficient other resources, supplementary benefit has provided and is providing a scale rate of, at present, £6·55 plus 60p long-term addition, plus rent and rates. They are allowed some disregard on top of that, and there are extra additions at the discretion of the Supplementary Benefits Commission. I do not believe the public as a whole and many of the elderly realise that. That misunderstanding is one of the reasons why the Government have consolidated the long-term addition, and propose that from 1st October we shall bring together the current scale rate plus the improvement in the scale rate plus the long-term addition. So from 1st October a single supplementary pensioner will be entitled to £8·15 plus rent and rates plus additions at discretion.
I would remind the House how much conditions vary and how difficult it is to judge just from money. Let us consider the situation of two women supplementary pensioners, living alone within 100 yards of one another. One is in a house that is damp, badly insulated, without hot water and without internal lavatory. She has virtually nothing in her cupboards, no savings in the Post Office and is arthritic. Either she has quarrelled with her daughter or she does not happen to have a daughter or her daughter does not live near and perhaps, as even with some who are not elderly, she has less than a full capacity to cope.
Let us compare her condition with somebody with precisely the same income in a dry house, without arthritis, with hot water, with an internal lavatory, with well-stocked cupboards, with £100 in the Post Office and with a daughter with whom she is on excellent terms, living within one mile. There are two individuals with precisely the same income yet their circumstances in life are vastly different. We cannot generalise. Often it is not only money that is needed. It is better housing, and that cannot be provided overnight, as most Governments have discovered.
I would, however, ask the House to bear in mind this question of different personal circumstances. Obviously, hon. Members have been extremely worried about heating, and I believe there will be a general welcome for the decision announced this week to cease to offset against the long-term addition, which will be built into the scale rate after 1st October, discretionary additions for special heating need because of bad health or housing. The effect will be to provide that any extra awarded to an individual supplementary pensioner on top of the scale rate will no longer be rebated against a margin in the longterm addition. We reckon that cost will be £6 million, but if more apply and can show need, the cost will be more. We do not have to divide the £6 million between all corners. That is our estimate of the approximate number who will apply. If we are wrong and more are entitled, the cost will be more.
Finally, I want to venture to take a rather long-term view of prospects for the elderly because I believe there have been so many recent decisions by this Government and so many innovations in social policy that the horizon—no, the prospect—over the next decade for the elderly has changed dramatically. I do not wish to suggest that the Labour Government did not have some innovations for the benefit of the elderly. Certainly, that Government introduced the Supplementary Benefits Scheme. It attracted more of those who were entitled; there is no doubt on that. Certainly, the Labour Government had a handsome uprating in 1965. But I maintain that this Government have produced a much larger number of effects beneficial to the elderly. I hope that hon. Members will not mock at the time scale which I shall use because not everything is immediate. We are trying to help on to a better standard of life 16 per cent. of our people—and that is no light task.
Moreover, we have had a limping economy. The higher the growth rate the easier it is to help the position among the elderly. Japan with only 9 per cent. elderly and a growth rate of 10 per cent. can do remarkable things with expansion. much more than we could with 16 per cent. elderly and a growth rate of 2 per cent. A country can do much more if it controls inflation, as Germany has shown. Germany has 16 per cent. elderly and far higher pensions in real terms than ours because she has been much more successful economically.
I will refer to a number of improvements which cumulatively over the next few years will transform the position of the elderly. I am going to draw together to the House for the first time reasons for sober optimism about the conditions of the elderly. First, there is the annual uprating. When the Labour Government were in power they pledged themselves to uprate every two years. It was this present Government which decided to up-rate every year. We cannot, of course, commit ourselves to what the result of the annual uprating will be but we are going to provide twice the number of opportunities for consideration.
Secondly, the Supplementary Benefits Commission pays the rent and rates of all but a very small margin, a very small minority, of the poorest. But for those pensioners not on supplementary benefit the new rebate and allowance system will be a major help. It will provide a new type and scale of help for the elderly, now or imminently. Over the longer time scale will come the help from the new pension strategy under which all wage earners will be entitled on retirement to a second pension in addition to the basic State pension. I know this is slow maturing, but because of other things that I am about to discuss, it will be built on a higher foundation than I believe people realise. That brings me to the next main change which may occur.
The right hon. Gentleman mentioned the annual reviews of pensions. Would he concede that it was largely as a result of pressure from this side of the House and outside organisations that he was finally compelled to have an annual review? Was not this pressure reinforced by the erosion of pensions by increasing prices?
No, the pressure on the Government came from both sides of the House. I was very conscious of pressure from the benches behind me. Of course, price inflation had a part in the decision, but I must remind the House that hon. Members opposite committed themselves to two-yearly upratings at a time when prices were rising at 6 per cent. a year.
The fourth change to which I want to refer is that, subject of course to the approval of Parliament—
I do not want to make too much of this, but surely the fact that an annual review became necessary was a direct result of the very high levels of inflation. Pensioners just could not wait two years at these rates of inflation.
Why, then, did the Labour Government, who had no growth, who lowered the tax threshold, who did not increase the pension in real terms for four years and who, in their last years, also had unacceptable rates of inflation, commit themselves in their last months to uprating every second year? I am conceding that, unfortunately, inflation did reach higher levels because of our inheritance from Labour, and I am not claiming that prices did not enter into our decision, but it is wrong to suggest that the pressure came only from the Opposition.
Subject, of course, to the approval of Parliament, we can look forward to an improvement in pensioner's incomes through the tax credits scheme and a consequent reduction in the numbers having recourse to supplementary pension. As explained in the Green Paper, it is not possible to predict what reduction may in practice be achieved, since much depends on the movement of supplementary pension rates in the intervening period and on the level of credits ultimately selected, as well as on other factors, such as changes in rents. But, had the scheme been introduced now with credits at the illustrative levels given in the Green Paper and current rates of benefits, a single pensioner would have received £1·90 on top of his retirement pension and about 1 million national insurance beneficiaries might have had their income taken above supplementary benefit levels.
So, by a combination of these changes, increasingly, more and more elderly will retire with a better scale of pension, possibly with the benefit of the credit side of the tax credits scheme, more and more with an occupational pension, and more and more with a better and partly price-protected occupational pension, and more and more will widows be less relatively neglected. Finally, on this analysis—and I put it at the end of the decade—the number of elderly as a proportion of the population will begin to level off.
There is a natural impatience to get on with all this faster, but we must bear in mind the implications for prices of excessive increases in contributions. That is why there is some limit on the annual increase which we can propose to the House.
In our help for family poverty, for the disabled and for the elderly, all depends on national prosperity, on the abatement of inflation and on growth. This, in turn, depends on competition in regard to prices and on enlightened self-interest in regard to earnings. But I detect and propose to the House innovations in Conservative policy which offer a real prospect of a transformed life for the elderly over the next decade.
The Secretary of State gave us his usual lucid, thoughtful and optimistic speech. From time to time, he touched on matters outside the pure social security field. He said that there were other influences at work besides social security, although he did not go deeply into them. I understand why he limited himself to those three major topics, but I do not believe that social security can be viewed in isolation. It is only part of the economic philosophy of the Government of the day and the climate in which that philosophy operates.
Social security today, while it is affected by the economic climate, still represents the philosophy that the Government had when they won the election in 1970. That philosophy had three major parts. The first was summed up by the Secretary of State himself on 7th March 1970, when he said:
We shall reject any attempt to teach firms how to run their own business or to dictate prices and earnings to industry.
Another part of the philosophy was to put the trade unions in their place, or what the Conservatives felt was their place. The third part was to give the taxpayer, particularly the wealthy taxpayer, as much relief from taxation as possible.
It was this philosophy and the actions which were started following the Conservative victory in June 1970 that led inevitably and inexorably to the means-tested society. The advantage, in the light of that philosophy, of the means-tested society is that it is extremely cheap to run. For example, the Secretary of State has himself quoted the figure today of the cost of running the family income supplement—£10 million a year That is cheap enough, but the disadvantage of schemes of this sort, the disadvantage of the means-tested society, is that it is totally unfair. Apart from anything else, the means-testing system is never anywhere near 100 per cent. effective. What the Secretary of State cannot appreciate is the reason why people reject these means tested benefits. He knows some do and he accepts it, but he does not know why they do it.
We often hear it said that people are too proud to take payments from the State, and this of course is true, but it is true perhaps in a way that very few people imagine. The Secretary of State mentioned those who did not take up the benefits to which they were entitled. The reason why people in so many cases do not take up these benefits is the stigma that attaches to taking them up, the fact, for example, that family income supplement means that the employer has to certify one's earnings, that one's family circumstances will be seen by other people and be vetted by them, even, in some cases, that one's wife will also see how little one earns.
This may appear a somewhat trivial circumstance to most hon. Members, but it is not to a working-class family—particularly a poor family. The dislike on the part of husbands for showing their pay packets to their wives is not in all cases because they earn so much: it can often be because they earn so little. They too often see the very claiming of the supplementary benefit as a confession of failure in society, where success, after all, is measured quantitatively rather than qualitatively.
There is all the difference in the world between filling up an income tax form, when, reluctantly or willingly, one is giving money away, and filling up a form on which one is asking for money to be supplied. There is no hon. Member who would not experience a sense of shame at least, at filling up a form to receive money for a benefit of this kind.
The next point to consider, having established that there is this stigma—that people genuinely do not wish to take up means-tested benefits—is the question of the numbers who actually take up these benefits. I want to talk about family income supplement. The Secre- tary of State, very fairly, gave the figure of 50 per cent. Since it exists, whether it is the best system or not, he and I both regret that it is not 100 per cent. But what were his expectations when the Family Income Supplements Bill was introduced in November 1970? He saw it as a cheap alternative to family allowances, and told us what percentage of take-up lie expected, namely, 85 per cent. In fact, as we know and as he has told us, the take-up today is only 50 per cent. It may be that a number of people have not yet heard about it, but I think I am right in saying that about £600,000 was spent on advertising the family income supplements scheme and it seems extraordinary, therefore, that there should have been this failure.
As the right hon. Gentleman is focusing on this matter, I ought to tell the House that three-quarters of the money we told Parliament would be spent, taking into account the increase, is now being spent. So while it is 50 per cent. of the number, it is 75 per cent. of the cash.
Well, of course, 75 per cent. of the cash is better than 50 per cent., but I do not think this really affects the situation. The Secretary of State told us in November 1970 that he was trying to help—to use the phrase he has often used—the poorest of the poor, and the fact that he expected a take-up of 85 per cent. showed that he felt that that was the number that needed to be assisted. There might be a marginally better figure in money than in actual individuals, but there are still 35 per cent., according to his own reckoning, who have not taken it up, and in fact 50 per cent. of those who could have taken it up have not done so.
Would it not be a fact that many of those who would have fallen into this area have now raised their own standard of living, so that this would no longer apply to them?
That could be the case, certainly. It could also be the case that others have now entered that field. But that is not the point the Secretary of State has made. I have no doubt that he is always grateful for assistance from his hon. Friends, but this is a point that is rather new to him.
When the Secretary of State, after his statement yesterday, answered my question on family allowances, he said—and I noticed the emphasis he put on the words—that the family income supplement scheme was not, as I had said, an utter failure, and he emphasised the word "utter". I think he slept well last night. He has told me today that it was not a failure at all. But a 50 per cent. take-up in a scheme that is meant to be a substitute, however cheap, for family allowances is a very bad answer indeed.
If it were only the family income supplement scheme on which the take-up was so low it might well be said that this was not really a total disclaimer of the means test system; that in other cases it has been taken up, so why complain; perhaps there has not been enough advertising for FIS; perhaps £600,000 is not enough, and another £1 million or so should be spent. But this same lack of take-up runs right through the means test system.
Let us consider retirement pension supplementary benefits. I hope the Secretary of State will understand that it is impossible to be absolutely certain what the figures are. He knows that as well as I do. Therefore I can only talk on a very broad margin. I wonder why it is said that 500,000 do not take up their entitlement? Indeed, on the high side it is said that as many as 1 million do not take up their entitlement. But either way we are talking about a large number of fellow citizens. Why do they not take up their entitlement? I venture to suggest that the reason is the one I have given earlier—that a stigma is built into the means-tested system that prevents people from taking up their entitlement. If it were not so there would be 100 per cent. take-up, and, of course, there is not.
Again, those on retirement pension supplementary benefits are not the only people who do not take up their full entitlement. It has been estimated that over 50,000—I will not use any of the more extravagant figures that have been given; I will stick to that figure because I think I can carry the Secretary of State with me on that—of the long-term unemployed do not take up their supplementary benefit.
So we get this answer, do we not, that when we have a means-tested system—and this was, as I say, the whole basis of Conservative philosophy—when we get a system in which those who ought to be taking up the benefits are not taking them up, something is radically wrong with that system. That is why I believe the thing is failing, and failing badly.
To give another example—the Secretary of State mentioned the heating allowance. I do not entirely agree with him that it is as successful as he maintains, or that it can be made as successful as he maintains, in its present form. Again, we have the problem that many people who are entitled to a heating allowance do not take it up. It may be that in this case they simply do not know about it, but the fact is that they do not take it up.
While we are on the subject of the heating allowance, I should point out that the top rate that an old person can receive for heating is 90p per week.
Of course it is an addition. We all know that, but we say that when we have a situation in which someone is likely to suffer ill health because of the lack of heating, that person needs to be subsidised to pay for the heating. Really, that 90p is not a generous figure, and it is the top rate. I wonder whether the Secretary of State could tell us how many elderly people are actually receiving a heating allowance at the top rate. The answer I have been given is 2,000 to 3,000. Perhaps the Secretary of State could check that. That does not go very well with the figures we read of those elderly persons who are suffering from intense cold and ought to be assisted in terms of the cost of their heating.
I accept and welcome the correction of the anomaly to which the Secretary of State referred. I suppose it would be ungracious of me to say that he might have been propelled a little by the judgment in the Simper case. But, in any event, it is a sensible correction to have made, and I am glad it has been done.
Having said that, with only 2,000 to 3,000 elderly people receiving the heating allowance at the top rate, I wonder what the figures will be like a year from now. I do not know whether the Secretary of State or I will be sitting here debating this question again, but we or our successors may return to it. It will make a very interesting comparison and a very good test of the way in which the Secretary of State's policy in this regard is or is not succeeding.
I have talked about FIS, and we have both paid some attention to it because it is rather important as the substitute for the raising of family allowances. But, apart altogether from the Speenhamland effect of FIS—that is, the inducement to the employers to keep their wages low, because the State will intervene if the worst comes to the worst—means-tested benefits seem to be an actual disincentive to the person who receives such benefits, because inevitably, as wages rise, so benefits fall. Therefore, there is no incentive to go for a higher wage. This is the final damaging effect of the means-tested sytem.
I said earlier that the means-test system was the inevitable concomitant of the early doctrinaire days—the early 1970s—of the Conservative Government. The Secretary of State—I hope that he will not take this as an insult, as it is not meant to be one—is a kind of fossil from the Selsdon period. He has remained in the same Department for these years since the golden days of Selsdon, and here he is today in a totally different climate.
I do not want to dwell too much on the comparison because I am a compassionate man and I have a great deal of sympathy for the Secretary of State, who is in a very difficult position. But the Labour Government, opposed by the right hon. Gentleman and his associates, were moving to an earnings-related pension that would have destroyed the supplementary benefit and the means test required under it. The right hon. Gentleman and the Conservative Party will perpetuate the existence of supplementary benefit means tests for millions of old people for the next 40 or 50 years.
The right hon. Gentleman might more often attend his Committee on the Social Security Bill and listen to the arguments.
During the years that have passed since the days of Selsdon, the present Government's policy has changed materially. The right hon. Gentleman's policy has not changed. It has not changed with the change in the economic climate. The Government are attempting to teach firms how to run their businesses and, in certain cases, are even nationalising them. They are dictating prices and earnings to industry. Regarding the trade unions, the Government have learned the truth, at last, of the words of the 18th century naturalist who said "This animal is dangerous. When attacked, he defends himself."
The result of this change in the economic climate is that only by appearing to be fair to all the community can the Government hope for any success in their economic strategy. That is why, in phase 1, we saw a slight move towards Conservatism with a human face. Unfortunately, it is nowhere near enough.
The Secretary of State mentioned two of the timid steps that have been taken. I shall add another which he seemed to have forgotten, making three timid steps. The first was the postponement of the increase in the charge for school meals, for the time being—not for ever, but for the time being—which resulted in the magnificent saving of 2p a meal. That was the first timid step towards the fair society.
The second step, as the right hon. Gentleman mentioned, was the increase in the needs allowance. This, theoretically, goes to 1¾ million people receiving rent rebates. Perhaps the right hon. Gentleman will check these figures. But 1 million of those 1¾ million people were already on supplementary benefit and were not affected. So all that one is left with, at the most, is 750,000 people, and as to those 750,000 much will depend on how many take up their benefit and increased needs allowance. As we have seen in other areas of social security, under means testing people are not taking up their benefits. So this, too, is a very timid step.
I pointed out yesterday, and have tried to underline today, that the increase in family income supplement has so many limitations that it can never take the place of the family allowance. The Secretary of State said earlier that one of the great difficulties is that we have to identify need. He said that the way in which we identify need is a difficult question—or something like that. I wonder why the Government have not done some research into this matter. During nearly three years there ought to have been some research into need, yet there has been none, as far as I can see.
At present there is the Fisher Inquiry, which is due, to report I suppose, at any moment; but the Fisher Inquiry is not concerned with identifying need or poverty. It is concerned purely with abuses of the system. Perhaps, rather symbolically, that was the first and only thing that the Conservative Government, at the time of the Selsdon euphoria, thought it necessary to consider when they looked at the social security system.
The Secretary of State paid a very worthwhile tribute, in which we join him, to the Child Poverty Action Group. There is no question that it is a valuable and vital pressure group in social security. I noticed that the right hon. Gentleman questioned a number of the group's figures and assumptions—perfectly properly, from his point of view. But the point which we cannot altogether question is the group's assertion that half a million children live in poverty. That is why the Prime Minister's commitment of 1st June 1970, to which I drew the attention of the House yesterday, is of such great importance. It was concerned with the vital question of the way in which one deals with the poverty of the family, and who ought to be assisted in relieving that poverty.
The Secretary of State spoke yesterday, and again today, about the lowness of the tax threshold in 1970. But he reminded us that his right hon. Friend the Chancellor has raised the tax threshold. He seemed to be boasting that it had risen by 8½ per cent. in real terms —I think that that was the figure. So the tax threshold has been raised—in which case the argument about not increasing the family allowance, if it was ever valid, has even less validity today than it had in 1970. Furthermore, the tax threshold could have been raised again this year if the Chancellor and the Secretary of State were so keen on abolishing rather than relieving family poverty.
It is extraordinary that the family allowance in 1945 started at 5s. Od. for the second child and that that 5s. Od. in 1945 was worth more than the 90p that is given today. I find that rather frightening. For all the pleasantly optimistic and confident noises that the Secretary of State has been making today, the fact remains that this is a problem that stares us in the face. It does not go away.
I remember in 1968, after the Labour Government had devalued, that family allowances were raised to offset the cost of that devaluation. The devaluation was about 14 per cent. Well, whether one calls it devaluation under this Government, or the more trendy term of "floating", the fact is that the pound has lost about 15 per cent. in value under this Administration and there has been no rise in family allowances, while the cost of living has risen by one third since then. Therefore, ought not something to have been done in that line? I do not think the Secretary of State's answer is good enough that in 1970 the tax threshold was too low. It does not meet the case, and frankly, it represents a sort of alibi which has ceased to exist as years have gone by—even if it was an alibi at the time, particularly when one considers that those who need the allowance most are worst off when the child tax allowances are taken into account. Those who do not pay tax receive the least, those who pay tax at the standard rate do a little better, and those who pay surtax do best of all. That is neither fair nor sensible. It does not deal with the problem; it merely intensifies it.
There is one matter that the Minister of State—slightly on a different tack—might deal with when he concludes the debate. It was something I found a little confusing and a little ambiguous and no doubt he will be able to clear it up. It
arose in the Chancellor's Budget statement. I am pleased that when he discussed the question of payment to a mother or father he had become converted to the idea of payment to the mother. The House will view that with some pleasure. [Interruption.] The Chancellor said:
The House should know that the Government will not adopt any arrangement which leaves the mothers being paid less than they are at present".—[OFFICIAL REPORT, 6th March 1973; Vol. 852, c. 242]
I am trying to find out what this means. If the Minister of State looks at it again he will see that it is worded very carefully. [Interruption.] Does it mean a mother will get 90p and that under the tax credit scheme the rest will go to the father? Perhaps the hon. Gentleman will deal with this later. [Interruption.] I think we probably have our answer.
The Beveridge Report assumed that every male worker earned enough to support a wife and one child above the poverty line. That may have been true 30 years ago but it is not true today. If the child tax credit, which the Green Paper puts at £2, were introduced for all children including the first child and this were combined with the abolition of the child tax allowance, and given as a family allowance, the sum involved would be £350 million—a figure which would make a real difference to the problem of family poverty.
The Secretary of State mentioned retirement pensions, as indeed he had to, and spoke for some time about them. I pointed out a fortnight ago that the proportion of retirement pension to average earnings had not materially altered since 1908, when it was 5s to 25s. It has always remained pretty stationary at one-fifth and even the present uprating, when one takes into account the estimated increase to wage earners in phase 2, will not vary the position much.
