I must begin by apologising to the House for having missed so much of this debate because of the international monetary situation and in particular because I had to be in Brussels for the whole of Thursday. However, I have been given by my Treasury colleagues a full and, in some respects, very colourful account of some of the speeches which have been made.
When I was in Paris on Saturday at the meeting of the Group of Ten I told some of the other Finance Ministers how I had said in my Budget Statement that I was sorry that, because of the forthcoming meetings, I should not be able to listen to the whole debate and how one right hon. Gentleman—I think the right hon. Member for Cardiff, South-East (Mr. Callaghan)—whispered very loudly, so that the whole House could hear, "Lucky man". I will only say that the Ministers took the point, but I seriously very much regret not having been here to listen to most of the debate.
We have just listened to the usual courteous and agreeable speech by the hon. Member for Heywood and Royton (Mr. Joel Barnett). I admit—I think that this will probably apply to most of those who were in the House when he opened his remarks—that I did not quite follow his reasoning about the balls. However, I do not think we should pursue that matter at this moment.
I very much regretted missing the maiden speech by the hon. Member for Dundee, East (Mr. Machin)—I have been told that the hon. Gentleman spoke up well for his constituents—none the less so because I understand that he is a native of Yorkshire. As a fellow Yorkshireman, I must say that for a Yorkshireman to represent a city as characteristically Scottish as Dundee is an extremely remarkable achievement.
Today we have had another maiden speech, this time by the hon. Member for Chester-le-Street (Mr. Radice). He will obviously be fully occupied with his constituency duties, because he told us that he has to look after 40 working men's clubs. I am sure the whole House wishes both hon. Gentlemen well.
I should again like to acknowledge the inevitable difficulties which those who speak from the Opposition Front Bench are bound to have. It is no easy task. While I shall have something more to say later about right hon. and hon. Gentlemen opposite, I think it is right to acknowledge that the task of those who lead for the Opposition on Treasury matters is no easy one.
I should also like to thank the Revenue Departments and my three Treasury colleagues who have borne a considerable load during the past year.
While talking to Treasury Ministers, may I say I am glad that the economic expertise on the Opposition benches will now benefit from somewhat greater consistency of principle by the presence of a distinguished previous holder of the posts of Minister of State and Financial Secretary—the hon. and learned Member for Lincoln (Mr. Taverne).
I was particularly sorry that I did not hear the speech by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), but I know that he will understand. He referred to the international monetary situation, as did my hon. Friends the Members for South Angus (Mr. Bruce-Gardyne) and for Kingston-upon-Thames (Mr. Norman Lamont) and the right hon. Member for Battersea, North (Mr. Jay). At the outset it is right that I should deal with this matter and report to the House.
The House will recall, without my going over the details, that in my Budget Speech I described what had happened at the meeting of the Finance Ministers of the EEC countries which took place on the Sunday before Budget Day. The nine of us met again in Brussels last Thursday, 8th March. We did so mainly to prepare for a wider ministerial meeting the following day in Paris, at which we were joined by the Finance Ministers of the United States, Japan, Canada and Sweden, together with representatives of major international economic organisations.
We concluded that the existing relationships between parities and central rates corresponded broadly to the economic requirements and that joint action should be taken to ensure an orderly exchange rate system. We therefore commissioned some special studies by experts preparatory to a further meeting of the same group on Friday next. However, it was also clear that it was highly desirable for the EEC to reach a decision on the mutual relationships of our own currencies as this would affect the character of international co-operation on a wider basis.
Yesterday, therefore, I joined my European colleagues again in Brussels for further talks. An important question before the meeting was whether we should take a major step forward towards the economic and monetary union of the kind which I had outlined the previous week or whether action would be confined to more limited move. It was clear that it would not be possible to agree at this stage on a far-reaching step and that the majority of the Community would support a more limited step on the lines which had been put forward by the Commission. I explained that it was not practicable in present circumstances for the United Kingdom to join a common float on the basis of the sort of conditions embodied in the Community's scheme. Italy, the Republic of Ireland and the United Kingdom are outside these arrangements for the time being.
The position of the United Kingdom on this matter is fully understood by our partners in the EEC. Moreover, studies will continue to be pursued on various ideas put forward with a view to developing arrangements which would bring forward the time when this system could be joined by the United Kingdom, the Republic of Ireland and Italy.