What is happening is that a quarter of a million more people are on supplementary benefit than there were in June 1970. I take the Secretary of State's point about the increase in the number of elderly, but he is not taking into account the increase in the number of those on supplementary benefit because these are the ones most in need. In three weeks' time we shall have VAT, and in the meantime—the Secretary of State mentioned this but did not concern himself much with it—food prices continue to rise. They cannot be ignored in view of the December rise in food prices of 1.5 per cent. Given a few months the increase in prices will be crippling in its effect and even if December was regarded as an exceptional period of increase and taking the best estimate, one-third of the proposed increase will probably be destroyed by rising prices before pensioners receive it. The Secretary of State cannot tell us how many months after October's uprating it will take for pensioners to be worse off than they are today. But they will be, we can depend on that.
The poverty line was defined by the Secretary of State as a moving measure of the lowest acceptable level of income for a family, or an old person, not in work. I accept that, but his announcement yesterday seemed to give two moving measures, since it denied the main increase to 250,000 unemployed, to large numbers of sick people and to those who have not been on supplementary benefit for two years. At a late stage—perhaps too late—the Government have begun to understand that there can be no solution to our economic problems without a real sense of fairness. They perceive that but they remain, like the Secretary of State, prisoners of their early dogma. What can one think of a Government whose idea of fairness is to subsidise surtax payers receiving unearned income to the tune of £300 million—
I am sure that the Minister of State stands a very good chance of catching your eye, Mr. Speaker. Incidentally, on the point about school children's sweets, I await with some interest the comments of the British Dental Association.
Even as late as Tuesday—and this was perhaps a point of psychology—the Chancellor was still boasting that tax had been reduced in the current year by over £3,000 million, taking all the other tax changes into account. That £3,000 million would make a real difference to poverty and to insecurity in old age and to the family problem. The Chancellor has underestimated the real desire for fairness in this country. After all, it was a trade union leader—Mr. Jack Jones—who first advocated and then persuaded the TUC and the Labour Party to accept the policy of the £10 retirement pension, even though he knew members of his union, like the rest of us, would have to pay for it.
A recent survey in The Times showed up a most interesting fact—that the overwhelming mass of people in this country would be willing to pay an extra 70p a week if they felt that it would benefit retirement pensioners. That contribution would bring the pension up to £l0 a week, so that it is by no means impossible. Every hon. Member has sensed that the country is ready for radical solutions, perhaps for the first time in many years. Social security matters, far from being exempt from this feeling, have become a major focussing point for concern. Here, as in every other area of their activity, the Government are proving day by day their inability to understand that feeling, let alone to lead it.
Most of what the right hon. Member for Deptford (Mr. John Silkin) has just said can be shot down in flames. There is not a tenable argument in anything he says. For example, he talked as though food prices will rise and rise. I presume that he has not seen this morning's papers, in which J. Sainsbury Ltd., not particularly noted as a supporter of the Conservative Party, has announced that it will save £250,000 a month as a result of the abolition of purchase tax and SET, all of which saving is to be passed on to the consumer in reduced prices. The right hon. Gentleman should read his newspapers with rather closer study.
The right hon. Gentleman then asked why everybody does not take up the benefits to which he or she is entitled. It is a very interesting subject, and I cannot provide an answer any more than the right hon. Gentleman can. I have discovered from my own studies in my constituency that an extraordinary number of people do not know their rights. For example, during the month before Christmas, when the £10 addition to the pension was paid out, many people did not know right up until the last minute that they were entitled to it, despite the Government's having spent hundreds of thousands of pounds publicising the payment through television and the newspapers. It is not just a question of people being afraid of what they will have to disclose to their wives or neighbours. There are other factors, of which an important one is ignorance of their rights.
I pay tribute to my local office of the Department of Health and Social Security in Ilford, which does a tremendous job in providing people with the information that they want. I know that my hon. Friend the Member for Ilford, North (Mr. Iremonger) will agree that it gives us an enormous amount of support, as it would to any hon. Member, of whatever party. But the man in the street is very ignorant of his rights, particularly about rent and rate rebates and so on.
The right hon. Gentleman talked about the £300 million subsidy that he says the Government are giving to surtax payers. That statement is complete rubbish, and he knows it. He talked about the unearned income of the surtax payer. I do not wish to be personal but want to state a fact. The right hon. Gentleman and I are surtax payers. We both earn our money. We may obtain a certain benefit as a result of the tax remissions announced in last year's Budget, but it does not come out of unearned income. All that the Government are doing is to allow us and people like us to retain a little more of the money we have honestly earned.
The idea of tax relief for the wealthy in the Budget is a myth, because a colossal amount of the income earned by such people is paid back to the Exchequer by way of tax. What the right hon. Gentleman does not tell the House and his constituents is that this year surtax payers are to pay two years' surtax in one. That will not be a very pleasurable occupation for any hon. Member or anyone else.
Most surtax payers are the leaders of industry, the people who promote our products and work not a 40-hour week but twice those hours, without any extra for so doing, travelling all over the world at great personal and family inconvenience. Therefore, let us not denigrate the efforts of the high income earner. He is the man upon whom the future prosperity of our country depends.
The right hon. Gentleman talked about the cost of living having risen by one-third since 1968. Whether or not that is so, the plain truth is that the nation is better housed, better clothed and better fed than ever before.
Hon. Members should not run away with the idea that all working class people are very poor and do not know what to do to make ends meet week by week. The right hon. Gentleman should go around his constituency a little more. He would find the bingo halls full every night of the week. If he goes to the north of England, particularly Yorkshire, Lancashire and Derbyshire, he will find the working men's clubs so prosperous that they never had so much money in their existence.
Of course, there is some poverty in the land. There are people less well off than many of us. But let us not have Members selling Britain short saying that all is gloom, gloom, gloom. We are a great, proud and prosperous nation, notwithstanding all the iniquities we suffer from the trade unions at present.
I had hoped to tell my right hon. Friend the Secretary of State for Social Services something about the hospital problem, but, unfortunately, he has left the Chamber. Although there is not much we can do about it, the country should know that at Harold Wood Hospital yesterday pickets prevented clean laundry going in, although it is one of the hospitals which have their laundry done outside. Is not that disgraceful?
Two nights ago some friends of mine and I telephoned St. Mary's Hospital at Paddington to offer our services voluntarily for work in the kitchen or any other necessary work.
Order. I do not wish to interrupt the flow of the hon. Gentleman's oratory, which the whole House no doubt finds very interesting, but we are discussing the Budget and not strike action.
We can wash quite a lot if the hon. Gentleman wants us to.
The Budget has had a universally good Press, other than from the prophets of gloom in the Labour Party. What we must remember, not only now but in regard to the economic picture as a whole, is that everything depends upon the efficiency of British industry.
If we took all the economists, political commentators and financial editors in the land and put 50 of them in one room, we should come away with 50 different answers to the problems. The reason is obvious, that economics is not an exact science. People cannot be persuaded to do the things that it is desired they should do, and all over the world Mother Nature now and again takes a hand. Even the most strictly managed economies, such as the Soviet Union and China, have to buy vast quantities of grain in world markets from time to time, as a result of changing climatic conditions. Therefore, all that can be done is to have a broad generalisation of what is wanted and to trim our sails to the wind as necessary.
We need not bother ourselves too much with yesterday's comments by the right hon. Member for Leeds, East (Mr. Healey), who did not contribute very much to the discussion.
We must remember, in the context of the Budget and our economy, that strikes, for whatever reason, erode the living standards of all our people. To that extent they are to be deplored. Unfortunately, the position of the trade unions is lamentable. They are despised by the people and are the laughing stock of the Western world. Jones, Scanlon, Briginshaw—they all cock a snook at the TUC and poor Feather is powerless to do anything about it.
Discussion between the Government, industry and the unions is vital. But can the unions live up to any undertakings which they might give? That is the key to the whole problem, and we must recognise that all the social service benefits which have been outlined, and other benefits which will come as the months go by, come from the products of industry. Nothing can be done for anyone unless industry is efficient and can deliver the goods on time.
The motor industry gives us cause for great concern. Here is one of the most prominent industries in the land which in the last few years, with a high tariff protecting it, has allowed foreign manufacturers to take about 20 per cent. of our market, at great cost to the balance of payments. We read in this morning's paper that the Swiss market for Ford spares is to be served from the German factory. This is an industry which we were all hoping would do very well as a result of our entry to the Common Market. We can be excused if we have doubts about this now.
Industry must at all times have sufficient resources for investment. Interest rates are far too high. I hope that this is a transitory situation, but they must come down in due course because they are a brake on the investment programme of companies. This affects not only industry; it affects all young people, and those not so young, who are trying to buy houses. They cannot save up for the deposit and then pay enormous mortgage interest rates—if they can find a house. I hope that the whole question of interest rates is receiving the closest attention from the Government because reducing them is one way in which we can help everyone.
The pensions and other benefits which have been announced are welcome. They are a great credit to the understanding and humanity of the Secretary of State. We have crass contradictions by the Opposition about the Budget. First we are told that we must cut back on expenditure or put up taxes, or both. At the same time, the cry goes up "We must have more schools, more houses, more roads; we must have something more of everything as long as no one has to pay for it."
Our economy is expanding rapidly. The methods employed in this Budget are sound. I do not think that they constitute the great gamble which some people allege. I congratulate my right hon. Friend on what I believe to be a sterling Budget.
The speech of the hon. Member for Ilford, South (Mr. Cooper) reminded me very much of the "Never had it so good" era. He also reminds me of the man who lived under a dictatorship; when the representatives of the dictator came round to speak to the people and tell the folk in the villages that everything was going so well, this little man used to jump up and say "If things are so good, why are things so bad?"
These are words which could well be in the mouths of many people today. We on this side of the House do not denigrate the captains of industry, in marked contrast, I may say, to the attacks on working people and their trade union representatives which we hear from the Conservative Party from time to time, not only in this debate but in others in the recent past. All that we ask is that everyone makes his or her proper contribution to the welfare of the country.
Before I entered the House I used to consume avidly every detail of the Budget every year. I followed the Press and radio and television coverage. But since becoming a Member, although my attention was great in earlier years, that rapt attention has gradually given way to the realisation that to a great extent we are merely participating in what has now become an antiquated ritual performed annually in which fewer and fewer people are interested.
I must confess, however, that the Chancellor's performance on Tuesday held my attention, and I join the ranks of those who paid tribute to him for his lucidity, his steady calmness, and, in some instances in the course of his speech, his humour. But closer examination of his proposals produced the sinking feeling that they really did not amount to very much. It would be inappropriate to enter into a comparative discussion about the philosophical outlook of the Labour and Conservative Parties. We on this side of the House hardly expect a Socialist Budget from a Conservative Government. We may not get a surfeit of Socialist policies from a Labour Government either, but at least we live in hope.
I hope it will. This is not so much a Budget as a hotch-potch of proposals which have little or no bearing on our present economic position. It
poses no central strategy for dealing with inflation. There are no far-reaching proposals for tackling the problem of poverty. Indeed, Wednesday's Guardian has a back page heading in large letters saying
Poverty lobby gloomy over mean rises".
It goes on to say:
The Chancellor, by refusing to increase family allowances, has for the second time refused to honour a pledge which the Conservatives made during the 1970 election campaign
I have not made a mistake; the article says "for the second time." But the date is Wednesday 22nd March 1972. So the Chancellor has, for the third time, refused to honour the pledge made by the Conservatives at the 1970 General Election.
The Budget also makes no impact on the problems of the lower paid. It gives us no sound reason for the introduction of VAT. I do not like indirect taxation. I prefer a tax on income rather than expenditure. I admit that indirect taxation has an attraction. It has an especial psychological attraction because people have the feeling, but it is only a feeling, that they can control to some extent the indirect contribution they make by controlling their expenditure. But indirect taxation is regressive and bears hardest on the lowest paid until, as we go down the scale, it is grotesquely unfair on pensioners.
It is not really a Budget; it is a preliminary warm-up to the main event which will probably occur later this year. In spite of the optimistic views which have been put forward by hon. and right hon. Gentlemen on the Government benches, and in spite of their congratulations to the Chancellor on the application of a 10 per cent. rate of VAT and the zero-rating of food, I forecast that it will not be long before VAT is applied to food. The revenue must be raised somehow. In Continental countries tax must be applied to food to produce the necessary revenue. I am always suspicious of reductions in total revenue. When the Chancellor tells us that he is not producing as much money in one sector as was produced in previous years, I am suspicious, because that money has to be found.
The public think of the Government as "them", and think that "they" have a large fund somewhere, the source of which is ill-understood, from which it is supposed that, if prodded sufficiently, they will distribute largesse. But the money comes from the people, and when tax is cut and revenue reduced I begin to worry about which social service will be affected, especially when we are told that in the current year £500 million more is to be spent on defence.
There are one or two proposals in the Budget speech on which I should like to comment. I echo the fears expressed by my hon. Friends that the land hoarding tax will not make more land available for building. Although I am attracted to the proposition that planning permissions should be speeded up, I believe that the tax will have the dual effect of delaying application for planning permission, on the one hand, and, on the other, may push local authorities into granting planning permissions without adequate investigation. I agree with my hon. Friends that the only way to tackle the shortage of land for building houses is by the public ownership of land.
The Chancellor announced the zero-rating of sweets and chocolates. I pay tribute to the confectionery manufacturers; they provide the least expensive sweets and chocolates in the world. I know that rubbish can be bought in other countries, but I am speaking of confectionery of a comparative quality. Already dental caries among children is far too prevalent, particularly in Scotland. I am afraid that any increase in the consumption of sweets and chocolates may produce horrifying dental results. I concede that methods of dental and oral hygiene and care might help, but, in the absence of any remedy for dental caries which will produce immediate results, the ingestion of sweets, chocolates and other sticky foods of this nature should be reduced as much as possible. It is a short-sighted policy that the £110 million which will be lost through the zero-rating of confectionery is not to be transferred to milk and other calcium foods which build up children's bones and preserve their teeth.
I entirely agree with the hon. Gentleman about the dental aspects, but many of his hon. and right hon. Friends have made great play of the rise in the retail price index, and the very foods which have now been zero-rated by the Chancellor are included in that index.
That does not destroy my argument. I have no objection to reductions in price and no objection to the zero-rating of articles, but there is an imbalance when milk, which contains calcium and is essential for the development of teeth and bones, is charged for, whereas sweets, which are not essential in large quantities, are zero-rated.
When the Chancellor mentioned workers' shares in industry I saw grimaces on the faces of Government backbenchers. Their grandfathers must have turned in their graves at the thought of their businesses being run by the workers or of shares being taken in their businesses by workers. This proposal is no more than a smokescreen. It is a completely inadequate substitute for real participation by workers in all industries.
I am not happy about the Chancellor's proposals for dealing with the oil companies. But there is time for discussion with the companies concerned to ensure that the nation will ultimately benefit from these natural products.
I welcome the zero-rating of children's shoes and clothing. I ask for an assurance that the standards to be laid down by the committee which is investigating the matter will not be like a wartime utility scheme or second best. We do not want a deterioration of standards; we want the highest possible standards.
I smiled when I heard the Chancellor say that according to his experts about 25 per cent. of adults might be small enough to benefit from wearing children's clothes. That remark shows how he listens to his Treasury officials instead of depending on his good sense. There must be 25 per cent. of children who are big enough to wear adults' clothes, and the one balances the other.
I, too, voice my disappointment at the low level of old-age pensions. The Chancellor should have taken the advice of the TUC. At the 1972 congress the TUC pressed for a pension of £10 a week for a single person and £16 for a married couple, with an immediate increase of £2 for a single person and £3·20 for a married couple. This would have gone half way to meet the target guaranteeing an average weekly income for retirement pensioners of at least £11·50 for single persons and £16·80 for a married couple.
One of the evil effects of the Budget will be its impact on mortgage rates. There is no doubt that mortgage rates will rise probably to 9½ per cent., and this will impose an impossible strain on young people. Many young couples are finding it even now extremely difficult to find and pay for a house which they wish to purchase.
I wish to draw the Government's attention to the possibility that building societies are not doing the job which they ought to be doing. I believe that "building society" is a misnomer—for they do not build any houses; they only lend money; therefore, they are lending societies. I would prefer the work of building societies to be done by local authorities acting for some Government agency.
I wish there had been in the Budget some proposals for the new towns of Scotland, particularly the old new towns, if I may so term them. It is at variance with our long-established democratic procedures that the people of East Kilbride, for example, should have so little real say in some of the most important matters affecting their town. It is high time that the affairs of the town were carried out by the elected representatives of the people, but the Treasury makes this only a hope for the future.
In our difficult economic situation, with the older traditional industries closing down, we seem to pay too scant attention to retraining. Scotland suffers particularly in this respect since we have seen a drastic contraction of our once-proud shipbuilding industry. We have seen the coal industry shrink, and we now have a threat to the steel industry. Everybody agrees that we must have new industries in Scotland. Everybody also agrees that our men and women must be retrained. Sweden this year has earmarked 4,000 million kroner to retrain Swedish men and women. In the United Kingdom we have earmarked only £100 million in a population which is eight times that of Sweden. Sweden this year will retrain 3 per cent. of her total labour force. On this basis we in the United Kingdom should undertake retraining for 750,000 people. If all our best plans bear fruit this year, we shall be training fewer than 30,000 people.
I have already said that the Budget has become an antiquated ritual, but it could be used to produce dramatic results if we wanted it to do so. It could be used to bring about a more equitable apportioning of the national wealth. The present Budget does not do that—but perhaps it is asking too much to expect it.
Order. Before I call the next hon. Gentleman, I must reiterate what was said by Mr. Speaker at the beginning of the debate. With all due respect to hon. Members, speeches so far have already been too long if the Chair is to call all those who want to speak. It is extremely hard luck on hon. Members who are waiting today, and indeed who waited all day yesterday for an opportunity to contribute to the debate. I urge hon. Members to be brief.
The hon. Member for Glasgow, Kelvingrove (Dr. Miller) was not deeply impressed by the Budget and thought it did not have much relevance to our present situation indeed, he was critical of it in some parts of his remarks. One common theme among Opposition Members in the last few days has been their complete lack of any constructive proposals of their own. I have not heard any Labour Member trot out his own view about the Labour Party manifesto on economic matters. I am glad they have not done so because it does not need much effort to show what nonsense they are.
The hon. Gentleman thought that the Budget was an antiquated ceremony. I do not agree with him, because I believe it has great relevance to our economic problems. However, I agree with him in one sentiment, and that is that I believe we shall hear my right hon. Friend the Chancellor of the Exchequer much more often than we have heard him in recent years. It is unlikely that we can totally exclude ourselves from movements in currency problems which occur throughout the world. Therefore, it is more than probable that we shall hear the Chancellor setting forward new proposals in view of the kind of changes that must occur.
My right hon. Friend's Budget speech was what one has come to expect of him. It was resourceful and ingenious and seemed to me to be in tune with the real needs of the elderly, and particularly in his treatment of charities. The House will recall that last year my right hon. Friend, in terms of charities, allowed exemption of estate duty and from the capital gains tax. This year charities are to be zero-rated in terms of VAT.
I particularly liked the increase in the earnings limit for old-age pensioners before tax is paid. The right hon. Member for Deptford (Mr. John Silkin) made great play with the lack of success of family incomes supplement and criticised the fact that so many of these payments are selective. The right hon. Gentleman should have taken proper account of the proposals in the tax credit system which have been published and which are to be the subject of a Select Committee examination.
This year my right hon. Friend devoted a good deal of attention to monetary policy and to questions of money supply. I should like to say how welcome this attention is. Questions of monetary policy became fashionable, if not obligatory, only when the IMF used to send out its teams of observers once every three months when the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) was Chancellor of the Exchequer. These visits were directly related to improving our balance of payments position by controlling the money supply or domestic credit expansion. The point was that the system worked and the balance of payments position improved substantially. However, I do not think my right hon. Friend the Member for Barnet (Mr. Maudling) in presenting his two Budgets ever mentioned money supply, and it received scant attention from the Radcliffe Report on the monetary system even before that. The Treasury seemed to be "hooked" on Keynes, and many persons still are.
I do not propose to argue the relative merits of incomes policy in relation to demand control since we have already got an incomes policy—and goodness knows for how long we shall have it. But what an incomes policy can do is to lower inflationary expectations. That will be a very considerable and necessary task in present circumstances.
I do not think there are now many economists, even in this country, who attach such little importance to the money supply as was formerly the case. Certainly the Chancellor now attaches very considerable importance to money supply. I wish to quote one extract from my right hon. Friend's Budget speech:
With real demand expanding, the objective must be to prevent this large borrowing requirement from leading to too rapid a growth of money supply. I therefore intend to take action at once to ensure that, to the maximum extent, the Government's borrowing requirement is met by means which do not increase the money supply."—[OFFICIAL REPORT, 6th March 1973; Vol. 852, c. 252.]
Here is the clearest statement yet made by my right hon. Friend about the importance which he attaches to monetary policy to control inflation, a matter about which the whole House is most concerned. There is no question now, since this has been adopted as official Government policy, that the alternative, if we do not control inflation by monetary policy, will be that we shall have a high and continuing rate of inflation, and this opinion is generally shared by every central bank and Government in every major country in the world. Since my right hon. Friend holds this view, perhaps I might be allowed to express an opinion about the size of the problem facing us. Before doing that, however, I ought to describe the position as it was last year.