The German Finance Minister, Herr Schmidt, suggested the possibility of a Community guarantee of the sterling balances, and this suggestion will be followed up by detailed studies in the Community. There would, of course, be full consultation with the holders of these balances if new arrangements were to be proposed as a result of these studies. The present sterling agreements remain in force.
On Friday next we meet again in Paris in the larger grouping which met last Friday to resume our discussions in the light of the decisions taken meanwhile about the European arrangements. There is one thing on which we are all fully agreed—and the right hon. Member for Stechford made this point—namely, that the recent disturbances have underlined once again the urgent need for an effective reform of the international monetary system. In a fortnight's time I shall be attending the ministerial meeting of the Committee of Twenty in Washington to press forward with that long-term reform.
Meanwhile, as the House knows, the foreign exchange markets remain formally closed until next Monday, 19th March, and on this I should make one point clear. When I told the House some days ago that the foreign exchange market was formally closed, I pointed out that the arrangements were quite different from those on previous occasions and I explained that normal operations by commercial banks were largely unaffected. As some misunderstanding on this has persisted, it may be helpful if for a brief moment I revert to the matter now.
Many thousands of separate transactions take place in the market on a normal day. The majority, and certainly the largest in volume, are transactions by authorised banks in connection with visible and invisible trade. Others are concerned with the taking of deposits by banks, meeting travellers' needs for foreign currency and so on. On past occasions when the foreign exchange market has been closed, authorised banks have not been permitted to function in the market except for a very narrow range of essential business—for example, putting through contracts in foreign exchange already entered into or meeting the essential needs of travellers. On the present occasion it has not been necessary to take such a step. What we have agreed, in conjunction with our European partners, is no more than that the central bank in each country would refrain from intervention in the foreign exchange market, and except in that very limited sense the market is functioning as normal.
I opened my Budget Statement by stressing that the central objective of our economic strategy is to maintain a faster rate of economic growth and that a key part of that strategy is to control inflation. I do not think that during this debate—either in those parts of it to which I have listened or those which I have read in HANSARD—aright hon. or hon. Member has raised serious objections to the two principal implications of that policy. Our need for a high and sustained growth rate is acknowledged on all sides. It was mentioned particularly by my hon. Friend the Member for Enfield, West (Mr. Parkinson) and only a moment ago by the hon. Member for Heywood and Royton. It is pressed on the Government from the TUC and CBI alike, and from both sides of the House. I thank the hon. Member for Ashton-under-Lyne (Mr. Sheldon) for his generous remarks and the support which he gave me and which I read in columns 705–6 of HANSARD of 8th March.
Growth is the key to our long-term prosperity. We need a high and growing level of demand to give confidence to businessmen to invest and to expand their productive capacity. In this way growth breeds growth—just as stagnation breeds stagnation. The faster productivity rises, the easier it will be to keep competitive with the rest of the industrial world and to keep our own prices stable.
The right hon. Member for Leeds, East (Mr. Healey) complained about the position of the low paid, but a rapid rate of growth—the main purpose of the Budget—is the best and indeed in the long run the only way to improve living standards for the low paid as for everybody else. The Labour Government surely learned by bitter experience that a policy of restriction harmed the low paid twice—first by tax increases which they felt obliged to impose, and secondly by slow growth in national output and living standards.
The past 2½ years have seen a remarkable improvement in living standards, an improvement which, as my hon. Friend the Member for Aylesbury (Mr. Raison) pointed out on Thursday, has been widely shared. I wish to give the House some figures of net income—that is, income after taking account of pay increases, price increases and, as appropriate, family allowances, FIS, tax, national insurance contributions and charges for school meals, milk and health services. I think hon. Members will agree that it is net income in real terms which is probably the best yardstick of the standard of living.
Let us take the situation of a married man with two young children whose earning were £15 a week in October 1970. During the previous six years under the Labour Government that family's real income increased by an average of 2·7 per cent. a year, but during the following two years under the present Government the increase has been 6·3 per cent. a year—well over twice as fast. Therefore, it is nonsense to say that the general position of the low paid has not improved under the present Government. Indeed at every level of income it is true to say that living standards—by which I mean net real income—have improved very much faster under the Conservative Government than under Labour. That is a consequence of policies of faster growth, lower taxation and more help for those in need.
In my Budget speech I set out the reasons for believing that it should be possible to sustain growth at around 5 per cent. over the next year or so. In this debate some hon. Gentlemen have expressed fears that to do so will run the risk of overloading the economy, or that this rate of growth will damage the balance of payments by diverting exports into the home market and by sucking in imports.
First, as to the sustainability of our present rate of expansion, I have taken full account of what might be termed those signals, such as the level of unfilled vacancies, which suggest that the pressure of demand is high, but having regard to the many other indicators, such as the level of unemployment, the degree of capacity utilisation in the manufacturing industries, and the extent of overtime work, I find it hard to accept that we now have to rein back our rate of output to 3 or 3½ per cent. a year. This is not to say that a 5 per cent. growth rate is sustainable indefinitely. No one at this stage can say what our underlying growth of productivity and potential will prove to be in a year or so's time.
It may be that some moderation in the rate of expansion will occur in due course without necessarily requiring any increases in taxation or other action. As I said in my Budget speech, the rate of growth of public expenditure on goods and services will slacken considerably after the middle of this year. It is quite possible that this will ensure that the pace of expansion will ease off without any restriction on the growth of personal consumption.
The right hon. Member for Leeds, East shared my concern at the disappointingly low level of investment during the past year. However, I found difficult to understand how he thought that investment could increase if we adopted a policy which kept prices controlled but pay uncontrolled. I should have thought that it was self-evident to anyone that that sort of policy would leave firms squeezed dry and unable to invest. That policy, which I understand is now the official Labour Party policy, would be the death of growth.
The second doubt that has been expressed about the pace of current expansion is that it may pose a threat to the balance of payments. It is undoubted that a high level of domestic demand produces a high level of imports. However, I hoped that the thesis for so long prevalent in the United Kingdom, that a sharp curtailment of domestic demand was the only proper way to redress a balance-of-payments deficit, was not now entertained by any serious critic. If the balance of payments were in serious disequilibrium as a result of excess domestic pressures, such a solution might be appropriate, but we are not in that position. I see no reason to qualify the view which I gave in my Budget Statement—namely, that the surplus on invisible account this year should offset much of the visible trade deficit.
I have been surprised at the criticism—although in the speeches which I have been able to listen to most of that criticism has sounded somewhat muted—about our decision on pensions. I am astonished that criticism should come from the Labour benches. The increase of £1 a week on the single pension has been equalled in cash terms only once before. The 1971 uprating was also £1, but that increase covered two years. Making that allowance, the pension increase is the largest ever made. To compensate for the rise in prices since 1969, which was the last increase under the Labour Government, pensions for married couples would need to have gone up by about £2·30 to compensate for the rise in prices since August 1969. Since June 1970, which was the time of the election, the figure would be about £1·80. That is what would have been required to deal with rises in prices. In fact, the pension has already been put up by this Government by £2·80. After this year's increase it will have gone up by £4·40.
The £1 a week increase in pensions represents an increase of 15 per cent. in cash terms. It has been suggested that the increase will be swallowed up by price rises between now and 1st October. That is nonsense. That can happen only if the militants and others go on strike, and if hon. Members on the Labour benches, such as the right lion. Member for Bristol, South-East (Mr. Benn), aid and abet them. If they were to take control and to succeed in breaching the Government's counter-inflation policy, only then would there be any possibility of that happening. As we are, as we have said, absolutely determined that there shall be no breach, pensioners can be assured that their increase represents a very substantial increase in real terms—in other words, a real improvement in the standard of living for the elderly.
Whatever may be said in the House, there is one group of people who know full well that this Government are serving the pensioners far better than the Labour Party would. That is the pensioners themselves—because they remember so well how they were hit time and time again by the deliberate policies of right hon. and hon. Members opposite by increases in purchase tax and how their plea for annual increases was turned down by the Labour Government.
I was very pleased that my hon. Friend the Member for Surrey, East (Mr. William Clark) who is the Chairman of the Select Committee which is looking into the tax credit scheme, approved of the statement I made in the Budget Statement about child credits.