We know that the borrowing requirement expected last year is now likely to turn out to be some £2,750 million. We are told that, of this, £1,200 million was taken up in savings by the non-bank public, freely and of their own will. We need be concerned here only with the price that the Government and the taxpayer have to pay by way of debt interest. But another £1,600 million was made by running down our foreign exchange reserves, and we cannot claim much credit for that. Had it not been for the outflow of funds, this deficit would have had to be met by the clearing banks, and that process inevitably must have been inflationary. We must trust that this factor is a non-recurring one.
Another point of concern about monetary policy especially when dealing with M3 is the propensity of banks to lend large sums of money. But what does the Treasury think banks are in business to do? That is exactly their job. If the authorities are prepared to make borrowing easy so as to help overcome unemployment, the news of cheap money does not take very long to travel.
Today we have the largest borrowing requirement in our history—some £4,423 million. It is not only large by past standards. It cannot be expected to be met in the same way as last year's. This again my right hon. Friend confirmed plainly when he said:
Nevertheless, the large borrowing requirement in 1973–74 poses a considerable financial task for the authorities. It would be quite unacceptable to rely to any substantial extent on borrowing from the banking sector."—[OFFICIAL REPORT, 6th March 1973; Vol. 852, c. 254.]
The consequence of that statement is that it must be met, therefore by genuine savings from the public outside the banking system.
My right hon. Friend's proposals go very far in an effort to meet that wish. One of them is that companies should have deposit accounts with the Inland Revenue where they will get the Treasury bill rate plus a 2½ per cent. bonus if they hold their deposits the full term. There are two new gilt-edged issues amounting to £1,400 million. There still remains a large sum to be met by genuine savings by the general public. But it should be recognized—reactions in the City have shown this to be so—that a good deal of this will be met initially by switching from existing forms of saving. Therefore, the price of existing stocks must be expected to go down, and the consequence of prices going down on the gilt-edged market is that interest rates will rise. They are rising now quite fast.
We must recognise the inevitable effect that this will have on building societies and their ability to lend. It also has a direct consequence on the secondary banking market and the high level of interest rates that they will have to charge. They include hire-purchase companies and finance houses whose business it is to lend money to those who wish to buy cars, refrigerators, television sets and so on. Interest rates inevitably must be very high.
If my right hon. Friend's objective is to reach a point where national savings will meet the borrowing requirement, it is probable that it will be reached at a high level of interest rates.
In addition to that factor, we have to take account of the effect of high interest rates on investment in the private sector. The private sector already is a little confused by the attempted separation of profits from investment. The code on prices and pay in the Green Paper suggests that if a higher volume of sales should result a company which has found this effect should reduce its prices and be expected to take less in the form of profits. Later in the Green Paper there is a powerful passage about how the Price Commission itself will take account of any company which wants to increase its investment.
The idea that these two calculations are somehow different is extraordinary. It is an academic one which finds itself only in the minds of those in the Treasury and their advisers who can have very little connection with ordinary business and industry.
Although the official indicators look a good deal better for investment, we are still a long way behind our competitors in manufacturing investment, and the excuse of higher interest rates will be used once again for not investing by many manufacturing companies. When they can get 11 or 12 per cent. and more by lending to the Government and are encouraged to do so, who can blame them?
That is not all. In my opinion, what we should do is to measure the cost-effectiveness of existing and potential Government expenditure. Let us ignore for a moment whether the Government's estimates are likely to be fulfilled in the next five years, which is a matter of considerable conjecture. The fact is that the policy judgments made a year ago have created an additional £1,200 million, much of which can have little effect on unemployment in the short term.
Is it right that industrial companies should be encouraged to lend money to the Government instead of investing it themselves and that this money, which is costing the taxpayer at least 10 per cent., should be passed on to other companies in development areas, to take only one example in terms of public expenditure? One has to recognise the new aspects of public expenditure introduced just over a year ago, especially in the shape of regional development grants, selected regional assistance and other grants, which are not specified in the public expenditure White Paper, under the Industry Act for which a further £550 million might be spent if anyone wants to borrow. We have to consider these increases in regional development grants in addition to the existing already most generous depreciation provisions. In my view, it is time that something was said for a change not just for the lame ducklings but for the swans of industry and commerce which have to pick up the bill. Some of the best of them happen to be in my constituency. I hasten to assure the House that I am not appealing for regional development grants for West Sussex.
It is highly likely that these companies in my constituency will be affected by the assistance given to companies in development areas. I mention one instance. There is a restrictive practice in existence between the Central Electricity Generating Board and GEC and Reyrolle for the provision of switchgear. A company in my constituency, Bowthorpe Holdings, has in the past three or four years developed and concentrated on the production of switchgear equipment and has managed to secure 30 per cent. of the export market. This restrictive practice means that GEC and Reyrolle have the absolute monopoly, except for 2½ per cent., of all the switchgear contracts given by the CEGB. It happens that GEC and Reyrolle are in development areas. But it means substantial other effects which are not desirable, certainly in the export market, because of these restrictive agreements. I am glad to say that the matter has been referred to the Restrictive Practices Court. Although it will take a long time, I hope that eventually the practice will be abolished.
It is clear that much of the increase in public expenditure was caused by a deep and proper concern for unemployment. In my opinion, this would have been properly met by an increase in the regional employment premium. It is there. It exists now. It could have been done very much more cheaply. I know that the fashion is for the Department of Trade and Industry to embark on all kinds of industrial adventures. I look upon these adventures with considerable misgiving. I regard them as extremely expensive exercises and unlikely to meet the objectives which have been set.
I take the view that the Government will have substantial difficulty in meeting their borrowing requirements by genuine borrowing from the general public. They must, therefore, be prepared to cut public expenditure. Whatever our views on some of the DTI's activities, we cannot afford them all.
The economy generally is growing fast. So is much of industry and commerce, particularly that part that gets no help at all from the Government. In my view, the Government must be prepared to act as the United States Government acts—to check the growth of public expenditure so that it does not grow faster than the increase in the GNP. We should also have a balanced Budget on a full-employment basis as they have in the United States. The American President has set ahead of the American people a clear path which they can follow and which industry and commerce in their turn can also follow.
I wish my right hon. Friend the best of good fortune in what is an audacious Budget, and I think he will need it.
The hon. Member for Horsham (Mr. Hordern) in a highly agreeable speech has been dealing with a most important aspect of the current economic management. I do not agree with everything he said, but I am glad that West Sussex will not be made a development area.
I believe that the Government must look again at the future of the regional employment premium.
I found the Budget unreal in that it seems to ignore the changes which have come over the economic scene in general. Leaving aside the international situation, we have seen high inflation and high unemployment go hand in hand in this country.
We have also had the announcement from the Government that Conservative economic policy cannot work and must be adandoned. The Budget seems to ignore both these matters. It appears to assume that the sticks and carrots of the competitive side of the economy will still operate.
The Government have now abandoned the free market economy, even in the private sector. This must have a profound effect on what the Chancellor describes as his central objective—the maintenance of a fast rate of growth.
I have long maintained that by itself the word "growth" is almost meaningless. There is no point in having a fast rate of growth in packaging and the higher and more useless technology. But growth in the things which matter to people is extremely important and a valid objective.
In the free market economy growth was theoretically attained by allowing a successful company to increase its profits. The theory of the Conservatives was that if profits in a business got too large, investment took place, more goods came on to the market and so growth would again be increased. The Government have stopped all this. They have removed what, according to their wisdom, was the mainspring of the economy.
To this they will no doubt give two answers. The first will be that the policy of the freeze is temporary. We have had so-called temporary policies before. I very much doubt whether this is a temporary policy. If it is, it will be succeeded by inflation on a higher level than we have experienced before. If it is merely damming back inflation, we are in for a disastrous time when the policy collapses. Nor have we had any word of policy after the freeze. We have had no word from the Government why we should not just get back into the same situation that we are now in.
Secondly, the Government may say that while companies will not be allowed to distribute profits above a certain level, they can still make them. It is distribution which ultimately counts. What incentive is there in making profits which cannot ever be distributed? An economy which makes profits to be ploughed back to make further profits which cannot be distributed in the end becomes an Alice-in-Wonderland world. If the profits are merely held back and distributed later, there is the perfectly good argument of the weekly wage earner: "I lose my increase in wages for ever, but the shareholder gets his increase a few years later."
Again, growth in the market economy in any form worth having entails constant change. The theory again is that as people's needs or desires alter they select what goods they want to buy and the impact of demand is constantly working on the market. But the Government's new economic policy rules out both selection and change. If it were successful it would freeze the current pattern of production. There might be an increase in the amount of goods produced, but it is unlikely that they will be the goods that the public most want.
The Government have taken credit for achieving growth. How has this come about? It has come about because of the old policy, not the new policy. It has come about by the impact of the highest inflation that we have ever experienced.
Yesterday the Financial Secretary argued that there was a magic difference between a cost-push inflation and a demand-pull inflation. I think the difference is often exaggerated. There is some difference in some ways. But if we are in a situation in which we have large unused resources, this being the reason for saying that we are not in a demand-pull inflation, how does it come about that those resources are not used in a highly inflationary situation where there cannot be said to be a failure of demand for money? If that is the Government's wisdom, they ought to be creating more inflation still. However, we must believe that they are not taken with that solution.
I believe that under the Government's new policy inflation will continue. I think that it must continue until public expenditure on non-productive objects is curtailed and there is more control over the supply of money and credit. Until that is done, whatever steps are taken, I fail to see how inflation can be stopped. But in any case the Chancellor has rejected inflation as a method of getting growth. On the contrary, he said, "We must conquer inflation".
In parenthesis, if we succeeded in conquering inflation by the methods chosen, we should be ruled by a British variety of a totalitarian State. It would probably be a fairly agreeable totalitarian State presided over by well-intentioned bureaucrats with an economy largely unresponsive to public demand. It would have a very slow rate of growth, except in useless objects, and would have built-in statutory inflation. In fact, we should create for ourselves all the troubles which every Communist country is trying to grapple with at the moment.
If inflation and the profit motive are ruled out, with what instrument do the Government hope that this growth will be achieved? Certainly this does not appear from the Budget. What emerges from the Budget and other economic measures is that it will be an extremely tough time for small businessmen. The poor muts who thought that from a Conservative Government they would get fewer officials, less Government expenditure and fewer forms are in for an unhappy awakening. The shopkeepers, farmers and small businesses of many sorts will be inundated with demands and forms. Already a jeweller in my constituency is enmeshed in correspondence, not with Edinburgh but with London, about whether she is entitled to put up her prices because the price of silver has gone up.
I understand that small builders will be required to render quarterly accounts. They will be faced with soaring interest rates. All this makes Sir Stafford Cripps look like a high apostle of laissez faire. No Labour Government would have dared to impose these burdens on small businesses. It makes absolute nonsense of those fine speeches by a party hunting for office during the election. We have VAT with all its accoutrements and we have a wage freeze with snoopers and quarterly returns. At least we may have a boom in the paper trade.
Yesterday the Secretary of State for Trade and Industry told us that everything was splendid. Yet outside this isolated Chamber, outside the world of Government cars and secretaries, the whole of London Transport is in chaos, the hospitals are disrupted and many people are without gas.
The reality of the world does not bear much resemblance to the Budget. People judge the world not by the statistics that are bandied about here but by what they feel in real life. All the time we are creating expectations. We are building up a throw-away society. We must get rid of what we have this year. We must have something different next year. Meanwhile there is constant disruption of what people regard as the basic things of life.
What then should we do? A Government must impress upon the country where they are trying to go, what sort of society they want and how they think it can be run. The Government should not abdicate their responsibility and hand over the workings of the pay and price freeze to bureaucrats. That is an abdication from the main rôle of Government, which is to try to reconcile competing interests for the general good of all.
I suggest that the Chancellor should, for instance, consider the possibility of setting up a board which might usefully try to compare the rates of salaries and pay in the public sector, which for some time have been anomalous. Such a board, in a purely advisory capacity, could advise the Government what the new differentials in that sector might be. It would certainly mean that not everybody would get the same increase, that some people at the top of the scale might get nothing and that some people at the bottom of the scale might get a lot more. It might well be that in our society we shall have to pay people more to do the unpleasant jobs, such as cleaning lavatories, than those doing the so-called responsible jobs. If we believe in a free society which pays the going rate, the rate may be higher for cleaning lavatories than for sitting in a centrally-heated office, if there is not a strike, and dictating letters to a secretary. If participation is to be real, the lowest worker as well as the top executives must count for more.
We must reconsider Government expenditure. I have long felt that the system of grants to local authorities needs reconsideration, for instance. In their present form grants do not encourage local authorities to undertake the right priorities. We must give up the subsidising of Concorde and higher computer technology. The whole range of Government expenditure has still to be examined, with a view not to cutting social services but to setting an example of good management from the very top.
The resources of civilisation and politics have not been exhausted. We should try to make socially desirable industrial behaviour pay. At the moment every group of workers that has gone on strike has gained by so doing. It is no good turning to the trade unions and saying "We want you to give up what you have been asked to do. We do not want you to press your workers' claims. We want you to hold them back and to get them worse terms." That is impossible. That is asking people to do a job which they were not elected to do.
But we might adjust the tax system so that in cases where workers extract much higher remuneration in the public sector than is thought to be justified by the Government, on the advice of a pay and prices board, higher taxation should be levelled upon them. I couple that with urging the Government to press on with their tax credit system or negative tax for those workers who are at the bottom of the scale or hold back their demands.
Further, we must have a massive programme for communal development. We have tried for years to close the gap between rich and poor. Those who are born in certain places in certain slums of our big cities may be a little better off than they would have been 30 years ago. But the differential between people who are born at such places and those, for example, in Bournemouth is enormous and seems permanent. This affects schools, housing, wage rates and everything else. There is now a difference between different communities as much as there is a difference between different individuals. Much as I welcome the increases in social payments, particularly those to old-age pensioners, we must now look to a communal policy for improvement of the whole standard of life in some areas.
It seems extraordinary to levy VAT on freight transport, which already is a very heavy handicap in the development areas. The levy will make the position slightly worse.
Much as I welcome the Chancellor's proposals for taxing the oil companies, it is still true that Britain will lag far behind other countries in what we get from the oil. I still think that we should have some fund for the districts immediately concerned, and payment should be made for the development of the Scottish economy.
I dare say that this is a useful Budget within the conventional rules. The Chancellor has shown once again considerable ingenuity and courage in reforming the tax system. However, I do not think that it will have any impact upon the wider aspects of the economy. I find these aspects more alarming than Ministers have so far acknowledged. The pound has lost 30 per cent. of its value in five years. The British Government cannot raise money at less than 9 per cent. There is a real danger that we are going the way of South America, that we shall get used to inflation and that it will become the British way of life. If that happens, it not only will destroy our economy, as we have precious few raw materials to fall back on except possibly for oil, but it will destroy many other things. It will destroy a great many of the things which to me make Britain an enjoyable country in which to live.
The right hon. Member for Orkney and Shetland (Mr. Grimond) always makes an agreeable speech, and his speech today was no exception. I often find that I agree with almost 90 per cent. of what he says, and then suddenly I find that he has left out one thing which is the burning question of the hour. In his agreeable speech he spoke about Government expenditure and the need to keep a much more watchful eye on it. He spoke of the need to look at the rate support grant, and again what he said was so very true. He referred to the need for a negative tax to help the lower paid in the community.
I agree with those policies and what the right hon. Gentleman said about the working of a statutory prices and incomes policy. The one point which he left out—perhaps he did so because he has been in opposition for such a long time—is the burning question of the hour and is the cause of so much of the present trouble, namely, the question of dealing with cost inflation itself. This is something to which Parliament must apply its mind. It is a psychological factor just as much as an economic factor. In all that has been done in the Budget, I am sure that all the cross words and the bandying about of what the present Government did and what the last Government did is causing a great deal of the bad psychology in the country. It does not encourage moderation either in the country or in the unions.
I should find it much more agreeable if the right hon. Gentleman were sitting on the Opposition Front Bench and leading other moderates, or even the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), rather than some of the extremists and those who seem to be hand in glove with the unions, who fan the wage claims which are causing so much of our cost inflation.
I am sure, in spite of the difficulties which we face with cost inflation, that my right hon. Friend the Chancellor was right to go for growth. When we talk about many of the things that we want to see achieved, such as an increase in pensions, an increase in so many of the social services and the need to finance the growing defence burden, unless we have growth, and preferably growth of 5 per cent. and not at the miserable level which we had from 1964 to 1970, when it was only 1 per cent. to 1½ per cent. we will not be able to meet these requirements. Nevertheless, we must look much more seriously at Government expenditure and ensure that we get value for money.
I am sure that the Chancellor was right to go for growth. My hon. Friends are divided between those who think our present problems are those of cost inflation and those who think that the cause is demand inflation. I come down firmly on the side of the Chancellor. I believe that the present problem is one of cost inflation, particularly when one realises the kind of spare capacity which we have at present and the areas in which employment could be found. Nevertheless I realise that risks are being taken over funding. Indeed, risks must be taken. I trust that a careful watch will be kept because there is no doubt that if we can encourage growth, that is the right way to go. But I certainly pay attention to what some of my hon. Friends have said about the danger of too loose a control over monetary policy.
There is one item of expenditure on which I should like to echo what was said by the right hon. Member for Orkney and Shetland. This is the question of increasing the rate support grant by £10 million above the figure of £60 million. I am sure that this form of subsidy introduced by the Labour Government, is a means of financing extravagance in local government. I think that we must face reality far more than the Government are doing and place on the Exchequer and not on the local authorities many more of the charges that are national requirements. If such a course is followed, I believe that we shall have to face perhaps a further increase in direct taxation. But that would be more realistic than subsidising local government in the way that it is at the moment and making it less efficient.
The present system puts a burden on the people least able to bear it. I join the right hon. Member for Orkney and Shetland in saying that we wish to create fairness in what we are doing in the prices and incomes policy. If we are to have such fairness, it is not fair to put big burdens for education expenditure on those least able to bear them, particularly the elderly. I advocated this point of view in a letter to the Daily Telegraph on 1st January, and I have had hundreds of letters from elderly people all over the country saying, "What is the use of an increase in pensions and other benefits when it is taken away in a violent rate increase?" In fairness, the Government must pay close attention to this matter.
My right hon. Friend the Secretary of State for Social Services pointed out that 16 per cent. of our population are elderly. In my constituency, 25,000 people out of the 100,000 population are over the age of 65. I hope that when the Government are allocating the resources of the country to the elderly they will bear in mind the concentration of elderly people in areas such as North-East Essex which are short of geriatric beds compared with the national average. They are also short of special housing for the elderly. The policy of the Greater London Council, too, in buying up bungalows in North-East Essex, putting elderly people from London in them and then disclaiming further responsibility is most unfair because the burden is then put on other authorities which have not the means. I hope, therefore, that my right hon. Friend the Chancellor of the Exchequer will apply his mind to seeing that resources are given more fairly so that a solution can be found for this very serious question for my constituency.
However much we may talk about the present situation being cost inflation or demand inflation, it is largely theoretical because the problem of solving this crisis is a human one. It is a problem of reaching understanding in this House—far more understanding than we have had in the last eight years between the two Front Benches. The people know that something is wrong. That is why we saw the results in Lincoln, in Dundee and Chester-le-Street. Our people are not tools. They realise that if we are to solve our problem we have to say much more understanding words on both sides of the House. That is the way to solve our problem, and not by bandying words about trade union leaders on one side and leaders of industry on the other. We have to show more understanding. If we find more understanding between the two Front Benches we shall have more moderation in the country. This example for the country is badly needed.
It is with pride and pleasure that I speak for the first time in this House as Member for Dundee, East—pride and pleasure that I was chosen by the people of Dundee, East to follow George Thomson, who served the constituency for more than 20 years, and served it very well. I believe that he served it for longer than any other Member has represented the people of Dundee before he resigned to become one of the first British Commissioners of the European Economic Community.
Before entering Parliament George Thomson was a journalist, but he quickly adapted himself to the procedure of this House—something I am finding a little more troublesome than he did. He won the respect of all sections of the community, not only in Dundee but also in Monifieth, where he lived, and I am happy to say that both communities are to present him with the freedom of their burghs.
Although he and I differ in one of our basic premises in politics—membership of the EEC—nevertheless there are many things that both George and I are agreed about. One of these is the unemployment with which Dundee is faced. Dundee is the second largest industrial city in Scotland and is, unfortunately, second also only to Glasgow in the level of unemployment with a rate of 6·2 per cent., which is higher than the Scottish average and almost double the national average. Unemployment is therefore a very real problem in Dundee, and the threat of further unemployment, especially in the shipbuilding industry, is a matter with which I shall concern myself, just as the people of Dundee are concerned about it.
Dundee is a fairly famous place and I do not need to dwell too much on its aspects. Its people are warm and friendly and I trust that I shall learn to be as warm and friendly as they are and to fight as well as any Dundonian on their behalf. The fabric of any city is second to the people in it. It is people who matter most. That is the concept I hold in politics and it is on this basis that I fight for the principles in which I believe. Politics is about people. It is not just about economics or any other science, except in so far as those sciences can better the quality of life of the people.
In Dundee there is great friendliness and warmth in the people, but there is also very deep concern about unemployment. Dundee has a population of 182,000, with 78,000 working men and women. They are deprived in one respect: they do not, I understand, have as many bingo halls and pubs as are the lot of working men and women in other parts of the country. Whether that is true or not, certainly Dundee working people do not spend all their time in bingo parlours or pubs. They are industrious people and would certainly be more industrious if the Government took more positive steps to provide the industry that Dundee needs.