Several hon. Members, in particular the right hon. Member for Birmingham, Stechford, raised the question of family allowances and the low paid. Quite apart from administrative considerations, only about one-tenth of the gross cost of a simple increase in, or extension of, family allowances would go to helm the least well off—those with incomes below the tax threshold. The cost of an increase sufficient to be of substantial benefit to the non-taxpayer would, on this basis, be prohibitive.
Therefore, there are some hon. Members, such as the hon. Member for Heywood and Royton, who have suggested that the alternative is to provide an increase in family allowances with clawback. If the benefit were clawed back from all except the poorest, as was done by the last Labour Government, that would mean in effect reducing child tax allowances, and so large numbers of the low paid would be brought back into tax.
Moreover, any increase over 50p could mean that the bigger the family the lower the point at which the breadwinner started to pay tax. An increase of £1 weekly in family allowances with full clawback would involve reducing the earnings threshold of a two-child family from £20·56 to £17·23 and that for the three-child family from £22·23 to £15·57.
The right hon. Member for Leeds, East said that the real crime, as he called it, of the Budget was to refuse to raise the tax threshold. I found it somewhat surprising to find the right hon. Gentleman also complaining bitterly that there was no increase in family allowances which would do just the reverse of what he wants.
Anyway, who is the right hon. Gentleman to pose as the advocate of raising the tax threshold? I gave the figures in the Budget Statement. Under this Government the threshold has been raised, and raised in real terms. Under the Labour Government it was lowered, and lowered in real terms. The House is entitled to be treated to a little less hypocrisy.
Instead of purchase tax at various rates, as they were two years ago, of up to 55 per cent., and instead of the selective discriminatory employment tax, on 1st April we shall have value added tax at 10 per cent., the lowest rate in Europe.
The burden of the tax will be £900 million less than if we had just gone on with the old rates of purchase tax and SET which we inherited, which Labour Members appeared quite willing to do. Furthermore, deliberately in order to help the poor and the pensioners, we have now excluded broad areas of expenditure. I shall not go over the details again. Suffice it to say that when this tax comes into existence some of the points which were being made by right hon. and hon. Members of the Opposition will be shown to be wholly without foundation.
When I opened my Budget Statement I said that the twin theme of our strategy was expansion and the attack on inflation. In that statement I set out in some detail the measures we are taking to counter-inflation and how the Budget proposals are related to them. My hon. Friend the Member for Wycombe (Mr. John Hall) had something to say about the policy on prices and pay, and I agree with him. Last Wednesday the right hon. Member for Devon, North (Mr. Thorpe) said:
Every time there is a wage demand, however high, however unreasonable, however inflationary, automatically the Labour Front Bench, provided that it is in Opposition will back it."—[OFFICIAL REPORT, 7th March 1973; Vol. 852, c. 473.]
He was absolutely right. What is more, the country knows that it is so.
One of the most remarkable features of the whole debate has been to see the Opposition Front Bench solemnly coming to the Dispatch Box to criticise us, on the Government benches, for the level of Government expenditure. They seem to be totally unaware of their official policy in a document published last summer which contains this statement:
From the very start, a commitment to increase the share of national resources devoted to the public sector has been central to all our thinking.
They try to make out that they would finance their extra expenditure by increasing the taxation of the rich. But
it would be intellectually dishonest and, in the long run, politically disastrous to pretend that increased taxation of the rich can solve the problem altogether.
Two years ago, if the State had taken all incomes of more than £5,000 a year, the additional revenue at the Chancellor's disposal would have amounted to only about 1 per cent. of Inland Revenue receipts"—
[Interruption.] There is no need to send for Sir Stafford Cripps. Those are the words of the right hon. Member for Stechford.
So inevitably the Opposition's policy would mean in the future, as in the past, higher taxation for everyone—as in the past, higher taxation for everyone on incomes, on expenditure, and on rich and poor alike. Do they think that in those circumstances they could reach a voluntary agreement with the trade unions to limit pay increases? I just do not believe that it is possible.
The choice before the House tonight is this: a determination to control inflation by limiting both pay and prices, or the policy of the Labour Party, so vehemently expounded this afternoon by the right hon. Member for Bristol, South-East to let pay rip. The choice is between the present Government's policy of expansion or the return to a policy of high taxation, of restriction and of stagnation, which is the hallmark of Socialism. That is the choice, and those who vote with the Government tonight will be voting for responsibility and for prosperity.