Dundee is a fair city, and with 10,000 more females than men it has an obvious attraction. The beautiful countryside around it is another attraction, so much so that I am hoping that within six months I shall be a resident of Dundee and eventually a true Dundonian. That is probably difficult for any Englishman to achieve, but I shall do my best to achieve it.
Obviously I wish to comment on the Budget and obviously, as it affects the people of Dundee, the Budget does not do enough to bring employment to deprived areas, of which Dundee is an outstanding example, within Scotland, which is itself a deprived area as regards unemployment. There is likely to be the loss of the shipbuilding industry on Tayside, which could have very serious consequences not only for the men and women of Dundee but for the people of the country generally. It is on issues of this kind that I intend to be fighting within this Chamber for the people of Dundee.
Obviously, one thing about the Budget which I welcome, as I am sure everyone in this Chamber welcomes it, is the fact that value added tax is not to be imposed on children's clothing. It is probably important that that should be so because we learn today that the Department of Trade and Industry has agreed to price increases in raw materials that will in any event increase the price of all clothing, not just children's clothing.
I would have liked the zero-rating of VAT to go even further, because there is a real concern, not only in Dundee but, I presume, in the rest of the country, and not just within charitable organisations to which the Chancellor made concessions, concerning the equipment that is used by the blind and other handicapped people, such as talking books, equipment for guide dogs and so on, which is still to be subject to VAT. I urge the Chancellor and the Government to look further at this and to take steps to see that the requirements to assist these handicapped people are zero-rated.
I shall be fighting here for the people of Dundee and for the people of Scotland. It may be that one of the issues in the election campaign—the fact that I am an Englishman—will be of some advantage to the people of Dundee and of Scotland since they will have an English voice speaking of the kind of problems that people have up there rather than its being said that "It is those so-and-so Scotsmen again bemoaning their lot." There is concern about unemployment and things of that nature, and I am as concerned as any Scot about the situation I found in Scotland.
It is a particular pleasure for me to follow the hon. Member for Dundee, East (Mr. Machin) because he and I have something very much in common—that is, that we have both been candidates for Dundee, East. In 1959 I opposed Mr. George Thomson. The similarity between the hon. Member who has just spoken and myself ends when I remind the House that he has been a successful candidate for Dundee, East where, regrettably, I was not.
Perhaps I might endorse the tribute that the hon. Member paid to his predecessor. I got to know George Thomson particularly well during the 1959 election campaign and I must say—it is probably the highest tribute I can pay to him—that he was an extremely difficult opponent. Not only was he well respected in the constituency but he represented his constituents in this House very well. The hon. Gentleman will understand me, therefore, when I say that he has a high tradition to live up to. But I am sure that if the maiden speech to which we have just listened is anything to go by, he will prove a very satisfactory and zealous representative of the people of Dundee.
I would make one final observation. As a Scot, having been defeated at the hands of the electors of Dundee, East, I had no alternative but to come south of the border. The hon. Member, as an Englishman, has been accepted by the electors of Dundee, East. Perhaps he and I should get together in the Smoking Room afterwards to discuss what Freudian overtones this rather strange situation produces. I would ask him to convey to the people of Dundee my very happy memories of the seven years I spent in that city and to tell them how well I recall the warmth and friendliness of the people he now represents.
In what I intend to be a brief contribution to this debate I wish to touch on three main points. First, I want to echo something which has been said already about the position of building societies; secondly, I want to refer to assistance with the payment of rates; and thirdly, I want to talk about social service priorities. I hope that my hon. Friends on the Front Bench will forgive me if I say I do not intend my contribution to be a back-slapping exercise by a Government back-bencher. Rather do I intend to be mildly critical or, as I would prefer to say, prodding in the attitude I shall display during the next few minutes.
I start by talking of building societies. I am sure that the hon. Member for Glasgow, Kelvingrove (Dr. Miller)—I am sorry he is not now present—was quite wrong when he seemed to me to decry the service provided by the building societies and to indicate that it could all, be done just as effectively by the local authorities. Of course the local authorities should have a part to play in the provision of mortgage facilities, but we really cannot deny the enormous advantage that the building society movement has brought to the people of this country. We are now very far on the way to a property-owning democracy, thanks in no small measure to the part played by the building societies, but I am concerned about the opportunities which remain open to them to continue to attract the funds without which they would be unable to go on playing their part.
I am particularly struck by the no doubt welcome injection of fresh impetus into the National Savings movement introduced by my right hon. Friend the Chancellor. I am glad that a Treasury Minister is listening to me because I am sure he must accept that it cannot but be of considerable disadvantage to the building society movement to have this new competition. While I am sure that building societies are used to competition, I wonder whether the Government should not think again about whether the new unified system of tax, with, I understand, a marginal side effect on the tax position of building societies, should not even at this stage be reviewed so that if it is possible to prevent the building societies from having to increase their lending rate, everything in our power should be done to achieve that objective. In the meantime, if I can do no more I hope that I can appeal to the Building Societies Association to delay any precipitate step towards increasing the lending rate when it meets tomorrow.
Finally on building societies, I remind my hon. Friend from the Treasury that we are not here asking for assistance, for a hand-out, to a wholly private enterprise institution. Building societies occupy a unique position in what I might almost call the performance of a social service. I hope, therefore, that the Chancellor will give some consideration to the points I have made.
Turning to my second point, while I welcome the statement on assistance with the payment of increased rates which the Chancellor announced on Tuesday, I am bound to say that I find it inadequate and confusing. It is inadequate because where the increase in the rate bill results from revaluation alone and not from a combination of inflation and relative extravagance—which has certainly been evidenced by some councils, to the knowledge of most hon. Members—I regard it as parsimonious to say that the help will be limited, if I remember correctly, to only 50 per cent. of the excess over 10 per cent.
I think that the very minimum that the Government can be expected to do is to meet the whole of the cost above a 10 per cent. increase where it results from revaluation alone. The formula which the Treasury has chosen is such that a number of my constituents are finding it difficult to understand just what assistance will be forthcoming. I hope that when he replies to the debate the Minister will cast more light on this subject.
I refer finally to the social services. I am sure that it will be conceded by my hon. Friends, and perhaps even by hon. Gentlemen opposite as far as they ever concede anything to a Conserative Member, that I believe in social reform. I believe in improving the social services and uplifting the conditions of those who require our assistance. It would be churlish of me not to congratulate my right hon. Friend the Secretary of State for Social Services on introducing yet another instalment of what I can only describe as the massive reform and improvement that has taken place under his leadership since June 1970. Not only is there to be a further substantial increase in pensions; there is to be a wide range of improvements including those that will assist many categories of people who before June 1970 would not have been in receipt of any benefit at all.
Having conceded that, I hope my right hon. Friend will forgive me if I suggest to him and to the House that the time may well have come to ask him to exercise his undoubted influence with the Chancellor of the Exchequer in a way which begins to take us on to a still higher plane. I consider, in March 1973, that the absence of a straight disability income is not something of which the country can be particularly proud, and I hope that before long we can begin to embark upon such a venture. Perhaps I may ease the path of my right hon. Friend by suggesting that a beginning might be made by paying a disability benefit to disabled housewives.
Secondly, I have great sympathy with those—mostly women—who are forced to give up their careers to look after ailing relatives. The time must surely come soon when we pay a special benefit to such people in their own right to take account of the loss of promotion prospects and so on.
Finally, in a civilised country I make no apology for returning to my distaste of what I have referred to as a pauper's burial. I am particularly disappointed to find that there is no improvement in the death grant as a result of the Budget. I believe that there is a strong case, particularly for those in greatest need, to bring the death grant up to something more in line with present-day requirements.
With a Budget which has concentrated so heavily on the social services I think it is appropriate to congratulate the Government but to remind them that there is still much to be done and that, as I see it, we may be moving towards a new dimension in social provisions which will perhaps even change the priorities slightly. Since 1970 we have done very well—better than most Governments in the recent past—for the old, the unemployed and the sick, and the time to look to the disabled might not be very far ahead.
I join the hon. Member for Billericay (Mr. McCrindle) in congratulating my hon. Friend the Member for Dundee, East (Mr. Machin) on his maiden speech. It was an excellent speech. I am sure that it impressed the House, and the people of Dundee can be certain that in my hon. Friend they have a fine representative.
I want to speak on only one subject, and that is North Sea oil. It is gratifying for the Public Accounts Committee to receive so rapid a response from the Chancellor of the Exchequer. The Committee cannot respond to the right hon. Gentleman's response until in due course it receives the Treasury minute on its report and considers what the document says, but it is appropriate that one individual member of the Committee should comment on what the Chancellor said, and as it has fallen to me, due to the regretted illness of my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), to take on during this Session the acting chairmanship of the Committee, it is perhaps appropriate that I should make some comment.
I welcome what the Chancellor said, as far as it goes, but I doubt whether it goes far enough. It does not cover all the matters drawn to the Government's attention by the PAC. I understand the right hon. Gentleman's wish to consult the oil companies, and at this stage I merely issue a cautionary warning that those consultations have not always gone too well in the past.
There is—and always was—the danger that the Committee's report showing startling tax losses of £1,500 million would conceal from equal public attention the other matters to which the Committee drew attention. There are four problems: what to do about the tax losses, what to do about capital allowances, what to do to repair the errors of the fourth round and, finally, what to do about oil taxation generally.
I start from the proposition that if it is accepted—and it was accepted by successive Governments—that the right policy to pursue was to speed exploitation of North Sea oil, clearly incentives were necessary to achieve that object. My criticism—and this is clearly the view of the PAC, as shown in its report—is that the incentives should not have been nearly as great as those that were given.
The companies have incentives to exploit North Sea oil. There is the incentive of profit. There is the incentive of political stability in the area, however stormy the seas might be. There is the incentive of nearby markets, which means that despite the cost of exploitation North Sea oil is relatively cheap. Finally there is now the further incentive that high-quality oil has been found.
All that means that I personally reject the view which has been expressed by some commentators that our situation is so different from that of the Norwegians that we cannot take a position nearly as hard as they can. It has been said that the Norwegians are in a different situation that they can consume only a small proportion of the oil likely to be found in their sector and, therefore, they can be a great deal tougher in negotiation. I think that there are incentives enough to promote the exploitation of North Sea oil to justify this country's ensuring that it gets a reasonable share of the profits of North Sea oil.
Let me explain to the House the source of my doubt about whether the Chancellor has gone far enough. There is an estimate in the Committee's report. It is made on the assumption of a 50 per cent, corporation tax producing a 50 per cent. share of profits. There is the 12½, per cent, rate of royalty, which we know to be the existing rate. On that basis it is estimated that this country should achieve between 55 per cent. and 60 per cent. as its share of profits from North Sea oil. This compares with Norway which, on its most recent policies, is likely to get between 55 and 80 per cent., depending on the particular circumstances.
On that I would make the following comments. First, the return as estimated is, of course, as the figures show, substantially less than that which it is expected will normally be achieved by the Norwegians. Secondly, we do not yet know what the attributable rate of corporation tax will be. There is a problem here. This country, I imagine, is not likely to fix its rate of corporation tax purely in relation to North Sea oil. We are not like a Middle Eastern country whose great oil resources are to be regarded as the primary element in its taxation policy. Other considerations will determine our rate of corporation tax. It may be higher or it may be lower, but if it goes lower it immediately affects the share of North Sea oil profits which we will achieve, owing to the system which we have adopted for achieving a share of North Sea oil. This is one reason why the PAC suggested for consideration by the Government a quantity tax on oil.
There is another point. The right hon. Gentleman says that he follows the argument of the PAC on the subject of an administered price, a matter on which we were following an indication of the thinking of the Inland Revenue. We do not know what the administered price will be, and that again will determine our share of the profit.
There is the fact of tax losses. Tax losses, the right hon. Gentleman tells us, will be dealt with in so far as North Sea oil is concerned. There will be an administered price which will deal with current losses, and accumulated losses will be segregated and will not be used against profits accruing on North Sea oil. That is fine and interesting, but I remind the Government that the problem of these artificial tax losses arising from the posted price system began to make its impact on returns to the Government, on the consciousness of the Government, in 1965 or 1966. Before then, in April 1964, the Inland Revenue had recommended to the Ministry of Power that, due to double taxation agreements and other causes, if the Ministry wanted to get a right, reasonable and rapid return on the exploitation of the North Sea, it should not rely on profits tax, as it was then, but should go for a variable rate of royalties. That advice was, I think wrongly, not adopted in the policies which were actually followed.
Thus I am not certain that dealing with this tax loss situation in the way in which the right hon. Gentleman evidently intends to do will ensure that we get the rate of return on North Sea oil that we should—although, of course, if he deals with it in the way he has suggested, that will be of great assistance.
I now come to the third point about this expected share of profits, the subject of capital allowances. This is, of course, technically another form of tax loss. At the moment capital allowances are very generous. During the proceedings of the Public Accounts Committee we clearly did not press the Inland Revenue representative to give us information about individual companies. Questions of confidentiality were involved. Nevertheless it is believed that tax losses and capital allowances are, to a different degree, of different importance to different oil companies. It is suggested, for example, that the tax loss situation acts primarily to the benefit of the British oil companies, while capital allowances have protected the foreign oil companies.
The question is, how long will capital allowances on the activities of these companies continue to protect them against the payment of tax and what sort of capital allowances will these be? The report shows that these capital allowances will, according to estimates of the Department of Trade and Industry, offset tax for some years to come. It is estimated, for example, on what the Department regards as a likely assumption, that in 1975 no tax will be paid because capital allowances will be enough to offset the payment of tax.
There is a further assumption, that by 1980 capital allowances will have been exhausted. That is a very happy assumption from this point of view. I do not know what sort of major industry it is with a continuing and active existence that is likely to exhaust its capital allowances by 1980, but if those allowances continue as they are likely to do they again offset taxation.
The question is, capital allowances on what? If it is capital allowances on the exploitation of North Sea oil, there is justification for this. But if it is capital allowances on other activities of oil companies, I become rather sceptical about what the actual corporation tax return to this country will be.
The Committee noticed that the Inland Revenue representative. Mr. Lord, to whom I must pay a tribute for his very clear exposition of the present position, was rather resistant to the idea that, in allowing capital allowances against profits accruing in the North Sea, one should ensure that they are related to North Sea activities and that capital allowances, for example, on tankers, which may be totally irrelevant to those activities, should not be allowed. That idea received some tentative resistance when put to him. Nevertheless, questions like that will determine to a great extent the rate of return that we get from North Sea oil.
These are the reasons why I am sceptical and why I doubt, even after the Chancellor's statement, whether we will get an effective 50 per cent. corporation tax payment on profits accruing from North Sea activities.
The assumption that we get a total of 55 to 60 per cent. share of profits—compared with the Norwegians' 55 to 80 per cent.—is dependent on our actually achieving that. It seems on the face of it unlikely that we will. Again, this is one of the reasons which led the PAC to suggest that, important though it was to correct the tax loss situation, this was not in itself enough. All that the right hon. Gentleman referred to in his Budget Statement was this specific element in the existing problem.
There is another factor which the Chancellor did not mention and which I hoped that the Secretary of State for Trade and Industry might have mentioned yesterday, but he did not—that is, the fourth round. There is no doubt that serious mistakes were made in the fourth round. The financial terms on which it is based were inadequate and are now admitted to be so, although there may be disagreement about whether they were inadequate to a small or a large degree.
The size of the allocation was too great—unnecessarily great—to achieve the object of the fourth round, which was to restore impetus to development in the North Sea. As a result of the extent of that allocation, valuable properties were allocated on inadequate terms. Doubt has been expressed as to whether the PAC was right to say in paragraph 87:
with the result"—
that is, the result of licensing up to now—
that the most promising areas of the North Sea have already been allocated on the original terms.
Doubt has been expressed as to whether we were right to say that the most promising areas of the North Sea had been allocated. In saying this we were following the view of the representative of the Department of Trade and Industry. Very valuable properties have been allocated for a very long period ahead on inadequate terms. That is the next thing about the fourth round.
The third thing is that there was no carried interest, despite the noted difference, the difference which the Department claims to have seen between the fourth round, which was expected to produce oil, and previous rounds, which were mainly concerned with gas. At any rate, when we were dealing with gas the public interest had the protection that gas for fuel had to be sold to the Gas Council and that therefore there could to be a price negotiation which could be related to the size and economy of production of the particular fields which were discovered.
There was that degree of protection for the public interest as regards gas, but in oil there was no such protection. Oil is not subject to any such controls on its sale. The profit to be made on any particular discovery would clearly be related to the size of any field and the economy of production in that field, without any control in the hands of the Government to ensure that the public themselves received a higher reward than they would have done by way of royalty on a more extensive field.
This was a serious error, and obviously there should have been a carried interest. There should have been a possibility of renegotiation when the actual results of exploration were seen. This was not done and, I repeat, valuable properties, perhaps the most valuable, have been allocated for long periods subject only to the provision that after six years half the allocation must be returned, on terms which are inadequate. What do the Government intend to do about these serious errors? Again, the Chancellor of the Exchequer did not deal with this problem.
There is finally the question of responsibility. The Public Accounts Committee acts within its remit but hon. Members of this House, speaking in this House, are entitled to refer to the events of the summer of 1971 when these decisions were made and to say that there is here a problem of responsibility, and a problem of responsibility on which nothing has been said so far by the Government.
There was a problem which the Department of Trade and Industry created for itself. Instead of having the tender experiment before the fourth round so that it could learn from it, the Department had it contemporaneously with the fourth round. As a result, when the tenders were opened and the Department was surprised to see the extent of the offers—the £135 million offered by way of tender and the £37 million worth of successful tenders, as against the £3 million nettable against any royalties which were to come in from the other 286 blocks—it had the problem of whether to go on with the offer set out in the original announcement or whether to think again.
It is extraordinary that in a situation like that, without the least consultation—with the Treasury, for example—a decision should have been made to go ahead without any legal commitment whatever. Ministers were told, but evidently Ministers said nothing. There is here a question of responsibility and it is a question that has not been answered by the Government: how a decision of this importance could have been taken in this way. I say that there is much here to answer for.
Perhaps the Chancellor or his colleague will be able to respond in some degree to the questions I have put so as to provide greater clarification of what is intended by the Government and the degree to which it is intended to follow the recommendations of the Public Accounts Committee. On the basis of the words that the Chancellor used on Tuesday, all I can say is that he has not yet faced up to the full problem as revealed by the Public Accounts Committee.
I wish to join the two previous speakers in congratulating the hon. Member for Dundee, East (Mr. Machin) on his maiden speech. I regret that he is not in his seat at the present time. The sincerity of his speech was obvious, I think, to every Member present on both sides of this Chamber. He mentioned that politics are about people, and how right he is, and how often that is forgotten in this House. Perhaps because of the size of the bureaucratic machine, the amount of form-filling, the amount of red tape, to many people politics seem very remote, almost divorced from people, their needs and their aspirations.
The right hon. Member for Deptford (Mr. John Silkin), who rose first for the Opposition today, mentioned that Jack Jones had advocated a £10 pension for a single retired person. I hope that he would concede that it is not the amount of pension that is important; it is what that pension will purchase. He will surely agree that this is what the Government's counter-inflationary policy is all about—protecting the purchasing power of the income, particularly of the retired and those on low fixed incomes.
During the past two days we have experienced the usual drama in the media and in this House which follows the Chancellor's Budget Statement. The circus goes something like this. The Chancellor delivers a first-class speech—and I congratulate him on the speech he delivered—assessing the financial state of our nation. In the course of it he mentions a number of detailed changes which are to take place in tax and allowances. These details become what I would describe as red star headlines in the newspapers and on television. In the meantime, every hon. Member of this House pulls out of his speech a list of special red star items which he would like to see in a Budget, and their omission from this particular Budget is made to seem much more important than what the Budget actually contains. I want to set quite a different pattern in my contribution to the debate today.
In our nation we now face very grave problems indeed, problems which have almost overshadowed this year's Budget. The Chancellor has delivered it in between crisis meetings on the international monetary situation. These debates take place between crucial discussions about measures to combat inflation in this country. It is vital, however, that the principles which have guided this Government's financial policy and which the Chancellor carried forward in this Budget should not be overshadowed.
I agree very much with my hon. Friend the Member for Horsham (Mr. Hordern), who indicated very clearly that in his opinion it may well be necessary in the future to expect more than one budget each year because of the rapid changes in the international economic scene.
The majority of people in my constituency of Macclesfield and Congleton and in the country at large are beginning to be aware that there are issues at stake in the problems which confront us both nationally and internationally that are bigger than any of the detailed matters which have been the subject of this debate so far. They are concerned not with carping criticism but with the positive need for action by the Government of this country on the very broad issues.
The great thing about this Budget, in my estimation, is that it is shining with positive principles on which the future of this country can rest soundly. The Chancellor concluded his speech by referring to
a new wealth and a new strength"—[OFFICIAL REPORT, 6th March 1973; Vol. 852, c. 280.]
through economic expansion. He has shown himself determined that steady growth in the economy will be achieved despite all the difficulties and the pressures that exert themselves to the contrary. It is no mean achievement, bearing in mind the record of the late 1960s, to achieve a real growth rate of 10 per
cent. in three years of service. It is a fine record.
More than ever before, people want to understand what is happening in the economic sphere. Too often it is too complicated and is not explained sufficiently. They want to know what is being done about our urgent problems, and they want to feel that the Government are taking steps in their long-term interest. A real income improvement of 10 per cent. in three years is not news. On the other hand, an inflationary wage award of 10 per cent. is news. A price increase of 10 per cent. is news, but a price reduction or a price pegging is not news. It is high time that our sense of news value in economic terms was adjusted so that people knew that good things were taking place as well as bad things, and just what good news means.
The other day I heard a story of a man who was a member of a white-collar union and suddenly found that he had been given a £700 rise which he did not expect and, basically, did not want, although, having been given it, he was naturally not prepared to go without it. He had that rise because his union had negotiated it for him. He thought—and I agree—that it was nonsense. It is a serious blot on the way in which we handle our wage negotiations, especially when comparing that man's case with that of another man with a family whose earnings are insufficient to provide adequate food and shelter for his dependants.
The point I am trying to make is that this man had a certain way of life and a certain income which he was used to. Certainly he was quite agreeable to receiving an adequate increase in his salary, but he did not know what to do with that very heavy increase, which would obviously alter his whole way of life.
I am sure that the vast majority of people will echo what has been said so often in the House by my right hon. and hon. Friends about militancy in wage negotiations. It does not pay in the long run, or even in the short run, because of the consequences in terms of unrest and frustration in so many sections of our community.
It is heartening to hear these major issues being tackled firmly by the Chancellor. It is even more heartening to see three important principles emerge in the Government's philosophy for the future. These principles which I discern are that one wants taxes that people can understand, personal thrift rather than compulsory controls, and the nation's care to be concentrated on those who really need it.
The point about tax should be clear to everyone. Once the new unified personal tax system has settled down people will find it very much easier to follow and to understand. The same will apply to VAT and to company taxation. Of course, there will be problems. There are still some items on which we shall continue to press the Government for different ratings. I entirely agree with the hon. Member for Dundee, East, who said that he would like to see all aids and equipment for the disabled zero-rated under VAT. I hope that the Government will be prepared to make further concessions for genuine charities, and that in a future Budget they will be prepared to make further substantial concessions for old-age pensioners, and those old-age pensioners with small private unearned incomes, for they have shown thrift during their working life, and I hope that the Government will be prepared to help them.
On the subject of thrift, I was delighted by the Chancellor's imaginative scheme to enable employees to buy a stake in the company for which they work. I do not go along with the cynicism expressed about this by the hon. Member for Glasgow, Kelvingrove (Dr. Miller). I hope that this scheme will be taken up on a massive scale. However, I feel sorry for those who work in the nationalised industries, because this opportunity to feel a real part of the enterprise for which they work will not be open to them, at least for the present. Perhaps by next year the Chancellor will find some means of extending this important principle to the staff of our nationalised industries, who are a very important part of industry.
My constituency is in Cheshire, and not just a little of the traditional northern thrift survives and flourishes in that area. My constituents are very pleased by the Chancellor's boost to savings, both personal and corporate. I am not so sure that all my constituents would have opted for the extra 25 £1,000 premium bond prizes each week. I suspect that some of them would have liked a greater number of smaller prizes. When one is encouraging thrift, one does not want to feel that the achievement of a secure financial boost can come with an easy gamble. One wants it to come from hard effort properly rewarded.
Finally, I come to the subject of care for those who really need it—the old, the disabled, the chronic sick and others. On this matter no Government could have done more to try to identify those who really need help. When one looks at the list of beneficiaries under the new measures announced in the Budget, it is surprising how near the mark many of the aids will go. The old, who suffer from inflation more than any other group, will receive both a reasonable pension increase and tax reductions. I wish that every trade union leader pressing an inflationary wage claim would give just a thought to those former members of his union who are now retired and will suffer from any success he has in pushing up wages.
Then there are the homeless. I welcome very much the Chancellor's promise of measures to deal with those who hoard building land and push up prices, exasperating and frustrating the home buyer. This is the better way of dealing with house prices; not levies or other measures which fail to get at the root of the problem. It is just a lack of land where bricks and mortar can be put together to form a house. It is the shortage of building land which is the desperate problem in Britain at present.
Families are also in need of help. A rise in retail prices affects the single man once but affects the family in a multiple equal to the number in the family, especially when there is only one wage going into a particular household. The zero-rating of children's clothes and shoes, together with sweets and confectionery, should all mean some relief to families.
I particularly welcome the concessions on children's clothes and shoes. Indeed, I strongly opposed the imposition of VAT on those items right from the start. My right hon. Friend the Chancellor has clearly shown that he possesses not only a heart but also a soul. In due course, the tax credit system, which has received substantial mention in the House, should help all families even more. In the meantime, family income supplements are to rise again. This is a fine example of selective help, help for families who really need it.
In conclusion, although there are still vast difficulties ahead of us, the need at present is to tackle the fundamental problems of our economic situation. We must win through. Surely that is the message that goes out from the Chancellor. We must win a victory over inflation. We must ensure that those who need help are the people who receive assistance from the State. We must encourage the country as a whole to work for and to earn a stake in national prosperity, and all of us as individuals must be put into second place for a change, because the interests of the country as a whole must be put first.
I shall not take up all the points raised by the hon. Member for Macclesfield (Mr. Winterton) but I wonder about the man who got £700 without really wanting it but took it nevertheless.
The only other matter on which I would comment is that the relief on zero-rating of VAT on children's clothes is, of course, welcome. It came as a result of a considerable pressure in the country and after a special debate initiated by the Opposition. It has not been achieved easily, but the situation is just like that of a man who keeps hitting his head on the wall and finds it so lovely when he stops. This simply carries on the tradition of not taxing such a commodity. It is welcome, and probably will go on to apply to approved children's footwear as well.
I will start as I intended to start yesterday. I was waiting to take part in the debate but was called away in a hurry. I want to comment on the remarks of the right hon. Member for Devon, North (Mr. Thorpe), the Leader of the Liberal Party. I do not apply my comments to the right hon. Member for Orkney and Shetland (Mr. Grimond), the former Leader, whose contribution this evening was excellent. It is, however, necessary to rebut the essential part of the remarks made by the Liberal Leader about the Labour Party. My hon. and right hon. Friends should pay attention to what is being said by the Liberal Party in its attempt to gain favour at all costs in the by-elections from the spreading of an erroneous attitude of this kind.
I can only assume that in his position of responsibility as leader of the third political party in this country the right hon. Gentleman measures his words when he prepares them. Yesterday he said:
Let us remember that it is not the Labour Party which is interested in the plight of the lower-paid worker. The Labour Party does not care a damn for the lower-paid worker. It will back every claim for £15 and £20 a week or more for people earning £36 a week, but not for the 3½ million people earning less than £20 a week, not for changes in the differentials which would bring up minimum earnings of the lower-paid worker. The Labour Party today is the party of higher-paid trade unionists."—[OFFICIAL REPORT, 7th March 1973; Vol. 852, c. 472–3.]
He said that while surrounded by my hon. Friends who come from unions which represent some of the lowest-paid sections of industry. But for that they might never have been in the House at all. They are trade union Members of Parliament who cater for the interests of some of the lowest-paid workers in the land. The Labour Party, as distinct from the Labour Government, is a party which is an entity, as we know from history, which is made up so much from its connections with the trade union movement.
The trade unions are affiliated to the Labour Party and donate towards its political funds. Certainly some trade unions cater for some of the highest-paid workers—the technical and Civil Service workers—but the whole fabric of the Labour movement, its traditions, the type of Labour Party we are likely to get and in the end the type of Labour Government that we are likely to get show that the assertion of the Leader of the Liberal Party is absolute nonsense. I do not apply these remarks to the right hon. Member for Orkney and Shetland, who sits here in such distinguished attire.
It was necessary to refer to the Liberal Leader's speech because I do not believe that any serious Liberal could say that the Labour Party, because of its fabric and its content, has lost its sense of compassion. In the same speech the right hon. Member for Devon, North paid tribute to the manner in which Labour Members had zealously fought for improvements in the old-age pension. I hope that my remarks have done something towards rebutting the right hon. Gentleman's allegation on wages.
We are dealing this year with two new circumstances surrounding the presentation of the Budget. The Budget is early, and that has given rise to a great deal of speculation in the commercial world as to why that should be so. We can only put two and two together and assume that it has something to do with an early announcement about the new, revolutionary VAT. We may be facing another Budget, and perhaps it would not be nice to have one in May and a second in June. We all feel that this is the first perhaps of two, three or four Budgets. There is nothing particularly holy about having an annual Budget so I shall not denigrate the Government at the prospect of having more than one Budget a year. That has been a feature of this administration, and, because of the significance of the changes we are going through as a result of joining the EEC, and as a result of many of the imponderables that we face, it may be necessary to have more than one Budget. Therefore, it was necessary to bring forward what the Chancellor called a neutral Budget. In spite of the speeches we have heard this evening from Conservative Members, there is no euphoria about the Budget anywhere. It is regarded simply as a holding Budget, in the business world and by people in general.
The Chancellor announced improvements in social services which are to become operative in the autumn. I know that it is not unique for a Chancellor to announce social service increases to take account of the cost of living in a Budget in April or May to be operative six months later. This year the Budget was earlier, which makes the announcement of the changes to be made in October that much more ironic to most of the people concerned who know full well that there is a great likelihood, as was accepted by the Secretary of State for Social Services, of a "limping" economy. The Secretary of State used that word in contrast to the remarks of the Secretary of State for Trade and Industry yesterday, who said that we were in the throes of a considerable boom. I did not take down the words of the Secretary of State for Social Services exactly, but he used the word "sluggish" or "limping" and he indicated that he was not too happy about the economy. That is why he was boasting about the level of social service benefits.
I am dealing with the practice of announcing increases that are to take effect in October. It is not necessary to announce them on Budget day. It is the practice but there is no need for it. The Chancellor took the opportunity to do it, but he does not have to. His doing so makes the debate one not only about the state of the economy, fiscal movements, investment incentives, the level of savings and all the rest, but also about the social services. I am not complaining about that.
What is overdue, and should not be further delayed, is the gearing of the basic retirement benefit to the national average earnings. Through the years the single person's pension has been about one-fifth of national average earnings and the couple's pension has been about a third. There is an urgent need to upgrade it to about a third for a single pensioner and half for the couple. I believe that a future Labour Government will address their minds to the matter urgently. It is one of the first essentials of domestic policy that I hope they will carry out.
One Conservative Member has talked about the unanimous approval of the Press for the Budget. I am not so sure about that, because I have not read all the newspapers, but I know that the poverty lobby has said that the Budget gives no real improvement to the people it is concerned about. It says that it contains nothing of significance for poor families, and that the pension increases do not match the levels set by the Government for phase 2 of their counter-inflation policy. The Price and Pay Code related to phase 2 allows for an increase of £1 plus 4 per cent. to be negotiated between trade unions and employers. It does not seriously aid the low-paid workers. There is no big break through for the poorest.
A malady of British society is not that we have rich and poor but that the rich are too rich and the poor too poor. The nation as a whole understands that. That is why the Government, in the throes of industrial upheaval, are receiving such a poor vote at the by-elections. Although the people are not yet enamoured of the Labour Party in the sense of switching over to it at this period half way through the Government's term of office, if they were greatly upset with the workers who are on strike, and thought that their method of protest and their case were unjustified, that would be reflected in the by-elections in a way that has not happened. The Labour Party has been reeling from its experience of the operation of policies that I and many of my hon. Friends criticised. I believe that the party will rapidly be on the road to recovery.
Unlike the right hon. Member for Orkney and Shetland, I do not believe that the Conservatives have abandoned the market economy. We do not yet know exactly what phase 3 will bring, but the Price and Pay Code is hedged about by so many variables concerning dividends and distribution, price control and permitted increases and decreases that I cannot regard it as an abandonment of the market economy. I do not think that the conditions are right.
I do not believe that the Government are consciously driving towards the corporate, Fascist State either. Their policy is symptomatic of it, but I do not believe that there is a conscious drive. That is not to say that there are not many Tories who hanker after such a development But I do not believe that the Government have the will or the strength to try it on, because the end of the road is more and more conflict and the necessity to call on armed bodies of men. I do not believe that the Government intend to follow that road all the way, or that if they do they will be able to command the necessary support to create a corporate State in which everything is done exactly according to a finely-drawn norm.
On the contrary, the Government are mainly victims of muddle. They do not know whether to bash the unions or woo them. The hon. Member for Harwich (Mr. Ridsdale) cooed about the unions and then denigrated them, running down some of the finest leaders that the trade union movement has ever produced.
Of course, the trade union movement is interested in conquering inflation on behalf of its members. It has no vested interest in inflation. It is concerned about the effects of inflation on the aged, because those hardest hit are mainly the unions' kind of people, the ex-trade unionists, some of them still retained in membership. The unions have a direct interest in countering inflation.
It is the Government who have made a mess of achieving the willing cooperation of the trade union movement by their methods. First, there was the statutory bashing system of the Industrial Relations Act, which has fallen into disuse but has helped to create the present situation. Trade union militancy stems from uncertainty about the Government. That has brought into militant action thousands of poorly-paid workers, many of whom have never, or not for a long time, taken the militant action that they now feel obliged to take to demonstrate their case.
The Government, by this year's Budget, their clumsy Industrial Relations Act, and their counter-inflation measures taken without the willing consent of the trade union movement, are doomed to failure. That failure will re-create a Labour Government, which I believe will learn from many of the mistakes of 1964–70. I think that they will be a forward-looking Government on social policy and will win the good will of the trade unions and create the human cooperation in industry that is so desperately needed.
I shall not join the hon. Member for Southall (Mr. Bidwell) in his argument with the Liberal Party. Its representatives here have departed once again, so we shall leave them to fight their own battles.
In the last part of the hon. Gentleman's speech I wondered whether we were taking part in a debate on the Budget or the Queen's Speech. The hon. Gentleman's comments on the unions and the so-called union-bashing and union-wooing by Conservative Members were somewhat ironic. Many Opposition Members are sponsored by the unions and believe that they must support them, right or wrong. We had a good example in the hon. Gentleman's speech.
We have also had the usual mixture of envy and hate, to which we become so accustomed—the usual idea that the poor are too poor, with which we agree, and that the rich are too rich. Although we did not hear it from the hon. Gentleman, we hear from many Opposition Members how taxation has been reduced for the rich. It is never put in proper perspective. We never hear from hon. Members opposite how a rich man living on personal income has to pay 90 per cent. of that income in taxation, the highest rate of taxation of almost any country.
I would rather confine my remarks to my feelings about the Budget. I congratulate my right hon. Friend the Chancellor on being able, during what must have been a busy, trying and eventful week, to come here and make a two-hour speech which held the House in raptures. [Laughter.] Hon. Gentlemen opposite love to laugh at these remarks, but can any of them say that during that speech they were looking at their watches and wondering when my right hon. Friend would stop, as they do when I speak?
The hon. Member has a sore sense of humour.
Any Chancellor faced with our present industrial troubles might have been tempted to produce a timid Budget. My right hon. Friend the Secretary of State for Trade and Industry gave us a good example of how the country is experiencing a boom period, yet many people do not appreciate this. How many people realise just how well the economy is expanding? If that were not the case, my right hon. Friend could not have produced a Budget of this nature. We always find that under a Socialist Government savings fall because people do not have faith in the future. Under a Conservative Government savings rise and taxes fall. That is happening now.
What was most imaginative about the Budget was the way the Chancellor introduced his scheme for savings in industry. I have now left all my companies. I have no direct interest in them and I speak perhaps as an elder statesman of industry. I have always believed that employees should have a stake in their own company. The Chancellor has put forward proposals which will allow employees to have such a stake. It was a pity that the BBC should have got it wrong and dwelt on the fact that the people who had put money into Rolls-Royce had lost it. No broadcast which I have heard mentioned the fact that if an employee's share fell, he could get his cash back. That is a bold idea. I am waiting to hear how, if a company goes bankrupt, the loss is made up to the employee.
If employees are allowed to buy shares at 70 per cent. of the market value, and it is right that they should have an advantage over outside shareholders, I am not clear about who will lose as a result of the 30 per cent. difference. Will it be the Government? I doubt it. Is it the other shareholders? I expect so. This being so, there must be a limit to the amount of shares that employees are allowed to purchase.
Everyone must have realised that industry was waiting to hear how VAT would affect foodstuffs. This was one of the main reasons for an early Budget. Another, as my hon. Friend the Member for Macclesfield (Mr. Winterton) pointed out, concerned the old-age pensioners.
A constituent of mine is building up a business in frozen yoghourt. He made representations to me asking that this should be freed from purchase tax. It was found that that could not be done. I was extremely worried because this is a new industry which could become a considerable employer of labour in my area. The Financial Secretary allowed my constituent to talk to Customs and Excise about distinguishing frozen yoghourt from ice-cream. Believe it or not, all the brains in the Customs and Excise and in industry could not tell or smell the difference between frozen yoghourt and ice-cream. It looked as if this would be taxed, but now this is not so and I hope that it will lead to an increase of employment in my constituency.
I welcome the relief given to charities in the Budget. The fact that £50,000 may now be given to a charity free of death duties is an important contribution. There is also the point about covenants. I remember, at a trustees' meeting, discussing the fact that the lower the tax rate, the less benefit charities obtained from covenanted subscriptions. The Chancellor has appreciated this point and has taken the trouble to ensure that charities do not suffer. They ought to be grateful to him.
I am Parliamentary Private Secretary to the Secretary of State for the Environment, a fact which seals my lips on matters affecting that Department. It is a matter of great pleasure to me that I hold that position but it is also a matter of regret that I can no longer take part in debates affecting the Department.
Another concession which has not had much publicity relates to valuation for estate duty. I raised this matter with the Chancellor about nine months ago. How many people realise that if a man dies during a takeover bid for his shares in any undertaking, his widow can be left bankrupt if within three months the takeover bid is dropped? I know of two instances when people have died when the value of their shares was high. In one case the man was liable to 80 per cent. estate duty. His shares fell by 30 per cent. His widow, who had worked hard with him to build up the business, was left very short of money. She had to pay more in death duties than she obtained from the sale of the shares. That is a gamble, and it is not right that there should be a gamble when a man dies. We cannot stop him dying—that is an act of God—but we can see that his wife does not suffer as a result.
The Chancellor has made this great concession. He has also made alterations in the tax laws which people have said it was impossible to make. But he has allowed this concession only on public, quoted companies. I ask him to think again on this. I have no private interest and it does not affect me personally. A man may have built up a private company of which he is the sole proprietor. If he dies, because he has been the sole proprietor the shares drop a great deal. This means not only that his widow may be left with no money but, more serious, that the business has to be wound up.
I know from my own experience of a man who ran a large shop and owned all the shares. When he died the business could not continue. The shares were valued at the time of death but by the time the business was sold the value had halved. Arguments are still going on about this with the Inland Revenue. That business is closing down and its employees are being put out of work. That is not what is intended, even by the Opposition.
This is a good Budget which depends on the expansion of industry. As a nation we have to go on expanding to be competitive. If we are not competitive we cannot export. If we cannot export we cannot expand. I am reminded of the old game we used to play in the fairground. One wound a handle and a monkey went up the stick. If one wound the handle too quickly the monkey went down the stick. It is as simple as that. On whichever side of the House we sit, we must tell our constituents that the country can expand and that we have a great future provided everyone is prepared to pull his weight and not be selfish in his demands.
I hope the hon. Member for Folkestone and Hythe (Mr. Costain) will not mind if I do not follow his argument about frozen yoghourt. It seems to have tremendous importance, as it was even mentioned by my right hon. Friend the Member for Leeds, East (Mr. Healey) in a different context. I remember that when as a candidate I fought the hon. Member for Folkestone and Hythe in the 1966 General Election the subject of frozen peas made in the Birds Eye factory which lies behind Folkestone was a subject under discussion.
I should like to concentrate on one subject which has not been discussed at length, and that is the subject of savings, especially national savings. Hon. Gentlemen on the Government benches pay lip-service to the national savings movement. Given the level of investment and the level of consumption at the moment, it is important that we should increase the opportunities available to people to save and the level at which they save.
I am conscious—as any hon. Member who represents a predominantly working class constituency must be—that the national savings movement and the building societies are the two main repositories of working class savings. Equally, I am aware that many people put a great deal of voluntary effort into organising national savings. In view of all this, one would expect the Government to give the people who put their money into national savings a fair deal, but fairness is the last description one can apply to the present system.
The national savings movement as at present constituted is nothing less than a confidence trick. Far from being the ideal vehicle for the small saver, it is the ideal vehicle for the surtax payer. As national savings do not attract income tax or surtax, they are a marvellous investment for people who would otherwise have to pay 75 per cent. on anything they save or earn.
The absolute rate of return on the money invested in national savings is far lower than any middle class person with decent professional advice can obtain elsewhere. The ordinary person who does not have access to that advice once again loses out. The rates of return are so low in relation to the price increases we are experiencing that ordinary people who invest in national savings are paying the Government for the privilege of having their money borrowed.
The Government are trying to do something about this. One passage in the Chancellor's speech was devoted to improving national savings, and he put forward one or two new ideas. One was for a new British savings bond, the attraction of which is that the rate of interest is to be not 7 per cent. but 8½ per cent. I should tell any working class constituent who asked my advice on investing in this new savings bond not to do so, as he would get a far better return on his money by putting it into Newcastle Breweries' debentures with a return of 10 per cent.
Another new idea in the Budget statement is to improve the premium bond by one-eighth of 1 per cent. What sort of figure is that with the present rate of inflation? Behind the prizes won by premium bond holders there is a notional rate of interest. I cannot remember exactly what it is, but it is about 5 per cent. One can imagine an ordinary working man and his family living in a council house having a few pounds in premium bonds, hoping to win a prize. In effect, they are being paid a 5 per cent. notional rate of interest by the Government. The Government borrow that money from them and pay it out through the Public Works Loan Board at 9 per cent. to the local authority to build more council houses. In addition, that working man is charged the fair rent—a profit rent—for living in the council house. Exploitation of the worker could hardly go further than that, but he does not realise it. Again this is not an improvement which merits consideration in terms of the sort of inflationary situation which faces us today.
The other so-called improvement announced by the Chancellor in national savings terms was that he graciously allowed anybody investing in the scheme to take up not £1,000 as a maximum but £1,500. Again the City stockbrokers will immediately rush to fill their portfolios on behalf of people who are earning salaries at surtax levels and will immediately benefit from this new maximum, and they will include within the scheme wives and children, because they can well afford to do so. It is an immense advantage to somebody who otherwise would pay 50 or 60 per cent. of his income to invest in tax-free savings concessions. This fundamentally will be a concession to the surtax payer and not to the ordinary working man.
The Government will probably argue that national savings are at their highest level, and so they are. The reason why people are putting their money in national savings is that they are anxious about the lack of security in the general economic situation. I do not believe that this excuses the Government for giving the people this remarkably low rate of return on their money by comparison with the surtax payer.
We have talked about equity, and there is a similar situation in terms of savings. Even in an area of savings which is said to be designed to attract the ordinary working man, what has happened is that it will be of immense advantage to the surtax payer and, in effect, will be a confidence trick on the ordinary working family.
The Chancellor said in his Budget speech that Sir Harry Page has been looking at the whole subject of savings and will be reporting shortly. I hope that when he does report Treasury Ministers will pay close attention to what he says.
I wish to advocate two things to improve the situation. First, I believe that there should be an annual uprating of the savings certificates to account for inflation so that the rate of interest given to the ordinary saver is a true return on his money and not merely something to counteract depreciation of the currency. This principle of an annual uprating has been conceded in other areas such as pensions, and I see no reason why it should not be applied to savings which are desperately important for people on lower incomes.
Secondly, I hope the Government will be far more flexible in their approach to issuing new tranches of savings and types of savings. Usually there is an announcement in the Budget and then nothing happens for a year. In the meantime interest rates have risen and the person who has taken up the investment loses by comparison with the rate of price increases This is an area of activity to which the Government appear to attach importance. The system operates unfairly at present, and this is something we must put right regardless of the Government in power.
I should like to turn to one or two more general matters. The most perceptive comment about the Chancellor's record in this and previous Budgets was made by my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon). He said that the Chancellor was far more interested in taxation than he should be, and interested to such an extent that he neglects the general management of the economy. To be fair, I think that this has brought us some advantages. We should have had the simplified tax system a long time ago, and I congratulate the Chancellor on having introduced it. Things will be a great deal simpler for the ordinary person who wants to know where he stands in the payment of income tax.
But the reverse side of the coin is equally plain. There has been huge unemployment, followed by a huge consumer boom and, if all the projections are right, this will be followed by a huge balance of payments deficit, accompanied throughout by huge increases in prices. This sort of see-saw, even by post-war standards, is the consequence of the Chancellor's neglect of simple economic management. The Chancellor has concentrated on taxation changes to the general detriment of the economy as a whole. Furthermore, as my right hon. Friend the Member for Leeds, East has pointed out, he has chosen an appallingly bad taxation philosophy—a philosophy totally out of gear with what is now needed for the fair management of the economy.
The Chancellor has given away too much to the wrong people at the wrong time and for the wrong motives. But now that he desperately needs to give something away to make his incomes policy work, the cupboard is practically bare. This has been the constant refrain of Conservative Members in this debate. They say that the Labour Party is always advocating more family allowances or a halved rate of VAT or some sort of food subsidy; but, they ask, how can we do this when we have £4,000 million of Government deficit on our shoulders? Indeed, how can we?
It is fair to point out that this is a problem of the Chancellor's own making. The present deficit is not something with which he can say the Labour Government left him. In fact, while the Chancellor has been in charge the deficit has risen to the colossal sum of £4,500 million. It is fair to argue that if Labour is asked "Which turning would you now choose in the economy?", we can use the classic argument "We would not start from this particular point at all". But what would have happened if, by chance, the by-elections last week had been a General Election and Labour were now sitting on the Government benches? Judging from the way the vote went, we in government would be facing on the Opposition benches Liberals rather than Conservatives.
Yes, it is a terrible thought—we do not choose our opponents.
What would we be doing if we as a Government were facing this situation? First, we could cut Government expenditure. It may surprise the Conservative Members to hear a Labour Member saying that, but there are areas in which we can cut Government expenditure. I take particular pride in having been a member of a committee which has suggested one area in which Government expenditure can be cut. I was a member of the Sub-Committee of the Expenditure Committee which examined urban transport planning, and one of the things we recommended was that all schemes which have not yet reached the exchange-of-contract stage should be re-examined and possibly cut back. Our road programme in urban areas is seriously in question, and we have good environmental as well as economic reasons for wanting to see some slowing down in this area.
Another sphere in which there could be expenditure cuts is defence. It is fair to say that had Labour been in power in the last two years, we would not have tolerated the high and increasing levels of defence expenditure which have been tolerated by the Conservative Government. I am sorry to see that the Minister of State is not now present, because I well remember him as a back bencher suggesting that the Concorde programme could be cut down, or reduced in size, or whatever can be done with Concorde. I agree with that. This is another item which, clearly, has met difficulties, which in my view we should not have started in the first place and which could be cut down. Here are clear areas where we could cut Government expenditure.
Equally, I would not have given some of the incentives and small handouts which the Government have in this Budget. The £110 million resulting from the concessions on confectionery, peanuts and so on is an absurd and frivolous gesture which is totally out of tune with what is necessary at this stage in the prices and incomes policy.
There are other areas where, if the Government intended to give something away, they should have given something sensible away and not these tiny amounts. They should not have given reliefs to higher income earners. I understand, of course, that a Conservative Government could not have gone back on that one—
But my point is that it is absurd to make it on such items as confectionery when we are talking about the huge problems of people having to buy basic foods. A contrast should be made between food in general and this absurd cut on confectionery.
If the Government intended to give something to the people it should have been in other directions. This should have been the last area to be selected. The Government should have concentrated on VAT, food subsidies or one of the other areas which really mattered.
There was an opportunity for the Government to make substantial improvements and to give people something really important in terms of VAT or food subsidies rather than the tiny things that they have chosen to do.
In raising the matter of the tax cuts on peanuts, crisps, sweets and other items the hon. Member for Gateshead, West (Mr. Horam) seems to have missed the essential point that these commodities come out of the budgets of ordinary families. They are not luxury goods. They are paid for by ordinary people. As it happens I do not think that this was necessarily the best possible tax cut, but the hon. Gentleman is missing the point when he implies that it will not help poorer people.
The hon. Gentleman had more of a point on savings. A lot of national savings is more beneficial to richer members of the community than poorer members. The hon. Gentleman had another point when he repeatedly stressed the high rate of taxation paid by surtax payers.
I turn to the speech of the right lion. Member for Deptford (Mr. John Silkin), because I wish to make one or two comments about it. In his speech he deviated from the theme that we have become accustomed to hearing from the Opposition, namely, the theme of public expenditure. Yesterday was public expenditure day for Opposition Members. We had the right hon. Member for Leeds, East (Mr. Healey) saying:
I find it astonishing that the Chancellor had nothing substantial to say about cuts in public expenditure in the Budget."—[OFFICIAL REPORT. 7th March 1973; Vol. 852, c. 446.]
Today the right hon. Member for Deptford reversed that. His speech was concerned with a variety of ways in which social security benefits should be raised and with attacking the selective principle of social security. The logic of what he said was that we should have a universal heating allowance for old people, a universal supplementary retirement pension or an increase in the pension equivalent to it, and a universal family allowance increase equal to that provided by the FIS to the poorest people. However, if we did that it would mean a huge additional burden of public expenditure. The right hon. Gentleman said in an airy way that the £3,000 million that we have saved on tax could be used to cope with this. However, what he said was at variance with what his right hon. Friend the Member for Leeds, East said yesterday and what I suspect the hon. Member for Ashton-under-Lyne (Mr. Sheldon) will say later, because we know that the hon. Gentleman takes a rather different line on public expenditure.
I turn to the substance of the Budget, and I begin by saying that I believe that my right hon. Friend the Chancellor of the Exchequer has proved himself to be an outstanding Budget-maker in all sorts of ways. We are all agreed on the elegance and style with which he presents his Budgets. We on this side of the House are agreed about his political sensitivity, and this is a virtue which I admire rather than deplore. One of the things which characterised my right hon. Friend's approach to taxation policy and which distinguished him from the Labour Party is the belief that the objective of taxation policy as far as possible should be to make people happy, whereas the Labour Party's view is that it should be to try to make people miserable. The Labour Party hankers after the Crippsian approach, and it is never long before one hears evidence of the vindictiveness of the Opposition. This is illustrated by their demand for penal taxation on property developers, not because it has anything to do with making the price of housing cheaper but simply to get at someone.
Another difference between the two sides of the House was made clear yesterday by my right hon. Friend the Secretary of State for Trade and Industry. The Labour Party has given up believing in growth. The reason is that the Opposition now put equality above all else. They would prefer everyone to be poorer and more equal than richer and less equal, and this theme now dominates their approach.
Our policy is quite different. We want everyone to get richer, and the figures prove that this has been happening under the present administration. There was an interesting answer to a Parliamentary Question from the Treasury on 22nd December which showed that at all levels the rate of increase in actual living standards has been dramatically higher under this Government than under Labour. Those with the lowest incomes of all have enjoyed the largest increases. In average earnings the rate of increase has been four times as fast as it was under Labour. That is a tremendous achievement and it justifies our belief in growth and incentives as opposed to the new-found Socialist commitment to non-growth and the obsession with redistribution at all costs.
For that reason my right hon. Friend the Chancellor of the Exchequer was right to maintain tax reliefs at the higher end of the scale while at the same time again providing substantially increased benefits at the other end.
One factor which everyone who is honest must acknowledge is that the record of the Conservative Party in social security over the past two and a half years has been exceptional and that my right hon. Friend the Secretary of State for Social Services has during his tenure of office done more for people who have been in need and hardship than any Minister in history. My right hon. Friend's achievement is outstanding.
Having said all that, oddly enough my only divergence from what my right hon. Friend the Chancellor of the Exchequer has done is in terms of social security where there is a case for an increase in family allowances as an alternative to VAT concessions on children's shoes, clothes and sweets. Even here, my right hon. Friend has a very strong argument for the line of action he has taken and in terms of acceptance of it by the public there is considerable justification for it. We also have a firm statement from my right hon. Friend that mothers will not lose under the proposed tax credits scheme.
I want now to say a few brief words about the overall strategy of the Budget. My right hon. Friend said that his prime objectives were expansion and the attack upon inflation. He was right to say that. But we also need in our policies to place rather more stress on productivity. This is the missing element in the equation. Any question or criticism that I have of the Government's policies relates to this area.
Growth without improved productivity is not enough. The answer to all our economic problems is competitiveness and efficiency. The policy of subsidising industry and keeping jobs in being for their own sake, which we have unquestionably seen to some extent during the past year, is bound to weaken economic effectiveness.
This brings me to the crucial question in this whole area—our approach to unemployment. Our reflationary programme has brought a large and satisfactory reduction in unemployment. That is all to the good. Unemployment is evil. I do not wish to play it down in any respect. But I wonder whether our reflation has been too indiscriminate and whether part of the fall in the unemployment figures has been due to the tendency to use industry as an annexe to the social services rather than a means of creating a more genuinely vigorous economy. I hope that the improvement in productivity which we were seeing a year or so ago will not be damaged by the industrial policies that we have adopted.
The much talked about shake-out which we were all discussing a year ago is desirable—not undesirable—as long as we see it in the context of growth. In other words, we need a balance between growth and greater productivity.
We need to think harder about unemployment. First, we should think much harder about whether people are moving into the rights jobs or staying on working in the wrong jobs. We do not appear to be vigorous enough in saying what are the areas of employment growth in the future. I believe, for example, that the social services represent a big area where additional employment is clearly needed and should be provided. There are other older traditional industries where the opposite is true. It is a great over-simplification to say that we can take up a coal miner and dump him down as a hospital orderly or something of that kind, and I shall not do so. However, we need to consider more seriously whether we can encourage a gradual move out of areas where employment is being extinguished into areas of real need. This would have to be matched by effective retraining programmes.
Secondly, we need greater incentives for people to work. Our policy of not requiring people to move geographically makes sense—it is basically a humane policy—but we are too soft about moving people out of one industry into another. We do not provide enough incentives for people to leave areas where jobs are not coming back and to move into other areas where there are jobs. There should be a clear economic advantage in being at work. One of the merits of the proposals for a £2 flat-rate increase, about which we heard last autumn, was that it could have helped to provide a clear incentive to be in employment. I hope that my right hon. Friends will accept this as a desirable target. I know the objections and problems which arise, but I am sure that we shall not get the mobility of labour that we so badly need unless we are able to show that it pays to move into a viable job.
Thirdly, we must look at the whole question of working life, hours and so on. Even if we get the shift into new occupations, I suspect that in the long run the sum total of work done will tend to diminish.
If we can be more knowledgeable and sophisticated about all these matters we can afford to be more selective in the ways that we help industry. As a result we shall be less likely to find the kind of mass reflation leading to the inflation from which we have been suffering in the last year or two.
Our counter-inflationary policy does not do enough to encourage productivity. This is the area in which it is weakest. I accept the short-term necessity for this policy but I do not see it in the long term as a desirable approach. Industry cannot be expected to operate indefinitely under the conditions embodied in the code. The loss of classical commercial freedom is bound to be damaging.
Frankly, I am not an extreme market economy man. I am a modified market economy man, and I hope that the Government will revert to that belief as rapidly as possible.
The loss of collective bargaining freedom is also to be regretted. I accept the view that this is one of the liberties of the British people that has been built up over the centuries. I agree that in the short term a particular crisis situation may lead us to say that we must suspend this freedom, and it is hard to deny the logic of this during the last few months. I hope that in the long term we shall go back to free collective bargaining. I believe, however, that the conditions must be free and balanced in a way which has not been wholly the case.
Just as we should stamp down on monopolies by employers, so we should be prepared to stamp down on abuses and distortions on the other side of the free bargaining process. For example, intimidatory picketing disturbs the balance or fairness of the free market economy in this respect and should be stamped down. Indeed, I believe that in the long run it would be preferable to do something about supplementary benefits paid to strikers' families than to maintain the kind of controls in our counter-inflationary policy. In other words, I do not think that the counter-inflationary policy is desirable in the long term. Indeed. I do not think that on its own it can do the trick of containing inflation. It will have to be backed in other ways. It will not bring down food prices as much as we would like.
I believe that my right lion. Friend was right to go for the principle of improving family incomes rather than to go for food subsidies. The measures that he is taking to help the elderly and families with children who receive substantial help under these proposals make better sense than an attempt to introduce universal food subsidies, which in the long run could be very damaging. We must realise that if food costs more in the world market, it has to be paid for. There are times when one might as well be honest about things rather than try to cover them up.
Finally, I am sure that my right hon. Friend was right to make it clear that he intended to keep a beady eye on the money supply. When we talk about public expenditure cuts and the money supply, I suppose that we should be prepared to say in which possible area we want cuts to be made. I should be prepared to see cuts in indiscriminate help to industry. Having said that, I hope that it will be possible to avoid a clampdown. My right hon. Friend is entirely right to lay great stress on growth. I hope that we can have growth without in any way diminishing our attempts to improve productivity.
Since the Chancellor of the Exchequer presented his Budget thousands of words have been spoken. It has clearly emerged that this is a "mark time" Budget. When will the real Budget make it appearance? Will it be this summer or just before the next General Election?
The Budget reminds me of the poverty of the 1930s when the women of that era used the pittance that they received to make ends meet. It reminds me of that era because it makes a little go a long way. I do not want to be churlish. I welcome the increase in old-age pensions and unemployment sickness and injury benefits, together with maternity allowances, invalidity allowance and other benefits.
It is doubly welcome that at the same time as the old-age pension has been in creased supplementary benefits have also been increased. That means that an old-age pensioner relying on supplementary benefit to receive a living does not have the increase given with one hand and taken or clawed back with the other. However, we must remember that before any increase can be given there must be a "come from". The move which has been made towards a bigger graduated contribution from employees rather than a flat-rate payment is a proper move. Although it is a small move it is a proper one towards social justice.
No one can object to the zero-rating of kids' clothing. I am sure that the Department will find a formula to ensure that that provision is not misused. I often wonder who is wearing whose clothes. The kids today continue to be bigger, better and brighter than before. After these anachronistic taxes have been removed from sweets, they will be eating so many sweets that they will be bigger than ever. Whether they will become better or brighter is a different thing altogether. The Chancellor should also have zero-rated fresh foods.
A Budget can only be regarded as a good one if it is seen by the public to be fair, and accepted as such. Having regard to the present financial crisis, inflation being at the highest level at which it has ever been, the public will not see it as a fair Budget. Where the Chancellor has gone wrong—and I speak as a fellow Yorkshireman—is in the endorsement of last year's Budget, regarding the £300 million which is to be given to the surtax payers and to people living on incomes received from investment. The ordinary man sees his wages frozen, yet sees other people getting away with huge increases. Some people will be getting more from tax concessions in a week than the ordinary man will get for five or six days' work.
Millions of people have lost from inflation. They have lost in particular from the steep increases in food prices. I have an uneasy feeling that there is not much joy to look forward to in future when the full impact of the rent and rate increases takes place.
What do we have? We have a Budget which has widened divisions and is in direct contrast to what the Prime Minister said at the last General Election. We must ask ourselves certain questions. Knowing the answers and knowing that they will not be accepted by the Government, we may as well ask the Government why they have not raised the threshold of taxation. The Government could have helped the worker who pays a small amount of tax. The Chancellor does not have to rely on what he receives in tax from this category of worker. In fact, he has eroded much of what he gave to them in last year's Budget.
Family allowances would have helped even more. If the Chancellor could not find the money to increase family allowances he could have made a start and paid it to the first born. I have a vested interest because I am a grandfather. An increase in family allowances was promised by the previous Chancellor. I believe that the late fain Macleod would have honoured his pledge to increase them. The division in this country which I have been talking about has led to the current industrial unrest. We have industrial action being taken by workers who, in our most pessimistic moments, we would not have thought would have taken such action—namely, the hospital workers, the gas workers and, last but not least, the civil servants.
I now turn to the increase in investment rates. I know that it is much better in certain circumstances to save than to spend, provided that one has something to save. I take note of the incentives that have been offered. How will they affect the building societies? On listening to the radio this morning and reading the Press—which was more than usual gloomy reading—it seems that the building societies are about to put up their interest rates. If they take that course, it will mean that more newly married couples will be pushed out of home ownership in addition to the newly married couples who have already been pushed out.
One of the most significant factors apart from high interest rates is the price of land for building. Although the land hoarding charges introduced in the Budget will help a little, the only real solution is to bring building land into public ownership. Before any Conservative hon. Member starts to boo, I recognise that that is anathema to the Government. However, it is the only solution.
I have only a few more points to make. I shall speak briefly so that more of my hon. Friends may speak: I do not want any hon. Member from the Government side to pinch time that I could use. I shall not argue about the rate of VAT. As we all know, it is 10 per cent. We would all have liked it to be placed at a lower rate. Any fool can say that.
I have a few questions to ask about the mining industry. There are miners' welfare schemes into which the National Coal Board and the miners contribute. These welfare schemes, which are registered charities, have never been subject to tax. Will they attract 10 per cent. VAT? I hope not. Will the miner home coal schemes, which organise the supply and delivery of concessionary coal to work people, also be subject to VAT?
Up to now they have not been taxed, and I hope that the Chancellor will give this matter serious consideration.
Before we came to this House, my hon. Friend the Member for Mansfield (Mr. Concannon), many other colleagues and I took part in safety drives in the mines. We helped in campaigns to introduce helmets, pads, safety boots and so on. Obiously the object was to lessen the number of accidents and absenteeism through injury and so on. I understand that these appliances are, however, to be subject to VAT. If the Government impose VAT on these things, they will be penny wise and pound foolish. More safety means more production and fewer days lost, and everyone is happier—at least, I hope so.
The Chancellor had a glorious opportunity to do something for sport and has missed it, in spite of our protestations during the passage of last year's Finance Act. He has done sweet nothing for amateur sport, professional sport and semi-professional sport and the non-profit making bodies associated with them. Everyone these days talks about more leisure. We are told that technological aids are making things better all round, with more production and more leisure time. Of course, we have 750,000 people under this Government with more leisure than they want and need.
I am fond of Rugby League football. We also discussed this last year. I assure the right hon. Gentleman that the 10 per cent. VAT will hit Rugby League clubs hard, and one or two might have to fold up. The players are part-timers, and they do not get a big rake-off from the game, which is hard and needs men to play it. Many matches get attendances of 1,500. If this process goes on, we could well be left with no Rugby League.
Through the National Council of Social Service, the National Association of Boys' Clubs has approached the Secretary of State about fund-raising activities—fêtes, garden parties, jumble sales and so on, which raise money to carry on the boys' clubs. These are to attract VAT. Will the right hon. Gentleman look at this again? If he says that they do not attract VAT, we shall be happy.
Again, does the Chancellor realise that it is contemplated that the grant to the Sports Council should rise from £3½ million to £5 million? This is in direct contrast with the Arts Council, which rightly receives £13 million and is to get £17 million. If the Chancellor could double the figure for the Sports Council, it would help it to do more. If he turns a deaf ear to what I have said, what is he going to do with all the money he is raking off with VAT? If he is going to give it to the Sports Council, I will withdraw my application, as it were, and let the Sports Council do the necessary.
Yorkshire has, for all the time I can remember, been the home of the best cricket. On Sundays it can make it pay, but the backbone of cricket is the three-day match, and it is going through a very bad time. The Chancellor should do all he can to help cricket.
So I end as I started by saying that this is, I believe, a "mark time" Budget. I would ask the Minister whether he can tell me when the real Budget is coming.
I am glad to follow the hon. Member for Pontefract (Mr. Harper). In his very agreeable way he started with comments with almost all of which I could agree and appeared to be the sheep in wolfs' clothing that he generally appears in this House to be. But when he came to the middle of his remarks he changed his coat altogether and became a wolf in sheep's clothing, reverting on the question of VAT and sport and becoming a sheep in wolfs' clothing. I have every sympathy with him in his views. If we could have excluded VAT from sports gear and sports goods it would have been a good thing to have done.
I want to speak on the hon. Member's first topic, the social security benefits that were brought forward in the Budget this week. I congratulate my right hon. Friend the Chancellor on backing up so well his right hon. Friend the Secretary of State for Social Services in this way. I believe we have done extremely well this year in making a significant advance in the rates we are giving to the elderly people. It is a very good thing that the pensions uprating has become part of the annual Budget because, first of all, we are so much better able to see the priorities, and we also have to face up at the same time to the cost of these benefits. That brings home to people that we cannot raise pensions benefits without having to find a considerable sum out of our pockets under the present PAYE scheme.
Here, I must admit that I sympathise with and support the view that we should move forward as rapidly as possible to a £10 a week pension for elderly people. I realise that this cannot all be done at once, because that would undoubtedly be inflationary on prices and on the costs of industry. It has to be done at a sensible and reasonable speed. I want to see my right hon. Friend hasten slowly towards this goal of the £10 per week pension. Somehow or other we have to overcome the snag in that, which is that if we raise the supplementary benefit level at the same speed as we raise the old age pension we shall bring more people into the means-tested net. In other words, we shall be blamed for having more people on supplementary benefit as we raise the scale of supplementary benefit. We have to think out more carefully how we are to overcome that. The tax credit scheme will go some way towards doing so, but will not do so entirely.
I believe that during this year my right hon. Friend the Chancellor wants to listen to what his right hon. Friend the Secretary of State for Social Services is saying about doing more for the disabled. We have to make a break through in that line soon. That is the next priority on our social security progress—to do something for the long-term disabled, the civil disabled and the disabled housewife.
I am very glad that my hon. Friend the Financial Secretary is in his place because I wish to pay a tribute to him personally for the way he has conducted the run-up period to the introduction of VAT. I am most grateful for all the intricate letters he has sent in answer to my constituents during this period. It has been an immensely complex operation, I know, and we all owe him a debt in that respect. I am also very glad that he listened to the strong representations from myself and a small number of my hon. Friends on this side regarding VAT being zero-rated on children's shoes.
I was greatly impressed with the evidence given to me by a large shoe manufacturing concern in my constituency that the imposition of this tax would have been a bad thing. I was convinced of that and I went to see my hon. Friend and our right hon. Friend to put that point of view, and I am glad that they took it to heart. I am not sure that it was so necessary for the health of children to zero rate their clothes, but it is a good thing for the health of their feet that VAT is not to be applied to shoes.
I am not so pleased that my right hon. Friend has not been able to find some means of phasing out the changeover to the new system for dealing with unquoted companies. I have in my constituency one of the largest unquoted companies in the country. It was hit hard by the changeover in last year's Finance Act, in which the Government adopted a neutral attitude towards the distribution of profits. It will not be able to put as much aside for reinvestment as it did before, because the money will now be taxed. The firm could not be allowed to get away with it altogether, but I wish that the Chancellor could have phased out the advantages which it had under the old system. I know that it would have cost £75 million to do it all at once, but it could have been phased out over several years.
I congratulate my right hon. Friend on introducing a neutral Budget this year. It seems to me that under both Governments in recent years Chancellors have taken measures and expected them to produce results very quickly, whereas in practice there has been a long pause between cause and effect. For example, I think that a great deal of the unemployment in the last two years was caused by the squeeze under the previous Government. There was a long delay before it became effective.
Because of the various deflationary policies adopted by the Government during the last two and a half years in order to reduce unemployment, a feeling began to develop that nothing was happening. They therefore introduced more deflationary measures, but as soon as they did that the first measures began to take effect. We have perhaps had an overdose of that during the last two years, and that is part of the reason for the mounting inflation. It takes a time for action taken by the Chancellor in his Budget to have an effect. I therefore congratulate my right hon. Friend on giving us a neutral Budget so that the effects of past reductions in taxation and increases in the money supply are able to work through the economy in the coming year. This is a fair Budget, and it will be seen to be fair throughout the rest of the year.
The hon. Member for Wells (Mr. Boscawen) will, I hope, forgive me if I do not follow in detail his moderate argument, but time is short.
What I find difficult to accept about the Government's presentation of the Budget is the general atmosphere of self-congratulatory complacency, when there is no room at all for complacency about our economic situation. The Government's total failure to come to grips with the balance-of-payments crisis which has now developed was conspicuous and disturbing. Many experts are now agreed that the positive balance of payments situation which previously existed may be totally eroded by the end of the year, to the extent of a deficit of between £500 million and £1,000 million.
We should spell out to the country in this debate the hardship, the constraints and the difficulties which will inevitably follow should a crisis of that magnitude occur. The brakes will be applied again and hardship will fall on particularly the weakest members of the community. Yet nowhere in the remarks of Ministers or of hon. Members on the Government side has this point been recognised or the country made aware of the drift in the basic situation.
The other aspect which is disturbing in the presentation of the Budget is the emphasis that hon. Members opposite place on their self-evaluated sense of compassion. I believe that they are seriously misunderstanding the mood in the country if they believe that, even if it existed, compassion on their part would be an acceptable thesis for putting right the basic confrontations and antagonisms which are undermining our economic well-being. We have a very articulate and intelligent population, and that population at all levels is calling not for the compassion of the establishment but for justice in the management of economic affairs.
The hospital workers cannot be blamed for their attitude if, when they are being told that for their indispensable services the nation cannot afford more than a £2 increase, still bringing their basic rate up to less than £20, they are transfixed by the news that there is to be a £300 million tax handout to the wealthiest members of our society. That does not in their view add up to basic justice.
Similarly, when we are telling the gas workers that they must show restraint and moderation we cannot blame ordinary gas workers, who have shown a good deal of restraint over many years, if they take into account the fact that at the very time of their dispute the new head of the Pay Board is appointed with an income of £300 a week.
Even when we consider the Government's own employees, the Civil Service, there is something unconvincing about a situation in which the head of the Civil Service, presumably acting under instructions, writes to the ordinary rank and file civil servants, in the front line of Civil Service responsibility, doing the jobs we have legislated for them to do, dealing with the public, probably in the most difficult situations, and says that militant action is not warranted when many of them know that their total income is smaller than the size of his last increase.
Similarly, whatever the progress for pensioners that we have seen in this year's Budget, we must appreciate why the pensioners do not fall over themselves to express gratitude at the pittance offered to them when they contrast it with the vast profits still being made by the speculators.
I believe that this country has to have a prices and incomes policy, but if that policy is to produce results and be accepted it must be seen to be genuinely in the interests of the whole community.
I was very struck during the Christmas Recess when I visited a medium-sized firm in the neighbourhood of my constituency and discussed with the shop stewards the implications of the freeze. It is a firm with a good history of industrial relations with a story of considerate moderation in the way trade union leadership has acted. The shop stewards said to me "When we have a national crisis and have to forgo, as a result of the price freeze, an increase in pay that is due to us at the moment, how is it that £250,000 extra profit will accrue to the firm which would not otherwise have accrued? If this money was going to the nation, if it was being used in the interest of the community as a whole, it might make sense, but as it stands at the moment why should we accent this position?"
And they said something else. They said that in their own interest and in the interest of the firm and the country they had gone for package agreements in terms of their own remuneration over the years. But, they said, they would never again be able to commit themselves as union leaders to a package agreement phased over several years because of the present form of interventionism, which was totally unacceptable to their members. In future they would have to push for what they could get at the time of the negotiations.
As for the prices and incomes policy, we have first to relate it to the issue of the accountability of economic power and wealth because, unless we relate it to the issue of accountability and the control of economic power and wealth in society, a prices and incomes policy will never be acceptable to the ordinary rank-and-file worker and his leaders.
The other point we have to note in the context of all the pleas from the Government benches for the regeneration of the economy is that this will never be produced by economic techniques or theories. What is basically wrong in Britain is that society and industry are increasingly organised in such a way that ordinary people feel that they have no personal significance.
I ask myself this fundamental question. How can we in this House call for a responsible society, if, by the way in which society is organised, increasing numbers of people are constantly denied the opportunity of exercising any responsibility in their working and private lives? Until we accept this fundamental point of social structure, Budgets will be put forward in a very arid atmosphere which is unlikely to produce meaningful results.
Finally, I want to refer to one point in the Budget speech on which the Chancellor took a good deal of credit. I have the honour to be the vice-chairman of the National Council of Social Service and as such I am closely in touch with charities. It is not true to say that charities are satisfied with what the Chancellor said in his speech.
First, the Chancellor should note that the relief which he is now giving to the 42 charities he mentioned in his speech amounts to £76,000, of which £73,000 will go to only two of the charities in the list. Secondly, when he referred to the sample in the Binder, Hamlyn Report and stressed that of the selected 95 charities only 52 had responded, he seemed to put this in such a way as to infer that the others were not sufficiently concerned to bother to respond to the questionnaire. In fact, the reverse is the case since the whole question of VAT is so complicated that most of those which did not respond were unable to complete the questionnaire because they did not appreciate the problems and did not have sufficiently detailed records to be able to answer some of the questions.
Thirdly, the Chancellor said that with the changes which he was making 42 charities in the survey would have an overall gain next year. I suggest that it is not fair to look at the question in totals. Of the 42 charities, eight will benefit to the extent of £439,000, but the remaining 34 will have a loss of £280,000. Perhaps it was unfortunate that the sample included most of the largest charities in the country and those which had the kind of appeal that attracts large legacies. If another 42 charities were taken at random, nothing like eight would benefit from the changes instituted by the two Budgets. In his speech last year, the Chancellor said that
If it can be demonstrated by particular charities that the effects on them of the various tax changes…would be to bring serious disadvantage, I should certainly be prepared to consider whether some means could be found of providing relief".—[OFFICIAL REPORT, 12th July 1972; Vol. 840, c. 1693.]
It is arguable that, of the sample which he mentioned covering 42 charities, 34 will he at a disadvantage.
We have today had a very wide-ranging debate within the context of the Budget discussions. I should like briefly to refer to three particular contributions that we have had, starting with the maiden speech of my hon. Friend the Member for Dundee, East (Mr. Machin).
We welcomed very much the contribution to our discussions and deliberations of my hon. Friend the Member for Dundee, East. We noted his very kind reference to George Thomson, and we observed, too, the dedication in his wish to be regarded at some time in the future as a true Dundonian. We wish him well in this aim and look forward with interest to the progress he makes here.
We noticed also the way in which my hon. Friend informed us of the delights of the town which he has the honour to represent. We welcome his contribution to the House and look forward to his further interventions in our business with great pleasure and great anticipation.
We noticed, too, the excellent contribution from my right hon. Friend the Member for Birkenhead (Mr. Dell)—as one has come to expect from him. We welcome the fact that the Acting Chairman of the Public Accounts Committee has taken part in our debates, pointing out the inadequacies of the statement on North Sea oil made by the Chancellor of the Exchequer. It will obviously be necessary to have much fuller debates on how we are to harness the treasures of North Sea oil for the benefit of the country as a whole. We look forward to my right hon. Friend instructing and informing us on how we may reap these benefits rather more fully than we have until the present.
My hon. Friend the Member for Gates-head, West (Mr. Horam) referred to savings, which form so prominent a part in the strategy of the Chancellor. I urge those who did not hear what my hon. Friend had to say to read that tomorrow and to take great note of the difference pointed out by my hon. Friend between the way in which the Chancellor is treating the small saver and the magnanimous way—one might almost say the extravagant way—in which the Chancellor is treating the rather wealthier saver.
The main message of the Budget is its accent on growth. That has come to be accepted by the House. No one deserves admiration for being able to pinpoint growth as the main task of the Chancellor, even though there must necessarily be a number of doubts as to the likely success of the strategy which he has undertaken.
The first doubts must concern the figures for the forecasts for imports and exports. We welcome these forecasts. They have surprised the House by their optimism. We know that the Chancellor has about the best economic forecasting advice that is available to anyone in Britain, but we cannot help observing that if these forecasts are not accurate there are great risks attendant on the strategy to which the Chancellor has committed himself. In other words, as has been pointed out by a number of commentators, the Chancellor has undertaken a great gamble on growth. If it comes off we shall all be delighted. But we must face the risks of its not being as successful as many of us would wish.
Like many of my hon. Friends, I am an unrepentant growth man. I have in my office a file, which I came across only a few weeks ago, and I noticed that my secretary had filed it under the heading "Old Causes". When I looked into this file I saw papers on devaluation, east of Suez and one or two other things concerned with the reform of the House of Lords. But, although those battles are long since fought, the commitment to growth remains with me personally. I am always pleased to see any Chancellor accepting this as one of the very highest priorities before him. When we see what has happened on previous occasions when Chancellors have claimed their dedication to growth and yet at the same time put either the balance of payments or the pound before it, we cannot help but admire any Chancellor who takes risks, because of the need to ensure that we do not fall behind in the international competitive race, to show that we have no measure of inferiority in these matters.
We must all accept that if it is to be proved to us that there is something about us as a nation which means that our level of production, that our inventiveness, and that our manner of operating our industrial economy are inferior to those of other countries, such an assertion would need to be proved to the hilt, and even then I suspect we would not accept such a conclusion. I do not believe that there are any party politics in growth. There are growth men on the Labour side and on the Conservative side, and antigrowth men, too, on both sides After the General Election when the Conservatives came to office I thought there was at least a possibility that any Government, and conceivably a Conservative Government, might manage to achieve the take-off for growth that had eluded us for so long. Unfortunately, that hope was short-lived. The first action of the incoming Government when they got the measure of the problems before them was to decide on a long-term programme of tax reductions. In the two-and-a-half years following their coming into office they made tax reduction of £3,000 million. It has been the boast of the Chancellor and his acolytes that this large sum of money was given away on the basis of providing incentives for management to organise industry for the benefit of our industrial strength.
We all know that this policy failed completely. These massive incentives that were given to the managers of our industrial economy do not provide either for industrial growth or for the increase in demand that might have led to an expansion of growth in its early years. Instead, far from providing the take-off, industrial investment went down year after year. The Secretary of State for Trade and Industry gave us his optimistic forecasts yesterday, but we must object to his misuse of figures, about which he must have known. He gave us an optimistic departmental brief on the machine tool industry doing well, on one month's figures for exports, and mentioned a particular firm which was happening to invest. In the Budget debate the House is entitled to better treatment than that. That information was something anybody could pick up from departmental files on his way to the House. We knew then and we know now, because the figures are available to us, that manufacturing investment in the fourth quarter of last year—a figure made available only this week—was 10 per cent down on that of the corresponding period a year earlier. To get it into its proper perspective, industrial investment in manufacturing industries was lower last year, including the last quarter, the latest period for which we have figures, than at any time since 1967. In the past six years we have seen a decline in industrial investment based on investment in manufacturing industries.
The strategy with which the Government began two-and-a-half years ago has failed remarkably. The incentives did not work, despite the fact that they injected large elements of demand into the economy. They did not work because at the same time as the Government produced them they frightened industry with their talk about the lame ducks and firms standing on their own two feet, and by threatening inefficient firms with closure and consequently a reduction in their hopes for expansion. Together with that came the confrontation with the unions, which led also to a certain apprehension on the part of industry about what its future production and offtake might be.
But if it were to be effective, that £3,000 million reduction, according to normal Conservative philosophy, should have been combined with the natural and consequential cuts in public expenditure. Most of us, and, I am sure, many Conservative Members, then thought that the two would go hand in hand, that as taxation was reduced public expenditure would be reduced. We know—the documentation is now complete—that the cuts that were made were only half-hearted and subsequently not only were they restored but increases were given. The cuts in January 1971 were nearly restored by the autumn of that year, and last December there were large increases in public expenditure.
The large increases in public expenditure concurrent with the large tax cuts made nonsense of the whole strategy. When the Chancellor tells us, with the words of the Public Expenditure Committee ringing in his ears, that he is now committed to the strictest control of public spending, that is a commentary on the type of control that existed before he realised that public expenditure had got out of hand.
The tax reductions were made and public expediture was increased. The gap had to be filled by the borrowing requirement, for the deficit, as we used to call it. I should like briefly to speak about the deficit and its history. Throughout most of the later years of the 1960s there was not much change. The deficit year by year was a few hundred million pounds up or down. Then—these are out-turn figures—in 1971–72 it suddenly leapt to £1,336 million and in 1972–73 it rose to £2,855 million. For the current year it is estimated to be £4,423 million. Filling the gap between heavy tax cuts and large expenditure increases, the borrowing requirement has been rising in that way. The borrowing requirement arises directly from the tax cuts that are the pride of the Conservative Party. Its pride was paid for by the largest borrowing requirements we have ever seen, with the obvious effect on the money supply.
We do not need to be monetarists to be convinced that borrowing requirement expanded in that kind of way had an effect on certain prices, and had in particular a massive effect on land and property prices, which were a particular feature of the situation as it existed last year. There cannot be U-turns such as this without there being a few skidmarks. This was what we saw last year, land and property prices soaring upwards as people with money in the bank tried to put it into some kind of inflation-proof investment. The main culprit responsible for this increase in land and property prices was the Government, who cut taxes and did not cut public expenditure but instead resorted to producing a borrowing requirement which had to be financed.
If the hon. Gentleman is saying that the task of the Government was to cut taxes and increase demand, it would have been right. What the Government did was to cut taxes and frighten off industry. The precondition for take-off was not a situation in which the Government would fight the unions. The precondition was a partnership which could have been encouraged. There is no perfect solution. I am not looking for perfect solutions and I hope that the Government are not doing so either.
What was available was some kind of agreement which would have been the very opposite to the kind of confrontation which was adopted by the Government. So we had, as a direct cause of the Government's reduction in taxation, the inflationary policy with demand high, taxes cut, public expenditure increased and a consequent massive fall year after year in private manufacturing investment.
The commentary on the past two-and-a-half years must be that this is the most inept economic management in post-war years that we have seen—and this award has to be accepted in the face of pretty tough competition from some kinds of economic management that we have seen during this period. So we see that the borrowing requirement has still not ended its upward surge. The Chancellor comes here and tells us that it will go even further, and then he expects the House to accept that he has the final solution to divorcing the borrowing requirement from the money supply.
Anyone who looks at the right hon. Gentleman's solution must be at least somewhat doubtful how it will work and whether it will succeed. One thing which is clear is that the Chancellor has now become over-dependent on savings. If he is so confident that the deficit will not increase the money supply, might I ask the Minister of State whether he is prepared to publish forecasts for MI and M3 showing that this borrowing requirement will not have the effect on the money supply which the Chancellor claimed? What is clear, and the hon. Member for Horsham (Mr. Hordern) put it very well. is that there will be great competition for funds with the Chancellor in at the market place, together with all the other financial institutions, scrambling for any bits of money that they can get in such a competition.
We have seen some of the earlier results already. We have seen War Loan at its lowest ever, 35¼ yesterday or 33·41 net. It is obvious that interest rates will increase rapidly as the Chancellor joins in the scramble for money from industry and elsewhere. If he believes that he will get this greater amount of hot money from abroad to finance this borrowing requirement I can tell him that he is not likely to succeed.
To tempt money to come in from abroad on the basis of the Chancellor's strategy of going for growth when there is the possibility of exchange rate variations which are not likely to be beneficial to the lender is not the best way to attract money in competitive circumstances.
Probably the greatest difficulty that the Government have had in going for this 5 per cent. maintained growth has been that industry simply has not believed the Chancellor of the Exchequer. It has not believed that the 5 per cent. level of growth will be maintained indefinitely. There is the fear that the balance of payments might force changes despite what the Chancellor said. There is the counter-inflation policy and this nonsense of the control of profits. Doubts are being widely expressed in industry, and they are typified by the article in today's Financial Times headed
The growing fashion for pessimism
The hon. Gentleman spoke of the pay and prices policy and the nonsense of the control of profits. Is he saying that it is nonsense because it is non-existent or because it will be effective?
As the two hon. Gentlemen are prepared to argue this between themselves, there is no need for me to intervene further on that.
The hon. Gentleman discusses with the civil servants what he thinks industry will do. But to know what industry is thinking and doing one has to discuss matters with industry. Industry is not optimistic, and the growing fashion for pessimism which was the subject of the article in today's Financial Times is one indication of this growing mood which the Government must alter if they are to succeed.
On Tuesday the Chancellor said that he was prepared to act at any time of the year to change the economy as he might think fit. He said:
I shall if necessary not hesitate to act at any time of the year, in whatever direction the economy may require, on expenditure, on taxation or on monetary policy.
Although such statements are usually made nowadays by most Chancellors, never before has it been put so positively. That statement makes clear that this Budget is only an interim measure pending measures that are to come later. Industry has understood this and accepted it, and it is hardly surprising if industry does not have some reservations about the expansionist policy on which the Government are set.
Hon. Members have paid their own tributes to the Chancellor. My tribute—a genuine one—is that I sympathise with him fully in the enormous difficulties he has had in preparing his Budget and joining in our debates in the middle of an international financial crisis.
I must refer to the five conditions that the Chancellor has laid down for the
changes in the pattern of central rates. I should like to comment on the second and third conditions. We must face the fact that these conditions are quite nonsensical. They lay down that any country shall have unlimited support for its currency with the right to alter its exchange rate:
…to grant support without limit of amount, without conditions, and without obligation to repay or to guarantee."—[OFFICIAL REPORT, 6th March 1973; Vol. 852, c 249, 244.]
What does this mean? It means that a Chancellor of the Exchequer in any deficit country—such as ours might be—would be able to claim support from any other country which would pour in its funds without limit, and that we should have no obligation to maintain our exchange rates. In the way that funds can be recycled, those limited amounts could be extremely large. At the end of the day, if we so decided to alter our exchange rate, those countries which had lent us this money would be lending substantial sums.
This cannot be a serious proposition put forward by the Chancellor. This is obvious to him and to the Treasury Bench. Therefore, we must ask why a proposition of this kind is put forward when they know that it can hardly form the basis for serious negotiation. The amount of money that can be shifted around in this way can be very considerable. There are 800 billion dollars of world trade on which the leads and lags are of an enormous amount. These are operated by people who are acquiring much greater sophistication in paying their debts earlier or in restraining their debtors from paying them as quickly as they might otherwise wish.
Leads and lags, plus oil sheiks and others, will mean that much larger sums of money are capable of being used in such a situation in future than ever has been the case in the past. The Chancellor knows all this, so why does he act in this way? Those of us who look at the situation are forced to only one conclusion, that he is not serious in putting forward an alternative proposition, but that what he wants is for the float to continue. I for my part accept this as a policy that is worth pursuing. But we must understand what the Chancellor of the Exchequer is really aiming at.
In fixing the exchange rate, the Chancellor is obviously in a great dilemma. His policy must largely be directed to the containment of inflation. If we devalue, retail prices will increase, and if the pound floats upwards our exports become less competitive. Therefore, he is always in the tricky position of never knowing how far he can move. His margin of manoeuvre is very small indeed.
What the right hon. Gentleman really wants to do is to separate these two problems. He wishes to separate the problem of inflation from the problem of getting the exchange rate right to influence the sale of our exports. What he should have done was to try to achieve some workable co-operation with working people to contain the elements of inflation, and then to try separately to get an exchange rate which suited our overseas trade and, in particular, our exports. If it is said that such an agreement was not possible, we all understand that it is not possible to achieve an ideal solution.
What the Government should have done is to try to get the best available solution. After all, there is no more obtainable than the best available solution. The Government tried to hit the unions hard, and, having hit them, tried to do a deal with them, but failed miserably. What we need is to get these two problems separated, and then find ourselves with a greater realism based on what is obtainable in the world of today.
I believe that the Budget has done little to improve the chances of the Government's counter-inflation policy succeeding. There are many who thought that that would be its central message. In fact, it has failed to make use of the opportunities to help this policy along. The central aim of the Budget is to take great risks with growth. I hope that the right hon. Gentleman's judgment is right. If he had brought about some changes in personal income tax at the lower level, in my view he could have given growth a greater chance of success. It is a pity that he did not act in that way.
It gives me great pleasure to commence my speech, as the hon. Member for Ashton-under-Lyne (Mr. Sheldon) did, by congratulating the hon. Member for Dundee, East (Mr. Machin) on his maiden speech. In succeeding Mr. George Thomson the hon. Gentle- man has the highest example to follow. His predecessor was very greatly respected in the House. I am sure that the hon. Gentleman will agree that the continuing interest which Mr. George Thomson will share with the House in the problems of the regions gives us great confidence that this very important matter will receive the careful attention which it so deserves.
The hon. Member for Dundee, East made his speech with a modesty and a pleasantness characteristic of his predecessor. He was also commendably brief, which I am sure was welcomed by the House. His speech was free of the hectoring style which is perhaps more appropriate to the hustings than to debates in this Chamber. We all wish the hon. Gentleman success in representing the people of Dundee, which is a great city.
I wish to echo the hon. Gentleman's remark, which was made in a different form by my hon. Friend the Member for Harwich (Mr. Ridsdale), that politics is about people. My hon. Friend said that politics is a human problem—or words to that effect. When we debate these economic and financial measures we ought to bear in mind that, however important they may be, they cannot hold a complete solution to the problems confronting the country at present and all the changes that we see going on in Western society.
I refer next to the most interesting speech by the right hon. Member for Birkenhead (Mr. Dell). The House is in great debt to the right hon. Gentleman and his colleagues for the important report which they have just published. By any standards the subject is of the greatest national interest, and the right hon. Gentleman's remarks will be studied with considerable care. The speed with which my right hon. Friend the Chancellor of the Exchequer reacted to the Report of the Public Accounts Committee is evidence that we have had these very complex matters under consideration for some time. I listened to the right hon. Gentleman's remarks with interest, but I am afraid that I cannot deal with the questions which he put to me. My hon. Friend the Chief Secretary will be referring to these matters in his speech on Monday, and I cannot go into any more detail now.
Chancellors of the Exchequer are always deluged with advice from outside sources just before a Budget. But seldom has the advice been so conflicting as it was this year. The Times leader of 28th February advocated tax increases of about £1,000 million, whereas the Economist wanted tax cuts of up to £1,000 million. The National Institute's proposals were for a broadly neutral Budget, and the TUC's representations were for reduced taxes of £600 million.
In this debate there has been a general welcome for the broadly neutral stance adopted by my right hon. Friend, and I shall do my best in the time available to cover this main point. The hon. Member for Ashton-under-Lyne addressed most of his remarks in the broadest sense to the Budget judgment and the possible constraints on my right hon. Friend's objective. I shall not have time to cover all the points that have been made in the debate, because it has been fairly diffuse. Much as I should like to do so, I shall not be able to touch on the question of local government rates, mentioned by my hon. Friends the Members for Harwich and Billericay (Mr. McCrindle), nor on the various questions about VAT, as my hon. Friend the Financial Secretary dealt with a number of these matters last night.
I want to take up the main points which were made by the hon. Member for Ashton-under-Lyne. As the House knows, the Chancellor's central objective in the Budget is the maintenance of a high rate of economic growth. A key part of that strategy must be to control inflation.
In recent years the idea of economic growth has come under some suspicion. I thought that the right hon. Member for Orkney and Shetland (Mr. Grimond) was going off on one of his most agreeable and fascinating discussions on the whole concept of growth, on which I have heard him speak several times in the House, but, having raised the question, he then dropped it.
It is true that growth in itself cannot solve all our problems, but, as my hon. Friend the Member for Harrow, East (Mr. Dykes) said yesterday, it is only by expanding output that we can increase the real wealth of the country and provide the resources which are so badly needed for investment, for private consumption, and for the vast range of public services upon which the health, education and general welfare of the British people depend.
We can all recall the years of stop-go. Yet now, when the economy really is growing at 5 per cent., there is no shortage of experts to advise us that we cannot do it and that we must jam on the brakes again. That was the theme of the speech by the hon. Member for West Lothian (Mr. Dalyell) last night. I thought it was also the implication of much of what the Leader of the Opposition and his right hon. Friend the Member for Leeds, East (Mr. Healey) were saying. I must emphasise that the Government believe that a rate of growth of 5 per cent. can, and must, be sustained over the year ahead.
In the time available I shall attempt to try to answer some of the points made by the hon. Member for Ashton-under-Lyne and deal with the constraints which could possibly arise.
I will come to that in clue course.
Perhaps at this point I might remind the House of the Chancellor's Budget speech last year. That had as one of its prime purposes a sharp reduction in the level of unemployment. At that time many experts said that we could not hope to reduce unemployment to any great extent, that we had a new problem of structural and technological unemployment, and that either the economy would not grow fast enough to take up the slack or the whole nature of the problem had changed. I need only point to the unemployment figures of the months since then to rebut this charge and show that the constraints about which we heard so much in the Budget debates last year just have not come true.
The hon. Gentleman will recall the Chancellor in his Budget speech saying that unemployment could not fall if earnings continued to rise. He will also be aware, because it is the main theme of most of his speeches, that unemployment began to fall at the moment that earnings entered the greatest explosion in recorded history in Britain. Will he explain why the Chancellor was so wrong on that point?
As my right hon. Friend will be winding up the debate, it might be more appropriate if he answered questions on his statement. I think that is the easiest way to deal with that intervention.
Yesterday, in an excellent speech, my hon. Friend the Member for Harrow, East—I believe this matter was also referred to by the hon. Member for Portsmouth, West (Mr. Judd)—raised the question of the balance of payments, which was touched on briefly by my right hon. Friend the Secretary of State. I must emphasise again that the underlying current account is much stronger than last year's out-turn seems to suggest.
Too much has been made of the swing from the high surplus in 1971 to the surplus of £20 million in 1972. We must not forget that the high surplus in 1971 was achieved at the expense of years of constraint on the real incomes of the British people. I am not clear why the right hon. Gentleman the Leader of the Opposition should regard that as one of his great benefactions to the country. A large balance of payments surplus is not an end in itself. Indeed, it can be as great an embarrassment as a large deficit. There has been ample evidence of that around the world in the past few months.
The state of activity in the United Kingdom and in the world can explain much of the swing in the visible balance between the two years. Export figures reflected the sluggish growth in world trade. Exports to Western Europe rose by 15 per cent., but exports to the sterling area, when there was a slack period in world trade, fell in value by about 10 per cent., thus reflecting a decline in demand and import restrictions in some African countries. We believe that when world trade picks up some of the factors which worked against us in 1972 can be expected to work in our favour in 1973.
I am sorry to interrupt the hon. Gentleman again, but he is confusing us. He will recall that his administration spent the whole of 1972 boasting about the £1,000 million balance of payments surplus in 1971. He is now telling us that that was rather a bad thing. He is telling us that the 8 per cent. increase in consumer consumption in real terms last year is a good thing, yet he has been telling us that he intends now to reduce it to 4 per cent. We are a little confused about the standards of values that he is using.
I have not mentioned consumption. I said that the high surplus of £1,000 million was created at the expense of a rise in the real incomes of the British people. The right hon. Gentleman knows that perfectly well. Real disposable incomes hardly rose in the final years of the Labour Government. The surplus of £1,000 million arose from the contraint which was put on the British people by the right hon. Gentleman's Government in the years from 1967 to 1970.
We expect this year a healthy increase in the volume of exports. Recent trade figures suggest that this is already on the way. Investment is growing in industrial countries and observers like the OECD predict rising import demand amongst primary producing countries following the recovery in the prices of basic materials. Moreover, the benefits of the appreciation of sterling will show up more powerfully by curbing import demand and encouraging exports.
I shall answer the question, but, first, I shall refer to the invisible surplus, which continues at a high level. It was over £700 million in 1972 and it is expected to be of that order in 1973. The main features are earnings from banking and other services, and income from overseas investment, which greatly exceeds payment on foreign investments in this country.
The hon. Member for Midlothian (Mr. Eadie) yesterday referred to overseas investment. There are a great many misunderstandings about how our overseas investment is financed. United Kingdom private investment overseas last year was £1,350 million but only a small proportion of the outward investment was financed from United Kingdom domestic sources. Direct investment was about £600 million, of which £375 million was made from locally-earned profits. Portfolio investment overseas showed a small rise to £685 million. That was mainly financed from borrowing in the Eurocurrency markets. Foreign currency borrowing from United Kingdom banks for investment overseas, including some direct investment, was over £700 million last year.
The hon. Member for West Lothian also referred yesterday to the question of overseas investment in the United Kingdom and asked about the decline in new investment in 1972. I should make it clear that the apparent decline is mainly the result of transactions in inter-company accounts.
I come now to the domestic economy. The view has been expressed—by the hon. Member for Ashton-under-Lyne among others—that we are heading for an overheating of the economy. It is the Government's view that the degree of slack is still adequate to maintain the 5 per cent. growth rate throughout 1973. My hon. Friend the Member for Leek (Mr. Knox) made a very good speech on this theme yesterday. While there are no exact measures of the degrees of surplus capacity in the economy, the conventional measures show that we have the resources to grow at a rate above the growth rate of productive potential for some time to come.
Unemployment, although falling sharply in recent months, is still high and there is a large reserve of labour to be absorbed into productive employment. In addition the latest CBI industrial trends survey, taken in January, showed that the number of respondent firms expecting the supply of skilled labour to be a constraint on output was lower than in 1969 or 1970, when the growth rate was well below what we are now achieving.
In contradiction to that, would not my hon. Friend agree that most industrial firms in the Midlands and the South of England are beginning to experience shortage of labour already?
I agree that the degree of surplus capacity varies in different parts of the country. That is a perfectly correct statement. In this sense, however, we have to look at the economy as a whole, and these are the figures to which I was referring.
On the capital side, more than half the respondent firms to the survey were working below capacity. This is a considerably higher proportion than in 1969 or 1970. Of course, we expect a substantial recovery in industrial investment this year which will also add to capacity.
My hon. Friend the Member for Leek pleaded that our commitment to growth of 5 per cent. should span five years. His enthusiasm is to be applauded, but I am sure he must appreciate that everything must depend on the degree and effectiveness of investment over the coming year, and in particular on the growth of productive capacity in the economy.
Would not my hon. Friend give me credit for the fact that I argued that we needed this sustained growth over a long period to increase the increase in capacity each year, and that when one had stop-go inevitably there was a braking-back in the increase in capacity each year?
I fully understood and took that point, but we need to see an increase in industrial investment in order to provide more capacity. We need to know how productive potential is moving before we can make any such commitment of the sort my hon. Friend is keen to see.
Several hon. Members, particularly my hon. Friends the Members for Cirencester and Tewkesbury (Mr. Ridley) and Horsham (Mr. Hordern), have pointed to the size of the borrowing requirement as a possible danger to the economy. The hon. Member for Ashton-under-Lyne also referred to it. The borrowing requirement is very large but the figure must be kept in proportion. First, as my right hon. Friend said, it is important to bear in mind that the public sector's current expenditure is fully—indeed, more than fully—covered by its current revenue.
In fact, the money the Government need to borrow is solely to meet part of their outgoings on capital account, and it is common practice for the private sector, for instance, to borrow for this purpose. Secondly, half the increase in borrowing requirement between 1972–73 and 1973–74 is attributable to the transition to value added tax and the special arrangements made for the paying over of the new taxes by traders. This is a once-and-for-all change which does not affect liabilities to tax but simply the timing of revenue receipts.
It is wrong to think that an increase in the public sector's borrowing necessarily means an increase in money supply. I thought that the hon. Gentleman when referring to this got rather muddled up between these things. He first mentioned the public sector borrowing requirement and then went off to discuss private sector lending and the effect this had had on land prices. I am sure he would appreciate that the two are not at all the same thing.
Would my hon. Friend say what return is expected from Government capital expenditure? When Government expenditure is being made in the nationalised industries and in higher technology in industry, what return does he expect? Experience is that it is a negative return. How can he justify his assertion that capital investment on the part of the Government is somehow or other to be justified by extra borrowing, since he does not get any return at all on it?
The return which nationalised industries achieve on their borrowed capital really raises problems which are outside the question of the size of the borrowing requirement. This is a very big and important issue. It is one which we have recently debated on the Counter-Inflation Bill, but I do not think it is strictly related to the point I am making, that the size of the borrowing requirement, although large, need not necessarily lead to inflation as long as it is financed with the non-bank public.
I do not think I have quite taken the hon. Gentleman's point. Is he suggesting that the rates are not competitive? This point was also made by my hon. Friends the Members for Cirencester and Tewkesbury and for Horsham, who suggested that the new securities which the Government are offering will only divert funds from the private to the public sector. But they should bear in mind that a big public sector deficit necessarily implies that the private sector has substantial surplus funds. We want to tap those funds directly rather than borrow them at one remove from the banks.
I should also refer to the comment of my hon. Friend the Member for Horsham, on the behaviour of the gilt-edged market during the past few days. This cannot be entirely divorced from the industrial situation which we have had in the last 24 hours, but some upward adjustment of market yield was to be expected following the wide-ranging measures announced by the Chancellor for financing the public sector borrowing requirement. Prices have adjusted quickly and the higher structure of rates established in the markets should enable the authorities to sell stock on the scale required. At present the gilt-edged compare favourably with any other securities.
I quite agree with my hon. Friend on that, but diverting capital resources from the private sector into, Government loans is really rather a mistake, because I thought one of the intentions was that the private sector should use its cash in order to pursue and encourage capital investment, and to the extent that it invests in Government securities it will not be able to do so.
My point is that if the Government borrow through the banks to finance their requirements it may swell the credit base of the banks, thereby giving rise to inflationary finance. Under the measures we are proposing in the Budget we hope to draw on this money to a greater extent directly rather than through the medium of the banks.
I would like to refer to a number of other points on interest rates which have arisen but I must press on to comment on points made by the right hon. Member for Deptford (Mr. John Silkin), who opened the debate. In passing, I can tell the hon. Member for Ashton-under-Lyne, who raised a number of points about public expenditure, that my hon. Friend the Chief Secretary will deal with this subject on Monday next.
I would like now to emphasise something which we discussed on the debate on the White Paper, that the position in the medium term is satisfactory; and, as he himself said, the Chancellor in his statement made the point that he will not hesitate to act in the short term if he thinks it necessary.
I commenced my speech by saying that the Chancellor's objective was a high level of sustained economic growth and growth which would result in a better standard of living for all sections of the community. The House should not forget what the Government have achieved in this respect. The real standard of living has grown at double the rate under this Government over what was achieved by the Labour Government, and all sections of the community have shared in this growing prosperity.
My hon. Friend the Member for Harwich mentioned the large number of pensioners in his constituency. Their position has been greatly improved. After the uprating in October the pension will he up by 55 per cent. in cash terms compared with the rate in November 1969, and this will go far beyond the rise in prices. The upratings of 1971 and 1972 represented real improvements in pensions, and this year's uprating will provide an even bigger improvement in real terms. Again the rate of increase has been much faster than under the Labour administration.
Similarly, in contradiction to what the hon. Member for Glasgow, Kelvingrove (Dr. Miller) said, we have not only protected but have improved the position of the low paid, by reducing the flat-rate national insurance contribution, by a further increase in family income supplement next month and again in October, and also by the new rent rebates and allowances. By these means we have done a great deal to help them. Finally, by introducing annual entitlement for the three main family benefits we have diminished the so-called poverty surtax to which my right hon. Friend referred in his opening remarks. All these measures complement the relative advantage for the low paid which is embodied in our policy towards pay increases.
Opposition speakers have made much of our reductions in income tax. They have alleged that we have reduced the burdens on the rich and increased those on the poor, but, as my hon. Friend the Member for Ilford, South (Mr. Cooper) said, there is no substance in these charges. By far the biggest cuts in income tax in last year's Budget were when we increased the married and single persons' allowances. This gave everyone paying tax an extra £1 a week in take-home pay, and a cut of this kind gives proportionately more to the poor than to the rich. As my right hon. Friend the Chancellor said, taking the whole of the changes in direct taxation which we have made since coming to power, 80 per cent. of the total has gone to people with incomes of less than one-and-a-half times the average adult manual wage.
The right hon. Member for Deptford said that our system of social security was done on the cheap—those were his words—because it was means tested. The right hon. Gentleman could not be more wrong about that. As my right hon. Friend the Secretary of State pointed out, we have added only one means-tested benefit. We believe in concentrating help where it is most needed, and this has meant not a decrease but an increase in public expenditure. If the right hon. Gentleman will look at the figures in Table 2A of the White Paper on Public Expenditure—and it will be embarrassing for him to do so—he will find that expenditure by the Government on social security has been increasing in real terms at more than double the rate achieved by the previous Government between 1968–69 and 1970–71. All this increased expenditure is going to those most in need. To use the words of my hon. Friend the Member for Macclesfield (Mr. Winterton), we have identified need and met it.
I think that I can best conclude by echoing a sentence in my right hon.
Friend's Budget Statement. He said that he did not believe that we as a nation
are innately less capable than are those other countries of achieving a better economic performance. What they can do, we can do."—[OFFICIAL REPORT, 6th March 1973; Vol. 852, c. 238.]
I believe that to be a fundamental truth, and this Budget, with its emphasis on growth will do much to achieve that.